SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED November 25, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
------------------ TO -----------------
Commission file number 0-24390
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TREND - LINES, INC.
--------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2722797
- ------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
126 Oxford Street, Lynn, Massachusetts 01901
- --------------------------------------- --------------------------
(Address of principal executive office) (Zip Code)
(781) 853 - 0900
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ..... No....X..
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS NUMBER OF SHARES OUTSTANDING AS OF NOVEMBER 25, 2000
- ----- ------------------------------------------------------
Class A Common Stock, $.01 par value 6,010,411
Class B Common Stock, $.01 par value 4,641,082
TREND-LINES, INC. AND SUBSIDIARY
INDEX
Page
----
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
November 25, 2000 (Unaudited) and February 26, 2000 3
Condensed Consolidated Statements of Operations
Three Months Ended November 25, 2000 and
November 27, 1999 (Unaudited)
Nine Months Ended November 25, 2000 and
November 27, 1999 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended November 25, 2000 and
November 27, 1999 (Unaudited) 5 - 6
Notes to Condensed Consolidated Financial Statements 7 - 12
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 13 - 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Part II - Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18 - 19
Signatures 20
TREND-LINES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
(Unaudited)
November 25, February 26,
2000 2000
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 25,696 $ 1,054
Accounts receivable, net 2,723 3,066
Inventories 59,029 104,285
Prepaid expenses and other current assets
3,372 2,443
Net assets of discontinued operations - 11,117
--------- ---------
Total current assets 90,820 121,965
PROPERTY AND EQUIPMENT, NET 13,828 15,810
NET ASSETS OF DISCONTINUED OPERATIONS - 10,318
OTHER ASSETS 963 815
--------- ---------
$ 105,611 $ 148,908
========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Bank credit facility $ 45,243 $ 65,010
Note payable to officer 3,500 -
Current portion of capital lease obligations 308 428
Post-Petition accounts payable 1,386 -
Pre-Petition accounts payable 25,286 45,212
Net current liabilities of discontinued operations 35,334 -
Accrued expenses 4,678 3,796
Deferred liabilities 1,595 823
Other current liabilities 1,701 590
--------- ---------
Total current liabilities 119,031 115,859
--------- ---------
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 19 193
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDERS' (DEFICIT) EQUITY: 65 65
Common stock, $.01 par value -
Class A --
Authorized - 20,000,000 shares
Issued - 6,510,411 shares at November 25, 2000 and February 26,
2000
Class B -- 47 47
Authorized - 5,000,000 shares
Issued and outstanding - 4,641,082 shares at November 25,
2000 and February 26, 2000
Additional paid-in capital 41,625 41,625
Retained deficit (52,716) (6,421)
Less: 500,000 Class A shares held in treasury at November 25, 2000 and
February 26, 2000, at cost (2,460) (2,460)
--------- ---------
Total stockholders' (deficit) equity (13,439) 32,856
--------- ---------
$ 105,611 $ 148,908
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
3
TREND-LINES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Unaudited)
Three Months Ended Nine Months Ended
November 25, November 27, November 25, November 27,
2000 1999 2000 1999
----- ----- ----- ----
Net sales $ 34,982 $ 41,012 $ 113,589 $ 123,910
Cost of sales 24,335 27,787 82,284 85,578
------------ ------------ ------------ ------------
Gross profit 10,647 13,225 31,305 38,332
Selling, general and administrative expenses 13,805 10,752 42,412 32,446
Reorganization (income) expense (98) - 385 -
------------ ------------ ------------ ------------
(Loss) income from operations (3,060) 2,473 (11,492) 5,886
Interest expense, net
1,183 1,216 3,757 3,443
(Loss) income before provision for income taxes
And discontinued operations (4,243) 1,257 (15,249) 2,443
Provision for income taxes
- 491 - 954
------------ ------------ ------------ ------------
(Loss) income from continuing operations
(4,243) 766 (15,249) 1,489
Discontinued operations:
(Loss) from operations (578) (677) (8,975) (744)
Income (loss) on disposal 16 - (22,071) -
------------ ------------ ------------ ------------
Loss from discontinued operations (562) (677) (31,046) (744)
------------ ------------ ------------ ------------
Net (loss) income $ (4,805) $ 89 $ (46,295) $ 745
============ ============ ============ ============
Basic net (loss) income per share
Continuing operations $ (0.40) $ 0.07 $ (1.43) $ (0.14
Discontinued operations $ (0.05) $ (0.04) $ (2.91) $ (0.07)
------------ ------------ ------------ ------------
Basic net (loss) income per share $ (0.45) $ 0.06 $ (4.34) $ (0.07
Diluted net (loss) income per share
Continuing operations $ (0.40) $ 0.07 $ (1.43) $ 0.14
Discontinued operations (0.05) (0.06) (2.91) (0.07)
------------ ------------ ------------ ------------
Basic net (loss) income per share $ (0.45) $ 0.01 $ (4.34) $ (0.07
Basic weighted average shares outstanding (note 2) 10,651,493 10,651,493 10,651,493 10,643,555
============ ============ ============ ============
Diluted weighted average shares outstanding (note 2) 10,651,493 10,651,493 10,651,493 10,691,560
============ ============ ============ ============
See notes to condensed consolidated financial statements.
4
TREND-LINES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
Nine Months Ended
November 25, November 27,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(46,295) $ 745
Add: loss from discontinued operations 8,975 $ 744
loss on disposal of discontinued operations 22,071 -
-------- --------
(Loss) income from continuing operations (15,249) 1,489
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities--
Depreciation and amortization 1,266 2,757
Reorganizational expenses 385 -
Changes in current assets and liabilities - -
Accounts receivable 343 2,510
Inventories 45,256 (15,842)
Prepaid expenses and other current assets (929) (184)
Post-petition accounts payable 1,386 7,029
Pre-petition accounts payable (19,926) -
Accrued expenses 882 (947)
Deferred liabilities 772 (333)
Other current liabilities 1,111 84
-------- --------
Net cash provided by (used in) operating activities 15,297 (3,437)
Net cash provided by (used in) discontinued operations 25,723 (5,540)
Net cash provided by (used in) operating activities
before reorganization expense 41,020 (8,977)
OPERATING CASH FLOWS FROM REORGANIZATIONAL EXPENSES
Professional fees paid for
services rendered in bankruptcy (417) -
Interest income received 192 -
Other reorganization expenses paid (160) -
-------- --------
Net cash used in reorganizational expenses (385) -
Net cash provided by (used in) operating activities 40,635 (8,977)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 716 -
Purchase of property and equipment - (3,304)
(Decrease) increase in other assets (148) 111
-------- --------
Net cash provided by (used in) investing activities 568 (3,193)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings under bank credit facilities (19,767) 12,822
Net payments on capital lease obligations (294) (631)
Proceeds from note payable to officer 3,500 -
-------- --------
Net cash (used in) provided by financing activities (16,561) 12,191
NET INCREASE IN CASH AND CASH EQUIVALENTS 24,642 21
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,054 539
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 25,696 $ 560
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for -
Interest $ 1,470 $ 1,864
Income taxes $ -
See notes to condensed consolidated financial statements
5
TREND-LINES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The condensed consolidated financial statements of Trend-Lines, Inc. ("the
Company") and subsidiaries, have been prepared in accordance with the American
Institute of Certified Public Accountants Statement of Position 90-7: "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7")
and generally accepted accounting principles applicable to a going concern,
which principles, except as otherwise disclosed, assume that assets will be
realized and liabilities will be discharged in the normal course of business.
The Company filed petitions for relief under Chapter 11 of the United States
Bankruptcy Code ("Chapter 11") on August 11, 2000 (the "Filing"). See Note 2 for
further information.
On August 23, 2000, the Company filed various sale motions seeking Bankruptcy
Court approval for the liquidation of the Golf Day division. The Company entered
into an agreement with a liquidation agency (the "Agency") which called for the
Agency to pay the Company 49.55% of the total retail value of the merchandise
included within the sale less 1.5% for defective and/or unsalable merchandise.
The Company, with the assistance of the liquidator, completed the liquidation of
the inventory of GolfDay and selected furniture, fixtures and equipment by
January 31, 2001. The sale generated approximately $21,100,000. From these
proceeds, the Company paid $20,773,000 to the Bank of America as payment for a
portion of the outstanding balance under the Bank Credit Facility discussed in
Note 2. The Company has retroactively presented the operations of the GolfDay
division as discontinued operations for all periods presented. See Note 7 for
further information.
With respect to the unaudited condensed consolidated financial statements for
the three and nine months ended November 25, 2000, it is the Company's opinion
that all necessary adjustments (consisting of normal and recurring adjustments)
have been included to present a fair statement of results for the interim
periods. Certain prior-year amounts have been reclassified to conform to this
year's presentation.
These statements should be read in conjunction with the Company's financial
statements (Form 10-K) for the fiscal year ended February 26, 2000. Due to the
seasonal nature of the Company's business, operating results for the interim
periods are not necessarily indicative of results that may be expected for the
fiscal year ending February 24, 2001. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted,
pursuant to the general rules and regulations promulgated by the Securities and
Exchange Commission (the "SEC").
The Company's ability to continue as a going concern is dependent upon
consummation of the Company's amended plan of reorganization by the Bankruptcy
Court (Note 2), ability to make plan distributions under the amended plan of
reorganization, the ability to maintain compliance with debt covenants under the
New Bank Credit Facility (Note 5), achievement of profitable operations,
maintenance of adequate financing, and the resolution of the uncertainties of
the reorganization case discussed in Note 2. In an effort to return the Company
to profitability and accomplish its long-term goals, the Company disposed of its
GolfDay division (See Note 7) and is currently focusing on its woodworking
business.
6
The information set forth in these financial statements is unaudited and may be
subject to normal year end adjustments. In the opinion of management, the
information reflects all adjustments, which consist of normal recurring
accruals, that are considered necessary to present a fair statement of the
results of operations of Trend-Lines, Inc. (the "Company") for the interim
periods presented. The operating results for the nine months ended November 25,
2000 are not necessarily indicative of the results to be expected for the fiscal
year ending February 24, 2001.
2. Reorganization Plan
In the Chapter 11 case, substantially all liabilities as of the date of the
Filing were subject to settlement under the First Amended Joint Reorganization
Plan of Trend-Lines, Inc. and the Official Committee of Unsecured Creditors (the
"Plan") that was confirmed by the Bankruptcy Court on October 17, 2001. On
October 29, 2001, the effective date of the Plan (the "Effective Date") the
Company emerged from bankruptcy and merged into its wholly-owned subsidiary
Woodworkers Warehouse, Inc. Woodworkers Warehouse, Inc., became the surviving
corporation. The following is a brief summary of how the Plan organized and
treated certain Company liabilities:
Class 1 - Bank of America Bank Credit Facility
The Bank Credit Facility discussed in Note 5 issued to the Company by the Bank
of America was a secured claim and was impaired under the Plan. On October 29,
2001 as part of the Plan, the outstanding balance under the Bank Credit Facility
was paid in full in connection with the closing of a new senior secured
revolving credit facility referred to as the Exit Financing Facility. See Note 6
for the terms of the Exit Financing Facility.
Class 2 - Other Secured Claims
These secured claims consist of various vendors who leased furniture, fixtures
and equipment for retail stores and the corporate offices of the Company. These
holders received (a) some or all of the collateral securing the leases, (b) cash
in an amount equal to the proceeds received from the sale of the collateral or
(c) such other treatment as was agreed upon by the Company and the Bankruptcy
Committee and the holder. In the event the value of the collateral securing a
Class 2 claim was less than the total amount of the claim, the difference was
treated as a Class 5 general unsecured claim.
Class 3- Other Priority Claims
These claims are claims other than administrative, professional fee or priority
tax claims entitled to priority pursuant to Section 507(a) of the Bankruptcy
Code and were deemed to be unimpaired by Plan. These claims were entitled to
payment in full.
Class 4 - Convenience Claims
These claims consist of claims that would otherwise be a Class 5 General
Unsecured Claim that is equal to or less than $2,000 or reduced to $2,000
pursuant to the election by the holder of the Claim. These claims have deemed to
be impaired by the Plan. Each holder of a Class 4 claim will receive cash in an
amount equal to 25% of such claim.
Class 5 - General Unsecured Claims
These claims are general unsecured, pre-petition trade claims, reclamation
claims, lease rejection claims and any deficiency claims of BankofAmerica and
the Other Secured Claims. The Company estimated the total amount of Class 5
claims to be $55,000,000. Each holder of a claim in Class 5 will receive in full
satisfaction of such allowed claims, its pro rata share, based on the principal
amount of each holder's claim, of $2,000,000 on January 15, 2002 and 5,280,000
shares of new common stock on the Effective Date.
7
Class 6 - Common Stock Equity Interest and Claims
On the Effective Date, all common stock equity interests were extinguished and
the certificates and all other documents representing such common stock equity
interests were deemed cancelled and of no force or effect. The holders of the
common stock equity interests did not receive or retain any interest or property
under the Plan.
The foregoing description is qualified in its entirety by the Plan, as filed as
an exhibit to the Form 8-K of Woodworkers Warehouse, Inc., the successor of
Trend-Lines, Inc., on October 31, 2001 and included as an exhibit hereto by
reference.
All amounts presented in the accompanying financial statements may be subject to
future adjustments depending on Bankruptcy Court actions, further developments
with respect to disputed claims, determination as to the security of certain
claims, the value of any collateral securing such claims, or other events.
3. Reorganization Items
The Company provided for or incurred the following expense items during the
three and nine months ended November 25, 2000, directly associated with the
Chapter 11 reorganization proceedings and the resulting divestiture of its golf
division (in thousands):
Three Months Ended Nine Months Ended
November 25, 2000 November 25, 2000
Professional Fees (26) $ (417)
Provision for retention of key employees (40) (125)
Interest income 192 192
Provision for occupancy and other store closing
costs (28) (35)
Net asset/liability write-offs - -
------ ---------
Total Reorganization Expense $ 98 $ (385)
====== =========
4. (Loss) Earnings Per Share Data
Basic (loss) earnings per share is computed by dividing the net (loss) income
available to common shareholders by the weighted average number of shares of
common stock outstanding. For the purposes of calculating diluted earnings per
share, the denominator includes both the weighted average number of common stock
outstanding and the dilutive effect of common stock equivalents such as stock
options and warrants. For the three and nine months ended November 25, 2000 no
options to purchase of common stock, respectively, were included in the earnings
per share calculation as their effect would have been antidilutive.
8
Below is a summary of the shares used in calculating basic and diluted (loss)
earnings per share
Three Months Ended Nine Months Ended
---------------------------- ---------------------------
November 25, November 27, November 25, November 27,
2000 1999 2000 1999
---- ---- ---- ----
Weighted average number of shares of common
stock outstanding 10,651,493 10,651,493 10,651,493 10,643,555
Dilutive effect of stock options - - - 48,005
---------- ---------- ---------- ----------
Diluted weighted average shares outstanding 10,651,493 10,651,493 10,651,493 10,691,560
========== ========== ========== ==========
5. Bank Credit Facility
At November 25, 2000, the Company had approximately $68.3 million of borrowings
outstanding and approximately $120,000 of letters of credit outstanding. The
borrowings have been allocated $45.2 million and $23.1 million to the Company's
continuing and discontinuing operations, respectively, based on the estimated
amount to be repaid through golf liquidation proceeds. The bank has a security
interest in substantially all assets of the Company.
Pursuant to an amendment and waiver dated as of June 9, 2000 the bank amended
the credit facility with respect to the financial covenants and advance rates
for future periods. The amended credit facility will bear interest at the bank's
reference rate plus 0.75% (10.25 % at November 25, 2000) or LIBOR plus 2.25%
(8.81% at November 25, 2000). The amended credit facility allows for borrowing
up to $100 million based on a percentage of inventory (the "Advance Rate").
Borrowings include 50% of the amount reserved for outstanding letters of credit.
At November 25, 2000, the Company was not in compliance with all financial
covenants.
The amended credit facility also gives the bank warrants for 200,000 shares of
the Company's Class A Common Stock, exercisable at the lowest price during the
60 - day period starting June 9, 2000. The valuation of these warrants was
deemed to be immaterial.
Pursuant to the Plan discussed in Note 2, on October 29, 2001, the Company
entered into a $30.0 million Senior Secured Revolving facility with the Bank of
America (the "Exit Financing Facility"). The Exit Financing Facility bears
interest equal to LIBOR plus 3.25% (9.81% at November 25, 2000) or the rate plus
1.00% (10.50% at November 25, 2000). Under the Exit Financing Facility, the
Company borrowing base through March 31, 2002 is up to 65% of the cost value of
eligible store and warehouse inventory, plus 50% of the value of inventory
covered by Merchandise Letters of Credit, plus 85% of the value of eligible
credit card and trade accounts receivable plus $500,000 against the value of the
Company's Seabrook, NH facility plus an overadvance capability equal to $3.0
million for 60 days from the Effective Date, $2.5 million for the next thirty
days and $2.0 million thereafter with amortization of $166,667 per month
beginning February 28, 2002. After March 31, 2002 the company's borrowing base
is equal to 65% of the cost of eligible store and warehouse inventory or 85% of
the OLV value of the inventory from an appraiser acceptable to BankofAmerica,
plus 50% of the value of inventory covered by Merchandise Letters of Credit plus
85% of the value of eligible credit card and trade accounts receivable plus
$500,000 against the value of the Company's Seabrook, NH facility until the
facility is sold. The Exit Financing Facility matures on October 29, 2003.
9
6. Selected Information By Business Segment
The Company disposed of its golf business during 2000. As a result, the segment
information below has been realigned to reflect the Company's results from
continuing operations. Information as to the operations of the different
business segments with respect to sales and operating income is set forth below
for quarter ended and nine months ended November 25, 2000 and November 27, 1999
(in thousands):
Three Months Ended Nine Months Ended
-------------------------- ----------------------------
November 25, November 27, November 25, November 27,
2000 1999 2000 1999
---- ---- ---- ----
Net sales
Retail $ 31,079 $ 36,299 $ 101,798 $ 109,063
Catalog 3,903 4,713 11,790 14,847
--------- --------- --------- ---------
$ 34,982 $ 41,012 $ 113,589 $ 123,910
--------- --------- --------- ---------
(Loss) income from continuing operations
Retail $ (117) $ 3,515 $ (3,511) $ 8,875
Catalog (434) 1,097 (401) 3,397
General corporate expenses (3,692) (3,846) (11,337) (10,783)
--------- --------- --------- ---------
(including income taxes)
$ (4,243) $ 766 $ (15,249) $ 1,489
--------- --------- --------- ---------
The Company sells its products through its Woodworkers Warehouse and Post Tool
retail stores and Trend-Lines catalog. These businesses have been aggregated
into their respective reportable segments based on the management reporting
structure. The Company operated from a distribution center in Revere,
Massachusetts for its Woodworkers Warehouse operations and utilized common labor
pools, common management at the corporate level and a single telemarketing sales
force. The Company also operated a distribution facility in Hayward, CA relating
to Post Tool. As a result, many of the expenses of the Company are shared
between the business segments and are reflected as general corporate expenses.
7. DISCONTINUED OPERATIONS
As discussed in Note 1, the Company disposed of its golf business. Pursuant to
Accounting Principles Board (APB) Opinion No. 30, REPORTING RESULTS OF
OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND
EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS, (APB
30) the consolidated financial statements of the Company have been presented to
reflect the disposition of the golf business in accordance with APB 30.
Accordingly, revenues, expenses, and cash flows of the golf division have been
excluded from the respective captions in the accompanying consolidated
statements of operations and consolidated statements of cash flows. The net
assets and liabilities of the golf business have been reported as "Net assets or
liabilities of discontinued operations" in the accompanying consolidated balance
sheets; the net operating (losses) income of the golf business have been
reported as "Net (loss) income from discontinued operations" in the accompanying
consolidated statements of operations; the net (loss) income from the disposal
of the golf division has been presented as "Net (loss) income on disposal"; and
the net cash flows of the golf business have been reported as "Net cash used in
discontinued operations" in the accompanying consolidated statements of cash
flows. Net sales for the golf business were approximately $3,700 and $55,200 for
the three and nine months ended November 25, 2000, respectively, and were
$16,600 and $73,000 for the three and nine months ended November 25, 1999,
respectively. Net assets (liabilities) of discontinued operations were as
follows (in thousands):
10
November 25, February 26,
2000 2000
------------------ ------------------
Accounts receivable, net $ 5,821 $ 5,578
Inventories - 52,743
Prepaid expenses and other current assets 115 1,118
Property and equipment, net - 4,543
Other assets - 6,574
Bank credit facility 23,096 32,880
Current portion of capital lease obligation - 103
Pre-petition accounts payable 13,620 14,218
Post-petition accounts payable 217 -
Accrued expenses 3,523 705
Deferred liabilities 451 936
Other current liabilities 363 253
Capital lease obligations, net of current portion - 26
------------------ ------------------
$ (35,334) $ 21,435
================== ==================
In addition, cash and cash equivalents include approximately $20 million
subsequently used to repay the bank credit facility above.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
On August 10, 2000, the Company disposed of its golf business. The consolidated
financial statements of the Company have been presented to reflect the
disposition of the golf business in accordance with APB 30. See Note 7 in the
Notes to the condensed consolidated financial statements. The information
presented below reflects the results of the Company's continuing operations.
Net sales for the third quarter of fiscal 2000 decreased by $6.0 million, or
14.7%, from $41.0 million for the third quarter of fiscal 1999 to $35.0 million.
Net retail sales for the third quarter of fiscal 2000 decreased $5.2 million or
14.4% from $36.3 million for the third quarter of fiscal 1999 to $31.1 million.
The retail sales decrease was attributable to implications from the Company's
bankruptcy filing in August 2000. Catalog sales for the third quarter of fiscal
2000 decreased $0.8 million, or 17.2%, from $4.7 million for the third quarter
of fiscal 1999 to $3.9 million. Catalog sales were impacted due to fewer
catalogs being mailed during the period.
Net sales for the first nine months ended of fiscal 2000 decreased by $10.3
million, or 8.3%, from $123.9 million for the first nine months ended of fiscal
1999 to $113.6 million. Net retail sales for the first nine months of fiscal
2000 decreased $7.3 million or 6.7% from $109.1 million for the first nine
months of fiscal 1999 to $101.8 million. The retail sales decrease was
attributable to implications from the Company's bankruptcy filing in August
2000. Catalog sales for the first nine months of fiscal 2000 decreased $3.1
million, or 20.6%, from $14.8 million for the first nine months of fiscal 1999
to $11.8 million. Catalog sales were impacted due to fewer catalogs being mailed
during the period.
The following table presents net sales and gross margin data of the Company for
the periods indicated:
Three Months Ended Nine Months Ended
------------------ -----------------
November 25, November 27, November 25, November 27,
2000 1999 2000 1999
---- ---- ---- ----
(In thousands, except percentage data)
Net Sales:
Retail $ 31,079 $ 36,299 $101,798 $109,063
Catalog 3,903 4,713 11,791 14,847
-------- -------- -------- --------
Total $ 34,982 $ 41,012 $113,589 $123,910
======== ======== ======== ========
Gross Margin 30.4% 32.2% 27.6% 30.9%
======== ======== ======== ========
12
Following is a summary of retail store growth:
November 25, 2000 November 27, 2000
----------------- -----------------
Stores operated at the beginning of the third quarter 140 148
Stores opened 1
Stores closed 1 1
----------------- -------------------
Stores operated at the end of the third quarter 139 148
Gross profit for the third quarter of fiscal 2000 decreased $2.6 million, or
19.5%, from $13.2 million for the third quarter of fiscal 1999 to $10.6 million.
As a percentage of net sales, gross profit decreased 1.8% from 32.2% of net
sales for the third quarter of fiscal 1999 to 30.4% of net sales in the third
quarter of fiscal 2000. Aggressive promotional advertising and the change in
sales mix is the primary cause for the reduction in gross margin.
Gross profit for the first nine months of fiscal 2000 decreased $7.0 million, or
18.3%, from $38.3 million for the first nine months of fiscal 1999 to $31.3
million for the first nine months of fiscal 2000. As a percentage of net sales,
gross profit decreased 3.3% from 30.9% of net sales for the first nine months of
fiscal 1999 to 27.6% of net sales in the first nine months of fiscal 2000.
Selling, general and administrative expenses for the third quarter of fiscal
2000 increased $3.0 million, or 28.4%, from $10.8 million for the third quarter
of fiscal 1999 to $13.8 million for the third quarter of fiscal 2000. The
increase in selling, general and administrative expenses is primarily related to
a reduction in the cooperative advertising income in fiscal year 2000. This was
due to decreased purchases after August and an increase in merchandise returns
prior to August.
Selling, general and administrative expenses for the first nine months of fiscal
2000 increased $10.0 million, or 30.7%, from $32.4 million for the first nine
months of fiscal 1999 to $42.4 million for the first nine months of fiscal 2000.
The increase in selling, general and administrative expenses is primarily
related to a reduction in the cooperative advertising income in fiscal year
2000. This was due to decreased purchases after August and an increase in
merchandise returns prior to August.
Interest expense for the third quarter of fiscal 2000, decreased by $0.03
million or 2.7%, decreasing to $1.18 million from $1.21 million. The decrease in
interest expense is attributable to the decrease in the amounts outstanding
under the Company's existing bank credit facility.
Interest expense for the first nine months of fiscal 2000, net of interest
income, increased by $0.4 million from $3.4 million in the first nine months of
fiscal 1999 to $3.8 million in the first nine months of fiscal 2000.
13
Liquidity and Capital Resources
During the first quarter of fiscal 2000, the company's chief executive
officer/principal stockholder and his spouse, who is also a principal
stockholder of the Company, made interest free, unsecured demand loans to the
Company in the aggregate amount of $1.5 million. All of these loans were repaid
at May 27, 2000. During the second quarter of fiscal 2000, the company's chief
executive officer/principal stockholder and president, made loans to the Company
in the aggregate amount of $3.5 million.
The Company's working capital deficiency increased by $23.2 million, from $5.0
million as of February 26, 2000 to $28.2 million as of November 25, 2000. The
increase resulted primarily from a decrease in inventories of $45.3 million
which was offset by an increase in cash and cash equivalents of $24.6 million.
During the nine-month period ended November 25, 2000, the cash provided by
operating activities was $15.4 million, primarily due to a decrease in
inventories of $45.3 million together with a decrease in pre-petition accounts
payable of $20.3 million.
The net cash provided by investing activities was approximately $ 0.6 million.
The main source of cash was from the proceeds from the sale of property and
equipment.
The net cash used in financing activities was approximately $16.6 million and
was primarily attributable to the decrease in borrowings on the Company's bank
credit facility of $19.7 million offset by borrowings from a note payable to the
Company's chief executive officer of $3.5 million.
At November 25, 2000, the Company had approximately $68.3 million of borrowings
outstanding and approximately $0.1 million of letters of credit outstanding. The
borrowings have been allocated $45.2 million and $23.1 million to the Company's
continuing and discontinuing operations, respectively. The bank has a security
interest in substantially all assets of the Company. The Company continues to
fund its ongoing operations in bankruptcy through the use of the bank's cash
collateral (with court approval).
On June 9, 2000, prior to the Company filing for bankruptcy, pursuant to an
amendment and waiver dated as of June 9, 2000 the bank amended the credit
facility with respect to the financial covenants and advance rates for future
periods. The amended credit facility will bear interest at the bank's reference
rate plus 0.75% (10.25% at November 25, 2000) or LIBOR plus 2.25% (8.81% at
November 25, 2000). The amended credit facility allows for borrowings up to $100
million based on a percentage of inventory (the "Advance Rate"). Borrowings
include 50% of the amount reserved for outstanding letters of credit. At
November 25, 2000, the Company was not in compliance with their financial
covenants.
The amended credit facility also gave the bank warrants for the purchase of
200,000 shares of the Company's Class A Common Stock, exercisable at the lowest
price during the 60 - day period starting June 9, 2000. The valuation of these
warrants was deemed to be immaterial. As of November 25, 2000, the warrants have
not been exercised.
Pursuant to the Plan discussed in Note 2, on October 29, 2001, the Company
entered into a $30.0 million Senior Secured Revolving facility with the Bank of
America (the "Exit Financing Facility"). The Exit Financing Facility bears
interest equal to LIBOR plus 3.25% (9.81% at November 25, 2000) or the rate plus
1.00% (10.50% at November 25, 2000). Under the Exit Financing Facility, the
Company borrowing base through March 31, 2002 is up to 65% of the cost value of
eligible store and warehouse inventory, plus 50% of the value of inventory
covered by Merchandise Letters of Credit, plus 85% of the value of eligible
credit card and trade accounts receivable plus $500,000 against the value of the
Company's Seabrook, NH facility plus an overadvance capability equal to $3.0
million for 60 days from the Effective Date, $2.5 million for the next thirty
days and $2.0 million thereafter with amortization of $166,667 per month
beginning February 28, 2002. After March 31, 2002 the company's borrowing base
is equal to 65% of the cost of eligible store and warehouse inventory or 85% of
the OLV value of the inventory from an appraiser acceptable to BankofAmerica,
plus 50% of the value of inventory covered by Merchandise Letters of Credit plus
85% of the value of eligible credit card and trade accounts receivable plus
$500,000 against the value of the Company's Seabrook, NH facility until the
facility is sold. The Exit Financing Facility matures on October 29, 2003.
14
Impact of Inflation
The Company does not believe that inflation has had a material impact on its net
sales or results of operations.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Statements included in this report that do not relate to present or historical
conditions are "forward-looking statements" within the meaning of the Safe
Harbor provisions of the Private Securities Litigation Reform Act of 1995.
Additional oral or written forward-looking statements may be made by the Company
from time to time, and such statements may be included in documents other than
this report that are filed with the Securities and Exchange Commission. Such
forward-looking statements involve risks and uncertainties that could cause
results or outcomes to differ materially from those expressed in such
forward-looking statements. Forward-looking statements in this report and
elsewhere may include without limitation, statements relating to the Company's
plans, strategies, objectives, expectations, intentions and adequacy of
resources and are intended to be made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Words such as "believes,"
"forecasts," "intends," "possible," "expects," "estimates," "anticipates," or
"plans" and similar expressions are intended to identify forward-looking
statements. Investors are cautioned that such forward-looking statements involve
risks and uncertainties including without limitation the following: (i) the
Company's plans, strategies, objectives, expectations and intentions are subject
to change at any time at the discretion of the Company; (ii) increased
competition, a change in the retail business in the tool sector or a change in
the Company's merchandise mix; (iii) a change in the Company's advertising,
pricing policies or its net product costs after all discounts and incentives;
(iv) the Company's plans and results of operations will be affected by the
Company's ability to manage its growth and inventory; (v) the Company's
continued compliance with the financial covenants under it's bank credit
facility, as the same may be in effect from time to time; (vi) the Company's
ability to achieve its plans and strategies of growth will be dependent on
maintaining adequate bank and other financing; and (vii) other risks and
uncertainties indicated from time to time in the Company's filings with the
Securities and Exchange Commission.
15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the market risk associated with the
Company's financial instruments. The Company is exposed to market risk from
changes in interest rates which may adversely affect the Company's financial
position, results of operations and cash flows. In seeking to minimize the risks
from interest rate fluctuations, the Company manages exposures through its
regular operating and financing activities. The Company does not use financial
instruments for trading or other speculative purposes and is not party to any
leveraged financial instruments. The Company is exposed to interest rate risk
primarily through its borrowings under the Exit Financing Facility (see Note 5
to the Condensed Consolidated Financial Statements).
16
Part II - Other Information
Item 1. Legal Proceedings
The Company filed a petition in the United States Bankruptcy Court for the
District of Massachusetts under Chapter 11 of the United States Bankruptcy
Code on August 11, 2000. The First Amended Joint Reorganization Plan of
Trend-Lines, Inc. and the Official Committee of Unsecured Creditors (the
"Plan") dated as of September 7, 2001, as modified by the Joint Motion to
Approve Nonmaterial Modification to the First Amended Joint Reorganization
Plan of Trend-Lines, Inc. and the Official Committee of Unsecured
Creditors, was confirmed by the Bankruptcy Court on October 17, 2001. The
Effective Date of the Plan was October 29, 2001 (the "Effective Date"). On
the Effective Date, the Company emerged from bankruptcy and merged into its
wholly-owned subsidiary, Woodworkers Warehouse, Inc. Woodworkers Warehouse,
Inc. became the surviving corporation.
Item 2. Changes in Securities and Use of Proceeds
On September 12, 2000 the Class A common stock of the Company was delisted
from the Nasdaq National Market because the Company did not meet the
listing requirements.
In connection with the reorganization under the Plan, on the Effective
Date, all common stock equity interests were extinguished and the
certificates and all other documents representing such common stock equity
interests were deemed cancelled and of no force or effect.
Item 3. Defaults Upon Senior Securities
Due to the bankruptcy filing the Company was in default under their bank
credit facility as of November 25, 2000. On October 29, 2001 the Company
emerged from bankruptcy and entered into the Exit Financing Facility with
BankofAmerica.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number
- --------------
2.1 Order Confirming First Amended Joint Reorganization Plan of
Trend-Lines, Inc. and the Official Committee of Unsecured Creditors,
dated as of October 17, 2001, filed as an exhibit to Woodworkers
Warehouse, Inc.'s Form 8-K as filed with the Securities and Exchange
Commission on October 31, 2001, and incorporated herein by reference.
2.2 First Amended Joint Reorganization Plan of Trend-Lines, Inc. and the
Official Committee of Unsecured Creditors, dated as of September 7,
2001, filed as an exhibit to Woodworkers Warehouse, Inc.'s Form 8-K as
filed with the Securities and Exchange Commission on October 31, 2001,
and incorporated herein by reference.
2.3 Joint Motion to Approve Nonmaterial Modification to First Amended
Joint Reorganization Plan of Trend-Lines, Inc. and the Official
Committee of Unsecured Creditors, dated as of October 11, 2001, filed
as an exhibit to Woodworkers Warehouse, Inc.'s Form 8-K as filed with
the Securities and Exchange Commission on October 31, 2001, and
incorporated herein by reference.
17
2.4 First Amended Disclosure Statement with Respect to First Amended Joint
Reorganization Plan of Trend-Lines, Inc. and the Official Committee of
Unsecured Creditors, dated as of September 7, 2001, filed as an
exhibit to Woodworkers Warehouse, Inc.'s Form 8-K as filed with the
Securities and Exchange Commission on October 31, 2001, and
incorporated herein by reference.
27 Financial Data Schedule (furnished to the Securities and Exchange
Commission for Electronic Data Gathering, Analysis and Retrieval
[Edgar] purposes only)
(b) Reports on Form 8-K - not applicable
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TREND-LINES, INC.
Registrant
By: Woodworkers Warehouse, Inc., as successor to
Trend-Lines, Inc.
Date: 1/14/02 /s/ Walter S. Spokowski
--------------------------
Walter S. Spokowski
(Chief Executive Officer)
/s/ Ronald L. Franklin
--------------------------
Ronald L. Franklin
(Executive Vice President,
Chief Financial Officer)
19