SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For fiscal year ended: February 24, 2001
[ ] 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
-------
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 Offices) (Zip Code)
(781) 853-0900
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value
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 by check mark if disclosure of delinquent filers pursuant to Rule
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. _X_
The aggregate market value of the registrant's Class A Common Stock, $.01 par
value, held by non-affiliates of the registrant as of February 24, 2001 was
$116,610 based on a price of $0.02 per share quoted by a dealer in the
over-the-counter market. The Company's Class A Common Stock was delisted from
the Nasdaq National Market on September 12, 2000 and subsequently all of the
Company's shares were cancelled pursuant to a bankruptcy proceeding. See Item 1
below. As of February 24, 2001, 6,010,411 shares of the registrant's Class A
Common Stock, $.01 par value, were outstanding, and 4,641,082 shares of the
registrant's Class B Common Stock, $.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
2
PART I
ITEM 1. BUSINESS
Except for the historical information contained herein, the discussion
in this Report and any document incorporated herein by reference contains
certain forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, strategies, objectives, expectations and
intentions. The cautionary statements made in the Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Safe Harbor
Statement under the Private Securities Litigation Reform Act of 1995 should be
read as being applicable to all forward-looking statements wherever they appear.
The Company's actual results could differ materially from those discussed or
incorporated herein. Factors that could cause or contribute to such differences
include those discussed in Management's Discussion and Analysis of Financial
Condition and Results of Operations as well as those discussed elsewhere herein
or the documents incorporated herein by reference.
Trend-Lines, Inc. (the "Company") is a specialty retailer of power and
hand tools and accessories. The Company was incorporated in Massachusetts in
1981, and in 1983 the Company began mailing its Trend-Lines catalog and opened a
Woodworkers Warehouse outlet store in its distribution center. The principal
executive offices of the Company are located at 126 Oxford Street, Lynn,
Massachusetts, 01901 and its telephone number is (781) 853-0900.
The Company opened its first Woodworkers Warehouse retail store in 1986
and at February 24, 2001, operated 112 Woodworkers Warehouse stores. In January
1995, the Company further expanded its tool retail operations by acquiring 17
Post Tool stores and a distribution center for those stores and at February 24,
2001, operated 19 Post Tool stores. The Company purchased the Golf Day name and
mailing list in 1989, mailed its first Golf Day catalog in 1990 and opened a
Golf Day outlet store in its distribution center in January 1991. In January
1998, the Company further expanded its golf retail operations by acquiring 13
Nevada Bob's franchised stores located in New England, which were immediately
converted to Golf Day stores. On June 10, 2000, the Company announced its plan
to divest itself of its golf businesses and concentrate on its larger and
profitable tool business. The Company disposed of its Golf Day retail stores,
Golf Day mail order catalog and GolfDay.com web site during the third and fourth
quarters of fiscal year 2000. At February 24, 2001, the Company did not operate
any Golf Day stores. All of the Company's Woodworkers Warehouse retail stores
are located in the Northeast, and Mid-Atlantic regions. As used herein, the term
Company refers to Trend-Lines, Inc. and its wholly owned subsidiary, Post-Tool
Inc. ("Post Tool").
The Company filed petitions (the "Filing") in the United States
Bankruptcy Court for the District of Massachusetts (the "Bankruptcy Court")
under Chapter 11 of the United States Bankruptcy Code ("Chapter 11") on August
11, 2000 (the "Petition Date"). The First Amended Joint Reorganization Plan of
Trend-Lines Inc. and the Official Committee of Unsecured Creditors, 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 (the "Plan") was confirmed by the Bankruptcy Court on
October 17, 2001 and the Company emerged from Bankruptcy on October 29, 2001.
Pursuant to the Plan, on October 29, 2001 (the "Effective Date"), Trend-Lines,
Inc. merged with and into its wholly owned subsidiary Woodworkers Warehouse,
Inc. and Woodworkers Warehouse, Inc. became the surviving corporation. In
connection with the reorganization under the Plan, on the Effective Date, all of
the Company's shares were cancelled. A summary of the Chapter 11 reorganization
process is discussed below.
3
Summary of Reorganization
The following summarizes various significant events in the reorganization
process:
Golf Day Liquidation
Due to the poor performance of the Golf Day stores, the Company
reviewed and analyzed the performance of, and future prospects for, the Golf Day
operations to determine their part in ongoing operations. The Company's review
indicated that the Woodworkers Warehouse division could operate profitably as a
stand-alone business. The Company determined that the Golf Day operations should
be divested, either through a going concern sale or by way of liquidation.
During fiscal year 2000, the Company attempted to restructure its operations and
debt. Among other things, the Company held extensive negotiations with certain
of its largest trade creditors and with a group of management personnel who were
interested in purchasing a portion of the Golf Day assets as a going concern. On
or about June 2000, the Company prepared a solicitation package with respect to
the Golf Day operations while exploring available alternatives for its financial
reorganization. While it continued to operate and evaluate its ability to
propose a stand-alone reorganization, the Company simultaneously assessed the
prospects of a sale of all or substantially all of the Golf Day division. The
Company mailed a solicitation package to a number of parties who had previously
expressed an interest in the Golf Day operations or who it believed might be
interested in acquiring some or all of these assets. None of the contacted
parties made an acceptable offer to purchase the Golf Day operations.
The Company, with the assistance of Hilco Trading Resources LLC (Hilco),
completed the liquidation of the Golf Day inventory and selected furniture,
fixtures and equipment by January 31, 2001. The sale generated $21,100,000. From
these proceeds, the Company paid $20,773,000 to BankofAmerica. The Company
incurred substantial costs and expenses in an amount exceeding $1,500,000 as a
result of the liquidation sale. These costs and expenses were not reimbursed by
Hilco.
The sale of the Golf Day leases and the landlord's payments for the termination
of certain leases ultimately generated approximately $285,000.
Key Employee Retention Program
In response to concerns regarding the departure of its key employees, in
September 2000, the Company filed a motion to establish a so-called "Key
Employee Retention Program" ("KERP"). After amendment, the KERP was approved by
the Bankruptcy Court in October 2000. Pursuant to the KERP, Executive Employees
and Middle Management Employees of the Company were to be paid 50% and 25%,
respectively, of their annual salary in effect at the time that the payment
becomes due, in a lump sum, less applicable withholding taxes, at the earlier
of: (i) one year from the Petition Date; (ii) confirmation of a Plan of
Reorganization; or (iii) dismissal of the employee, other than for cause. During
2000, Trend-Lines made payments equal to $509,000 related to the KERP.
4
Employment of Investment Banker
During the Chapter 11 proceedings, Trend-Lines and the Committee explored the
option of marketing the Woodworkers Warehouse operations as a going concern.
Trend-Lines interviewed several firms to serve as an investment banker for this
purpose, and on January 5, 2001, the Bankruptcy Court approved the application
to employ the firm of Conway Del Genio Gries & Co., LLC ("Conway") of New York,
New York. Conway assisted Trend-Lines in putting together a financial package to
be sent to interested parties. Several of the parties who were sent financial
packages met with Conway and representatives of Trend-Lines. Conway's efforts
did not result in an acceptable offer to purchase or invest in Trend-Lines.
Disposition of Post Tool
Post Tool also solicited offers for its assets as a going concern over a period
of several months, and received only one offer for a portion of its ongoing
operations. In response to a decline in sales, Post Tool pursued two
opportunities. First, on February 27, 2001, Post Tool obtained Bankruptcy Court
authority to reject its leases for thirteen (13) remaining Post Tool retail
stores and the PT Distribution Center and to consolidate the tool inventory in
those stores and in the PT Distribution Center into Trend-Lines' Woodworkers
Warehouse operations.
Second, Post Tool obtained Bankruptcy Court authority on April 19, 2001 to sell
to Western Supply Co. ("Western") its leasehold rights and furniture, fixtures
and equipment and inventory with respect to seven (7) of its stores, and all of
the automotive inventory located at the PT Distribution Center. The total
purchase price for these assets was to be approximately $1,350,000.
Substantive Consolidation of Trend-Lines and Post Tool
On February 27, 2001, the Company obtained Bankruptcy Court authority to
substantively consolidate the Chapter 11 cases of Trend-Lines and Post Tool such
that Trend-Lines became the remaining consolidated entity. The request to
substantively consolidate the two Chapter 11 cases was based on: (i) a blurring
of the two corporations structure and management such that the two could be
considered a single entity; (ii) a substantial interrelationship or
intermingling of the corporations' assets; (iii) numerous common creditors; and
(iv) a reliance by the Post Tool creditors on the credit of Trend-Lines when
shipping to Post Tool.
Payments to the BankofAmerica
From the Petition Date through September 2001, Trend-Lines paid BankofAmerica in
excess of $31,000,000, which sum is comprised of the following:
5
(i) $20,773,000 from the proceeds generated from the liquidation
of the Golf Day inventory (the "Golf Day Payment")
(ii) $5,836,300 in interim payments (the "Interim Payments") and
(iii) $5,000,000 as an additional payment from cash on hand on April
2, 2001 (the "April Payment").
Trend-Lines projected that it would pay BankofAmerica an additional amount of
approximately $8,000,000 (the "Additional Payments") through the Effective Date
of the Plan.
Use of BankofAmerica's Cash Collateral
From the Petition Date through September 2001, Trend-Lines successfully obtained
Bankruptcy Court authority for the use of BankofAmerica's cash collateral (the
"Cash Collateral"). The use of the Cash Collateral during the course of this
case has enabled Trend-Lines to pay employees and post-petition obligations,
purchase inventory and supplies, maintain the continuity of its operations and,
preserve its assets, and has provided Trend-Lines with an opportunity to
reorganize.
Sale of Revere Lease
On June 7, 2001, the Bankruptcy Court approved Trend-Line's agreement with DSF
Revere LLC ("DSF") for the assumption and assignment (the "Assumption and
Assignment Agreement") of the lease of the former principal executive offices
and distribution center in Revere, Massachusetts (the "Revere Lease") for the
sum of $4,500,000. The Assumption and Assignment Agreement closed on June 29,
2001 and the initial $1,000,000 due to Trend-Lines has been paid. The remaining
balance of $3,500,000 was paid to Trend-Lines upon its timely vacation of the
Revere Premises.
Trend-Lines' New Warehouse and Headquarters Facilities
Simultaneously with the approval of the sale of the Revere Lease, Trend-Lines
obtained Bankruptcy Court approval to enter into two non-residential real estate
leases for a new warehouse and distribution center and corporate headquarters.
Trend-Lines entered into a lease (the "Amesbury Lease") with RRAB Limited
Partnership ("RRAB") for a location in Amesbury, Massachusetts which it will
utilize as its warehouse and distribution center. Trend-Lines also entered into
a lease (the "Lynn Lease") with Oasis Development ("Oasis") for a location in
Lynn, Massachusetts to serve as its relocated corporate headquarters.
Under the terms of the Amesbury Lease and the Lynn Lease, Trend-Lines' base rent
for its headquarters and distribution center will be reduced by approximately
$50,000 per month as compared to the Revere Lease, which represents an annual
savings of approximately $500,000. Under the terms of the Amesbury Lease and the
Lynn Lease, during the pendency of the Trend-Lines' Chapter 11 case until the
Effective Date of the Plan of reorganization, each landlord's sole remedy upon a
default of Trend-Lines shall be limited to, and satisfied by, the application of
the security deposits to the landlords' actual damages. The security deposit
paid pursuant to the Amesbury Lease was $323,333, and the security deposit paid
pursuant to the Lynn Lease was $84,852.
6
Marketing of the Seabrook Property
Trend-Lines currently owns real property located at 1 Batchelder Road, Seabrook,
New Hampshire (the "Seabrook Property"). The Seabrook Property consists of a
9070 square feet building. A portion of the premises was formerly utilized as a
Golf Day store. Approximately 5,000 square feet of the premises continues to be
utilized as a Woodworkers Warehouse store. Trend-Lines had the Seabrook Property
on the market for approximately six (6) months listed at $1,100,000 and has
recently reduced the asking price to $895,000. BankofAmerica has a mortgage on
the Seabrook Property as a security for amounts due to it under the Loan
Facility.
Preference Claims
In connection with the reorganization, the Company also released and waived all
actions of the debtor under Section 547 of the Bankruptcy Code (the "Preference
Actions") due to various factors as summarized for the court.
Chapter 11 Operations and Restructuring
Trend-Lines has utilized the Chapter 11 reorganization to refocus and
restructure its business around its Woodworkers Warehouse operations. In the
post-petition period, Trend-Lines has successfully divested its Golf Day and
Post Tool operations. This restructuring has necessarily involved and continues
to require a streamlining of operations including reductions in overhead
expenses and excess capacity.
Operational Matters
Since the Petition Date, Trend-Lines has taken steps to aggressively restructure
and streamline operations in order to return to profitability. Further, through
the planed divestiture of non-contributing divisions, stores, and personnel,
Trend-Lines has focused itself on its core business and has simplified its
corporate structure allowing Trend-Lines to better manage its operations and to
utilize its working capital more efficiently.
Summary of Reorganization Plan
On September 7, 2001, the Company filed its plan of reorganization and related
disclosure statement with the Bankruptcy Court and the plan was confirmed on
October 17, 2001.
The Company's approved plan of reorganization (the "Plan") contains the
following remedies for the Company's various creditors:
Class 1 - BankofAmerica Bank Credit Facility
The Bank Credit Facility issued to the Company by the BankofAmerica 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 4 in the Notes to
Consolidated Financial Statements for further information on the terms of the
exit financing facility).
7
Class 2 - Other Secured Claims
These secured claims consist of various vendors who leased furniture, fixtures
and equipment for retail stores and for the corporate offices to 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 are 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 been
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 and other general unsecured claims and were deemed to be impaired by the
Plan. The Company estimated the total amount of Class 5 claims to be
$55,000,000. Each holder of a claim in Class 5 was to 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 of the reorganized company on the Effective Date.
After consultation with claimants representing a majority of the claims, the
Company deferred payment of the $2,000,000.
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 forgoing 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.
8
The Woodworking Tool Industry
According to the "Woodworking in America"(TM) survey sponsored in 1998 by
the American Woodworker Magazine (the "Woodworking Survey"), approximately 11%
of the United States adult population, or nearly 20.5 million people, are
involved in woodworking activities, spending more than $7.8 billion annually on
equipment and accessories used specifically for woodworking projects. Major
items in this category include power tools; wood finishes; hand tools; blades,
bits and cutters; glue and adhesives; abrasives; sharpening equipment; books and
other equipment and supplies. Approximately 43% of the total amount spent, or
$3.3 billion, is spent on power tools.
Woodworkers range from home workshop enthusiasts to professionals involved
in a wide variety of activities, including home construction and remodeling,
cabinet and furniture making and other woodworking projects. More advanced
woodworkers participate in activities that require a greater skill level, such
as cabinet making, architectural woodworking, furniture making, millwork and
veneering. According to the Woodworking Survey, woodworkers have been involved
in woodworking an average of approximately fifteen years, and the typical
woodworker spends an average of more than six hours per week in the workshop.
Further, as interest and/or skill level increase, factors such as a wide variety
and selection of merchandise and availability of hard-to-find items and
well-known brand name products become more important to the woodworking
customer.
Business Strategy
On June 10, 2000, the Company announced its plan to divest itself of its
golf businesses and concentrate on its larger and profitable tool business. The
Company disposed of its Golf Day retail stores, Golf Day mail order catalog and
GolfDay.com web site. The divestiture of the golf business has been accounted
for as discontinued operations in the accompanying financial statements. The
assets of the product line to be discontinued consist primarily of inventory and
equipment and have been separately classified in the accompanying balance sheets
at February 24, 2001. The February 26, 2000 balance sheet has been restated to
conform to the current year's presentation.
The Company's business strategy is designed to enhance the Company's position
and to maximize the Company's future growth as a leading specialty retailer of
power and hand tools and accessories. The key elements of the Company's business
strategy are as follows:
o Selected net expansion of retail store operations. The Company intends
to continue to focus its retail store openings in existing markets or
markets in close proximity to those in which it is currently operating
in order to take advantage of its distribution system.
o Complementary store and catalog operations. The strong name recognition
of the Company's Trend-Lines catalogs (Woodworkers Warehouse as of
October 29, 2001), combined with the customer base and market knowledge
that have resulted from its catalog operations, is facilitating the
expansion of the Company's retail stores. Management uses catalog
information, among other things, in identifying new store markets and
determining the appropriate product mix for its retail stores.
9
o Cost-effective operations. The Company consistently strives to lower the
cost of its operations. In operating its tool businesses in the
Northeast and Mid-Atlantic regions, the Company uses a single facility
with common management and common or parallel information, telemarketing
and distribution systems, in order to achieve operating efficiencies.
o Breadth and depth of product selection. The Company offers breadth and
depth of product selection, including many hard-to-find items, and high
quality brand name and private label merchandise.
o Low prices and matching product/price guarantee. The Company's
competitive pricing strategy features everyday low prices combined with
special sales and promotions, and a matching product/price guarantee on
any identical product sold by a competitor.
o Expert customer service. The Company provides its customers with expert
customer service through experienced, trained personnel who have
extensive knowledge about the products sold by the Company.
o Customer convenience. The Company strives to maximize convenience to its
retail store customers by providing ample parking and fast in-and-out
service.
Products and Merchandising
The Company offers its woodworking customers breadth and depth of product
selection, including many hard-to-find items, high quality brand name and
private label merchandise, everyday low pricing and a matching product/price
guarantee, expert customer service and convenience, all of which have enabled
the Company to compete successfully against major home centers, mass
merchandisers and hardware stores. The Company's Woodworkers Warehouse stores
have been successful even when located near home centers such as Home Depot,
Home Quarters, and Lowes.
Woodworkers Warehouse stores primarily carry woodworking power and hand
tools and accessories. The Company selects products based on quality, value,
durability, historic product demand, safety and customer appeal. The Company
constantly monitors its customers' product preferences through inventory and
sales data provided by the Company's computer system, as well as its catalog
operations.
Woodworkers Warehouse stores and the Trend-Lines catalog serve a wide range
of woodworking tool customers, from home workshop enthusiasts to professionals,
involved in a wide variety of activities, including home construction and
remodeling, cabinet and furniture making and other woodworking projects. The
Company's Woodworkers Warehouse and Trend-Lines customers are generally
experienced in woodworking and carpentry and desire high quality brand name
tools. Woodworkers Warehouse stores also attract professionals who are buying
tools for use in their trade. The Company's stores offer professional tools,
knowledgeable sales people and fast in-and-out service. The Company's
Woodworkers Warehouse stores also offer tool repair, which is done by an outside
service company.
10
Financial information about business segments is incorporated by reference to
the Notes to the Consolidated Financial Statements.
Retail Operations
The Company designs its retail stores to be destination stores and strives
to maximize convenience to its customers by providing ample parking and fast
in-and-out service. The Company's stores are generally located either in strip
malls or in free-standing buildings.
At February 24, 2001, the Company operated 112 Woodworkers Warehouse
stores, 19 Post Tool stores and no Golf Day stores. Of the Woodworkers Warehouse
stores, 30 were located in New York, 20 in Pennsylvania, 18 in Massachusetts, 13
in New Jersey, 10 in New Hampshire, 8 in Connecticut, 7 in Maine, 3 in Delaware,
2 in Rhode Island, and 1 in Vermont. Of the Post Tool stores, 18 are located in
California and 1 in Nevada.
The Company trains its employees to explain and demonstrate to customers
the use and operation of the Company's merchandise and to develop good
salesmanship. Skills are enhanced through on-the-job training combined with the
use of Company-developed manuals. Sales personnel attend in-house training
sessions conducted by experienced salespeople or manufacturers representatives
and receive sales, product and other information in periodic meetings with
managers.
Catalog Operations
The Company usually produces four versions of each of the Trend-Lines and
Golf Day catalogs annually. With the filing of the Chapter 11 reorganization,
the Company only mailed 1 version of the Trend-Lines and Golf Day catalogs
during fiscal year 2000. The Company mailed approximately 8 million copies of
its Trend-Lines catalog and approximately 5 million copies of its Golf Day
catalog during fiscal year 2000. The Trend-Lines catalog mailing list totaled
approximately 2.2 million customers (comprised of selected previous buyers), and
are supplemented with various rented lists. The Company's catalogs are mailed to
prospective purchasers throughout the United States.
Catalogs are sent to persons on the Company's mailing list, persons who
have made inquiries, and persons on lists which the Company rents from or
exchanges with compatible companies. The Company continually prospects for new
customers by testing new mailing lists, media and other programs in order to
cost-effectively increase the size of the Company's proprietary customer mailing
lists. The Company also strives to generate more incremental revenue from
existing customers. Through the use of its management information systems, the
Company constantly monitors the product mix contained in its catalogs in order
to maximize profitability and satisfy its customers' needs.
A substantial majority of the Company's catalog orders and customer
inquiries are received daily by a sophisticated call management distribution
system via incoming toll-free "800" numbers. This system distributes calls to
trained customer service representatives and provides detailed call reporting
and analysis. Currently, the Company is using an outside fulfillment center to
receive and transmit catalog orders. The Company provides technical assistance
to its customers, on a toll-call basis. The Company usually ships orders within
48 hours after receipt. In addition, the Company offers express delivery. The
Company designs all of its catalogs in-house with desk top publishing equipment.
11
Marketing and Advertising
The Company promotes retail store sales primarily through special store
promotions, direct mail circulars, geographically concentrated newspaper and
limited radio advertising, as well as point-of-sale materials posted and
distributed in the stores. The Company also makes extensive use of special
product promotions and sales, combination offers, coupons, and other devices to
attract customers to its stores. The Company promotes catalog sales principally
by catalog mailings. Management tracks the results of all advertising to
determine future advertising programs and expenditures.
E-Commerce
In fiscal 1999, the Company launched its WoodworkersWarehouse.com,
GolfDay.com and Trend-Lines.com websites. The Company terminated the GolfDay.com
website in fiscal 2000. The remaining two websites augment the Company's other
promotional activities and demonstrate the Company's emerging e-commerce
capabilities.
Suppliers
The power and hand tool business both rely on major vendors with well-known
brand names, as well as smaller specialty vendors. In fiscal 2000, one of the
Company's vendors accounted for approximately 16.1% of the Company's purchases.
The Company believes its vendor relationships are satisfactory.
In fiscal 2000, approximately 10% of the Company's tool products were
purchased from overseas vendors. A substantial portion of the tool products sold
under the Company's private labels are purchased from overseas vendors. The
majority of the Company's overseas purchases are from Taiwan and, to a lesser
extent, Korea, China, England, Hong Kong, Sweden, Japan and Germany. This
portion of the Company's business is subject to the risks generally associated
with conducting business abroad, including adverse fluctuations in currency
rates, changes in import duties or quotas, the imposition of taxes or other
charges on imports, and disruptions or delays in shipment or transportation. To
date, these factors have not had a material adverse impact on the Company's
operations.
Distribution
During fiscal year 2000, the Company's primary distribution facility
consisted of a leased 286,000 square foot distribution center in Revere,
Massachusetts, just outside of Boston. The facility also housed the Company's
corporate offices and customer service operation during 2000. Subsequent to
February 24, 2001, the Company terminated the Revere lease and moved the office
to Lynn, Massachusetts and the distribution center to Amesbury, Massachusetts.
The distribution center served the Woodworkers Warehouse and Golf Day retail
stores and the woodworking and golf catalogs. The Company leased a 51,000 square
foot warehouse facility in Chelsea, Massachusetts, which was used for additional
storage and processing of product returns. This lease was terminated in December
2000. In addition, the Company leased a 48,000 square foot distribution center
in Hayward, California, for its Post Tool stores. This lease was subsequently
terminated as part of the Post Tool sale and liquidation.
12
The geographic concentration of its stores facilitates and the Company's
ability to make deliveries to stores on a frequent basis, provides it with
significant labor and freight savings, and enables it to restock its stores'
inventories promptly and efficiently from its distribution centers.
Management Information Systems
The Company has invested significant resources in its management
information systems, which were located at its corporate headquarters in Revere,
Massachusetts, and are currently located in Lynn, Massachusetts. These systems,
which consist of a full range of retail, financial and merchandising systems,
include inventory distribution and control, order fulfillment and inventory
replenishment, staffing, sales and marketing analyses and financial and
merchandise reporting. The Company's in-store point-of-sale computer system
provides operational data to management on a daily basis that is used to track
sales and forecast inventory requirements. The Company's inventory control
systems provide for automated replenishment of merchandise to each of the
Company's stores. The warehouse picking for the weekly store replenishment
considers store sales through the close of business of the previous day.
The Company has systems that support the entire catalog cycle from
purchasing merchandise and planning the catalogs, through merchandise sales and
delivery to the customers' homes. The Company manages a catalog customer
database, which contains a list of approximately 1.9 million customers. The
catalog customer database enables the Company to focus its catalog mailings on
customers most likely to purchase, analyzes merchandise trends and buying
patterns, and tracks the effectiveness of customer promotional merchandising.
Competition
The Company competes on the basis of price, selection and service. Much of
the Company's business is dependent upon competitive pricing. Many of the
Company's competitors are substantially larger and have greater financial and
other resources than the Company. The entrance of new competitors or the
expansion of operations by existing competitors in the Company's market areas
could have a material adverse effect on the Company's results of operations.
The Company's tool business is highly competitive and competes with a
number of other retailers, mail order catalogs, internet websites and magazine
advertisers. Retail store competitors of the Company's tool stores include home
centers, lumberyards, hardware stores, mass merchandisers, independent tool
stores, industrial dealers and other specialty stores.
Registered Trademarks and Service Marks
Woodworkers Warehouse(R), Trend-Lines(R) and Trend-Lines Woodworking
Tools & Supplies(R) are trademarks or service marks of the Company. The Company
intends to continue to register, when deemed appropriate, trademarks and service
marks. The Company may also register trade names, when deemed appropriate.
13
Regulatory Matters
The Company's catalog business is subject to the Merchandise Mail Order
Rule and related regulations promulgated by the Federal Trade Commission, which
prohibit unfair methods of competition and unfair or deceptive acts or practices
in connection with mail order sales, and require sellers of mail order
merchandise to conform to certain rules of conduct with respect to shipping
dates and shipping delays. Management believes that the Company is in compliance
with such regulations.
Employees
The Company relies on many part-time, flex-time and seasonal employees
to meet its needs. At February 24, 2001, the Company employed 799 persons, of
whom 476 were full-time and 323 were part-time. The Company considers its
employee relations to be satisfactory.
Executive Officers (1)
The executive officers of Woodworkers Warehouse, Inc., the successor to the
Company, as of January 18, 2002 were as follows:
Name Age Position
---- --- --------
Walter S. Spokowski 45 President and Chief Executive Officer
Ronald L. Franklin 56 Executive Vice President, Treasurer Chief
Financial Officer,
Jack Bransfield 49 Vice President Inventory Planning &
Distribution
Barry Cady 43 Vice President Retail Administration
Richard Mandell 59 Secretary
(1) Upon emergence from bankruptcy new officers and a new board of
directors were appointed to the successor to the Company.
Walter S. Spokowski, has been CEO and a Director of Woodworkers Warehouse,
Inc., the successor to the Company, since October 2001. He was a Director of the
Company since October 1999 and was CEO since December 2000. He was promoted to
President in October 2000 after serving as Executive Vice President,
Merchandising, since he joined the Company in March 1997.
Ronald L. Franklin has been an Executive Vice President, Chief Financial
Officer and Treasurer of Woodworkers Warehouse Inc., the successor to the
Company, since October 2001. He was Executive Vice President and Chief Financial
Officer of the Company since April 2000 and served as Treasurer since April
1994, and Vice President, Finance since March 1987.
14
John Bransfield became Vice President of Inventory Planning and
Distribution of Woodworkers Warehouse, Inc., the successor to the Company, on
January 16, 2002. He was Vice President of Inventory Planning and Distribution
of the Company since July 2001, Director of Inventory Planning since 1999,
Inventory Director of Purchasing since January 1995, and Product Manager since
1997.
Barry Cady became Vice President of Retail Administration of Woodworkers
Warehouse, Inc., the successor of the Company, on January 16, 2002. He was Vice
President of Retail Administration of the Company since June 2001. Barry joined
Woodworkers Warehouse in 1988 and has served in several key roles to include
Assistant Store Manager, Store Manager, Store Regional Manager, Director of
Store Operations and Director of Retail Administration.
Richard Mandell has been the Secretary and a Director of Woodworkers
Warehouse, Inc., the successor to the Company, since October 2001. Mr. Mandell
was a director of the Company from 1995 to October 2001. From January 1996 to
February 1998, Mr. Mandell was a Vice President- Private Investments of Clariden
Asset Management (NY) Inc. a subsidiary of Clariden Bank, a private Swiss bank.
From 1982 until July 1995, Mr. Mandell served as a Managing Director of
Prudential Securities Incorporated, an investment banking firm. Mr. Mandell is
also a Director of MCM Capital Group, Inc. Sbarro, Inc. and Shells Seafood
Restaurants, Inc.
ITEM 2. PROPERTIES
The Company's principal executive offices and its distribution and
centralized telemarketing operation were located in a common facility in Revere,
Massachusetts, where the Company leased an aggregate of approximately 286,000
square feet of space. As noted previously, subsequent to February 24, 2001, the
Company terminated the lease in Revere, Massachusetts and relocated to its
corporate office to Lynn, Massachusetts and the distribution center to Amesbury,
Massachusetts. The Company also leased a distribution facility in Hayward,
California, with approximately 48,000 square feet of space. This lease was
terminated in May 2000. In addition, the Company leased a 51,000 square foot
warehouse facility in Chelsea, Massachusetts, from an affiliate of Stanley D.
Black, the former Chairman of the Board and Chief Executive Officer of the
Company. This lease was terminated in December 2000.
At February 24, 2001, the Company operated 131 stores, all but one of which
were leased. The leases typically provide for an initial term of five to ten
years, with renewal options permitting the Company to extend the term. In all
cases, the Company pays fixed annual rents. Many of the Company's leases provide
for an increase in annual fixed rental payments during the lease term and allow
the Company to terminate the lease before the end of the lease term without
penalty so long as proper notice is provided. Most leases also require the
Company to pay real estate taxes, maintenance and repair costs, insurance,
utilities and, in shopping center locations, to make contributions toward the
shopping center's common area operating costs. At February 24, 2001, the
Company's store leases, assuming the Company does not exercise its lease renewal
options, were scheduled to expire as follows:
Year Lease Terms Expire Number of Store Leases
Expiring
2001-2002 37
2003-2004 42
2005-2006 37
2007 and later 15
15
ITEM 3. 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 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 (the "Plan"), 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.
It is the opinion of management that except for the bankruptcy, any other
legal actions that are pending against the Company have arisen in the ordinary
course of business and that the liability which may result from any such action
will not have a material adverse impact on the Company's consolidated financial
statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Price
The Class A Common Stock was included in the Nasdaq
National Market under the symbol "TRND." Prior to June 23,
1994, there was no public market for the Class A Common Stock.
On September 12, 2000, the Class A Common Stock did not meet
the listing requirements of the Nasdaq National Market and was
delisted. The following table sets forth the high and low
sales prices for the Class A Common Stock for the periods
indicated as reported by the Nasdaq National Market.
Quotations listed for periods after September 12, 2000 were
quoted by a dealer participating in the over-the-counter
market and may not reflect actual retail sales.
High Low
---- ---
Fiscal Year Ended February 24, 2001
First Quarter $2.09 $1.19
Second Quarter $1.63 $0.31
Third Quarter $0.13 $0.02
Fourth Quarter $0.07 $0.02
Fiscal Year Ended February 26, 2000
First Quarter $3.06 $1.88
Second Quarter $3.06 $1.88
Third Quarter $2.41 $1.44
Fourth Quarter $2.25 $1.28
Fiscal Year Ended February 27, 1999
First Quarter $9.13 $4.81
Second Quarter $5.88 $2.38
Third Quarter $3.13 $1.25
Fourth Quarter $5.00 $1.75
At February 24, 2001, the sales price of the Class A Common Stock quoted by a
dealer in the over-the-counter market was $0.02 per share. At February 24, 2001
there were approximately 3,600 stockholders of record of the Class A Common
Stock.
17
Dividends
The Company does not anticipate declaring any cash dividends in the
foreseeable future. It is the current policy of the Company to retain any
earnings to finance the operations and expansion of the Company's business.
18
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain financial data with respect to
the Company for each of the last five fiscal years.
Fiscal Years Ended
------------------
(In thousands, except per share data)
February 24, February 26, February 27, February 28, March 1,
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Statements of Operations Data:
Net sales $154,709 $178,183 $176,388 $167,451 $158,466
Cost of sales 110,998 123,823 124,461 117,924 109,623
--------- --------- ---------- --------- ---------
Gross profit 43,711 54,360 51,927 49,527 48,843
Selling, general and administrative 58,510 49,684 53,732 42,849 42,558
expenses
Reorganization expenses 2,754 - - - -
--------- --------- ---------- --------- ---------
Operating (loss) income (17,553) 4,676 (1,805) 6,678 6,285
Interest expense, net 4,709 4,771 3,474 2,351 1,859
--------- --------- ---------- --------- ---------
(Loss) income from continuing (22,262) (95) (5,279) 4,327 4,426
operations before (provision)
benefit for income taxes
(Provision) benefit for income taxes - (1,344) 1,723 (1,688) (1,717)
--------- --------- ---------- --------- ---------
(Loss) income from continuing operations (22,262) (1,439) (3,556) 2,639 2,709
Discontinued operations (1):
Loss on Disposal (21,854) - - - -
Loss from discontinued operations (8,975) (6,147) (3,855) 1,809 542
--------- --------- ---------- --------- ---------
Net income (loss) from discontinued
operations (30,829) (6,147) (3,855) 1,809 542
--------- --------- ---------- --------- ---------
Net (loss) income $(53,091) $ (7,586) $(7,411) $ 4,448 $3,251
========= ========= ======== ======= ======
Basic (loss) earnings per share
Continuing Operations $ (2.09) $ (0.13) $ (0.33) $ 0.25 $ 0.25
Discontinued Operations $ (2.89) $ (0.58) $ (0.36) $ 0.17 $ 0.05
-------- -------- -------- ------ ------
Basic net (loss) earnings per share $ (4.98) $ (0.71) $ (0.70) $ 0.42 $ 0.30
======== ======== ======== ======== ======
Diluted (loss) earnings per share
Continuing operations $ (2.09) $ (0.13) $ (0.33) $ 0.25 $ 0.24
Discontinued operations $ (2.89) $(0.58) $ (0.36) $ 0.16 $0.05
-------- ------- -------- ------ -----
Diluted net (loss) earnings per share $ (4.98) $(0.71) $ (0.70) $ 0.40 $0.29
======== ======= ======== ======= =====
Weighted average common shares outstanding:
Basic 10,651 10,651 10,648 10,588 10,973
Diluted 10,651 10,651 10,648 11,122 11,255
Store Operating Data:
Net store sales (000's) $140,917 $156,903 $148,444 $ 133,000 $ 115,183
Percentage (decrease) increase in (10.2%) 5.7% 11.6% 15.5% 32.0%
comparable net store sales
Number of stores at end of period 131 148 149 133 119
Catalog Operating Data:
Net catalog sales $ 13,792 $ 21,280 $ 27,944 $ 34,451 $43,283
19
February 24, February 26, February 27, February 28, March 1,
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Balance Sheet Data:
Working (deficit) capital $(34,132) $(5,011) $2,339 $44,342 $39,397
Total assets 91,573 159,742 146,787 127,803 108,304
Total debt 51,284 65,681 51,452 33,316 21,740
Stockholders' (deficit) equity (20,229) 32,856 40,446 47,757 43,411
(1) During 2000, the Company disposed of its golf business. The consolidated
financial statements of the Company have been presented to reflect the golf
business as a discontinued operation.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
During August 2000, 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
No. 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 business have been
excluded from the respective captions in the accompanying consolidated
statements of operations and consolidated statements of cash flows. (See Note 17
in the Notes to the consolidated financial statements. The information presented
below reflects the results of the Company's continuing operations).
The following table presents net sales and gross margin data of the Company
for the periods indicated:
Fiscal Years Ended
February 24, February 26, February 27,
2001 2000 1999
Net Sales:
Retail $ 140,917 $ 156,903 $ 148,444
Catalog 13,792 21,280 27,944
------------------- -------------------- -------------------
Total $ 154,709 $178,183 $176,389
------------------- -------------------- -------------------
Gross Margin 28% 31% 29%
------------------- -------------------- -------------------
The Company's catalog sales yield higher gross profit margins than retail
store sales as a result of differences in product mix and greater promotional
pricing in retail stores. During fiscal 2000, the Company's gross profit as a
percentage of net sales decreased 3% as compared to fiscal 1999, primarily as a
result of the Company's changing sales mix, offset by a decrease in gross profit
percentage in both the retail and catalog business. Retail sales remained at 88%
of total sales for 2000 and 1999.
20
Results of Operations
The following table sets forth, for the periods indicated, certain
financial data as a percentage of net sales:
Fiscal Years Ended
-------------------------------------------------------------
February 24, February 26, February 27,
2001 2000 1999
---- ---- ----
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 71.7 69.0 71.0
----------------- ------------------- -----------------
Gross Profit 28.3 31.0 29.0
Selling, General and Administrative Expenses 37.8 27.9 30.5
Reorganization Expenses 1.8 - -
----------------- ------------------- -----------------
(Loss) Income From Operations (11.3) 2.6 (1.0)
Interest Expense, net 3.0 2.7 2.0
Loss Before Income Taxes (14.4) (0.1) (3.0)
(Provision) Benefit for Income Taxes 0.0 (0.0) (1.0)
----------------- ------------------- -----------------
Loss from Continuing (14.4) (0.1) (2.0)
Operations
Discontinued Operations:
Loss On Disposals (14.1) 0.0 0.0
Loss from discontinued operations (5.8) (4.2) (2.2)
Net (loss) (34.3)% (4.3)% (4.2)%
Following is a retail store summary.
Fiscal Years Ended
------------------------------------------------------------------
February 24, February 26, February 27,
2001 2000 1999
---- ---- ----
Stores operated at the beginning of the fiscal year 148 149 133
Stores opened during the fiscal year - 2 22
Stores closed during the fiscal year 17 3 6
------------------- ------------------ -----------------
Stores operated at the end of the fiscal year 131 148 149
Fiscal 2000 versus Fiscal 1999
Net sales for fiscal 2000 decreased by $23.4 million, or 13.2%, from
$178.2 million for fiscal 1999 to $154.7 million. Net retail sales for fiscal
2000 decreased $16.0 million, or 10.2%, from $156.9 million for fiscal 1999 to
$140.9 million. Net catalog sales for fiscal 2000 decreased $7.4 million, or
35.4%, from $21.3 million for fiscal 1999 to $13.7 million for fiscal 2000. The
decrease in revenue of retail stores is attributable to no new additional stores
and various adversities due to the Company's bankruptcy proceedings. The
decrease in net catalog sales was attributable to a decrease in the number of
catalogs mailed during the year.
21
Gross profit for fiscal 2000 decreased $10.7 million, or 20%, from
$54.4 million for fiscal 1999 to $43.7 million for fiscal 2000. As a percentage
of net sales, gross profit decreased from 31% for fiscal year 1999 to 28% for
fiscal year 2000. This is primarily a result of the Company's changing sales
mix, and a decrease in gross profit percentage in both the retail and catalog
business.
Selling, general and administrative expenses for fiscal 2000 increased
$8.8 million, or 17.8%, from $49.7 million for fiscal 1999 to $58.5 million for
fiscal 2000. As a percentage of net sales, selling, general and administrative
expenses increased 9.9% from 27.9% of net sales in fiscal 1999 to 37.8% of net
sales in fiscal 2000. The increases in selling, general and administrative
expenses are primarily due to a reduction in cooperative advertising income in
fiscal year 2000. This was a result of decreased purchases.
Reorganization charges resulted in net charges of $2.8 million or 2% of
net sales in fiscal year 2000. These net charges relate directly to the Chapter
11 proceedings and associated restructuring of the Company's operations and are
discussed in Note 3 to the Consolidated Financial Statements.
Interest expense, net of interest income, for fiscal 2000 increased by
$.4 million from $4.8 million in fiscal 1999 to $5.2 million in fiscal 2000. The
change in interest expense was attributable to the increase in the average
amount outstanding under the Company's bank credit facility.
Fiscal 1999 versus Fiscal 1998
Net sales for fiscal 1999 increased by $1.8 million, or 1%, from $176.4
million for fiscal 1998 to $178.2 million. Net retail sales for fiscal 1999
increased $8.5 million, or 5.7%, from $148.4 million for fiscal 1998 to $156.9
million. However, net catalog sales for fiscal 1999 decreased $6.6 million, or
24.0%, from $27.9 million for fiscal 1998 to $21.3 million for fiscal 1999. The
decrease in net catalog sales was attributable to fewer catalogs being mailed
during the year as compared to prior years. The revenue growth of retail stores
is attributable to the maturation of the Company's retail store base.
Gross profit for fiscal 1999 increased $2.5 million, or 5%, from $51.9
million for fiscal 1998 to $54.4 million for fiscal 1999. As a percentage of net
sales, gross profit increased from 29% for fiscal year 1998 to 31% for fiscal
year 1999. This is primarily a result of the Company's changing sales mix,
offset by an increase in gross profit percentage in both the retail and catalog
business. Since the catalog business has higher gross margins than retail store
operations, future gross margins will decrease as catalog sales decrease.
Selling, general and administrative expenses for fiscal 1999 decreased
$4.0 million, or 7.5%, from $53.7 million for fiscal 1998 to $49.7 million for
fiscal 1999. As a percentage of net sales, selling, general and administrative
expenses decreased 2.6% from 30.5% of net sales in fiscal 1998 to 27.9% of net
sales in fiscal 1999. The dollar decreases in selling, general and
administrative expenses are primarily related to the Company's slowing of retail
expansion, as well as one time expenditures incurred in fiscal 1998 related to
implementation of our warehouse management system. The decrease in selling,
general and administrative expenses as a percentage of net sales was primarily
attributable to these same factors, coupled with a modest increase in net sales.
22
Interest expense, net of interest income, for fiscal 1999 increased by
$1.3 million from $3.5 million in fiscal 1998 to $4.8 million in fiscal 1999.
The increase in interest expense was attributable to the increase in the amount
outstanding under the Company's bank credit facility.
The Company experienced a fourth quarter loss in fiscal 1999 due to a
number of factors including lower than expected sales, unusually high inventory
shrink recognized as a result of year end physical inventories and higher than
anticipated advertising costs. In addition, the Company provided a valuation
reserve against previously recognized deferred tax assets due to the uncertainty
of realization.
Liquidity and Capital Resources
The Company incurred an operating loss during fiscal 2000. The Company
realized a small profit from operations during fiscal 1999 but a net loss after
interest expenses and taxes. The Company incurred operating losses during fiscal
1998. In fiscal 2000, the Company used funds provided by its bank credit
facility and demand borrowings from the Company's principal stockholders to meet
its cash operating needs prior to its bankruptcy filing. The Company continued
to operate and pay bills through the bankruptcy process using the bank's cash
collateral (with court approval). The bank credit facility agreement during
fiscal 2000 contained certain financial covenants, including, but not limited
to, maintaining minimum levels of tangible net worth and interest coverage
ratios and limitations on capital expenditures. At February 24, 2001, the
Company was not in compliance with the financial covenants of the credit
facility. There were no amounts available for borrowing under the bank credit
facility as of February 24, 2001. At February 24, 2001, the Company had
approximately $47.6 million of borrowings outstanding and approximately $.1
million of letters of credit outstanding. The bank had a security interest in
substantially all assets of the Company.
Pursuant to the Chapter 11 reorganization plan, on October 29, 2001, the Company
entered into a $30.0 million Senior Secured Revolving facility with the
BankofAmerica (the "Exit Financing Facility"). In connection with the Plan, the
outstanding balance under the bank credit facility was repaid primarily with
borrowings under the Exit Financing Facility. The Exit Financing Facility bears
interest equal to LIBOR plus 3.25% (8.13% at February 24, 2001) or the bank
reference rate plus 1.00% (10.25% at February 24, 2001). 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.
23
During the fourth quarter of fiscal 1999, 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 $3.0 million. All these loans were repaid at
February 26, 2000. During the second quarter of fiscal 2000, the Company's chief
executive officer/principal stockholder made interest-free unsecured loans to
the Company in the aggregate amount of $3.5 million, which remained outstanding
as of the bankruptcy filing date.
As discussed in the Summary of Reorganization section of Item 1, the
approved reorganization Plan requires future payments to creditors. (See
Reorganization under Item 1 for further details).
The Company believes that projected cash flows from operations in
combination with current available resources are sufficient to meet working
capital needs of the Company through the end of fiscal 2002, and debt payments,
subject to the $2,000,000 deferral previously described, pursuant to the
Company's Chapter 11 Plan. Achievement of projected cash flows from operations,
however will be dependent upon the Company's attainment of sales, gross profit,
expense and trade support levels that are consistent with its financial plans.
Such operating performance will be subject to financial, economic and other
factors affecting the industry and operations of the Company, including factors
beyond its control, and there can be no assurance that the Company's plans will
be achieved. In addition, the Company borrows funds on a variable rate basis and
continued compliance with loan covenants under the Exit Financing Facility is
partially dependent on relative interest rate stability. If projected cash flows
from operations are not realized, or if there are significant increases in
interest rates, then the Company may have to explore various available
alternatives, including obtaining further modification to its existing lending
arrangements or attempting to locate additional sources of financing.
The Company's working capital deficit increased by $29.1 million, from
a deficit of $5.0 million as of February 26, 2000 to a deficit of $34.1 million
as of February 24, 2001. The decrease in working capital resulted primarily from
a decrease in inventories of $60.2 million offset by lower net borrowings under
the Company's bank credit facility of $17.4 million, and decreases pre-petition
of accounts payable of $20.1 million.
During fiscal 2000, the cash provided by operating activities was
approximately $32.3 million. The primary provider of the cash was a $60.2
million decrease in inventories, which was offset by a $20.1 million decrease in
pre-petition accounts payable and a net loss of continuing operations of $22.3
million.
24
The net cash used in investing activities was approximately $0.6
million. The main use of the cash was for the purchase of equipment required for
expansion of the Company's information systems capabilities and Year 2000
compliance.
The net cash provided by financing activities was approximately $14.3
million, primarily attributable to proceeds from the sale of equipment.
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 its 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; (vii) other risks and
uncertainties indicated from time to time in the Company's filings with the
Securities and Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our market risk associated with our
financial instruments. We are exposed to market risk from changes in interest
rates which may adversely affect our financial position, results of operations
and cash flows. In seeking to minimize the risks from interest rate
fluctuations, we manage exposures through our regular operating and financing
activities. We do not use financial instruments for trading or other speculative
purposes and are not party to any leveraged financial instruments. We are
exposed to interest rate risk primarily through our borrowings under the Exit
Financing Facility (see Note 3 to the Condensed Consolidated Financial
Statements).
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated Financial Statements and Supplementary Data of the
Company are listed under Part IV, Item 14, in this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements on accounting principles or practices or
financial statement disclosure between the Company and its accountants during
the fiscal year ended February 24, 2001.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is hereby incorporated by
reference to the text appearing under Part I, Item 1 - Business under the
caption "Executive Officers and Other Significant Employees" in this report.
Directors (1)
The directors of Woodworkers Warehouse, Inc., the successor to the Company, as
of January 18, 2002 were as follows:
Name Age Position Director Since
---- --- -------- --------------
Bruce Berg 53 Director 2001
Ronald A. Kaplan 58 Director 2001
Richard A. Mandell 59 Director 2001
Walter S. Spokowski 45 President, Chief Executive 2001
Officer, Chief Operating Officer,
Director
Gary A. Nacht 46 Director 2001
Joseph Nusim 68 Director 2001
Edward D. Solomon 70 Director 2001
26
(1) Upon emergence from bankruptcy a new Board of Directors and new officers
were appointed to the successor to the Company.
Bruce W. Berg has been a Director since October 29, 2001. In 1984 Mr. Berg
joined Home Depot as Vice President, Merchandising and in 1991 was selected as
the Second Divisional President and then promoted to President, Southeast
Division, the largest division and only division to have two separate entities
under one President. Mr. Berg retired from Home Depot in 1998.
Ronald Kaplan is a graduate of the University of Pennsylvania, Wharton School of
Finance and Commerce. He is 58 years old and has been a Director since October
29, 2001. Mr. Kaplan has held many management positions including President/COO
of Levitz Furniture Corporation and CEO of Room Plus. Mr. Kaplan recently left
Staubach Retail Services to become Sr. Vice President of Julius Feinblum Real
Estate.
Richard Mandell has been a Director since October 2001. Mr. Mandell was a
director of the Company from 1995 to October 2001. From January 1996 to February
1998, Mr. Mandell was a Vice President- Private Investments of Clariden Asset
Management (NY) Inc. a subsidiary of Clariden Bank, a private Swiss bank. From
1982 until July 1995, Mr. Mandell served as a Managing Director of Prudential
Securities Incorporated, an investment banking firm. Mr. Mandell is also a
Director of MCM Capital Group, Inc. Sbarro, Inc. and Shells Seafood Restaurants,
Inc.
Walter S. Spokowski, has been CEO and a Director of Woodworkers Warehouse, Inc.,
the successor to the Company, since October 2001. He was a Director of the
Company since October 1999 and was CEO since December 2000. He was promoted to
President in October 2000 after serving as Executive Vice President,
Merchandising, since he joined the Company in March 1997.
Gary A. Nacht has been a Director since October 29, 2001. Mr. Nacht is Executive
Vice President and Investment Principal in York Management Services, Inc., a
private investment and management advisory services company. Mr. Nacht currently
serves as Vice Chairman of various boards, including Gemini Industries, Inc. and
Northern Group Retail Limited, and has previously served on boards of K-Mart
Canada Ltd., and Strauss Discount Auto.
Joseph Nusim has been a Director since October 29, 2001. Mr. Nusim is the
Chairman of Nusim Group, a retail consulting organization and Co-Chairman of the
board of Loehmans Stores. Mr. Nusim also serves on the Advisory Board of Wells
Fargo and Gordon Brothers, real estate division. Mr. Nusim is a board member of
the International Mass Retailing Association and acts as retail consultant to
Kimco Realty Corp and the Creditors Committee of Frank's Nurseries.
Edward D. Solomon has been a Director since October 29, 2001. Mr. Solomon has
operated Edward D. Solomon & Co. Consulting Services since January 1994. From
1989 through 1993, Mr. Solomon was CEO of Shoe Town, Inc. Mr. Solomon currently
serves on the board of directors of Bennett Footwear Group and The Dress Barn,
Inc. and has served on the boards of the Butler Group, Inc. Channel Home Centers
and HRT Industries, Inc.
27
Reporting Under Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than 10% of
the Company's Class A Common Stock, to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission and
the Nasdaq Stock Market. Executive officers, directors and greater than 10%
stockholders are required to furnish the Company with copies of all Forms 3, 4
and 5 they file.
Based solely on the Company's review of the copies of such Forms it has
received, the Company believes that all of its officers, directors and greater
than 10% stockholders complied with all Section 16(a) filing requirements
applicable to them during the Company's fiscal year ended February 24, 2001.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table for Annual Compensation
Long-Term
Compensation
Awards;
Securities
Fiscal Year Underlying All Other
Ended Salary ($) Bonus ($) Options Compensation ($)(1)
----- ---------- --------- ---------- -------------------
Stanley D. Black, (2) Chief 2/24/01 359,478 0 0 4,706
Executive Officer
2/26/00 349,175 0 0 0
2/27/99 338,812 0 0 2,575
Richard Griner, (3) President 2/24/01 220,462 0 0 6,866
and Chief Operating Officer
2/26/00 261,214 0 0 7,832
2/27/99 257,500 0 0 7,725
Walter S. Spokowski Chief 2/24/01 178,273 0 10,000 3,002
Executive Officer (as of
October 2000) Executive Vice 2/26/00 142,019 0 0 1,958
President
2/27/99 138,313 0 0 1,896
Ronald. L. Franklin, Executive 2/24/01 155,039 0 0 3,788
Vice President, Finance, Chief
Financial Officer 2/26/00 125,648 0 0 3,755
2/27/99 113,670 0 3,050 2,750
Gerald Roth, (5) Vice 2/24/01 159,490 0 0 0
President, Retail Operations
Barry Cady, Vice President 2/24/01 75,809 0 0 2,250
Retail Administration
Jayne Pendergast, (4) Vice 2/24/01 60,426 0 0 0
President, Information Systems,
2/26/00 111,442 2,000 0 2,101
2/27/99 77,212 0 10,000 0
28
(1) These amounts represent contributions by the Company to the Company's 401(k)
Plan for the benefit of the named executive officers.
(2) Stanley D. Black's employment with the Company terminated February 4, 2001.
(3) Richard Griner's employment with the Company terminated October 20, 2000
(4) Jayne Pendergast's employment with the Company terminated June 30, 2000.
(5) Gerald Roth's employment with the Company terminated June 2, 2001
Stock Option Plans
No options were granted to any of the named Executive Officers in the
fiscal year ended February 24, 2001. The following table sets forth certain
information with respect to the aggregate number and value of options exercised
and exercisable by the Named Executive Officers during such fiscal year.
29
Aggregated Exercises in Last Fiscal Year and Fiscal Year End Option Value
# Underlying Shares of Value of Unexercised
Shares Common Stock at In the Money Options
Acquired 10/28/01 at 10/28/01
on Value Exercisable/ Exercisable/
Name and Principal Position Exercise Realized Unexercisable Unexercisable
-------- -------- ------------- -------------
Stanley D. Black, Chairman of 0 $0 0 $0/$0
the Board and Chief Executive
Officer
Richard Griner, President and 0 0 0/0 0/0
Chief Operating Officer
Walter S. Spokowski Executive 0 0 12,000/24,000 0/0
Vice President, Merchandising
Ronald. L. Franklin, Executive 0 0 113,926/25,654 0/0
Vice President, Finance and
Chief Financial Officer
Gerald Roth, Vice President, 0 0 0/0 0/0
Retail Operations
Barry Cady, Vice President, 0 0 0/0 0/0
Retail Administration
Jayne Pendergast, Vice 0 0 0/10,000 0/0
President, Information Systems
Employment Contracts
The Company and Mr. Griner are parties to an employment agreement under
which Mr. Griner is entitled to an annual salary of $250,000, payable bi-weekly.
The employment agreement may be terminated by either party as any time under
certain circumstances. Mr. Griner is no longer employed by the Company, and he
has submitted a claim to the Bankruptcy Court in connection with his employment
agreement.
30
Compensation Committee Interlocks and Insider Participation
Until July 19, 1995, the Board of Directors had a separate Compensation
Committee and Stock Option Committee. On July 19, 1995, the Compensation
Committee and the Stock Option Committee were combined into a single
Compensation and Stock Option Committee. The Compensation and Stock Option
Committee is responsible for reviewing existing and proposed employment
arrangements and management compensation standards and practices, and for making
recommendations to the Board of Directors with respect to all forms of
remuneration to any officer or director of the Company, including determinations
with respect to all matters pertaining to the grant of stock options under the
Company's stock option plans. No member of the Compensation and Stock Option
Committee is eligible to receive options under the Employee Plan. During fiscal
2000, the Compensation and Stock Option Committee was composed of Messrs. Black
and Irwin Winter. Except for Mr. Black, no member of the Compensation and Stock
Option Committee is a former or current officer or employee of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Upon emergence from bankruptcy, the Company's creditors became the new
owners of the successor to the Company. The information as to their security
ownership is not available at this time and will be included in the successor to
the Company's next 10-K filing.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stanley D. Black, Chairman and Chief Executive Officer of the Company until
February 4, 2001 and a principal stockholder of the Company, through a certain
trust (the "Trust") of which he is a trustee and beneficiary, leased to the
Company approximately 51,000 square feet of office and warehouse space in
Chelsea, Massachusetts. The facility served as the former headquarters and
central warehouse facility for the Company before it moved to its headquarters
in Revere, Massachusetts. The lease, as amended, expired in 2005 and provided
for annual base rent in the approximate amount of $296,000, payable in advance
in monthly installments of $29,600 (approximately $5.80 per square foot). Under
the lease, the Company must pay to the Trust, in addition to base rent, an
amount equal to any increase in the interest rate on the Trust's first mortgage
on the property and must pay to the Trust or third parties, as appropriate, all
utilities, insurance, real estate taxes, maintenance and operating costs
incurred in maintaining, operating, insuring and repairing the leased premises.
Pursuant to the lease, the Company paid the Trust $296,000, $366,000 and
$351,000 in fiscal 2000, 1999 and 1998, respectively. The lease provided for
annual escalation of the base rent, equal on a percentage basis to the increase
in the Consumer Price Index, but in no event more than 5% per year. This lease
was terminated in December 2000.
31
During the fiscal year ended February 24, 2001, Mr. Black 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 $3.5 million.
32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Page
(A) (1) CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants...................................................... F-2
Consolidated Balance Sheets as of February 24, 2001 and February 26, 2000..................... F-4
Consolidated Statements of Operations for the Fiscal Years Ended
February 24, 2001, February 26, 2000 and February 27, 1999.................................... F-5
Consolidated Statements of Stockholders' Equity for the Fiscal Years
Ended February 24, 2001, February 26, 2000, and February 27, 1999 ............................ F-6
Consolidated Statements of Cash Flows for the Fiscal Years Ended
February 24, 2001, February 26, 2000, and February 27, 1999................................... F-7
Notes to Consolidated Financial Statements.................................................... F-9
(A) (2) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts............................................. S-1
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in the
financial statements or notes thereto.
(A)(3) EXHIBITS
Exhibit
Number Reference
------ ---------
** 2.1 Order Confirming First Amended Joint Reorganization A
Plan of Trend-Lines, Inc. and the Official Committee
of Unsecured Creditors, dated as of October 17, 2001.
** 2.2 First Amended Joint Reorganization Plan of Trend- B
Lines, Inc. and the Official Committee of
Unsecured Creditors, dated as of September 7, 2001.
** 2.3 Joint Motion to Approve Nonmaterial Modification C
to First Amended Joint Reorganization Plan of
Trend-Lines, Inc. and Official Committee of
Unsecured Creditors dated as of October 11, 2001.
33
** 2.4 First Amended Disclosure Statement with Respect D
to First Amended Joint Reorganization Plan of
Trend-Lines, Inc. and the Official Committee of
Unsecured Creditors, dated as of September 7, 2001.
** 3.01 Revised Articles of Organization, as amended. E
** 3.02 Restated By-Laws. E
** 4.01 Specimen Certificate of Class A Common Stock. E
** 4.02 Description of Capital Stock (contained in the Form E
of the Registrant's Restated Articles of Organization
referenced above).
*,** 10.01 1993 Amended and Restated Stock Option Plan,
as amended. E
*,** 10.02 1994 Non-Qualified Stock Option Plan For Non- E
Employee Directors.
*,** 10.03 Form of Indemnification Agreement for Directors E
and Officers of Registrant.
** 10.07 Agreement of Merger dated as of July 1, 1993 E
between Coburn Investments, Inc. and the Registrant.
** 10.08 Master Note dated November 20, 1993, payable to E
Coburn Investments, Inc. to the Registrant, with
related Loan and Security Agreement.
** 10.10 Commercial Lease dated December 3, 1987, as amended E
as of November 1, 1993, between Stanley D. Black
Trustee of Mystic Limited Realty Trust and the
Registrant.
** 10.11 Three Promissory Notes, dated July 1, 1989, payable E
by the Registrant to Stanley D. Black, and related
Security Agreement.
** 10.12 Warehouse lease dated July 11, 1994 between Syroco, F
Inc. and the Registrant.
34
** 10.13 Loan and Security Agreement dated July 3, 1996. G
** 10.14 Purchase and Sale Agreement dated as of H
December 19, 1994 between Post Tool, Inc. and the Registrant.
** 10.15 Asset Purchase Agreement dated as of December 31, I
1997 between Golf Acquisition Limited Partnership
and the Registrant.
** 10.16 Amended and Restated Loan and Security J
Agreement dated February 23, 1999.
** 10.17 Employment Agreement dated December 13, 1996, K
between Richard H. Griner and the Registrant.
** 21.01 Subsidiaries of the Registrant. L
- -----------------
A Incorporated by reference to Exhibit 2.1 to Woodworkers Warehouse, Inc.'s
Form 8-K as filed with the Securities and Exchange Commission on October
31, 2001.
B Incorporated by reference to Exhibit 2.2 to Woodworkers Warehouse, Inc.'s
Form 8-K as filed with the Securities and Exchange Commission on October
31, 2001.
C Incorporated by reference to Exhibit 2.3 to Woodworkers Warehouse, Inc.'s
Form 8-K as filed with the Securities and Exchange Commission on October
31, 2001.
D Incorporated by reference to Exhibit 2.4 to Woodworkers Warehouse, Inc.'s
Form 8-K as filed with the Securities and Exchange Commission on October
31, 2001.
E Incorporated by reference to the Company's registration statement on Form
S-1 (Registration No. 33-78772) and by reference to Exhibit 3.0 to the
Company's quarterly report on Form 10-Q for the fiscal quarter ended
August 31, 1996. The number set forth herein is the number of the Exhibit
in said registration statement.
F Incorporated by reference to Exhibit 7.1 to the Company's current report
on Form 8-K dated July 11, 1994.
G Incorporated by reference to Exhibit 10.0 to the Company's quarterly
report on Form 10-Q for the fiscal quarter ended August 31, 1996.
H Incorporated by reference to Exhibit 1 to the Company's current report on
Form 8-K dated January 1, 1995.
I Incorporated by reference to Exhibit 10.15 to the Company's annual report
on Form 10-K for fiscal year ended February 28, 1998.
35
J Incorporated by reference to Exhibit 10.16 to the Company's annual report
on Form 10-K for fiscal year ended February 27, 1999.
K Incorporated by reference to Exhibit 10.17 to the Company's annual report
on Form 10-K for fiscal year ended February 26, 2000
L Incorporated by reference to Exhibit 21.01 to the Company's annual report
on Form 10-K for the fiscal year ended March 2, 1996.
* Management contract or compensatory plan or arrangement.
** In accordance with Rule 12b-32 under the Securities Exchange Act of 1934,
as amended, reference is made to the documents previously filed with the
Securities and Exchange Commission, which documents are hereby
incorporated by reference.
(B) REPORTS ON FORM 8-K
None
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: Woodworkers Warehouse, Inc., as successor to
Trend-Lines, Inc.
Date: 2/21/02 By: /s/ Walter S. Spokowsk
-------- --------------------------------------------
Walter S. Spokowski, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
/s/ Walter S. Spokowski Director and Chief Executive Officer of 2/21/02
- ----------------------- Woodworkers Warehouse, Inc., the
Walter S. Spokowski successor to Trend-Lines, Inc.
/s/ Ronald L. Franklin Executive Vice President and Chief 2/21/02
- ----------------------- Financial Officer of Woodworkers
Ronald L. Franklin Warehouse, Inc., the successor to
Trend-Lines, Inc.
/s/ Richard Mandell Director of Woodworkers Warehouse, 2/14/02
- ----------------------- Inc., the successor to Trend-Lines, Inc.
Richard Mandell
/s/ Gary A. Nacht Director of Woodworkers Warehouse, 2/21/02
- ----------------------- Inc., the successor to Trend-Lines, Inc.
Gary A. Nacht
/s/ Edward Solomon Director of Woodworkers Warehouse, 2/15/02
- ----------------------- Inc., the successor to Trend-Lines, Inc.
Edward Solomon
37
TREND - LINES, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of February 24, 2001 and February 26, 2000 F-4
Consolidated Statements of Operations for the Fiscal Years Ended F-5
February 24, 2001, February 26, 2000, and February 27, 1999
Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended F-6
February 24, 2001, February 26, 2000, and February 27, 1999
Consolidated Statements of Cash Flows for the Fiscal Years Ended
February 24, 2001, February 26, 2000, and February 27, 1999 F-7
Notes to Consolidated Financial Statements F-9
F-1
Report of Independent Public Accountants
To Trend-Lines, Inc.:
We have audited the accompanying consolidated balance sheets of Trend-Lines,
Inc. (a Massachusetts corporation) and subsidiary as of February 24, 2001 and
February 26, 2000, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended February 24, 2001,
February 26, 2000 and February 27, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Trend-Lines, Inc. and
subsidiary as of February 24, 2001 and February 26, 2000, and the results of
their operations and their cash flows for the years ended February 24, 2001,
February 26, 2000 and February 27, 1999 in conformity with accounting principles
generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index at item 14(a)(2) is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. The schedule has been subjected to the auditing procedures applied
in our audits of the basic consolidated financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
As described more fully in Note 3 to the financial statements, on August 11,
2000, the Company filed a voluntary petition under Chapter XI of the U.S.
Bankruptcy Code and operated its business as debtor-in-possession under control
of the Bankruptcy Court until October 17, 2001, when it received confirmation
from the Bankruptcy Court after having fulfilled all requirements of the
Reorganization Plan which was approved by the Bankruptcy Court and the Company's
creditors.
F-2
The accompanying financial statements have been prepared on a going-concern
basis on accounting which contemplates continuity of operations and realization
of assets and liquidation of liabilities in the ordinary course of business. The
Company has incurred significant operating losses during the fiscal years ended
February 24, 2001 and February 26, 2000, which raise substantial doubts about
its ability to continue as a going concern. Realization of the carrying amounts
of the Company's assets and the classification of its liabilities is dependent
on the success of future operations. The financial statements do not include any
adjustments that might result from this uncertainty.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
August 3, 2001
(except for matters discussed in Notes 4, 5, and 17
as to which the date is October 29, 2001)
F-3
TREND-LINES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
February 24, February 26,
2001 2000
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 18,338 $ 1,054
Accounts receivable, net 2,948 3,066
Inventories 44,102 104,285
Prepaid expenses and other current assets 1,656 2,443
Net current assets of discontinued operations - 11,117
---------- ---------
Total current assets 67,044 121,965
PROPERTY AND EQUIPMENT, NET 12,999 15,810
NET ASSETS OF DISCONTINUED OPERATIONS - 10,318
OTHER ASSETS 899 815
---------- ---------
$ 80,942 $ 148,908
========== =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Bank credit facility $47,566 $65,010
Note payable to officer 3,500 -
Current portion of capital lease obligations 218 428
Post-petition accounts payable 1,060 -
Pre-petition accounts payable 25,090 45,212
Accrued expenses 5,897 3,796
Deferred liabilities 2,448 823
Other current liabilities 1,355 590
Net current liabilities of discontinued operations 14,042 -
----------- ---------
Total current liabilities 101,176 115,859
----------- ---------
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION - 193
----------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDERS' (DEFICIT) EQUITY:
Common stock, $.01 par value -
Class A --
Authorized - 20,000,000 shares
Issued - 6,510,411 shares at February 24, 2001 and
February 26, 2000 65 65
Class B --
Authorized - 5,000,000 shares
Issued and outstanding - 4,641,082 shares February 24, 2001
and February 26, 2000 47 47
Additional paid-in capital 41,626 41,625
Retained deficit (59,512) (6,421)
Less: 500,000 Class A shares held in treasury at February 24, 2001 and
February 26, 2000, at cost (2,460) (2,460)
--------- ---------
Total stockholders' (deficit) equity (20,234) 32,856
--------- ---------
$ 80,942 $ 148,908
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
TREND-LINES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Fiscal Years Ended
February 24, February 26, February 27,
2001 2000 1999
---- ---- ----
Net sales $ 154,709 $ 178,183 $ 176,388
Cost of sales: 110,998 123,823 124,461
----------- ----------- -----------
Gross profit 43,711 54,360 51,927
Selling, general and administrative expenses 58,510 49,684 53,732
Reorganization charges 2,292 - -
----------- ----------- -----------
Operating (loss) income (17,091) 4,676 (1,805)
Interest expense, net 5,171 4,771 3,474
----------- ----------- -----------
Loss before benefit for income taxes ( 22,262) (95) (5,279)
Benefit for income taxes - (25) (1,723)
----------- ----------- -----------
Loss from continuing operations (22,262) (120) (3,556)
----------- ----------- -----------
Discontinued operations:
Loss on disposal (21,854) - -
Loss from discontinued operations (8,975) (7,466) (3,855)
----------- ----------- -----------
(30,829) (7,466) (3,855)
----------- ----------- -----------
Net loss $ (53,091) $ (7,586) $ (7,411
=========== =========== ===========
Basic net (loss) income per share:
Continuing operations $ (2.09) $ (.01) $ (.33)
Discontinuing operations (2.89) (.70) (.37)
----------- ----------- -----------
$ (4.98) $ (0.71) $ (0.70)
=========== =========== ===========
Diluted net (loss) income per share:
Continuing operations $ (2.09) $ (.01) $ (.33)
Discontinuing operations (2.89) (.70) (.37)
----------- ----------- -----------
$ (4.98) $ (0.71) $ (0.70)
=========== =========== ===========
Weighted average shares outstanding (note 2):
Basic 10,651,493 10,651,144 10,648,366
=========== =========== ===========
Diluted 10,651,493 10,651,144 10,648,366
=========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
TREND-LINES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CLASS A CLASS B
COMMON STOCK COMMON STOCK Additional Retained TREASURY STOCK
Number Number Paid-in Earnings Number Stockholders'
of Shares Amount of Shares Amount Capital (Deficit) Of Shares Amount Equity
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
BALANCE, FEBRUARY 28, 1998 6,385,178 $ 64 4,738,066 $ 47 $41,524 $ 8,576 500,000 $(2,460) $ 47,751
Conversion of Class B
shares to Class A shares 56,984 - (56,984) - - - - - -
Proceeds from exercise
of stock Options 27,391 - - - 101 - - - 101
Net loss - - - - - (7,411) - - (7,411)
---------- ------ ---------- ------- -------- ---------- ------- ---------- ---------
BALANCE, FEBRUARY 27, 1999 6,469,553 $ 64 4,681,082 $ 47 $41,625 $ 1,165 500,000 $(2,460) $ 40,441
Conversion of Class B shares
to Class A shares 40,000 - (40,000) - - - - - -
Proceeds from exercise of
stock Options 858 1 - - 1 - - - 2
Net loss - - - - - (7,586) - - (7,586)
---------- ------ ----------- ------ ------- --------- ------- ---------- ---------
BALANCE, FEBRUARY 26, 2000 6,510,411 $ 65 4,641,082 $ 47 $41,626 $ (6,421) 500,000 $(2,460) $ 32,857
Net loss - - - - (53,091) - - (53,091)
---------- ------- ----------- ------ ------- --------- ------- ---------- ---------
BALANCE, FEBRUARY 24, 2001 6,510,411 $ 65 4,641,082 $ 47 $41,626 $ (59,512) 500,000 $(2,460) $ (20,234)
---------- ------- ----------- ------ ------- --------- ------- ---------- ---------
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
TREND-LINES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Fiscal Years Ended
February 24, February 26, February 27,
2001 2000 1999
----- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (53,091) $ (7,586) $ (7,411)
Add: loss from discontinued operations 8,975 7,466 3,855
Loss on disposal of discontinued operations 21,854 - -
---------- ----------- --------
Net loss from continuing operations (22,262) (120) (3,556)
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities
Depreciation and amortization 2,126 3,866 3,218
Reorganization expenses 2,292 - -
Changes in current assets and liabilities
Accounts receivable 118 7,103 (9,108)
Inventories 60,183 (22,594) (7,516)
Prepaid expenses and other current assets 787 2,196 199
Post-petition accounts payable 1,060 - -
Pre-petition accounts payable (20,122) 7,192 7,727
Accrued expenses 2,102 (646) 218
Deferred liabilities 1,625 (205) 51
Other current liabilities 765 20 161
---------- ----------- --------
Net cash provided by (used in) continuing operations
activities before reorganization expense 28,674 (3,188) (8,606)
Net cash provided by (used in) discontinued operations 5,885 (6,894) (5,965)
---------- ----------- --------
Net cash provided by (used in) operating activities
before reorganization expense 34,559 (10,082) (14,571)
---------- ----------- --------
Operating cash flows from reorganization items:
Professional fees paid for services rendered in bankruptcy (1,658) - -
Interest income received 462 - -
Other reorganization expenses paid (1,096) - -
---------- ---------- ---------
Net cash used by reorganization items (2,292) - -
---------- ---------- ---------
Net cash provided by (used in) operating activities 32,267 (10,082) (14,571)
---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (552) (3,770) (3,482)
Proceeds from sale of property and equipment - - -
Decrease in other assets (84) 185 (313)
---------- ---------- ---------
Net cash provided by (used in) investing activities (636) (3,585) (3,795)
---------- ---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under bank credit facilities (17,444) 15,112 18,099
Principal payments on capital lease obligations (403) (665) 13
Increase (decrease) in other noncurrent liabilities - (268) 24
Note payable officer 3,500 - -
Proceeds from exercise of stock options 0 2 101
Purchases of treasury stock - - -
---------- ---------- --------
Net cash (used in) provided by financing activities (14,347) 14,181 18,237
---------- ---------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 17,284 514 (129)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,054 540 669
---------- ----------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 18,338 $ 1,054 $ 540
========== =========== =========
(Continued)
F-7
TREND-LINES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for -
Interest $ 7,160 $ 6,793 $ 5,489
======== ======= =======
Income taxes $ - $ 435 $ 1,912
======== ======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Equipment acquired under capital lease obligations $ - $ 83 $ 598
======== ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
F-8
TREND-LINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) OPERATIONS
Trend-Lines, Inc. (the Company) is a specialty retailer, primarily of
woodworking tools and accessories sold through its nationally
distributed Trend-Lines mail-order catalog and through Woodworkers
Warehouse retail stores located in New England, New York, New Jersey,
Pennsylvania and Delaware, as well as Post Tool stores located in
California and Nevada.
The Company also operated as a specialty retailer of golf equipment and
supplies sold through its Golf Day retail stores located in New
England, New York, New Jersey, Delaware, Pennsylvania and California
and its nationally distributed mail-order catalog. During 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 as a discontinued operation. See Note
17 for further information.
On August 11, 2000, the Company filed for Bankruptcy Protection under
Chapter 11 of the U.S. Bankruptcy Code (see Note 3).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the
application of certain accounting policies described in this note and
elsewhere in the accompanying notes to consolidated financial
statements.
(a) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and Post Tool, Inc., its wholly owned
subsidiary. All significant intercompany balances and
transactions have been eliminated in consolidation.
(b) Fiscal Year
The Company's fiscal year-end is the Saturday closest to the
last day of February. Fiscal year 2000 ended on February 24,
2001, fiscal year 1999 ended on February 26, 2000 and fiscal
year 1998 ended on February 27, 1999. For interim reporting
purposes, the Company closes its books on the Saturday of the
thirteenth week of the fiscal quarter.
(c) Management Estimates Used in the Preparation of Financial
Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
F-9
(d) Cash and Cash Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents.
(e) Revenue Recognition
Revenue from retail operations is recognized at the time of
sale. Revenue from catalog sales is recognized upon shipment
to the customer.
(f) Inventories
The Company values inventories, which consist of merchandise
held for resale, at the lower of cost (weighted average) or
market.
(g) Prepaid Catalog Expenses
The Company capitalizes direct costs relating to the
production and distribution of its mail-order catalogs. These
costs are charged to operations over the period during which
revenues are derived from the mailings which is predominately
one year or less from the date of mailing.
(h) Store Preopening Costs
The Company expenses, as incurred, all preopening costs
related to each new retail store location, in accordance with
Statement of Position (SOP) 98-5, Reporting on Cost of
Start-up Activities.
(i) Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are computed under both the straight-line and
accelerated methods in amounts that allocate the cost of all
assets over their estimated useful lives.
Asset Classification Estimated Useful Lives
Equipment 5 - 10 years
Equipment under capital leases Life of lease, or life of asset,
Whichever is shorter
Furniture and fixtures 10 years
Building 39.5 years
Leasehold improvements Initial lease term or life
of asset, whichever is shorter
F-10
(j) Customer Prepayments
Advance payments received from customers are included in
accrued expenses in the accompanying consolidated balance
sheets and are recognized as revenue upon shipment.
(k) Concentration of Credit Risk
Financial instruments that subject the Company to credit risk
consist primarily of cash and cash equivalents and trade
accounts receivable. The Company places its cash and cash
equivalents in highly rated financial institutions. The
Company's accounts receivable credit risk is not limited to
any particular customer. The Company maintains an allowance
for potential credit losses.
(l) Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and
cash equivalents, accounts receivable, accounts payable and
its bank credit facility. The carrying amounts of the
Company's financial instruments approximate fair value. The
bank credit facility bears interest at variable market rates;
therefore, the carrying amount approximates fair value. The
fair value of certain assets is subject to change pending the
bankruptcy reorganization.
(m) Credit Card Policy
The Company extends credit to customers through third-party
credit cards, including its private-label credit card. Credit
under these accounts is extended by third parties, and
accordingly, the Company bears minimal financial risk from
credit card fraud under these agreements. The Company's
agreements with third-party credit companies provide for the
electronic processing of credit approvals and electronic
submission of transactions. Upon the submission of these
transactions to the credit card companies, payment is
transmitted directly to the Company's bank account usually
within two to four days of the sales transaction. Amounts
relating to fiscal year sales not received by the Company
before year-end are included in accounts receivable in the
accompanying consolidated balance sheets. Fees incurred on
credit card sales are included in selling, general and
administrative expenses.
(n) Income Taxes
Income taxes are provided using the liability method of
accounting in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes. A deferred tax asset or liability is recorded for all
temporary differences between financial and tax reporting.
Deferred tax expense (benefit) results from the net change
during the year of deferred tax assets and liabilities.
F-11
(o) (Loss) Earnings Per Share
Basic earnings per share is computed by dividing the net
income (loss) 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.
Potentially dilutive securities include outstanding options
under the Company's stock option plan. The diluted earnings
per share calculation has been computed using the basic
weighted average shares outstanding, as the effect of options
is anti-dilutive. The were no potentially dilutive shares
excluded from the earnings per share calculations. Below is a
summary of the shares used in calculating basic and diluted
earnings per share:
Fiscal Years Ended
February 24, February 26, February 27,
2001 2000 1999
Weighted average number of shares
Of common stock outstanding 10,651,493 10,651,144 10,648,366
Dilutive stock options 0 0 0
---------- ---------- -----------
Shares used in calculating diluted
Earnings per share 10,651,493 10,651,144 10,648,366
========== ========== ==========
(p) Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with
SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. The
Company continually reviews its long-lived assets for events
or changes in circumstances that might indicate that the
carrying amount of the assets may not be recoverable. The
Company assesses the recoverability of assets by determining
whether the depreciation of such assets over their remaining
lives can be recovered through projected undiscounted future
cash flows. The amount of impairment, if any, is measured
based on projected discounted future cash flows using a
discount rate commensurate with the risk involved. At February
24, 2001, the Company believes all estimated impairment losses
as a result of the bankruptcy process and liquidation of golf
operations have been recognized. Further writedowns are
possible due to changes in the reorganization plans and will
be recognized as known.
Goodwill represented the excess of the purchase price over the
fair market value of identified net assets acquired. Goodwill
was being amortized using the straight-line method over a
period of 20 years, the estimated useful life. During fiscal
year 2000, the balance of goodwill was determined to be
impaired and was written off in accordance with SFAS No. 121.
Accordingly, the Company recognized $1,426,952 of goodwill
amortization during fiscal 2001, $351,588 of goodwill
amortization during fiscal 1999 and $351,588 in fiscal 1998.
F-12
(q) Reclassifications
Certain reclassifications have been made to the 1999 and 1998
financial statements to conform with the 2000 presentation.
(r) Comprehensive (Loss) Income
Comprehensive (loss) income represents net (loss) income plus
the change in equity of a business enterprise resulting from
transactions and other events and circumstances from nonowner
sources. Comprehensive loss equals net loss for the years
ended February 24, 2001, February 26, 2000 and February 27,
1999.
(s) New Accounting Pronouncements
In June 1999, Financial Accounting Standards Board (FASB)
issued SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133, which defers the effective date of SFAS No.
133 to all fiscal quarters of all fiscal years beginning after
June 15, 2000. SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, issued in June 1998,
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded
in other activities. It requires an entity to recognize all
derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair
value. The Company does not anticipate any material impact on
its financial statements from the adoption of SFAS No. 133.
In March 2000, the FASB issued Interpretation Number 44,
Accounting for Certain Transactions Involving Stock
Compensation--An Interpretation of APB No. 25. The
interpretation clarifies the application of Accounting
Principles Board (APB) No. 25, Accounting for Stock-Issued to
Employees, in certain situations, as defined. The
Interpretation was effective on July 1, 2000 but covers
certain events having occurred after December 15, 1998. The
adoption of this Interpretation did not have a material impact
on the accompanying financial statements.
In December 1999, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 101 (SAB 101), Revenue
Recognition. On March 24, 2000, the SEC deferred
implementation of SAB 101 until the second calendar quarter of
2000, and on June 26, 2000, implementation was further
deferred until the fourth quarter of calendar 2000. The
Company was required to comply with this guidance no later
than the fourth quarter of fiscal 2000. The adoption of this
guidance did not have a material impact on the accompanying
financial statements.
F-13
(3) REORGANIZATION PLAN
On August 11, 2000, the Company filed for Bankruptcy Protection under
Chapter 11 of the U.S. Bankruptcy Code and is operating as a
debtor-in-possession under control of the Bankruptcy Court. In the
Chapter 11 case, substantially all liabilities as of the date of the
filing were subject to settlement under a plan of reorganization to be
voted upon by the Company's creditors and stockholders and confirmed
by the Bankruptcy Court. Schedules have been filed by the Company with
the Bankruptcy Court setting forth the assets and liabilities of the
Company as of the date of the Filing as shown by the Company's
accounting records. Differences between amounts shown by the Company
and claims filed by creditors are being investigated and resolved. The
ultimate amount and settlement terms for pre-petition liabilities were
subject to a confirmed plan of reorganization which was approved in
October 2001 (see Note 17), and accordingly, were not determinable as
of February 24, 2001. The Company has continued to operate in
bankruptcy through the use of BankofAmerica's cash collateral (with
court approval).
The components of the reorganization expense during fiscal year 2000
are as follows:
Professional Fees $ (1,658)
Provision for retention of key employees (556)
Interest income 462
Provision for occupancy and other store closing
costs (223)
Net asset/liability write-offs (317)
----------
Total Reorganization Expense $ (2,292)
==========
Following approval of the reorganization plan, the Company expects to
adopt "fresh-start" reporting under SOP 90-7.
F-14
(4) INCOME TAXES
The components of the (benefit) provision for income taxes shown in the
consolidated statements of operations are as follows (in thousands):
Fiscal Years Ended
February 24, 2001 February 26, 2000 February 27, 1999
Current
Federal $ 0 $ 0 ($1,631)
State 0 0 424
-------- ------- -------
0 0 ($1,207)
-------- ------- -------
Deferred
Federal 0 3 83
State 0 22 (599)
- ------- -------
0 25 (516)
------- ------- -------
$ 0 $ (25) ($1,723)
======= ======= =======
The reconciliation of the federal statutory rate to the benefit for
income taxes is as follows:
Fiscal Years Ended
February 24, 2001 February 26, 2000 February 27, 1999
Income tax benefit at federal
statutory rate (34.0%) (34.0%) (34.0%)
State taxes, net of federal
Benefit (6.0%) (6.0%) (4.4%)
Other, net - - 5.8%
Increase in valuation allowance 40.0% 40.0% -
------ ------ -------
-% -% (32.6%)
====== ====== =======
F-15
Significant items giving rise to deferred tax assets and deferred tax
liabilities at February 24, 2001 and February 26, 2000 are as follows:
February 24, 2001 February 26, 2000
Inventories $ 931 1,389
Prepaid catalog - (833)
Cash discount - (766)
State operating loss carryforward 6,523 1,886
Federal operating loss carryforward 17,046 2,155
Other nondeductible reserves and accruals 2,148 540
Depreciation and amortization (337) (76)
--------- ---------
Net $ 26,311 $ 4,245
Valuation Allowance (26,311) (4,245)
--------- ---------
Net Asset $ 0 $ 0
--------- ---------
At February 24, 2001, the Company had in excess of $40 million of
federal loss carry-forwards, which are subject to review by the
Internal Revenue Service. Reorganization of the Company may result in
an ownership change (within the meaning of IRC Section 382). This will
result in limitations on the Company's ability to utilize the loss
carry-forwards. In addition, the Company expects to realize
cancellation of indebtedness income in connection with the
reorganization, which will serve to further reduce or limit the use of
loss carry-forwards. Future financial statement benefit of the net
operating losses will be recognized as realized.
(5) BANK CREDIT FACILITY
At February 24, 2001, the Company had approximately $47.6 million of
borrowings outstanding and approximately $.1 million of letters of
credit outstanding. The Company did not have any available borrowings
under its credit facility at February 24, 2001. The bank has a security
interest in substantially all assets of the Company. Interest is
payable monthly. The bank credit facility agreement contains certain
financial covenants, including, but not limited to, maintaining minimum
levels of tangible net worth, and interest coverage ratios and
limitations on capital expenditures. At February 24, 2001, the Company
was in default under the credit agreement; however, it had obtained
court permission to utilize the bank's cash collateral to operate
pending reorganization. On April 2, 2001, the Company made an
additional $5 million payment to the bank.
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 BankofAmerica (the "Exit Financing Facility"). The Exit
Financing Facility bears interest equal to LIBOR plus 3.25% (8.13% at
February 24, 2001) or the bank's reference rate plus 1.00% (10.25% at
February 24, 2001) and is secured by all assets. 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.
F-16
As part of an amendment in June 2000 to amend certain financial
covenants, the Company issued to 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 value of the
warrants was deemed to be immaterial by the Company.
At February 26, 2000, the Company had approximately $65.0 million of
borrowings outstanding and approximately $.1 million of letters of
credit outstanding. The Company had approximately $2.1 million in
available borrowings under its credit facility at February 26, 2000. At
February 26, 2000, the Company was not in compliance with net worth and
interest coverage financial covenants. However, the Company obtained a
waiver of default.
(6) STOCKHOLDERS' EQUITY
The following details the rights, preferences and privileges of the
common and preferred stock prior to their cancellation as a result of
the reorganization (see Note 17):
(a) Common Stock
The rights and privileges of the common stockholders were as
follows:
Voting Rights
Holders of Class A common stock were entitled to one vote per
share. Holders of Class B common stock were entitled to 10
votes per share. Holders of both classes were entitled to vote
together as one class on all matters, with certain exceptions,
including the election of directors. Each share of Class B
common stock was convertible to one share of Class A common
stock.
Dividends
Holders of Class A common stock and Class B common stock taken
together as a single class were entitled to receive such
dividends as may be declared by the Board of Directors. There
were no dividends declared during the fiscal year presented
herein.
F-17
(b) Preferred Stock
On May 9, 1994, the Board of Directors and stockholders voted
to authorize 1,000,000 shares of preferred stock, $.01 par
value. The Board of Directors has the right to establish any
rights and preferences of any series of preferred stock it so
designates. At February 24, 2001 and February 26, 2000, there
were no issued or outstanding shares of preferred stock and
the Board of Directors had not established any rights or
preferences.
(c) Stock Option Plans
On September 30, 1993, the Board of Directors and stockholders
approved the 1993 Employee Stock Option Plan (the Option
Plan), which provides for the grant of options to purchase
shares of Class A common stock to employees of the Company. An
employee's right to exercise such options is subject to
vesting, generally over four to seven years or in such
percentages as defined by the Board of Directors, and
terminates 10 years from the date of grant. A total of
2,275,000 shares of Class A common stock were reserved for
options to be granted under the Option Plan.
On May 9, 1994, the Board of Directors and stockholders
approved the 1994 Non-Qualified Stock Option Plan for
Non-Employee Directors (the Director Plan), which provided for
the grant of non-qualified options to purchase shares of Class
A common stock to non-employee directors of the Company. A
total of 90,000 shares of Class A common stock were reserved
for options grants under the Director Plan. These options
vested three years after the date of grant and terminated 10
years from the date of grant.
F-18
Activity under the Option Plan and Director Plan is summarized
as follows:
Option Plan Director Plan
Number Exercise Price per Number Exercise Price per
of Shares Share of Shares Share
Outstanding, February 28, 1998 1,114,388 $1.84 - $7.06 43,000 $4.00 - $7.06
Granted 233,950 $4.50 2,000 4.50
Terminated (122,483) 1.84 - 7.06 (10,500) 4.00
Exercised (14,890) 1.84 - 7.06 (12,500) 4.00 - 7.00
------------- --------------- ------------ --------------
Outstanding, February 27, 1999 1,210,965 $1.84 - $7.06 22,000 $4.00 - $7.06
Granted 46,000 $1.43 - $2.00 - -
Terminated (182,525) $1.84 - $7.06 - -
Exercised (858) $1.84 - -
------------- --------------- ------------ --------------
Outstanding, February 26, 2000 1,073,582 $1.43 - $7.06 22,000 $4.00 - $7.06
Granted 284,913 1.50 20,000 1.50
Terminated (4,000) 1.50
Exercised - - - -
------------- --------------- ------------ --------------
Outstanding, February 24, 2001 1,354,495 $ 1.43 - $7.06 42,000 $ 1.50 - $7.06
============= =============== ============ ==============
Exercisable, February 24, 2001 849,649 $ 1.84 - $7.06 20,000 $ 4.00 - $7.06
============= =============== ============ ==============
Set forth below is a summary of options outstanding and
exercisable as of February 24, 2001.
(Outstanding) (Exercisable)
Range of Exercise Options Weighted Average Remaining Options Weighted Average
Prices Exercise Price Contract Life Exercise Price
- ---------------------- ------------------ ------------------ ------------------- ------------------ -------------------
$1.43 - 2.00 682,456 $ 1.68 5.90 335,583 $ 1.84
4.00 - 4.88 645,439 4.38 4.70 481,916 4.36
5.75 - 7.06 68,600 6.68 6.28 52,150 6.81
The Company accounts for its stock-based compensation plans
under APB Opinion No. 25, Accounting for Stock Issued to
Employees. The Company has adopted the disclosure-only
alternative under SFAS No. 123, which requires disclosure of
the pro forma effects on earnings and earnings per share as if
SFAS No. 123 had been adopted, as well as certain other
information. The Company has computed the pro forma
disclosures required under SFAS No. 123 for all stock options
granted as of February 24, 2001, February 26, 2000 and
February 27, 1999 using the Black-Scholes option pricing model
prescribed by SFAS No. 123.
F-19
The assumptions used and the weighted average information for
the fiscal years ended February 24, 2001, February 26, 2000,
and February 27, 1999, are as follows:
Fiscal Years Ended
February 24, February 26, February 27,
2001 2000 1999
Risk-free interest rate 5.95- 6.45% 6.7% 6.25% - 6.55%
Expected dividend yield - - -
Expected lives 5 - 7.5 years 5 - 7.5 years 5 - 7.5 years
Expected volatility 85% 85% 85%
Weighted average grant-date fair value of options
granted during the period $ 0.96 $ 1.64 $ 3.09
Weighted average exercise price of options
outstanding $ 3.17 $ 3.63 $ 3.87
Weighted average remaining contractual life of
options outstanding 5.36 years 5.32 years 6.32 years
Weighted average exercise price of 869,649,
735,476, and 531,636 options exercisable at
February 24, 2001, February 26, 2000, and
February 27, 1998, respectively $ 3.54 $ 3.20 $ 3.13
The effect of applying SFAS No. 123 would be as follows (in thousands
except per share amounts):
Fiscal Years Ended
February 24, February 26,
2001 2000 February 27, 1999
Pro forma net (loss) income ($53,460) ($7,725) ($7,729)
Pro forma basic net (loss) income per share ($5.02) ($0.73) ($0.73)
Pro forma diluted net (loss) income per share ($5.02) ($0.73) ($0.73)
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to February 28, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
the future years.
(d) Treasury Stock
On August 15, 1996, the Company's Board of Directors approved
a stock repurchase plan, whereby the Company may purchase up
to 500,000 shares of common stock at fair market value to be
used for future stock option programs, investment and/or other
corporate purposes. As of February 24, 2001, the Company had
purchased 500,000 shares of Class A common stock for
approximately $2.5 million,
F-20
(e) 1997 Employee Stock Purchase Plan
In October 1997, the Company's Board of Directors approved the
1997 Employee Stock Purchase Plan (the Purchase Plan), whereby
the Company has reserved and may issue up to an aggregate of
250,000 shares of its Class A common stock for issuance in
accordance with the Purchase Plan. Under the terms of the
Purchase Plan, employees who meet certain eligibility
requirements may purchase shares of the Company's common stock
at the closing price of the common stock on the day
immediately preceding the purchase date or the nearest prior
business day on which trading occurred. There were no shares
purchased under the Purchase Plan during the current fiscal
year.
(7) ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (in thousands):
February 24, 2001 February 26, 2000
----------------- -----------------
Credit card receivables $ 1,048 $ 1,470
Other 813 814
Trade receivables 1,527 1,022
Allowance for doubtful accounts (440) (240)
-------- ---------
$ 2,948 $ 3,066
======== ========
(8) PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following (in
thousands):
February 24, 2001 February 26, 2000
Other $1,475 $1,478
Prepaid advertising 145 923
Prepaid rent 36 42
------ ------
$1,656 $2,443
====== ======
F-21
(9) PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
February 24, 2001 February 26, 2000
Land $ 186 $ 186
Building 672 672
Furniture and fixtures 6,150 8,204
Equipment 15,253 12,559
Equipment under capital lease 2,453 3,862
Leasehold improvements 5,094 5,009
------- -------
$29,808 $30,492
Less - Accumulated depreciation and amortization 16,809 14,682
------- -------
$12,999 $15,810
======= =======
At February 24, 2001 and February 26, 2000, the accumulated
depreciation associated with equipment under capital lease was
approximately $1.8 million and $2.9 million, respectively.
(10) TRANSACTIONS WITH RELATED PARTIES AND STOCKHOLDERS
The Company had a lease arrangement with Mystic United Realty Trust
(Mystic), for warehouse space at its Chelsea, Massachusetts, facility
(the Chelsea facility) under a non-cancelable lease through 2005. The
chief executive officer/principal stockholder of the Company is a
trustee and beneficiary of Mystic. Under the lease, the Company must
pay to Mystic, in the form of additional rent, all insurance, real
estate taxes, maintenance and operating cost related to the leased
premises, which approximate $0.4 million annually (see Note 11). This
lease was terminated in December 2000.
During the fourth quarter of fiscal 1999, 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 $3.0 million. All these loans
were repaid at February 26, 2000. The Company expects to obtain
additional unsecured demand loans from either or both of these lenders
from time to time which, if made, are expected to be repayable without
interest.
During the second quarter of fiscal 2000, the Company's chief executive
officer/principal stockholder of the Company made interest-free
unsecured loans to the Company in the aggregate amount of $3.5 million.
These loans are presented as note payable to officer in the
accompanying consolidated balance sheet as of February 24, 2001.
F-22
(11) COMMITMENTS AND CONTINGENCIES
(a) Capital Leases
The Company leases computers and other equipment under several
lease agreements that qualify for capitalized treatment under
SFAS No. 13, Accounting for Leases. These agreements require
monthly payments including interest at rates ranging from
5.11% to 10.84%, and expire at various dates through February
2002.
Future minimum lease payments under capital lease obligations
at February 24, 2001 are as follows (in thousands):
Fiscal Year Amount
2001
$ 232
-----
Total minimum lease payments 232
Less - Amounts representing interest 14
-----
Obligations under capital leases 218
Less - Current portion of capital lease obligations 218
-----
$ (0)
=====
(b) Operating Leases
The Company leases retail stores, warehouse and office space,
and certain machinery and equipment under lease agreements
expiring through February 2004, including related party lease
agreements. Approximate future minimum lease payments under
operating leases as of February 24, 2001 are as follows:
Fiscal Year Total
(in thousands)
2001 $ 8,888
2002 6,922
2003 4,950
2004 4,305
2005 1,428
Thereafter 1,912
----------
$ 28,405
==========
Rent and related expenses charged to operations during each of
the years ended February 24, 2001, February 26, 2000, and
February 27, 1999 were approximately $12.1, $19.1, and $18.0,
million, respectively.
F-23
Subsequent to February 24, 2001, as part of retail store
closings and the relocation of corporate headquarters, the
Company amended various lease agreements. After amending the
agreements, the approximate future minimum lease payments are as
follows:
Fiscal Year Total
(in thousands)
2001 $ 7,678
2002 6,367
2003 4,408
2004 3,441
2005 2,080
Thereafter 1,912
---------
$ 25,886
=========
(c) Litigation
The Company, exclusive of matters relating to the Filing (See
Note 3), is party to various types of litigation in the
ordinary course of business. The Company believes it has
meritorious defenses to all claims, and, in its opinion, all
litigation currently pending or threatened will not have a
material effect on the Company's financial position or results
of operations.
(12) PROFIT SHARING PLAN
The Company maintains a profit sharing plan (the Plan) that provides
for tax deferred employee benefits under Section 401(k) of the Internal
Revenue Code. The Plan allows employees to make contributions, a
portion of which will be matched by the Company, up to the lesser of 3%
of an employee's salary or the minimum amount allowed by law, as
defined. The Company may elect to make an additional discretionary
contribution in any Plan year. There were no discretionary Company
contributions made during the fiscal years ended February 24, 2001,
February 26, 2000, and February 27, 1999. The Company's contributions
vest at a rate of 20% per year, beginning after one year of employment.
The Company has made matching contributions of approximately $0.2
million to the Plan for the fiscal year ended February 24, 2001, $0.3
million for the fiscal year ended February 26, 2000, and $0.2 million
for the fiscal year ended February 27, 1999. The Company pays the
administrative costs of the Plan.
(13) SIGNIFICANT VENDOR
Purchases from the Company's largest single supplier were 16.1%, 8.8%,
and 10.8% of total purchases for the years ended February 24, 2001,
February 26, 2000, and February 27, 1999, respectively.
F-24
(14) SELECTED INFORMATION BY BUSINESS SEGMENTS
The Company reports segment information according to SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information.
SFAS No. 131 requires disclosures about operating segments in annual
financial statements and requires selected information about operating
segments in interim financial statements. Operating segments are
defined as components of an enterprise about which separate financial
information is available which is evaluated regularly by the chief
operating decision maker, or decision makers, in deciding how to
allocate resources and in assessing performance. The Company's chief
operating decision maker is the chief executive officer.
The Company sold its products through its Woodworkers Warehouse retail
stores and its catalogs. These businesses have been aggregated into
their respective reportable segments based on the management reporting
structure. The accounting policies of the business segments are the
same as those described in the summary of significant accounting
policies. This information excludes financial data related to the
discontinued golf business.
Information as to the operations of the different continuing business
segments is set forth below for each of the years ended February 24,
2001, February 26, 2000 and February 27, 1999 (in thousands):
Fiscal Years Ended
February 24, 2001 February 26, 2000 February 27, 1999
Net sales
Retail $ 140,917 $ 156,903 $ 148,444
Catalog 13,792 21,280 27,944
--------- --------- ---------
154,709 178,183 176,388
========= ========= =========
Income (loss) from continuing operations
Retail $ (3,710) $ 10,476 $ 5,518
Catalog (876) 3,840 2,462
General corporate (17,676) (14,436) (11,536)
--------- --------- ---------
(22,262) (120) (3,556)
========= ========= =========
Identifiable assets
Retail $ 67,007 $ 118,698 $ 98,560
Catalog 2,123 10,994 12,431
General corporate 11,812 19,216 11,676
--------- --------- ---------
80,942 148,908 122,667
========= ========= =========
Depreciation and amortization
Retail $ 1,134 $ 3,009 $ 2,345
Catalog 80 140 170
General corporate 912 717 703
--------- --------- ---------
$ 2,126 $ 3,866 $ 3,218
========= ========= =========
Capital expenditures
Retail $ 552 $ 695 $ 2,564
Catalog -- 39 161
General corporate -- 3,036 757
--------- --------- ---------
$ 552 $ 3,770 $ 3,482
========= ========= =========
F-25
The Company operated from a single distribution center in Revere,
Massachusetts, for its Woodworkers Warehouse operations and utilizes
common labor pools, common management at the corporate level and a
single telemarketing sales force. As a result, many of the expenses of
the Company are shared between the business segments and are reflected
as general corporate expenses.
(15) QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following summarized unaudited results of operations for fiscal
year 2001 and 2000 have been accounted for using generally accepted
accounting principles for interim reporting purposes and include
adjustments (consisting of normal recurring adjustments) that the
Company considered necessary for the fair presentation of results for
the interim periods shown below. (In thousands, except per share
amounts):
First Second Third Fourth
Quarter Quarter Quarter Quarter
Fiscal Year 2000
Net sales $ 44,132 $ 34,475 $ 34,982 $ 41,120
Gross Profit 12,003 8,655 10,647 12,406
Loss on discontinued operations (2,608) (5,789) (578) --
Loss on disposal of discontinued operations -- (22,087) 16 217
Net loss (3,814) (37,676) (4,805) (6,796)
Basic and diluted loss per share from continuing
operations $ (0.11) $ (0.92) $ (0.40) $ (0.66)
Basic and diluted net loss per share from discontinued
operations $ (0.25) $ (0.54) $ (0.05) --
Basic and diluted net loss per share from disposal of
discontinued operations -- (2.07) $ 0.00 $ 0.02
Basic and diluted net loss per share $ (0.36) $ (3.53) $ (0.45) $ (0.64)
Basic and diluted weighted average common shares
outstanding 10,651,493 10,651,493 10,651,493 10,651,493
F-26
First Second Third Fourth
Quarter Quarter Quarter Quarter
Fiscal Year 1999
Net sales $ 44,140 $ 38,758 $ 41,012 $ 54,273
Gross Profit 13,795 11,312 13,225 16,028
(Loss) income on discontinued operations (394) 327 (677) (5,403)
Net (loss) income 170 487 89 (8,331)
Basic and diluted net income (loss) per share from
continuing operations $ 0.05 $ 0.01 $ 0.07 $ (0.27)
Basic and diluted net (loss) income per share from
discontinued operations $ (0.03) $ 0.03 $ (0.06) $ (0.51)
Basic and diluted net income (loss) per share $ 0.02 $ 0.04 $ 0.01 $ (0.78)
Basic and diluted weighted average common
shares outstanding 10,651,144 10,651,144 10,651,144 10,651,144
(16) DISCONTINUED OPERATIONS
On August 11, 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
Opinion No. 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 of the golf division have been
reported as "Net loss from discontinued operations" in the accompanying
consolidated statements of operations; the net loss from the disposal
of the golf division has been presented as "Net loss on disposal"; and
the net cash flows of the golf division have been reported as "Net cash
used in discontinued operations" in the accompanying consolidated
statements of cash flows. Net sales for the golf division were
approximately $55,189, $92,448 and $86,162 for fiscal years 2000, 1999
and 1998. Net assets (liabilities) of discontinued operations were as
follows (in thousands):
F-27
February 24, February 26,
2001 2000
----------------- ------------------
Accounts receivable, net $ 2,607 $ 5,578
Inventories -- 52,743
Prepaid expenses and other current assets -- 1,118
Property and equipment, net -- 4,543
Other assets -- 6,574
Bank credit facility -- (32,880)
Current portion of capital lease obligation -- (103)
Pre-petition accounts payable (13,620) (14,218)
Post-petition accounts payable (7) --
Accrued expenses (2,571) (705)
Deferred liabilities (451) (936)
Other current liabilities -- (253)
Capital lease obligations, net of current portion -- (26)
-------- --------
$(14,042) $ 21,435
======== ========
(17) PLAN OF REORGANIZATION
On October 17, 2001, the Company's plan for reorganization (the Plan)
was approved by the Bankruptcy Court. Under the Plan, the Company will
continue to operate its newly streamlined company, reorganized around
its retail store operation doing business under the name Woodworkers
Warehouse. The Plan calls for the Company to satisfy the claims of its
unsecured non-priority creditors by both (i) a cash distribution of
$2,000,000 on January 15, 2002, and (ii) the issuance of new shares of
common stock in the reorganized company. The existing shareholders of
common stock in the Company will have their shares cancelled and will
not otherwise be entitled to any distributions.
The approved Plan treats all the claims as follows:
Class 1 - BankofAmerica Bank Credit Facility
The Bank Credit Facility issued to the Company by the
BankofAmerica 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 4 for further information on 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 for the
corporate offices to the Company which were impaired by the
Plan. 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 any 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 4
general unsecured claim.
F-28
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 holders of claims that would otherwise
be a Class 5 General Unsecured Claim that are 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 been 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 and other general unsecured claims and were
deemed to be impaired by the Plan. The Company estimated the
total amount of Class 5 claims to be $55,000,000. Each holder of
a claim in Class 5 was to 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 of the reorganized
company on the Effective Date. After consultation with claimants
representing a majority of the claims, the Company deferred
payment of the $2,000,000.
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 Joint Plan.
On the Effective Date, the reorganized company is authorized to
execute and deliver the documents necessary or appropriate to
consummate the Exit Financing Facility described in Note 4.
The Company believes that projected cash flows from operations in
combination with current available resources are sufficient to meet
working capital needs, and debt payments pursuant to the Company's
Chapter 11 Plan. Achievement of projected cash flows from operations,
however will be dependent upon the Company's attainment of sales,
gross profit, expense and trade support levels that are consistent
with its financial plans. Such operating performance will be subject
to financial, economic and other factors affecting the industry and
operations of the Company, including factors beyond its control, and
there can be no assurance that the Company's plans will be achieved.
In addition, the Company borrows funds on a variable rate basis and
continued compliance with loan covenants under the Exit Financing
Facility is partially dependent on relative interest rate stability.
If projected cash flows from operations are not realized, or if there
are significant increases in interest rates, then the Company may have
to explore various available alternatives, including obtaining further
modification to its existing lending arrangements or attempting to
locate additional sources of financing.
F-29
SCHEDULE I
TREND-LINES, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
Balance, Charged to
Beginning Of Costs and Balance, End
Period Expenses Deductions Of Period
ALLOWANCE FOR DOUBTFUL ACCOUNTS
February 27, 1999 $179 $ -- $ 4 $175
==== =========== =========== ====
February 26, 2000 $175 $ 71 $ 7 $239
==== =========== =========== ====
February 24, 2001 $239 $ 201 $ -- $440
==== =========== =========== ====
S-1