SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-24868
E&B MARINE INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-2430891
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 Meadow Road
Edison, New Jersey 08818
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 819-7400
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Indicate by a 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 as the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class 3,843,074
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Common Stock, $.001 par value Shares outstanding at
November 3, 1995
E & B MARINE INC. AND SUBSIDIARIES
INDEX
Page No.
Part I - Financial Information --------
Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994 3
Consolidated Statements of Operations -
Nine Months and Three Months ended
September 30, 1995 and September 24, 1994 4
Consolidated Statements of Cash-Flows -
Nine Months ended September 30, 1995
and September 24, 1994 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results
of Operations 7 - 8
Part II - Other Information
Item 5. Other information 9
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
E&B MARINE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1995 1994
Dollars in Thousands UNAUDITED
ASSETS
Currents Assets:
Cash and cash equivalents $ 640 $ 719
Accounts receivable 769 501
Inventory 26,243 19,987
Prepaid expenses 1,229 802
Other current assets 2,782 2,690
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Total current assets 31,663 24,699
Property, plant and equipment, net 5,202 4,569
Excess of cost over fair value of
assets acquired, net of
amortization 2,059 2,112
Other assets 692 2,613
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TOTAL ASSETS $39,616 $33,993
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Revolving line of credit
Current maturities of long-term debt $ 1,295 $ 1,282
Accounts payable 7,569 6,370
Accrued expenses 3,420 4,000
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Total current liabilities 12,284 11,652
Revolving line of credit 12,484 9,427
Long-term debt, less current
maturities 1,661 2,536
Shareholders' Equity:
Common Stock 4 4
Additional paid-in capital 21,120 21,002
Accumulated deficit (5,853) (8,500)
Less:
Treasury stock-at cost (2,084) (2,084)
Value assigned to unearned
compensation 0 (44)
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Total Shareholders' Equity 13,187 10,378
LIABILITIES AND SHAREHOLDERS' EQUITY $39,616 $33,993
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See accompanying notes to consolidated financial statements.
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E&B MARINE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIODS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 24, 1994
UNAUDITED
Dollars in Thousands, NINE MONTHS THREE MONTHS
except per share amounts 1995 1994 1995 1994
Net sales $91,278 $83,448 $29,367 $27,456
Cost of goods sold excluding
amortization and depreciation 65,658 59,881 20,997 19,518
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Gross profit 25,620 23,567 8,370 7,938
Selling, general and
administrative expenses 19,288 16,978 6,421 5,689
Depreciation and amortization 847 924 277 328
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Income from operations before
interest and income taxes 5,485 5,665 1,672 1,921
Interest expense 1,068 828 302 209
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Income before income taxes 4,417 4,837 1,370 1,712
Income tax expense (benefit) 1,770 (2,500) 549 (2,500)
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Net Income $2,647 $7,337 $821 $4,212
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Per share amounts:
Net Income $0.64 $1.69 $0.20 $0.96
Weighted average number
of shares outstanding 3,729,000 3,690,000 3,744,000 3,692,000
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See accompanying notes to consolidated financial statements.
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E&B MARINE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 24, 1994
UNAUDITED
Dollars in Thousands 1995 1994
Cash flows from operating activities:
Net Income $ 2,647 $ 7,337
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 847 924
Decrease (increase) in deferred tax asset 1,770 (2,500)
Earned compensation related to ESOP 44 67
Change in assets and liabilities net of
non-cash transactions:
(Increase) in accounts receivable (268) (133)
(Increase) in inventory (6,256) (2,658)
(Increase) in prepaid expense (427) (559)
Decrease in other assets 127 197
Increase in accounts payable 1,199 3,442
(Decrease) in accrued expenses (580) (1,607)
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Net cash (used in) provided by
operating activities (989) 4,421
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Cash flows from investing activities:
Purchase of property, plant and equipment (1,403) (1,400)
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Net cash used in investing activities (1,403) (1,400)
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Cash flows from financing activities:
Borrowings under debt agreements 9,952 6,634
Payments of debt (7,757) (9,214)
Proceeds from issuance of stock (net) 118 18
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Net cash provided by (used in)
financing activities 2,313 (2,562)
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Net change in cash (79) 459
Cash and cash equivalents at beginning of year 719 395
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Cash and cash equivalents at end of quarter $ 640 $ 854
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See accompanying notes to consolidated financial statements.
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E & B MARINE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1:Basis of Presentation
The financial information included herein is unaudited; however,
such information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management, necessary
for a fair statement of results for the interim periods.
The results of operations for the nine-month period ended September 30, 1995
are not necessarily indicative of the results to be expected for the full
year.
2:Inventories
Inventory has been calculated using the cost complement obtained from the
inventory tracking system which is applied on an individual store basis.
Additionally, gross profit margin is reduced by an estimated percentage of
sales for shrinkage.
3:Income per Common Share
The Company has computed Income per Common Share on the basis of the
weighted average number of Common Shares and common equivalent shares
outstanding during the period, in accordance with the modified treasury
stock method. This method assumes that common stock equivalents (options
and warrants) are exercised and treasury shares are assumed to be purchased
(not to exceed 20% of the weighted average number of Common Shares
outstanding) from the proceeds using the average market price for the
period. Any excess proceeds not utilized for the purchase of treasury
shares are assumed to reduce outstanding debt with an appropriate reduction
of interest expense. Proceeds which exceed outstanding debt are assumed
to be invested in government securities. Under such assumptions, for the
nine-months ended September 30, 1995 and September 24, 1994 and for the
three-months ended September 30, 1995 and September 24, 1994, 827,000,
814,000, 865,000 and 820,000 incremental Common Shares, respectively,
have been added to the weighted average number of shares outstanding and
net interest has been adjusted by approximately $280,000, $294,000,
$105,000 and $99,000, respectively. The 1995 interest amounts
have been tax effected at 40%.
No fully diluted per share amounts are shown in 1995 and 1994 since the
closing market price is less than the average market price for the period.
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E & B MARINE INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
RESULTS OF OPERATIONS
Consolidated net sales for the three-month period ended September 30, 1995
were $29,367, an increase of $1,911 or 7.0 percent from sales of $27,456
for the nine-month period ended September 24, 1994. Sales of $91,278 for
the nine-month period ended September 30, 1995 increased $7,830 or 9.4
percent from the comparable prior period.
Retail store net sales were $25,648 for the three-month period ended
September 30, 1995, an increase of 9.0 percent from net sales of $23,521
in 1994. Sales in stores opened during the comparable three-month periods
in 1995 and 1994 decreased $327 or 1.4 percent. A later ending of the
third quarter of 1995 due to the Company's 52-53 weeks fiscal year
contributed to these decreases. Retail store net sales were $78,209
for the nine-month period ended September 30, 1995, an increase of 12.8
percent from the prior year.
The increase in retail store sales was principally attributable to the
opening of superstores and relocations or renovations of several key
outlets. Comparable retail store sales for the third quarter
of 1995 would have increased 6.5 percent from the third quarter of 1994
had fiscal 1994 been a 52 week year.
Mail-order net sales were $3,719 for the three-month period ended September
30, 1995, a decrease of 5.5 percent from net sales of $3,935 for the
three-month period ended September 24, 1994. Sales for the nine-month
period ended September 30, 1995 were $13,069, a decrease of 7.3 percent from
the comparable period in 1994.
The decrease in mail-order sales was primarily attributable to increased
competition due to the opening of new retail outlets.
Gross profit as a percentage of net sales was 28.5 percent for the
three-month period ended September 30, 1995 compared to 28.9 percent for
1994. For the nine-months ended September 30, 1995, the gross profit
margin was 28.1 percent, slightly under the 28.2 percent for the same period
in 1994.
Selling, general and administrative ("SG&A") expenses for the three-month
period ended September 30, 1995 increased $732 or 12.9 percent from the
comparable 1994 period. As a percentage of net sales, SG&A increased from
20.7 percent in the 1994 third quarter to 21.9 percent in the 1995 third
quarter. For the nine-months ended September 30, 1995, SG&A increased
$2,310 from the previous year. As a percentage of net sales, SG&A
increased from 20.3 percent in 1994 to 21.1 percent in 1995. The increase
in SG&A was principally associated with the opening of new stores.
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E & B MARINE INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
Net interest expense of $302 for the three-month period ended September 30,
1995 increased $93 from $209 in 1994. Year to date, net interest expense
has increased by $240 over 1994. The increase in interest expense is
principally attributable to the increase in interest rates as well as
additional borrowings needed to support the Company's expansion program.
During the first nine months of 1995, the Company has opened seven new
retail stores and has relocated or remodeled retail stores.
Net income for the three-months ended September 30, 1995 of $822 was $3,391
less than the net income of $4,212 for the comparable 1994 period. Year
to date, net income decreased $4,690 from $7,337 in 1994 to $2,647 in 1995.
The net income reported for the third quarter of 1995 and the nine months
ended September 30, 1995 included tax provisions of $549 and $1,770,
respectively, whereas there was a credit to income taxes of $2,500 in both
the three and nine month periods of 1994, due to the reversal of tax
valuation reserves.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at September 30, 1995 and December 31, 1994
was $19,379 and $13,047, respectively. The increase in working capital
was mainly attributable to the earnings for nine months of 1995 as well
as the classification of borrowings as long-term under the terms of the
Company's credit facility. The Company has also increased its inventory
to enlarge its product assortment and to accommodate new retail store
openings. The increased inventory was financed through cash flow from
operations and various payment terms which the Company has established
with its vendors.
The Company believes that its cash flow from operations and its credit
facility will be adequate to meet identifiable working capital requirements
in the foreseeable future. Total weighted average borrowings for the third
quarter of 1995 of $12,182 was compared to $8,727 in 1994. For the nine-
months ended September 30, 1995, average borrowings were $14,380, an increase
over the $11,648 in the prior year. The weighted average interest rate for
the third quarter was 9.78% in 1995 and 8.72% in 1994. For the nine-month
period, the average interest rate was 9.87% for 1995 and 8.61% for 1994.
Cash flow from operations, combined with its available lines of credit of
$15,000 and $2,500 are expected to provide the necessary funds for planned
capital expenditures during the remainder of 1995 and 1996. These
expenditures are estimated to total approximately $3,000 in 1995 and
primarily constitute expenditures for store expansion, relocations and
remodelings.
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E&B MARINE INC. AND SUBSIDIARIES
Part II - Other Information
Item 5. Other Information.
Effective October 30, 1995, the Stockholders' Agreement dated as of
February 2, 1989 among E&B Marine Inc. (the "Company") and certain
stockholders of the Company (the "Stockholders Group") holding shares of
common stock, $0.001 par value (the "Common Stock"), constituting
approximately two-thirds of the number of issued and outstanding shares
of Common Stock was terminated. The Stockholders' Agreement contained
restrictions on the transfer of Common Stock held by the Stockholders Group.
As a result of the termination, subject to compliance with applicable
Federal securities laws, the Stockholder Group will be able to freely
transfer their shares of Common Stock, including in open-market transactions.
On November 1, 1995, the Company commenced an exchange offer (the
"Exchange Offer") to certain of its warrant and option holders offering
such holders the opportunity to exchange certain warrants and options to
purchase Common Stock for shares of Common Stock. The Exchange Offer is
based upon exchange ratios and values of such warrants and options
determined by an independent investment banking firm and approved by a
special committee of the Board of Directors of the Company and authorized
by the Board of Directors of the Company. The Company has received
indications that a significant portion of the affected warrants and
options will be exchanged, including those held by the Company's largest
stockholder (and affiliated entities). If all of the affected warrants
and options are exchanged, the Company would issue an aggregate
181,531 shares of Common Stock in exchange for warrants and options to
purchase an aggregate of 1,032,418 shares of Common Stock. In addition,
if all affected warrants and options are exchanged, the resulting noncash
compensation expense (net of taxes) attributable to the exchange would
reduce earnings per share of the Company by approximately $0.08 per share.
The Exchange Offer will be made only by letter to the affected warrant
and option holders and, unless extended, will remain open until December 1,
1995. The Common Stock offered in exchange for the affected warrants and
options has not been and will not be registered under the Securities Act of
1933, as amended (the "Act"), and may not be sold in the United States absent
registration thereof under the Act or absent an applicable exemption from
the registration requirements under the Act. The issuance of the Common
Stock in the Exchange Offer is exempt from the registration requirements
of the Act pursuant to Section 3(a)(9) of the Act.
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E&B MARINE INC. AND SUBSIDIARIES
Part II - Other Information
Item 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1 Third Amendment of Credit Agreement dated as of October 27, 1995
by and among E&B Marine Inc., the subsidiaries of E&B Marine
Inc., and United Jersey Bank.
(Incorporated by reference to the 8-K
dated October 30, 1995.)
99.1 Exchange Offer Letter dated November 1, 1995 to the holders of
certain warrants and options to purchase common stock of E&B
Marine Inc.
(Incorporated by reference to the 8-K
dated October 30, 1995.)
99.2 Press release of E&B Marine Inc. dated November 1, 1995.
(Incorporated by reference to the 8-K
dated October 30, 1995.)
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the
quarter ended September 30, 1995.
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E&B MARINE INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
November 14, 1995 E&B MARINE INC.
By /s/ Kenneth G. Peskin
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Kenneth G. Peskin
Chairman and
Chief Executive Officer
By /s/ Walfrido A. Martinez
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Walfrido A. Martinez
Senior Vice President,
Chief Financial Officer
and Controller
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