UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the quarter ended June 29, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-22515
WEST MARINE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 77-035-5502
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
500 Westridge Drive, Watsonville, CA 95076-4100
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(Address of Principal Executive Offices) (Zip Code)
Registrants Telephone Number, Including Area Code (408) 728-2700
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N/A
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Former Name, Former Address and Former Year, if Changed Since Last Report
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 that 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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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by a check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act subsequent to the distribution of securities under a plan confirmed
by a court.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
At June 29, 1996, the number of shares outstanding of the registrants common
stock was 16,291,106.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WEST MARINE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
June 29, December 30,
ASSETS 1996 1995
----------- ------------
(Unaudited)
Current assets:
Cash $ 2,083 $ 399
Accounts receivable 5,501 2,922
Merchandise inventories 120,259 71,374
Prepaid expense and other current assets 11,202 3,463
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Total current assets 139,045 78,158
Property and equipment, net 25,061 16,500
Intangibles and other assets, net 43,736 1,187
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Total assets $207,842 $95,845
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 38,162 $13,597
Accrued expenses 20,409 5,699
Current portion of long-term debt 408 243
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Total current liabilities 58,979 19,539
Long term debt 28,616 8,284
Deferred rent 839 743
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Total liabilities 88,434 28,566
Stockholders' equity:
Preferred stock, $.001 par value:
1,000,000 shares authorized; no
shares outstanding
Common stock, $.001 par value: 16 15
50,000,000 shares authorized;
issued and outstanding 16,291,106
at June 29, 1996 and 14,938,412
at December 30, 1995
Additional paid-in capital 95,165 50,947
Retained earnings 24,227 16,317
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Total stockholders' equity 119,408 67,279
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Total liabilities and
stockholders' equity $207,842 $95,845
======== =======
See notes to condensed consolidated financial statements.
WEST MARINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STORE DATA)
13 Weeks 13 Weeks 26 Weeks 26 Weeks
Ended Ended Ended Ended
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
-------- ------- -------- -------
Net sales $99,480 $76,084 $149,427 $118,306
Cost of goods sold including
buying and occupancy 67,752 53,604 104,020 84,101
-------- ------- -------- --------
Gross profit 31,728 22,480 45,407 34,205
Selling, general and administrative
expenses 18,691 13,562 31,523 24,429
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Income from operations 13,037 8,918 13,884 9,776
-------- ------- -------- --------
Interest expense 326 462 618 1,076
-------- ------- -------- --------
Income before income taxes 12,711 8,456 13,266 8,700
Provision for income taxes 5,134 3,326 5,356 3,424
-------- ------- -------- --------
Net income $ 7,577 $ 5,130 $ 7,910 $ 5,276
======== ======= ======== ========
Net income per common and common
equivalent share (note 4):
Primary $0.46 $0.35 $0.49 $0.38
----- ----- ----- -----
Full diluted $0.46 $0.35 $0.48 $0.38
----- ----- ----- -----
Weighted average common and common
equivalent shares outstanding (note 4):
Primary 16,462 14,582 16,242 13,860
-------- ------- -------- --------
Fully diluted 16,530 14,592 16,418 13,898
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Stores open at end of period 149 62
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See notes to condensed consolidated financial statements.
WEST MARINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
26 Weeks 26 Weeks
Ended Ended
June 29, July 1,
1996 1995
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Cash flows from operating activities:
Net income $ 7,910 $ 5,276
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,098 1,615
Change in assets and liabilities net of effects of
acquisition:
Accounts receivable (2,467) (2,370)
Merchandise inventories (11,266) (18,589)
Prepaid and other current assets (1,241) (1,239)
Other assets (2,845) (31)
Accounts payable 10,830 4,640
Accrued expenses 6,087 4,261
Deferred rent 96 37
-------- --------
Net cash provided by (used in) operating activities 9,202 (6,400)
Cash flows from investing activities:
Purchase of property and equipment (6,842) (4,142)
Proceeds from sale of property and equipment 0 0
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Net cash used in investing activities (6,842) (4,142)
Cash flows from financing activities:
Net repayments of line of credit (2,221) (9,382)
Repayments on long-term debt (7,020)
Proceeds from issuance of common stock,
net offering costs
Sale of common stock pursuant to````
associate stock purchase plan
Proceeds from issuance of common stock,
net offering costs 27,303
Sale of common stock pursuant to
associate stock purchase plan 301 124
Exercise of stock options 1,244 114
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Net cash provided by (used in) financing activities (676) 11,139
Net increase in cash 1,684 597
Cash:
Beginning of period 399 311
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End of period $ 2,083 $ 908
======= ========
Other cash flow information:
Acquisition of E&B Mairine, Inc. for 1,197,000
shares of common stock (see note 2) $ 41,600
========
See notes to condensed consolidated financial statements.
WEST MARINE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Thirteen and Twenty-six Weeks Ended June 29, 1996 and July 1, 1995 (unaudited)
NOTE 1- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared from the records of the Company without audit, and in the opinion of
management, include all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position at June 29, 1996
and July 1, 1995; and the interim results of operations for the 13 and 26 week
periods ended June 29, 1996 and July 1, 1995; and cash flows for the 26 weeks
then ended. The consolidated balance sheet at December 30, 1995, presented
herein, has been derived from the audited consolidated financial statements of
the Company for the fiscal year then ended.
Accounting policies followed by the Company are described in Note 1 to the
audited consolidated financial statements for the fiscal year ended December 30,
1995. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted for purposes of the condensed
consolidated interim financial statements. The condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements, including the notes thereto, for the year ended December 30, 1995.
The results of operations for the 13 and 26 week periods presented herein are
not necessarily indicative of the results to be expected for the full year.
NOTE 2 - ACQUISITION
On June 17, 1996, the Company completed its acquisition of E&B Marine, Inc. a
specialty retailer of marine supplies with 64 stores and a mail order catalog
operation. Under the terms of the acquisition, all of the outstanding shares of
E&B Marine, Inc. were exchanged for approximately 1,197,000 shares of West
Marine, Inc. common stock. The value of the shares, including the value of
stock options converted, was $41.6 million. The acquisition has been accounted
for as a purchase, and accordingly, the acquired assets and liabilities have
been recorded at their estimated fair values as of the date of the acquisition.
The principal assets acquired and liabilities assumed were inventory ($37.6
million), deferred income taxes ($7.1 million), property ($3.7 million), other
assets ($3.8 million), accounts payable and accrued expenses ($23.6 million),
debt ($21.6 million), and other liabilities ($1.3 million). The excess of the
purchase price over the net assets acquired ($38.4 million) has been included in
intangible assets and will be amortized over a forty year period on a straight-
line basis.
The following unaudited pro forma income statement summary combines the results
of operations of the Company and E&B Marine as if the acquisition had occurred
at the beginning of the 1996 and 1995 fiscal years. The pro forma income
statement summary does not necessarily reflect the results of operations as they
would have been if these combined companies had constituted a single entity
during these periods.
Pro Forma Income Statement Summary:
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26 Weeks 26 Weeks
Ended Ended
June 29, July 1,
1996 1995
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Net sales $206,469 $180,217
Net Income $ 8,203 $ 6,642
Net income per share $ 0.47 $ 0.44
NOTE 3 - LINE OF CREDIT
On June 14, 1996, the Company entered into a new agreement with two banks,
increasing its borrowing capacity from $40 million to $60 million. This credit
agreement provides for a revolving line of credit up to $60 million and allows
for the issuance of commercial and stand by letters of credit up to $5 million
and $10 million respectively. The credit agreement is unsecured and contains
certain restrictive covenants which are substantially the same as those
contained in the previous agreement. The credit agreement expires in July, 1999.
NOTE 4 - STOCK SPLIT
On June 17, 1996, the Board of Directors approved a 2 for 1 stock split,
effected in the form of a stock dividend, payable to shareholders of record on
July 8, 1996. Accordingly, the condensed consolidated financial information
presented herein has been restated to reflect the stock split for all periods
presented. In connection with the stock split, common stock was credited and
additional paid-in capital was charged for the aggregate par value of the shares
that were issued.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
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1995
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Any forward looking statements contained in the following discussion or
elsewhere in this document involve risks and uncertainties which may cause
actual results to differ materially from those discussed. A wide range of
factors could contribute to those differences, including the possibility of
unanticipated costs and difficulties related to the integration of the E&B
Marine acquisition, the dependence on the Company's operating results on
continued new store openings and sales increases at existing stores, consumer
spending, seasonality and weather, competative conditions and other risks
disclosed in the Company's SEC filings.
General
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West Marine distributes its merchandise through three divisions, stores (retail
and wholesale) and catalog (retail) under the names of West Marine and E&B
Marine as well as Port Supply (wholesale). West Marine operated 149 stores in
26 states as of June 29, 1996, compared to 62 stores in 19 states as of July 1,
1995.
On June 17, 1996, West Marine acquired E&B Marine, Inc. a specialty retailer of
marine supplies with 64 stores and a mail order catalog operation (see note 2 of
notes to condensed consolidated financial statements). The acquisition was
accounted for under the purchase method of accounting. Accordingly, E&B's
results of operations for the period subsequent to the acquisition are included
with West Marine's results of operations.
Results of Operations
- ---------------------
Net sales increased $23.4 million, or 30.8%, from $76.1 million during the
second quarter of fiscal 1995 to $99.5 million during the second quarter of
fiscal 1996. This increase was attributable to increases in net sales from each
of the Company's three divisions. Store net sales increased $19.9 million or
35.5%, to $76.2 million primarily due to 23 additional stores opened in the
twelve months ending June 29, 1996 and the 64 stores acquired on June 17, 1996.
Net sales from comparable stores increased 5.3% and contributed $3.0 million of
the increase in net sales. Catalog net sales increased $1.6 million, or 13.4%,
to $13.2 million. Port Supply net sales increased $1.9 million, or 23.1%, to
$10.1 million. Store, catalog and Port Supply net sales represented 73.9%,
15.3% and 10.8%, respectively, of the Company's net sales for the second quarter
of fiscal 1995 compared to 76.6%, 13.3% and 10.1%, respectively, of the
Company's net sales for the second quarter of fiscal 1996.
Net sales increased $31.1 million, or 26.3%, from $118.3 million during the
first six months of fiscal 1995 to $149.4 million during the first six months of
fiscal 1996. This increase was attributable to increases in net sales from each
of the Company's three
divisions. Store net sales increased $25.3 million or 29.1%, to $112.1 million.
Net sales from comparable stores increased 5.2% and contributed $4.4 million of
the increase in net sales. Catalog net sales increased $2 million, or 11.4%, to
$19.9 million. Port Supply net sales increased $3.8 million, or 28.1%, to $17.4
million. store, catalog and port supply net sales represented 73.4%, 15.1% and
11.5%, respectively, of the Company's net sales for the first six months of
fiscal 1995 compared to 75%, 13.4% and 11.6%, respectively, of the Company's net
sales for the first six months of fiscal 1996.
Gross profit increased $9.2 million, or 41.1%, in the second quarter of 1996
compared to the second quarter of 1995, primarily because of the increase in net
sales. Gross profit as a percentage of net sales increased from 29.5% in the
second quarter of 1995 to 31.9% in the second quarter of 1996, primarily
reflecting improved buying leverage and decreases in the costs of distribution.
Gross profit increased $11.2 million, or 32.7%, in the first six months of
fiscal 1996 compared to the first six months of fiscal 1995, primarily because
of the increase in net sales. Gross profit as a percentage of net sales
increased from 28.9% in the first six months of fiscal 1995 to 30.4% in the
first six months of fiscal 1996, reflecting improved buying leverage and
decreases in the costs of distribution. During the next two years, the Company
plans to replace and consolidate its North Carolina distribution center and its
newly acquired Edison, New Jersey distribution center, which could adversely
affect gross profits until the replacement distribution center has matured.
Selling, general and administrative expenses increased $5.1 million, or 37.8%,
in the second quarter of 1996 compared to the second quarter of 1995, primarily
due to increases in store operating expenses related to the growth in stores.
These expenses represented approximately 65.9% or $3.4 million of the increase.
As a percentage of net sales, selling, general and administrative expenses
increased from 17.8% in the second quarter of 1995 to 18.8% in the second
quarter of 1996 reflecting increased general and administrative costs as the
Company prepared for the acquisition and integration of E&B Marine.
Selling, general and administrative expenses increased $7.1 million, or 29%, in
the first six months of fiscal 1996 compared to the first six months of fiscal
1995, primarily due to direct expenses related to stores. These expenses
represented approximately 64.1% or $5.0 million of the increase. As a
percentage of net sales, selling, general and administrative expenses increased
from 20.6% in the first six months of fiscal 1995 to 21.1% in the first six
months of fiscal 1996 reflecting increased general and administrative costs as
the Company prepared for the acquisition and integration of E&B Marine toward
the end of the second quarter.
Interest expense decreased $136,000 or 29.4% in the second quarter of fiscal
1996 compared to the second quarter of fiscal 1995, primarily because of lower
borrowings under the Company's credit facility during the quarter.
Liquidity and Capital Resources
- -------------------------------
The Company's primary sources of capital have been income from operations and
bank borrowings. Net cash provided by operations during the first six months of
fiscal 1996 was $9.2 million, consisting primarily of earnings net of
depreciation, a $10.8 million increase in accounts payable and a $6.1 million
increase in accrued expenses, offset by an $11.3 million increase in inventory,
a $2.5 million increase in accounts receivable and a $2.8 million increase in
other assets. The inventory increase was primarily attributable to the addition
of 13 new stores in the first six months of 1996, and the expansion of the
merchandise selection offered by the Company. Net cash used in investing
activities was $6.8 million primarily for the purchase of property and
equipment. Net cash used by financing activities during the first six months of
fiscal 1996 was $676,000, consisting of $2.2 million from the repayments of the
Company's line of credit offset by $1.5 million received from the exercise of
stock options and the sales of common stock pursuant to the associate stock
purchase program.
Cash increased by $1.7 million during the first six months of fiscal 1996 from
$399,000 at the end of fiscal 1995 to $2.1 million as of June 29, 1996. On June
14, 1996, the Company entered into a new agreement with two banks, increasing
its borrowing capacity from $40 million to $60 million. This credit agreement
provides for a revolving line of credit up to $60 million and allows for the
issuance of commercial and stand by letters of credit up to $5 million and $10
million respectively. The credit agreement is unsecured and contains certain
restrictive covenants which are substantially the same as those contained in the
previous agreement. The credit agreement expires in July, 1999. West Marine's
primary cash requirements are related to capital expenditures for new stores,
including leasehold improvement costs, fixtures, and merchandise inventory for
the stores. The Company anticipates capital expenditures approximating $10
million in the next twelve months, primarily for opening and remodeling stores.
Management believes that cash flow from operations together with bank debt
financing will be sufficient to fund the Company's operations through the next
twelve months.
Seasonality
- -----------
The Company's business is highly seasonal and the Company will become even more
susceptible to seasonality and weather as a result of the E&B Marine acquisition
and its plan to continue to expand its operations in the East and the Midwest.
During fiscal 1995, 61% of the Company's net sales and an even higher percentage
of its net income occurred during the second and third quarters, principally
during the period from April through July which represents the peak boating
months in most of the Company's markets.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of shareholders was held on May 8,
1996.
(b) The following directors were elected at the meeting:
Randolph K. Repass
Crawford L. Cole
Geoffrey A. Eisenberg
Richard E. Everett
James P. Curley
Ronald P. Young
Walter Scott
The foregoing constitute all members of the Board of Directors of the
Company.
(c) At the annual meeting the shareholders voted to approve proposals to
amend the Certificate of Incorporation; and amend the 1993 Omnibus
Equity Incentive Plan.
Set forth below is a tabulation with respect to the matters voted on at the
meeting:
FOR AGAINST ABSTENTIONS NO VOTE
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Proposal to amend the Certificate of 11,342,314 3,042,806 4,704 52,786
Incorporation
Proposal to amend the 1993 Omnibus 10,012,416 3,686,550 6,068 737,576
Equity Incentive Plan
AGAINST OR
FOR WITHHELD
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Election of Directors:
Randolph K. Repass 14,366,560 76,050
Crawford L. Cole 14,366,570 76,040
Geoffrey A.Eisenberg 14,366,410 76,200
Richard Everett 14,366,670 75,940
James P. Curley 14,388,130 54,480
Ronald P. Young 14,388,070 54,540
Walter Soctt 14,394,270 54,340
(d) Inapplicable.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
3 Certificate of Amendment of Certificate of Incorporation
10.18 Credit Agreement dated June 14, 1996, among WMP, Bank of
America National Trust and Savings Association.
11.1 Statement re: computation of net income per share
27 Financial Data Schedule
(b) Exhibits and Reports on Form 8-K
On April 12, 1996, the Company filed a report on Form 8-K which
disclosed under Item 5 the execution of a merger agreement providing
for the acquisition of E&B Marine, Inc. On June 27, 1996, the Company
filed a report on Form 8-K which disclosed under Item 2 the
consummation of the E&B acquisition.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: WEST MARINE, INC.
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By /s/ Crawford L. Cole
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Crawford L. Cole
President and Chief Executive Officer
By /s/ John Zott
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John Zott,
Senior Vice President,
Chief Financial Officer
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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3 Certificate of Amendment of Certificate of
Incorporation.
10.18 Credit Agreement dated June 14, 1996, among WMP, Bank of
America National Trust and Savings Association
11.1 Statement re: Computation of Net Income Per Share
27 Financial Data Schedule