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
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
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 77-0355502
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
500 Westridge Drive
Watsonville, CA 95076-4100
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (831) 728-2700
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 [_]
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 of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [_] No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS:
At April 27, 2001, the number of shares outstanding of registrant's Common Stock
was 17,588,801.
TABLE OF CONTENTS
PART I
Item 1. Financial Statements 3
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
PART II
Item 6. Exhibits and Reports on Form 8-K 10
PART I
ITEM 1 - FINANCIAL STATEMENTS
WEST MARINE, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001, DECEMBER 30, 2000 AND APRIL 1, 2000
(Unaudited, in thousands, except share data)
March 31, December 30, April 1,
2001 2000 2000
-------- -------- --------
ASSETS
Current assets:
Cash $ 6,294 $ 2,654 $ 7,875
Accounts receivable, net 6,318 4,964 6,944
Merchandise inventories, net 201,235 180,563 187,175
Prepaid expenses and other current assets 12,886 9,879 12,380
-------- -------- --------
Total current assets 226,733 198,060 214,374
Property and equipment, net 74,818 73,481 68,776
Intangibles and other assets, net 36,145 36,241 37,462
-------- -------- --------
TOTAL ASSETS $337,696 $307,782 $320,612
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 58,101 $ 42,341 $ 40,624
Accrued expenses 13,234 15,641 13,424
Deferred current liabilities 2,094 2,094 3,333
Current portion of long-term debt 8,741 8,729 8,536
-------- -------- --------
Total current liabilities 82,170 68,805 65,917
Long-term debt 86,011 66,500 94,759
Deferred items and other non-current obligations 4,252 4,217 2,550
-------- -------- --------
Total liabilities 172,433 139,522 163,226
Stockholders' equity:
Preferred stock, $.001 par value: 1,000,000 shares authorized; no shares
outstanding -- -- --
Common stock, $.001 par value: 50,000,000 shares authorized; issued and
outstanding: 17,586,112 at March 30, 2001, 17,321,521 at December 30, 2000
and 17,205,536 at April 1, 2000 17 17 17
Additional paid-in capital 108,179 107,987 107,122
Retained earnings 57,067 60,256 50,247
-------- -------- --------
Total stockholders' equity 165,263 168,260 157,386
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $337,696 $307,782 $320,612
======== ======== ========
See notes to consolidated financial statements.
WEST MARINE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share and store data)
13 Weeks 13 Weeks
Ended Ended
March 31, April 1,
2001 2000
------- -------
Net sales $89,738 $96,275
Cost of goods sold, including buying and occupancy 67,551 73,052
------- -------
Gross profit 22,187 23,223
Selling, general and administrative expense 25,920 25,946
------- -------
Loss from operations (3,733) (2,723)
Interest expense, net 1,582 1,716
------- -------
Loss before income taxes (5,315) (4,439)
Income tax benefit 2,126 1,819
------- -------
Net loss $(3,189) $(2,620)
======= =======
Net loss per share - basic and diluted $ (0.18) $ (0.15)
======= =======
Weighted average common and common equivalent shares outstanding -
Basic and diluted 17,572 17,197
======= =======
Stores open at end of period 235 230
======= =======
See notes to consolidated financial statements.
WEST MARINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
13 Weeks 13 Weeks
Ended Ended
March 31, April 1,
2001 2000
------- -------
OPERATING ACTIVITIES:
Net loss $ (3,189) $ (2,620)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 4,551 3,943
Provision for doubtful accounts 58 10
Loss on asset disposals 0 16
Changes in assets and liabilities:
Accounts receivable (1,412) (1,853)
Merchandise inventories (20,672) (21,337)
Prepaid expenses and other current assets (3,007) (3,350)
Other assets (194) (115)
Accounts payable 15,760 9,814
Accrued expenses (2,407) 3,616
Deferred items 35 90
-------- --------
Net cash used in operating activities (10,477) (11,786)
-------- --------
INVESTING ACTIVITY:
Purchases of property and equipment (5,598) (6,420)
-------- --------
FINANCING ACTIVITIES:
Net borrowings on line of credit 19,700 23,000
Repayments on long-term debt and capital leases (177) (237)
Exercise of stock options 192 87
-------- --------
Net cash provided by financing activities 19,715 22,850
-------- --------
NET INCREASE IN CASH 3,640 4,644
CASH AT BEGINNING OF PERIOD 2,654 3,231
-------- --------
CASH AT END OF PERIOD $ 6,294 $ 7,875
======== ========
See notes to consolidated financial statements.
WEST MARINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Thirteen Weeks Ended March 31, 2001 and April 1, 2000
(Unaudited)
NOTE 1: Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
from the records of West Marine, Inc. ("West Marine" or the "Company") without
audit, and in the opinion of management, include all adjustments (consisting
only of normal recurring accruals) necessary to fairly present the financial
position at March 31, 2001 and April 1, 2000, and the interim results of
operations and cash flows for the 13-week period then ended.
The consolidated balance sheet at December 30, 2000, presented herein, has been
derived from the audited consolidated financial statements of the Company for
the year then ended, included in the Company's annual report on Form 10-K. The
results of operations for the 13-week period presented herein is not necessarily
indicative of the results to be expected for the full year.
Accounting policies followed by the Company are described in Note 1 to its
audited consolidated financial statements for the year ended December 30, 2000.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted for purposes of the consolidated interim financial statements.
The consolidated interim financial statements should be read in conjunction with
the audited consolidated financial statements, including the notes thereto, for
the year ended December 30, 2000, included in the Company's annual report on
Form 10-K.
NOTE 2: Accounting Policies
On December 31, 2000, the Company adopted Statement of Financial Accounting
Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities", as amended by SFAS 137 and SFAS 138. SFAS 133 requires all
derivative financial instruments to be recognized on the balance sheet at fair
value. The effect of adopting SFAS 133 was immaterial. During 2000 and the
first quarter of 2001, the Company entered into no derivative financial
instruments.
NOTE 3: Segment Information
The Company has three divisions - Stores, Wholesale ("Port Supply") and Catalog
(including Internet) - which all sell aftermarket recreational boating supplies
directly to customers. The customer base overlaps between its Stores and Port
Supply divisions, and between its Stores and Catalog divisions. All processes
for the three divisions within the supply chain are commingled, including
purchases from merchandise vendors, distribution center activity, and customer
delivery.
The Stores division qualifies as a reportable segment under SFAS 131 as it is
the only division that represents 10% or more of the combined revenue of all
operating segments when viewed on an annual basis. Segment assets are not
presented, as the Company's assets are commingled and are not available by
segment. Contribution is defined as net sales, less product costs and direct
expenses. Following is financial information related to the Company's business
segments (in thousands):
13 Weeks 13 Weeks
Ended Ended
March 31, April 1,
2001 2000
------- -------
Net sales:
Stores $71,222 $75,144
Other 18,516 21,131
------- -------
Consolidated net sales $89,738 $96,275
======= =======
Contribution:
Stores $ 3,258 $ 3,230
Other 2,503 3,337
------- -------
Consolidated contribution $ 5,761 $ 6,567
======= =======
Reconciliation of consolidated contribution to net income:
Consolidated contribution $ 5,761 $ 6,567
Less:
Cost of goods sold not included in consolidated contribution (4,795) (4,355)
General and administrative expenses (4,699) (4,935)
Interest expense (1,582) (1,716)
Income tax benefit 2,126 1,819
------- -------
Net loss $(3,189) $(2,620)
======= =======
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
West Marine is the largest specialty retailer of recreational and commercial
boating supplies and apparel in the United States. The Company has three
divisions - Stores, Wholesale ("Port Supply") and Catalog (including Internet) -
which all sell aftermarket recreational boating supplies directly to customers.
At the end of the first quarter, the Company offered its products through 235
stores in 38 states and in Puerto Rico, on the Internet (westmarine.com) and
through catalogs which it distributes several times each year. The Company's
business strategy is to offer an extensive selection of high-quality marine
supplies and apparel to the recreational aftermarket for both sailboats and
powerboats at competitive prices in a convenient, one-stop shopping environment
emphasizing customer service and technical assistance. The Company is also
engaged, through its Port Supply business line and its stores, in the wholesale
distribution of products to commercial customers and other retailers.
All references to the first quarter of 2001 refer to the 13-week period ended
March 31, 2001 and all references to the first quarter of 2000 refer to the 13-
week period ended April 1, 2000.
Seasonality
Historically, the Company's business has been highly seasonal. The Company's
expansion into new markets has made it even more susceptible to seasonality, as
an increasing percentage of Stores' sales occur in the second and third quarters
of each year. In 2000, 63.8% of the Company's net sales and all 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. Management expects net sales to become more
susceptible to seasonality and weather as the Company continues to expand its
operations.
Results of Operations
Net sales decreased $6.5 million, or 6.8%, to $89.7 million for the first
quarter of 2001, compared to $96.3 million for the first quarter of 2000,
primarily due to decreases in net sales in the Company's Stores division.
Stores net sales were $71.2 million for the first quarter of 2001, a decrease of
$3.9 million, or 5.2%, over the $75.1 million recorded for the same period a
year ago. During the first quarter of 2001, the Company opened two stores; no
stores were closed. Net sales in new stores opened since the first quarter of
2000 and remodeled stores not included in comparable sales were $5.5 million.
Net sales from comparable stores decreased 8.2%, or $5.8 million. Sales
recorded by Port Supply decreased by $1.0 million, or 8.4%, to $10.6 million
for the first quarter of 2001, compared to $11.6 million for the first quarter
of 2000. Catalog (including Internet) sales decreased by $1.6 million, or
19.0%, to $6.8 million for the first quarter of 2001, compared to $8.4 million
for the first quarter of 2000. Stores, Port Supply, and Catalog (including
Internet) sales represented 79.4%, 11.8%, and 7.5%, respectively, of the
Company's net sales for the first quarter of 2001, compared to 78.1%, 12.0%, and
8.7%, respectively, of the Company's net sales for the first quarter of 2000.
The Company's gross profit decreased by $1.0 million, or 4.5%, to $22.2
million for the first quarter of 2001, compared to $23.2 million for the first
quarter of 2000. Gross profit represented 24.7% of net sales in the first
quarter of 2001, compared to 24.1% in the same period a year ago. Gross profit
as a percentage of sales increased for the first quarter of 2001 primarily
because the Company did not conduct clearance sales of merchandise as it had
during the first quarter of 2000.
Selling, general, and administrative expenses remained unchanged at $25.9
million for the first quarters of 2001 and 2000. Selling, general, and
administrative expenses represented 28.9% of net sales for the first quarter of
2001 compared to 26.9% for the first quarter of 2000.
Interest expense was $1.6 million in the first quarter of 2001, a decrease of
$0.1 million over the same period a year ago. Higher average borrowings were
offset by lower interest rates for the first quarter of 2001 compared to the
same period last year.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash flows from operations and
bank borrowings. During the first quarter of 2001, the Company's primary source
of liquidity was from bank borrowings. Net cash used in operations during the
first quarter of 2001 was $10.5 million, consisting primarily of an increase in
inventories of $20.7 million, partially offset by an $13.4 million increase in
accounts payable and accrued expenses. The inventory increase reflects the
Company's commitment to increasing fill rates, which enhance sales, as well as
advanced stocking of merchandise at stores in preparation for the peak boating
season. Net cash provided by financing activities was $19.7 million from
borrowings on the bank line of credit.
West Marine's primary cash requirements are related to capital expenditures for
new stores and remodeling existing stores, including leasehold improvement costs
and fixtures, and information systems enhancements, and for merchandise
inventory for stores. In the first quarter of 2001, the Company spent $5.6
million on capital expenditures. The Company expects to spend between $17.0 to
$18.0 million on capital expenditures during 2001. The Company intends to pay
for its expansion through cash generated from operations and bank borrowings.
At March 31, 2001, the Company had outstanding a $32.0 million senior guarantee
note, which matures on December 23, 2004, and requires annual principal payments
of $8.0 million. The note bears interest at 7.6%. The note is unsecured, and
contains certain restrictive covenants including fixed charge coverage and debt
to capitalization ratios and minimum net worth requirements.
The Company has an $80.0 million credit line which expires on January 2, 2003.
Depending on the Company's election at the time of borrowing, the line bears
interest at either the bank's reference rate or LIBOR plus a factor ranging from
1.0% to 2.25%. At the end of the first quarter of 2001, borrowings from the
credit line were $60.8 million bearing interest at rates ranging from 6.5% to
9.5%.
In addition, the Company has available a $2.0 million revolving line of credit
with a bank, expiring January 2, 2003. The line bears interest at the bank's
reference rate, which was 8.0% at the end of the first quarter of 2001, and
has a ten-day paydown requirement. At the end of the first quarter of 2001, no
amounts were outstanding under the revolving line of credit.
Both of the aforementioned credit lines are unsecured and contain various
covenants which require maintaining certain financial ratios, including debt to
earnings and current ratios. The covenants include minimum levels of net worth
and limitations on levels of certain investments. These covenants also restrict
the repurchase or redemption of the Company's common stock and payment of
dividends, investments in subsidiaries and annual capital expenditures.
At the end of the first quarter of 2001, the Company had $489,500 of outstanding
stand-by letters of credit and $477,000 of outstanding commercial letters of
credit.
The Company believes existing credit facilities and cash flows from operations
will be sufficient to satisfy liquidity needs through 2002.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
The statements in this filing that relate to future plans, events, expectations,
objectives, or performance (or assumptions underlying such matters) are forward-
looking statements that involve a number of risks and uncertainties. Set forth
below are certain important factors that could cause the Company's actual
results to differ materially from those expressed in any forward-looking
statements.
Because consumers often consider boats to be luxury items, the market is subject
to change in consumer confidence and spending habits. Recent slowing of the
domestic economy may adversely affect sales volumes, as well as the Company's
ability to maintain current gross profit levels.
The Company's operations could be adversely affected if unseasonably cold
weather, prolonged winter conditions or extraordinary amounts of rainfall were
to occur during the peak boating season in the second and third quarters.
The Company's Catalog division has faced market share erosion in areas where
stores have been opened by either the Company or its competitors. Management
expects this trend to continue.
The Company's growth has been fueled principally by the Company's stores
operations. The Company's continued growth depends to a significant degree on
its ability to continue to expand its operations through the opening of new
stores and to operate these stores profitably, as well as increasing net sales
at its existing stores. The Company's planned expansion is subject to a number
of factors, including the adequacy of the Company's capital resources and the
Company's ability to locate suitable store sites and negotiate acceptable lease
terms, to hire, train and integrate employees and to adapt its distribution and
other operations systems.
In addition, acquisitions involve a number of risks, including the diversion of
management's attention to the assimilation of the operations and personnel of
the acquired business, potential adverse short-term effects on the Company's
operating results, and amortization of acquired intangible assets.
The markets for recreational water sports and boating supplies are highly
competitive. Competitive pressures resulting from competitors' pricing policies
have adversely affected the Company's gross profit and such pressures are
expected to continue.
Additional factors which may affect the Company's financial results include
inventory management issues, the impact of e-commerce, fluctuations in consumer
spending on recreational boating supplies, environmental regulations, demand for
and acceptance of the Company's products and other risk factors disclosed from
time to time in the Company's SEC filings.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes there has been no material change in its exposure to market
risk from that discussed in the Company's fiscal 2000 Annual Report filed on
Form 10-K.
PART II
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.18.3 -- Third Amendment to Credit Agreement dated January 13, 2000.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed for the period being reported.
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.
Date: May 15, 2001 WEST MARINE, INC.
By: /s/ John Edmondson
------------------------------------
(John Edmondson)
President and Chief Executive Officer
By: /s/ Russell Solt
------------------------------------
(Russell Solt)
Executive Vice President and
Chief Financial Officer
By: /s/ Eric Nelson
------------------------------------
(Eric Nelson)
Vice President, Finance and
Chief Accounting Officer