SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended Commission File Number
December 28, 1996 0-22512
WEST MARINE, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-035-5502
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
500 Westridge Drive,
Watsonville, California 95076-4100
(Address of principal executive offices) (Zip Code)
Telephone Number: (408) 728-2700
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
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 [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) 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 this Form 10-K. [ ]
At February 28,1997, the aggregate market value of the registrant's Common Stock
held by non-affiliates of the registrant was approximately $225,833,440.
At February 28, 1997, the number of shares outstanding of registrant's Common
Stock was 16,528,713.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement for the Company's 1997 Annual Meeting of
Stockholders is incorporated by reference in Part III of this Form 10-K.
PART II
Item 5 of the Annual Report filed pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended December 28, 1996 is
hereby amended in full as follows:
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
West Marine, Inc. common stock trades on the Nasdaq National Market Tier of The
Nasdaq Stock Market under the symbol WMAR. The following table sets forth for
the period indicated, the high and low closing sales prices for the Company's
common stock, as reported by the Nasdaq Stock Market. The prices shown below
have been adjusted to reflect a two-for-one stock split effected on July 8,
1996.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
FISCAL 1996
- -----------
Stock trade price:
High $24 1/2 $37 5/8 $39 3/4 $37
Low $15 3/8 $24 1/4 $26 1/4 $24 3/4
FISCAL 1995
- -----------
Stock trade price:
High $13 1/4 $13 $15 3/8 $17 1/2
Low $ 8 3/4 $11 3/4 $12 1/2 $14 3/8
As of March 21, 1997, there were approximately 2,160 holders of record of the
Company's common stock.
2
Item 8 of the Annual Report filed pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended December 28, 1996 is
hereby amended in full as follows:
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
FISCAL FISCAL
YEAR-END YEAR-END
ASSETS 1996 1995
---------- -------- --------
Current assets:
Cash .......................................................... $ 894 $ 399
Accounts receivable, net ..................................... 3,742 2,922
Merchandise inventories ....................................... 122,731 71,374
Prepaid expenses and other current assets ..................... 10,803 3,463
-------- --------
Total current assets ............................. 138,170 78,158
Property and equipment, net ........................................ 30,654 16,500
Intangibles and other assets, net .................................. 42,690 1,187
-------- --------
Total assets ..................................... $211,514 $ 95,845
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------
Current liabilities:
Accounts payable .............................................. $ 33,627 $ 13,597
Accrued expenses .............................................. 10,901 5,699
Current portion of long-term debt ............................. 694 243
-------- --------
Total current liabilities ........................ 45,222 19,539
Long-term debt ..................................................... 37,997 8,284
Deferred items and other non-current obligations ................... 1,764 743
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 16,494,205
and 14,938,412 at fiscal year-end 1996 and 1995, respectively 16 15
Additional paid-in capital .................................... 98,632 50,947
Retained earnings ............................................. 27,883 16,317
-------- --------
Total stockholders' equity ....................... 126,531 67,279
======== ========
Total liabilities and stockholders' equity ....... $211,514 $ 95,845
======== ========
See notes to consolidated financial statements
3
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts and store data)
FISCAL FISCAL FISCAL
1996 1995 1994
-------- -------- --------
Net sales ................................ $323,300 $224,204 $169,923
Cost of goods sold including
buying and occupancy ................... 228,888 159,988 120,745
-------- -------- --------
Gross profit ........................ 94,412 64,216 49,178
Selling, general and administrative
expenses ............................... 70,261 48,018 38,243
Expenses related to integrating E&B Marine 2,995
-------- -------- --------
Income from operations .............. 21,156 16,198 10,935
Interest expense ......................... 1,666 1,379 1,195
-------- -------- --------
Income before income taxes .......... 19,490 14,819 9,740
Provision for income taxes ............... 7,924 5,844 3,755
======== ======== ========
Net income .......................... $ 11,566 $ 8,975 $ 5,985
======== ======== ========
Net income per common and common
equivalent share
Primary ................... $ 0.68 $ 0.61 $ 0.45
======== ======== ========
Fully diluted ............. $ 0.68 $ 0.60 $ 0.45
======== ======== ========
Weighted average common and common
equivalent shares outstanding
Primary ................... 16,948 14,766 13,198
======== ======== ========
Fully diluted ............. 16,951 14,860 13,198
======== ======== ========
Stores open at end of year ............... 151 72 54
======== ======== ========
4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------------------------------------------------------------------
Balance at fiscal year-end, 1993 ...................... 12,394,452 $13 $23,054 $ 1,749 $ 24,816
Net income ............................................ 5,985 5,985
Exercise of stock options, including tax benefit ...... 96,274 68 68
Distributions to stockholders ......................... (392) (392)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at fiscal year-end, 1994 ...................... 12,490,726 13 23,122 7,342 30,477
Net income ............................................ 8,975 8,975
Sale of common stock pursuant to secondary offering,
net of offering costs of $373 .................... 2,360,000 2 27,284 27,286
Exercise of stock options, including tax benefit ...... 56,562 247 247
Sale of common stock pursuant to associate stock
purchase plan .................................... 31,124 294 294
- -----------------------------------------------------------------------------------------------------------------------------
Balance at fiscal year-end, 1995 ...................... 14,938,412 15 50,947 16,317 67,279
Net income ............................................ 11,566 11,566
Issuance of common stock in the E&B Marine acquisition. 1,195,486 1 39,192 39,193
Value of stock options converted in the E&B Marine
acquisition ...................................... 2,382 2,382
Exercise of stock options ............................. 313,275 2,791 2,791
Tax benefit from exercise of non-qualified stock options 2,660 2,660
Sale of common stock pursuant to associate
stock purchase plan..................... 47,032 660 660
- -----------------------------------------------------------------------------------------------------------------------------
Balance at fiscal year-end, 1996 ...................... 16,494,205 $16 $98,632 $27,883 $126,531
=========== === ======= ======= ========
See notes to consolidated financial statements
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
( in thousands, except share data)
FISCAL FISCAL FISCAL
1996 1995 1994
-------- -------- --------
Cash flows from operating activities:
Net income ......................................................... $ 11,566 $ 8,975 $ 5,985
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization .................................. 5,651 3,425 2,357
Provision for deferred income taxes .......................... 2,115 647 (630)
Provision for doubtful accounts .............................. 278 240 215
Change in assets and liabilities, net of effect of acquisitions:
Accounts receivable ........................................... (986) (786) (892)
Merchandise inventories ....................................... (13,738) (19,591) (16,066)
Prepaid expenses and other current assets ..................... (1,899) (766) (1,205)
Other assets .................................................. (683) (121) (142)
Accounts payable .............................................. 6,295 5,663 1,770
Accrued expenses .............................................. (2,341) 895 932
Deferred rent ................................................. 21 88 185
-------- -------- --------
Net cash provided by (used in) operating activities .................. 6,279 (1,331) (7,491)
Cash flows from investing activities:
Purchases of property and equipment ................................ (13,913) (7,836) (5,782)
Acquisitions ....................................................... (2,336) (472) (2,206)
-------- -------- --------
Net cash used in investing activities ................................ (16,249) (8,308) (7,988)
Cash flows from financing activities:
Net proceeds from (payments on) line of credit . ................... 7,319 (17,900) 20,900
Payments on long-term debt ......................................... (305) (200) (5,100)
Proceeds from issuance of common stock,
net offering expenses ............................................ 27,286
Sale of common stock pursuant to
associate stock purchase plan .................................... 660 294
Exercise of stock options .......................................... 2,791 247 68
Payment of distributions to stockholders ........................... (392)
-------- -------- --------
Net cash provided by financing activities ............................ 10,465 9,727 15,476
-------- -------- --------
Net increase (decrease) in cash ...................................... 495 88 (3)
Cash:
Beginning of year .................................................. 399 311 314
-------- -------- --------
End of year ........................................................ $ 894 $ 399 $ 311
======== ======== ========
Other cash flow information:
Cash paid for interest ............................................. $ 1,448 $ 1,320 $ 1,155
Cash paid for income taxes ......................................... $ 5,296 $ 5,459 $ 4,787
Equipment acquired through noncash
capital lease transactions ....................................... $ 1,432 $ 277
Tax benefit from exercise of non-
qualified stock options .......................................... $ 2,660
Acquisition of E&B Marine, Inc. for 1,195,000 shares
of common stock (see note 2) ..................................... $ 41,575
See notes to consolidated financial statements
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business -- West Marine, Inc. (the "Company"), a Delaware corporation, is a
specialty retailer and wholesaler of boating supplies and apparel, which it
markets through 151 retail stores in the United States and mail order catalogs.
Principles of Consolidation -- The consolidated financial statements include the
accounts of West Marine, Inc. and its subsidiaries. Intercompany balances and
transactions are eliminated in consolidation.
Fiscal Year -- The Company's fiscal year ends on the Saturday closest to
December 31 based on a 52/53 week year. Fiscal years 1996, 1995 and 1994 ended
on December 28, 1996, December 30, 1995 and December 31, 1994, respectively.
Accounting Estimates -- The preparation of consolidated 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 consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
Merchandise inventories are stated at the lower of cost (first-in, first-out
method) or market. Cost includes acquisition and distribution costs which have
been capitalized in merchandise inventories in order to better match sales with
these related costs.
Deferred Catalog and Advertising Costs -- The Company capitalizes the direct
cost of producing and distributing its catalogs. Capitalized catalog costs are
amortized, once the catalog is mailed, over the expected sales period which is
generally six months. Deferred catalog costs amounted to $756,000 and $321,000
at fiscal year-end 1996 and 1995, respectively. Advertising costs are expensed
as incurred and amounted to $4.5 million, $3.1 million, and $2.5 million in
1996, 1995, and 1994, respectively.
Property and Equipment is stated at cost. Furniture and equipment is depreciated
using the straight-line method over the estimated useful lives of the various
assets which range from three to five years. Leasehold improvements are
amortized over the lesser of the lease term or the estimated useful lives of the
improvements.
Pre-Opening Costs are expensed as incurred.
Intangibles and Other Assets -- The excess of cost over tangible net assets
acquired is amortized over periods ranging from 5 to 40 years. Whenever events
or changes in circumstances have indicated that the carrying amount of its
assets might not be recoverable, the Company, using its best estimates based on
reasonable and supportable assumptions and projections, has reviewed for
impairment the carrying value of long-lived identifiable assets and intangibles
to be held and used in the future.
Deferred Rent -- Certain of the Company's operating leases contain predetermined
fixed increases of the minimum rental rate during the initial term. For these
leases, the Company recognizes the related rental expense on a straight-line
basis over the life of the lease and records the difference between the amount
charged to rent expense and the rent paid as deferred rent.
Income Taxes -- The Company's income taxes are accounted for under the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes", which requires the liability method of accounting.
7
Fair Value of Financial Instruments -- The carrying value of cash, accounts
receivable, accounts payable, and long-term debt approximates the estimated fair
values.
Stock-based Compensation -- The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Accordingly, no compensation cost has been recognized for its fixed cost stock
option plans or its associate stock purchase plan.
Stock Split -- On June 17, 1996, the Company effected a two-for-one stock split.
Accordingly, all per share and stock option data have been restated to reflect
the split.
Earnings Per Share are based on primary and fully diluted weighted average
common and common equivalent shares outstanding during the year, as calculated
under the treasury stock method. The Company's common equivalent shares consist
of outstanding stock options.
Reclassifications -- Certain fiscal 1995 and 1994 amounts have been reclassified
to conform with the fiscal 1996 presentation.
NOTE 2: ACQUISITION
On June 17, 1996, the Company completed its acquisition of E&B Marine, Inc.
("E&B Marine") 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 1.2
million 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 identifiable
assets acquired ($38.4 million) has been included in intangible assets and is
being 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 (in thousands, except share data):
- ---------------------------------------------------------------------
(Unaudited) Fiscal 1996 Fiscal 1995
----------- -----------
Net sales .......... $ 387,783 $334,022
========= ========
Net income ......... $ 12,618 $ 9,150
========= ========
Net income per share $ 0.72 $ 0.57
========= ========
Included in the pro forma income statement summary above is an actual $3 million
charge to earnings in the third quarter of fiscal 1996 for costs associated with
integrating E&B Marine into the operations of the Company.
8
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
FISCAL Fiscal
YEAR-END Year-end
1996 1995
-------- --------
Furniture and equipment $ 17,701 $12,396
Computer equipment 14,738 7,320
Leasehold improvements 14,272 8,909
Land and building 577
-------- -------
Subtotal ............... 47,288 28,625
Accumulated depreciation
and amortization .. (16,634) (12,125)
-------- -------
Total property and
equipment, net .... $ 30,654 $16,500
======== =======
NOTE 4: LONG-TERM DEBT
At December 28, 1996, the Company had available a $60 million revolving line of
credit with two banks which expires on July 4, 1999. 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 .6% to 1.0%. At fiscal
year-end 1996, borrowings from the credit lines were $37 million bearing
interest at rates ranging from 6.18% to 6.37%. At fiscal year-end 1995,
borrowings from the credit lines were $8 million bearing interest at 6.41%. In
February 1997, the Company amended its bank agreement extending its available
line of credit up to $70 million which will be reduced to $60 million on June
28, 1997. All other conditions were substantially unchanged.
During fiscal 1996 and 1995, the weighted average interest rates in effect were
6.5% and 7.5%, respectively.
At fiscal year-end 1996 and 1995, the Company had $850,000 and $100,000 of
outstanding stand-by letters of credit. At fiscal year-end 1995, the Company had
$310,000 of outstanding commercial letters of credit.
The loan agreement is unsecured and contains certain restrictive covenants
including maximum leverage ratio, minimum cash flow coverage ratio, minimum
working capital, and maximum funded debt ratio; and restricts the repurchase or
redemption of stock and the paying of dividends.
Long term debt consisted of the following (in thousands):
FISCAL Fiscal
YEAR-END Year-end
1996 1995
---- ----
Line of credit ................ $37,000 $ 8,000
Capital lease obligations
interest at 4.9% to 9.4%.... 1,691 527
------- -------
Subtotal ...................... 38,691 8,527
Less current portion .......... 694 243
------- -------
Total ......................... $37,997 $ 8,284
======= =======
At fiscal year-end 1996, future minimum principal payments on long-term debt
were as follows (in thousands):
1997 $ 694
1998 543
1999 37,433
2000 21
-------
Total $38,691
=======
9
NOTE 5: RELATED PARTY TRANSACTIONS
The Company purchases merchandise from a supplier in which the Company's
Principal Stockholder owns stock and is a member of the board of directors.
Additionally, the Principal Stockholder's brother is the President and his
father is a member of the board of directors and a major stockholder of the
supplier. Cost of sales during fiscal 1996, 1995 and 1994 includes $4.3 million,
$3.8 million and $3.1 million from such related party. Accounts payable to the
supplier at fiscal year-end 1996 and 1995 were $233,000 and $196,000,
respectively.
The Company leases its corporate headquarters and two retail stores from three
partnerships in which the Company's Principal Stockholder is the general partner
(See Note 6). In addition, one retail store and a sailboat are leased directly
from the Principal Stockholder.
NOTE 6: LEASES
The Company leases certain equipment, retail stores, three distribution centers
and its corporate headquarters. The Company also sublets space at various
locations on both month-to-month and noncancellable sublease agreements. Certain
store operating leases provide for rent adjustments based on the consumer price
index.
The aggregate future minimum annual rental payments and sublease income under
noncancellable leases in effect at fiscal year-end 1996, were as follows (in
thousands):
Capital Operating Sublease Net Lease
Leases Leases Income Commitments
------- --------- --------- -----------
1997............................... $ 818 $ 17,417 $146 $ 18,089
1998............................... 535 15,564 38 16,061
1999............................... 447 14,188 4 14,631
2000............................... 21 11,509 11,530
2001............................... 9,941 9,941
Thereafter ........................ 32,314 32,314
------ -------- ---- --------
Total minimum lease
commitment .................... 1,821 $100,933 $188 $102,566
====== ======== ==== ========
Less amount representing interest.. 130
------
Present value of obligations
under capital leases........... 1,691
Less current portion .............. 694
------
Long term obligations under
capital leases ................ $ 997
======
The components of rent expense for fiscal 1996, 1995 and 1994 were as follows
(in thousands):
FISCAL FISCAL FISCAL
1996 1995 1994
---- ---- ----
Minimum rent ........ $10,726 $ 5,706 $ 4,189
======= ======= =======
Percent rent ........ $ 154 $ 180 $ 207
======= ======= =======
Sublease income ..... $ 164 $ 127 $ 147
======= ======= =======
Rents paid to related
parties .......... $ 1,764 $ 1,013 $ 1,001
======= ======= =======
The cost and the related accumulated amortization of assets under capital leases
aggregated $1.9 million and $901,000, respectively, at fiscal year-end 1996 and
$1.2 million and $608,000, respectively, at fiscal year-end 1995.
10
NOTE 7: STOCK OPTION PLANS
FIXED STOCK OPTION PLANS
The Company's 1990 Stock Option Plan (the "1990 Plan" ) provides for
incentive stock options to be granted for the purchase of an aggregate of 2.1
million shares of common stock to employees and directors at prices not less
than 100% of the fair market value at the date of grant. Options under this plan
are generally exercisable equally over five years from the date of the grant,
unless otherwise provided.
The Company's 1993 Omnibus Equity Incentive Plan as amended, ("the 1993
Plan"), provides for options to be granted for the purchase of an aggregate of
3.8 million shares of common stock at prices not less than 85% of the fair
market value at the date of grant. Options under this plan are generally
exercisable equally over five years from the date of the grant, unless otherwise
provided.
The Company's Non-employee Director Stock Option Plan (the "Director
Plan") has reserved 100,000 shares of common stock for issuance to non-employee
directors of the Company. Option prices are granted at 100% of fair market
value, and are generally exercisable six months after the grant date.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", ("SFAS 123") requires the disclosure of pro forma net
income and net income per share had the Company adopted the fair value method as
of the beginning of fiscal 1995. Under SFAS 123, the fair value of stock-based
awards to employees is calculated through the use of option pricing models, even
though such models were developed to estimate the fair value of freely tradable,
fully transferable options without vesting restrictions, which significantly
differ from the Company's stock option awards. These models also require
subjective assumptions, including future stock price volatility and expected
time to exercise, which greatly affect the calculated values. The Company's
calculations were made using the Black-Scholes option pricing model with the
following weighted average assumptions: four to seven year expected life from
date of grant; stock volatility, 55% in 1996 and 45% in 1995; risk free interest
rates, 5.89% to 6.62% in 1996 and 5.47% to 6.44% in 1995; and no dividends
during the expected term. The Company's calculations are based on a single
option valuation approach and forfeitures are recognized as they occur. If the
computed fair values of the 1996 and 1995 awards had been amortized to expense
over the vesting period of the awards, pro forma net income and net income per
share (primary and fully diluted) would have been $9 million ($0.54 per share)
in fiscal 1996 and $8 million ($0.54 per share) in fiscal 1995. However, the
impact of outstanding non-vested stock options granted prior to 1995 has been
excluded from the pro forma calculation; accordingly, the fiscal 1996 and fiscal
1995 pro forma adjustments are not indicative of future period pro forma
adjustments, when the calculation will apply to all future applicable stock
options.
11
Option activity under the plans was as follows:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
Outstanding, fiscal year-end 1993 ................................................ 1,013,448 $ 2.49
Granted .......................................................................... 525,878 8.72
Exercised ........................................................................ (96,274) 0.70
Cancelled ........................................................................ (56,552) 4.95
--------- ------
Outstanding, fiscal year-end 1994 (464,168 exercisable at a weighted average price
of $2.29) ........................................................................ 1,386,500 4.90
Granted (Weighted average grant date fair value- $7.02) .......................... 1,159,880 11.22
Exercised ........................................................................ (57,342) 4.36
Cancelled ........................................................................ (220,568) 7.62
--------- ------
Outstanding, fiscal year-end 1995 (845,664 exercisable at a weighted average price
of $5.72) ........................................................................ 2,268,470 7.89
Options converted in the E&B Marine acquisition .................................. 139,384 14.42
Granted (Weighted average grant date fair value- $13.29) ........................ 653,158 20.65
Exercised ........................................................................ (313,275) 8.10
Cancelled ........................................................................ (50,358) 13.32
--------- ------
Outstanding, fiscal year-end 1996 (1,084,741 exercisable at a weighted average
price of $7.37) .................................................................. 2,697,379 $11.09
========= ======
Additional information regarding options outstanding at fiscal year-end 1996 is
as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- -----------------------------
WEIGHTED AVG.
REMAINING
RANGE OF EXERCISE NUMBER CONTRACTUAL WEIGHTED AVG. NUMBER WEIGHTED AVG.
PRICES OUTSTANDING LIFE (YRS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
$ 0.43 - $8.63 949,434 5.99 $ 4.39 640,107 $ 3.72
8.75 - 12.50 1,059,897 8.22 11.12 412,091 11.81
14.75 - 32.99 688,048 9.00 20.30 32,543 22.94
--------------- --------- ---- ------ --------- ------
$ 0.43 - $32.99 2,697,379 7.69 $11.09 1,084,741 $ 7.37
========= =========
At fiscal year-end 1996, 2.3 million and 54,000 shares were available for
future grants under the 1993 Plan and the Directors' Plan, respectively. The
Company does not intend to grant any additional options under the 1990 Plan.
12
ASSOCIATE STOCK PURCHASE PLAN
The Company has a stock buying plan covering all eligible associates.
Participants in the plan can purchase West Marine stock through regular payroll
deductions. The stock is purchased on the last business day of October and April
at 85% of the fair market value on the date of purchase. Shares issued under the
plan were 47,032 and 31,124 in 1996 and 1995 at weighted average prices of
$14.03 and $9.46, respectively. The weighted average fair value of the 1996 and
1995 awards was $31.48 and $14.01, respectively. At fiscal year-end 1996,
121,844 shares were reserved for future issuances under the stock buying plan.
NOTE 8: INCOME TAXES
The provision for income taxes consisted of the following (in thousands):
FISCAL FISCAL FISCAL
1996 1995 1994
---- ---- ----
Currently Payable:
Federal ....... $4,545 $4,195 $3,603
State ......... 1,264 1,002 782
------ ------ ------
Total ....... 5,809 5,197 4,385
------ ------ ------
Deferred:
Federal ....... 1,823 532 (551)
State ......... 292 115 (79)
------ ------ ------
Total ....... 2,115 647 (630)
------ ------ ------
Total ............ $7,924 $5,844 $3,755
====== ====== ======
A reconciliation of the Company's statutory income tax rate with its effective
income tax rate is as follows:
FISCAL FISCAL FISCAL
1996 1995 1994
---- ---- ----
Statutory federal rate 35.0% 34.0% 34.0%
State income taxes,
net of federal
tax benefit ...... 4.9 5.3 5.3
Other ................ 0.8 0.1 (0.7)
---- ---- ----
Effective tax rate ... 40.7% 39.4% 38.6%
==== ==== ====
13
Deferred income taxes reflect the impact of "temporary differences" between
amounts of assets and liabilities for financial reporting purposes and such
amounts measured by tax laws. Temporary differences which give rise to deferred
tax assets (liabilities) are as follows (in thousands):
FISCAL FISCAL
1996 1995
---- ----
Current:
Reserves .................. $ 2,351 $ 721
Net operating loss
carryforwards ............. 3,678
Paid time off ............. 341 243
State tax benefit ......... 161 183
Change of tax accounting
method ............... 133 242
Deferred catalog costs .... (1,012) (655)
Capitalized inventory costs (1,342) (545)
Cash discounts ............ (517) (379)
Valuation allowance ....... (504)
Other ..................... (338) 13
------- -------
Subtotal ............. 2,951 (177)
Noncurrent:
Deferred rent ............. 304 315
Fixed assets .............. 1,764 170
Reserves .................. 610
Change of tax accounting
method ............... (333) (532)
Other ..................... 69
------- -------
Total ..................... $ 5,296 ($ 155)
======= =======
As part of the E&B Marine acquisition the Company provided deferred taxes
on various temporary differences, including additional reserves and write down
of fixed assets.
At fiscal year-end 1996, the Company had unused tax net operating loss
carryforwards, attributable to E&B Marine, of approximately $8.3 million which
expire in the year 2003 through 2006. The utilization of the tax loss
carryforwards may be limited in subsequent years as a result of prior ownership
changes as required under sections 381 and 382 of the Internal Revenue Code.
14
NOTE 9. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution savings plan covering all eligible full-
time employees. The Company matches 33% of an employee's contribution up to 5%
of the employee's annual compensation. The Company's contributions to the Plan
for fiscal 1996, 1995 and 1994 were $278,000, $171,000 and $141,000,
respectively.
As a result of the acquisition of E&B Marine, the Company has a suspended
defined benefit plan (the "Defined Benefit Plan"), under which the minimum
benefit contribution is calculated by the plan actuaries. The Defined Benefit
Plan provides an existing participant with the excess, if any, of amounts
required under the Company's pension formula over the value of the retiree's
account balance as of the date the Defined Benefit Plan was suspended (January
28, 1994). A discount rate of 6% and a rate of return on assets of 8% were used
by the actuary in determining the Plan status at fiscal year-end 1996.
The actuarial present value of the benefit obligations at fiscal year-end
1996 was (in thousands):
Accumutated benefit obligation, of which $2,965 was vested ................. $ 3,012
-------
Projected benefit obligation for services rendered ......................... $ 3,012
Fair value of plan assets, primarily common stocks and U.S. government bond
commingled funds with the custodian ........................................ 2,145
-------
Projected benefit obligation in excess of fair value of plan assets ........ 867
Deferred gain .............................................................. 133
-------
Accrued pension liability ............................................. $ 1,000
=======
Net pension plan expense for fiscal 1996 consisted of the following (in
thousands):
Actual return on assets .................................................... $ 146
Interest cost on projected benefit obligation .............................. (91)
Net amortization ........................................................... (65)
-------
Net pension expense ................................................... $ 10
=======
15
QUARTERLY FINANCIAL DATA
(In thousands, except per share data unaudited)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
FISCAL 1996
Net sales ..................... $ 49,947 $ 99,480 $104,547 $ 69,326
Gross profit .................. 13,679 31,813 30,325 18,595
Income from operations ........ 846 13,037 5,762 [1] 1,511
Net income .................... 332 7,577 3,116 [1] 541
Net income per common and
common equivalent share:
Primary .................. $ 0.02 $ 0.46 $ 0.18 $ 0.03
Fully diluted ............ $ 0.02 $ 0.46 $ 0.18 $ 0.03
Stock trade price:
High ..................... $24 1/2 $37 5/8 $39 3/4 $37
Low ...................... $15 3/8 $24 1/4 $26 1/4 $24 3/4
FISCAL 1995
Net sales ..................... $ 42,222 $ 76,084 $ 60,273 $ 45,625
Gross profit .................. 11,724 22,480 16,969 13,043
Income from operations ........ 858 8,918 4,630 1,792
Net income .................... 146 5,130 2,714 985
Net income per common and
common equivalent share:
Primary .................. $ 0.01 $ 0.35 $ 0.17 $ 0.06
Fully diluted ............ $ 0.01 $ 0.35 $ 0.17 $ 0.06
Stock trade price:
High ..................... $13 1/4 $13 $15 3/8 $17 1/2
Low ...................... $ 8 3/4 $11 3/4 $12 1/2 $14 3/8
West Marine, Inc. common stock trades on The Nasdaq National Market Tier of The
Nasdaq Stock Market under the symbol WMAR.
[1] Income from operations and net income for the third quarter of fiscal 1996
is net of a $3 million pre-tax charge for expenses related to integrating E&B
Marine.
16
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.
Date: May 20, 1997 WEST MARINE, INC.
By: /s/ Crawford Cole
------------------------------
Crawford Cole
President and
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 indicated on May 20, 1997.
Signature
Capacity
/s/ Randolph K. Repass
- ----------------------
(Randolph K. Repass)
Chairman of the Board
/s/ Crawford Cole
- ----------------------
(Crawford Cole)
President and Chief Executive Officer
/s/ John Zott
- ----------------------
(John Zott)
Senior Vice President, Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer)
/s/ Geoff Eisenberg
- ----------------------
(Geoff Eisenberg)
Director
/s/ Richard Everett
- ----------------------
(Richard Everett)
Executive Vice President and Chief Operating Officer
/s/ James Curley
- ----------------------
(James Curley)
Director
/s/ Ronald Young
- ----------------------
(Ronald Young)
Director
/s/ Walter Scott
- ----------------------
(Walter Scott)
Director
/s/ David McComas
- ----------------------
(David McComas)
Director
17
EXHIBIT INDEX
Exhibit
Number Exhibit Page
- ------- ------- ----
27 Financial Data Schedule
33