<PAGE>
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 September 28, 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 Identification No.)
Incorporation or Organization)
500 Westridge Drive, Watsonville, CA 95076-4100
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (408) 728-2700
--------------
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
---------------- ----------------
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 No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
At September 28, 1996, the number of shares outstanding of the registrant's
common stock was 16,398,038.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
WEST MARINE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 28, December 30,
ASSETS 1996 1995
------ ------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 1,821 $ 399
Accounts receivable 4,311 2,922
Merchandise inventories 113,714 71,374
Prepaid expense and other current assets 10,670 3,463
------------- -------------
Total current assets 130,516 78,158
Property and equipment, net 27,016 16,500
Intangibles and other assets, net 43,390 1,187
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Total assets $200,922 $95,845
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 30,677 $13,597
Accrued expenses 18,868 5,699
Current portion of long-term debt 362 243
------------- -------------
Total current liabilities 49,907 19,539
Long term debt 26,490 8,284
Deferred items 681 743
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Total liabilities 77,078 28,566
Stockholders' equity:
Preferred stock, $.001 par value: 1,000,000 shares
authorized; no shares outstanding
Common stock, $.001 par value: 50,000,000 shares 16 15
authorized; issued and outstanding 16,398,038 at
September 28, 1996 and 14,938,412 at December 30, 1995
Additional paid-in capital 96,486 50,947
Retained earnings 27,342 16,317
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Total stockholders' equity 123,844 67,279
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Total liabilities and stockholders' equity $200,922 $95,845
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
WEST MARINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except per share amounts and store data)
<TABLE>
<CAPTION>
13 Weeks 13 Weeks 39 Weeks 39 Weeks
Ended Ended Ended Ended
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $104,547 $60,273 $253,974 $178,579
Cost of goods sold including
buying and occupancy 74,312 43,304 178,332 127,174
------------ ------------ ------------ ------------
Gross profit 30,235 16,969 75,642 51,405
Selling, general and administrative
expenses 21,478 12,339 53,002 36,999
Expenses related to integrating E&B Marine 2,995 2,995
------------ ------------ ------------ ------------
Income from operations 5,762 4,630 19,645 14,406
Interest expense 452 146 1,070 1,222
------------ ------------ ------------ ------------
Income before income taxes 5,310 4,484 18,575 13,184
Provision for income taxes 2,194 1,770 7,550 5,194
------------ ------------ ------------ ------------
Net income $ 3,116 $ 2,714 $ 11,025 $ 7,990
============ ============ ============ ============
Net income per common and common
equivalent share (note 4):
Primary and fully diluted $ 0.18 $ 0.17 $ 0.66 $ 0.55
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding (note 4):
Primary 17,629 15,636 16,686 14,438
============ ============ ============ ============
Fully diluted 17,629 15,682 16,751 14,548
============ ============ ============ ============
Stores open at end of period 151 66
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
WEST MARINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
39 Weeks 39 Weeks
Ended Ended
September 28, September 30,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 11,025 $ 7,990
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,550 2,506
Change in assets and liabilities net of effects of acquisition:
Accounts receivable (1,277) (1,102)
Merchandise inventories (4,721) (14,784)
Prepaid and other current assets (709) (744)
Other assets (2,499) (52)
Accounts payable 3,345 2,674
Accrued expenses 4,546 1,324
Deferred rent (62) 55
------------ ------------
Net cash provided by (used in) operating activities 13,198 (2,133)
Cash flows from investing activities:
Purchase of property and equipment (10,249) (5,673)
------------ ------------
Net cash used in investing activities (10,249) (5,673)
Cash flows from financing activities:
Net repayments of line of credit (4,393) (13,814)
Repayments on long-term debt (5,806)
Proceeds from issuance of common stock,
net of offering costs 27,287
Sale of common stock pursuant to
associate stock purchase plan 301 186
Exercise of stock options 2,565 123
------------ ------------
Net cash provided by (used in) financing activities (1,527) 7,976
------------ ------------
Net increase in cash 1,422 170
Cash:
Beginning of period 399 311
------------ ------------
End of period $ 1,821 $ 481
============ ============
Other cash flow information:
Acquisition of E&B Marine, Inc. for 1,197,000 shares
of common stock (see note 2) $ 41,600
============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
WEST MARINE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Thirteen and Thirty-nine Weeks Ended September 28, 1996 and September 30, 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 September 28,
1996 and September 30, 1995; and the interim results of operations for the 13
and 39 week periods ended September 28, 1996 and September 30, 1995; and cash
flows for the 39 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 interim
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 39 week periods presented herein are
not necessarily indicative of the results to be expected for the full year.
<PAGE>
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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<TABLE>
<CAPTION>
39 Weeks Ended 39 Weeks Ended
September 28 , 1996 September 30, 1995
------------------- -------------------
<S> <C> <C>
Net sales $311,016 $269,857
======== ========
Net income $ 11,336 $ 9,951
======== ========
Net income per share $ .65 $ .63
======== ========
</TABLE>
Included in the pro forma income statement summary above is a $3.0 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.
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.
<PAGE>
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: Any forward looking statements contained in the following discussion or
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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 of the Company's operating results on
continued new store openings and sales increases at existing stores, consumer
spending, seasonality and weather, competitive conditions and other risks
disclosed in the Company's SEC filings.
General
- -------
West Marine distributes its merchandise through three divisions, stores (retail
and wholesale) and catalog (retail) under the names of West Marine and E&B
Discount Marine as well as Port Supply (wholesale). West Marine operated 151
stores in 25 states as of September 28, 1996, compared to 66 stores in 18 states
as of September 30, 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 $44.3 million, or 73.5%, from $60.3 million during the third
quarter of fiscal 1995 to $104.6 million during the third 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 $38.7 million or 84.5%, to
$84.5 million primarily due to 22 additional stores opened in the previous
twelve months ending September 28, 1996 and the 64 stores acquired on June 17,
1996. Net sales from comparable stores increased 6.3% and
<PAGE>
contributed $2.9 million of the increase in net sales. Catalog net sales
increased $3.9 million, or 49.2%, to $11.8 million. Port Supply net sales
increased $1.7 million, or 25.4%, to $8.2 million. Store, catalog and Port
Supply net sales represented 76.0%, 13.1% and 10.9%, respectively, of the
Company's net sales for the third quarter of fiscal 1995 compared to 80.8%,
11.3% and 7.9%, respectively, of the Company's net sales for the third quarter
of fiscal 1996.
Net sales increased $75.4 million, or 42.2%, from $178.6 million during the
first nine months of fiscal 1995 to $254.0 million during the first nine 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 $64.0 million
or 48.2%, to $196.6 million. Net sales from comparable stores increased 5.6% and
contributed $7.3 million of the increase in net sales. Catalog net sales
increased $5.9 million, or 23.0%, to $31.8 million. Port Supply net sales
increased $5.5 million, or 27.2%, to $25.6 million. Store, catalog and Port
Supply net sales represented 74.3%, 14.4% and 11.3%, respectively, of the
Company's net sales for the first nine months of fiscal 1995 compared to 77.4%,
12.5% and 10.1%, respectively, of the Company's net sales for the first nine
months of fiscal 1996.
For the third quarter and nine months ended September 28, 1996 net income was
$3.1 million, or $.18 per share and $11 million or $.66 per share, respectively.
Included in net income were one time costs incurred from the integration of E&B
Marine. Net income without the $3.0 million in integration costs for the 13 and
39 weeks ended September 28, 1996 totaled $4.9 million, or $.28 per share and
$12.8 million or $.77 per share, respectively.
Gross profit increased $13.3 million, or 78.2%, in the third quarter of 1996
compared to the third quarter of 1995, primarily because of the increase in net
sales. Gross profit as a percentage of net sales increased from 28.2% in the
third quarter of 1995 to 28.9% in the third quarter of 1996, primarily
reflecting improved buying leverage and decreases in the costs of distribution
offset by increased occupancy costs as a percentage of net sales primarily at
E&B Marine locations.
Gross profit increased $24.2 million, or 47.1%, in the first nine months of
fiscal 1996 compared to the first nine months of fiscal 1995, primarily because
of the increase in net sales. Gross profit as a percentage of net sales
increased from 28.8% in the first nine months of fiscal 1995 to 29.8% in the
first nine months of fiscal 1996, reflecting improved buying leverage offset by
increased occupancy costs as a percentage of net sales primarily at E&B Marine
locations and the new West Coast distribution center. 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 $9.1 million, or 74.1%,
in the third quarter of 1996 compared to the third quarter of 1995, primarily
due to increases in direct expenses related to the growth in stores and costs
associated with the integration of E&B
<PAGE>
Marine. Store direct expenses represented approximately 68.5% or $6.1 million of
the increase. As a percentage of net sales, selling, general and administrative
expenses remained constant at 20.5% in the third quarter of fiscal 1996 compared
to the third quarter of fiscal 1995.
Selling, general and administrative expenses increased $16.0 million, or 43.3%,
in the first nine months of fiscal 1996 compared to the first nine months of
fiscal 1995, primarily due to direct expenses related to growth in stores and
costs associated with the integration of E&B Marine. Store direct expenses
represented approximately 66.5% or $10.6 million of the increase. As a
percentage of net sales, selling, general and administrative expenses increased
from 20.7% in the first nine months of fiscal 1995 to 20.9% in the first nine
months of fiscal 1996.
Interest expense increased $306,000 or 209.6% in the third quarter of fiscal
1996 compared to the third quarter of fiscal 1995, primarily because of higher
borrowings under the Company's credit facility during the quarter. The higher
borrowings were driven by the assumption of E&B Marine liabilities as a part of
the acquisition.
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 nine months of
fiscal 1996 was $13.2 million, consisting primarily of earnings net of
depreciation, a $3.3 million increase in accounts payable and a $4.5 million
increase in accrued expenses, offset by an $4.7 million increase in inventory, a
$1.3 million increase in accounts receivable and a $2.5 million increase in
other assets. The inventory increase was primarily attributable to the addition
of 22 new stores over the previous 12 months and the expansion of the
merchandise selection offered by the Company. Net cash used in investing
activities was $10.2 million primarily for the purchase of property and
equipment. Net cash used by financing activities during the first nine months of
fiscal 1996 was $1.5 million, consisting of $4.4 million from the repayments of
the Company's line of credit offset by $2.9 million received from the exercise
of stock options and the sales of common stock pursuant to the associate stock
purchase program.
Cash increased by $1.4 million during the first nine months of fiscal 1996 from
$399,000 at the end of fiscal 1995 to $1.8 million as of September 28, 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.
<PAGE>
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 $12 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
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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.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
11.1 Statement re: computation of earnings per share
27 Financial Data Schedule
(b) Exhibits and Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
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.
By. __________________________
Crawford L. Cole
President and Chief Executive Officer
By. __________________________
John Zott,
Senior Vice President,
Chief Financial Officer
<PAGE>
EXHIBIT 11.1
WEST MARINE, INC.
STATEMENT RE: COMPUTATION OF
NET INCOME PER SHARE
<TABLE>
<CAPTION>
13 Weeks 13 Weeks 39 Weeks 39 Weeks
Ended Ended Ended Ended
(in thousands except income per share amounts) September 28, September 30, September 28, September 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
PRIMARY
- -------
<S> <C> <C> <C> <C>
Net income $ 3,116 $ 2,714 $11,025 $ 7,990
Weighted average common shares outstanding 16,356 14,898 15,476 13,764
Common equivalent shares:
Stock options 1,273 738 1,210 674
------------ ------------ ------------ ------------
Weighted average common and
common equivalent shares 17,629 15,636 16,686 14,438
============ ============ ============ ============
Net income per common and common equivalent share $ 0.18 $ 0.17 $ 0.66 $ 0.55
============ ============ ============ ============
FULLY DILUTED
- -------------
Net income $ 3,116 $ 2,714 $11,025 $ 7,990
Weighted average shares outstanding 16,356 14,898 15,476 13,764
Common equivalent shares:
Stock options 1,273 784 1,275 784
------------ ------------ ------------ ------------
Weighted average common and
common equivalent shares 17,629 15,682 16,751 14,548
============ ============ ============ ============
Net income per common and common equivalent share $ 0.18 $ 0.17 $ 0.66 $ 0.55
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WEST MARINE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> SEP-28-1996
<CASH> 1,821
<SECURITIES> 0
<RECEIVABLES> 4,311
<ALLOWANCES> 505
<INVENTORY> 113,714
<CURRENT-ASSETS> 130,516
<PP&E> 27,016
<DEPRECIATION> 15,168
<TOTAL-ASSETS> 200,922
<CURRENT-LIABILITIES> 49,907
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 200,922
<SALES> 253,974
<TOTAL-REVENUES> 253,974
<CGS> 178,332
<TOTAL-COSTS> 178,332
<OTHER-EXPENSES> 55,997
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,070
<INCOME-PRETAX> 18,575
<INCOME-TAX> 7,550
<INCOME-CONTINUING> 11,025
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,025
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
</TABLE>
