<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
[X]
For the quarter ended March 30, 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.
(Enact Name of Registrant as Specified in Its Charter)
Delaware 77-035-5502
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation (I.R.S. Employer Identification
or Organization) No.)
500 Westridge Drive, Watsonville, CA 95076-4100
- --------------------------------------------------------------------------------
(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 March 30, 1996 the number of shares outstanding of the registrant's common
stock was 7,479,240.
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WEST MARINE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 30, December 30,
1996 1995
ASSETS --------------- ----------------
----------- (Unaudited)
<S> <C> <C>
Current assets:
Cash $ 643 $ 399
Accounts receivable 4,503 2,922
Merchandise inventories 81,641 71,374
Prepaid expense and deferred catalog costs 4,227 3,463
--------------- ----------------
Total current assets 91,014 78,158
Property and equipment, net 18,770 16,500
Intangibles and other assets, net 965 1,187
-------------- ---------------
Total assets $110,749 $95,845
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------------
Current liabilities:
Accounts payable $ 17,393 $13,597
Accrued expenses 5,782 5,699
Current portion of long-term debt 248 243
--------------- ----------------
Total current liabilities 23,423 19,539
Long term debt 18,820 8,284
Deferred rent 778 743
--------------- ----------------
43,021 28,566
Stockholders' equity:
Common stock 7 7
Additional paid-in-capital 51,072 50,955
Retained earnings 16,649 16,317
--------------- ----------------
Total stockholders' equity 67,728 67,279
--------------- ----------------
Total liabilities and stockholders' equity $110,749 $95,845
=============== ================
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
WEST MARINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts and store data)
<TABLE>
<CAPTION>
13 Weeks 13 Weeks
Ended Ended
March 30, April 1,
1996 1995
--------- --------
<S> <C> <C>
Net sales $49,947 $42,222
Cost of goods sold including buying and occupancy 36,268 30,498
--------- --------
Gross profit 13,679 11,724
Selling, general and administrative expenses 12,833 10,866
--------- --------
Income from operations 846 858
Interest expense 292 614
--------- --------
Income before income taxes 554 244
Provision for income taxes 222 98
--------- --------
Net income $ 332 $ 146
========= ========
Net income per common and common equivalent share:
Primary and fully diluted $ 0.04 $ 0.02
========= ========
Weighted average common and common equivalent
shares outstanding:
Primary 7,956 6,670
========= ========
Fully diluted 8,005 6,733
========= ========
Stores open at end of period 77 61
========= ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
WEST MARINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
13 Weeks 13 Weeks
Ended Ended
March 30, April 1,
1996 1995
----------- ----------
<S> <C>
Cash flows from operating activities:
Net income $332 $146
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,001 762
Change in assets and liabilities:
Accounts receivable -1,581 -1,003
Merchandise inventories -10,267 -13,660
Prepaid and other current assets -764 -1,603
Other assets 179 -9
Accounts payable 3,796 15,234
Accrued expenses 83 -833
Deferred rent 35 9
----------- ----------
Net cash used in operating activities -7,186 -957
Cash flows from investing activities:
Purchase of property and equipment -3,228 -3,006
----------- ----------
Net cash used in investing activities -3,228 -3,006
Cash flows from financing activities:
Net proceeds from (repayments of) line of credit 5 4,351
Proceeds from (repayments on) long-term debt 10,536 -40
Exercise of stock options 117 40
----------- ----------
Net cash provided by financing activities 10,658 4,351
----------- ----------
Net increase in cash 244 388
Cash:
Beginning of period 399 311
----------- ----------
End of period $643 $699
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Thirteen weeks ended March 30, 1996 and April 1, 1995
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 March 30, 1996
and April 1, 1995; and the interim results of operations and cash flows for the
13 weeks ended March 30, 1996 and April 1, 1995. The condensed consolidated
balance sheet at December 30, 1995, presented herein, has been prepared 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 week periods presented herein are not
necessarily indicative of the results to be expected for the full year.
NOTE 2 - DEFINITIVE MERGER AGREEMENT
On April 3, 1996, the Company announced the signing of a definitive merger
agreement to acquire E&B Marine, Inc. E&B Marine is a specialty retailer of
recreational boating supplies and apparel which its markets through 63 retail
stores and a mail order catalog.
Under the terms of the merger agreement, E&B will become a subsidiary of West
Marine and the stockholders of E&B Marine will receive shares of West Marine
common stock. The actual number of shares and the total value of the transaction
will depend upon the average closing price of West Marine stock for the 15
trading days before the closing as outlined below: 1) if West Marine's closing
stock price during this period averages at least $38.00 but not greater than
$43.875, E&B Marine stockholders will receive West Marine stock valued at $6.65
per E&B Marine share (at an exchange ratio between .17500 and .15157), 2) if
West Marine's closing stock price averages above $43.875 the exchanges ratio is
fixed at .15157 shares of West Marine for each share of E&B Marine stock, and 3)
if West Marine closing stock price averages below $38.00 the exchange ratio is
fixed at .17500 shares of West Marine for each share of E&B Marine stock. If
West Marine's stock price averages below $35.00, West Marine may terminate the
transaction.
Based upon the closing stock price of West Marine on Tuesday, April 2, 1996, the
date the merger was announced, E&B Marine stockholders will receive a total of
approximately 600,000 West Marine shares (equivalent to approximately 8 percent
of the combined company's shares).
The transaction is expected to close on or about July 1, 1996. After the
transaction closes, West Marine expects to record in the third quarter
approximately $3 million in charges related to restructuring the business.
The merger is intended to qualify as a tax-free reorganization for federal
income tax purposes and is expected to be accounted for under the purchase
method of accounting.
5
<PAGE>
The merger is subject to the approval of the stockholders of E&B Marine at their
annual meeting in June 1996. On April 29, 1996, the Company was informed that
the requested early termination of the Hart-Scott-Rodino Antitrust Improvements
Act waiting period had been granted with respect to the Merger.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
General
- -------
West Marine distributes its merchandise through three divisions, store, catalog
and Port Supply (wholesale). West Marine operated 77 stores in 19 states as of
March 30, 1996 compared to 61 stores in 18 states as of April 1, 1995.
Results of Operations
- ---------------------
Net sales increased $7.7 million, or 18.3%, from $42.2 million for the first
quarter of fiscal 1995 to $49.9 million for the first 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 $5.3 million or 17.4%, to
$36 million primarily due to 5 more stores in the first quarter 1995 compared to
the first quarter 1994. Net sales from comparable stores increased 5.0% and
contributed $1.5 million of the increase in net sales. Catalog net sales
increased $470,000, or 7.5%, to $6.7 million. Port Supply net sales increased
$1.9 million, or 35.8%, to $7.3 million. Store, catalog and Port Supply net
sales represented 72%, 13.4% and 14.6%, respectively, of the Company's net sales
for the first quarter of fiscal 1996 compared to 72.5%, 14.8% and 12.7%,
respectively, of the Company's net sales for the first quarter of fiscal 1995.
Gross profit increased $2 million, or 16.7%, in the first quarter of 1996
compared to the first quarter of 1995, primarily because of the increase in net
sales. Gross profit as a percentage of net sales decreased from 27.8% in the
first quarter of 1995 to 27.4% in the first quarter of 1996, primarily
reflecting increased buying and distribution costs offset by reduced promotional
activity. In addition, the Company's gross margins are affected by the mix of
products sold. During the next two years, the Company plans to replace its
distribution center in Charlotte, North Carolina, which could adversely affect
gross profits until the replacement distribution center has matured.
Selling, general and administrative expenses increased $2 million, or 18.1%, in
the first quarter of 1996 compared to the first quarter of 1995, primarily due
to increases in store operating expenses related to the growth in stores.
These expenses represented approximately 59% or $1.2 million of the increase.
As a percentage of net sales, selling, general and administrative expenses were
25.7% in the first quarter of 1996, which were the same as the first quarter of
1995.
Interest costs decreased $322,000 in the first quarter of fiscal 1996 compared
to the first quarter of fiscal 1995, primarily as a result of lower average
borrowing under the Company's line of credit in the first quarter of 1996
compared to the first quarter of 1995. The Company's average borrowings
decreased as a result of a secondary offering of the Company's common stock
completed in May, 1995.
Liquidity and Capital Resources
- -------------------------------
The Company's primary sources of capital have been income from operations and
bank borrowings. During the first three months of 1996, higher earnings were
offset by a $6.5 million dollar increase in inventory, net of payables, which
is attributable to the addition of 5 new stores and the expansion of the
merchandise selection offered by the Company.
West Marine's primary cash requirements are related to capital expenditures for
new stores, including leasehold improvement costs, fixtures, and merchandise
inventory. Based on the Company's plan to open approximately 10 additional
stores and to fund other capital expenditures, the Company anticipates spending
approximately $5 million during the remainder of fiscal 1996, not including
capital expenditures related to the Merger. Management believes that cash flows
from operations together with available bank debt financing will be sufficient
to fund the Company's operations through fiscal 1996.
7
<PAGE>
Seasonality
- -----------
The Company's business is highly seasonal and the Company will become even more
susceptible to seasonality and weather as it continues 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.
Cautionary Statement for purposes of the Safe Harbor Provisions of the Private
- ------------------------------------------------------------------------------
Securities Litigation Reform Act of 1995.
- -----------------------------------------
The statements in this filing or in documents incorporated by reference herein
that relate to future plans, events, expectation, objectives or performances (or
assumptions underlying such matters) are forward-looking statements that involve
a number of risks or 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 made by the Company.
The Company's growth has been fueled principally by its store 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. 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 operational systems. On April 3, 1996, the Company
announced the signing of a definitive merger agreement to acquire E&B Marine,
Inc. Acquisitions involve a number of special 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 market for recreational boating supplies is highly competitive. Competitive
pressures resulting from competitors' pricing policies have adversely affected
the Company's gross profit and such pressures are expected to continue. The
Company is also susceptible to seasonality and weather and 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 net sales and net income could be adversely affected.
Several other factors which may influence the Company's financial results
include the level of consumer spending on recreational boating supplies,
environmental regulations, demand for and acceptance of the Company's products
and other risk factors listed from time to time in the Company's Securities and
Exchange Commission filings. In particular, there were a number of risk factors
identified in the Prospectus filed on May 5, 1995 in connection with the
Company's public offering.
8
<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) 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: May 13, 1996 WEST MARINE, INC.
____________________
By: /s/ Crawford L. Cole
_________________________
Crawford L. Cole
President and Chief Executive Officer
By: /s/ John Zott
_________________________
John Zott,
Senior Vice President, Chief Financial Officer
9
<PAGE>
EXHIBIT INDEX
Exhibit
Number Page
- ------ ----
11.1 Statement re: computation of earnings per share
27 Financial Data Schedule
10
<PAGE>
EXHIBIT 11.1
WEST MARINE, INC.
STATEMENT RE: COMPUTATION OF
NET INCOME PER SHARE
<TABLE>
<CAPTION>
13 Weeks 13 Weeks
Ended Ended
March 30, April 1,
1996 1995
------------- ------------
(in thousands except income per share amounts)
PRIMARY
- -----------------
<S> <C> <C>
Net income $332 $146
Weighted average common shares outstanding 7,475 6,247
Common equivalent shares: 481 423
Stock options
------------- ------------
Weighted average common and
common equivalent shares 7,956 6,670
============= ============
Net income per common and common equivalent share $0.04 $0.02
============= ============
FULLY DILUTED
- -----------------
Net income $332 $146
Weighted average shares outstanding 7,475 6,247
Common equivalent shares: 530 486
Stock options ------------- ------------
Weighted average common and
common equivalent shares 8,005 6,733
============= ============
Net income per common and common equivalent share $0.04 $0.02
============= ============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-28-1996 DEC-28-1995
<PERIOD-START> DEC-31-1995 DEC-31-1994
<PERIOD-END> MAR-30-1996 MAR-30-1995
<CASH> 643 399
<SECURITIES> 0 0
<RECEIVABLES> 4,872 3,666
<ALLOWANCES> (369) (287)
<INVENTORY> 81,641 71,374
<CURRENT-ASSETS> 91,014 78,158
<PP&E> 31,858 23,518
<DEPRECIATION> (13,085) (9,615)
<TOTAL-ASSETS> 110,749 95,845
<CURRENT-LIABILITIES> (23,423) (19,539)
<BONDS> 0 0
0 0
0 0
<COMMON> 7 7
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> (110,749) (95,845)
<SALES> 49,947 42,222
<TOTAL-REVENUES> 49,947 42,222
<CGS> (36,268) (30,498)
<TOTAL-COSTS> (36,268) (30,498)
<OTHER-EXPENSES> (12,833) (10,866)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (292) (614)
<INCOME-PRETAX> 554 244
<INCOME-TAX> (222) (98)
<INCOME-CONTINUING> 332 146
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 332 146
<EPS-PRIMARY> .04 .02
<EPS-DILUTED> .04 .02
</TABLE>
