<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
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 October 2, 1999
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
(State or Other Jurisdiction (I.R.S. Employer
of 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
N/A
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
At November 10, 1999, the number of shares outstanding of the registrant's
common stock was 17,165,061.
<PAGE>
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
October 2, January 2,
1999 1999
--------------- ----------------
<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash $ 4,538 $ 1,024
Accounts receivable, net 6,203 4,660
Merchandise inventories 160,005 160,069
Prepaid expenses and other current assets 11,122 11,574
--------------- ----------------
Total current assets 181,868 177,327
Property and equipment, net 65,455 60,219
Intangibles and other assets, net 40,989 41,999
--------------- ----------------
TOTAL ASSETS $288,312 $279,545
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 34,957 $ 23,759
Accrued expenses 17,289 4,548
Deferred current liabilities 3,263 3,263
Current portion of long-term debt 1,003 1,783
--------------- ----------------
Total current liabilities 56,512 33,353
Long-term debt 67,877 94,367
Deferred items and other non-current obligations 2,362 2,055
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: 17,120,962 at
October 2, 1999 and 16,984,528 at January 2, 1999 17 17
Additional paid-in capital 106,578 105,599
Retained earnings 54,966 44,154
--------------- ----------------
Total stockholders' equity 161,561 149,770
--------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $288,312 $279,545
=============== ================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share and store data)
<TABLE>
<CAPTION>
13 Weeks 13 Weeks 39 Weeks 39 Weeks
Ended Ended Ended Ended
October 2, October 3, October 2, October 3,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $128,888 $121,673 $399,327 $365,334
Cost of goods sold including buying
And occupancy 93,377 89,657 288,647 264,322
------------- ------------- ------------- -------------
Gross profit 35,511 32,016 110,680 101,012
Selling, general and administrative expense 29,164 25,662 87,976 78,867
Expenses related to distribution center move - - - 3,284
------------- ------------- ------------- -------------
Income from operations 6,347 6,354 22,704 18,861
Interest expense 1,118 1,389 4,378 4,462
------------- ------------- ------------- -------------
Income before taxes 5,229 4,965 18,326 14,399
Provision for income taxes 2,144 2,036 7,514 5,904
------------- ------------- ------------- -------------
Net income $ 3,085 $ 2,929 $ 10,812 $ 8,495
============= ============= ============= =============
Net income per common and common
equivalent share:
Basic $0.18 $0.17 $0.63 $0.50
============= ============= ============= =============
Diluted $0.18 $0.17 $0.62 $0.48
============= ============= ============= =============
Weighted average common and common
equivalent shares outstanding
Basic 17,111 16,916 17,061 16,873
============= ============= ============= =============
Diluted 17,598 17,290 17,568 17,560
============= ============= ============= =============
Stores open at end of period 227 212
============= =============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
39 Weeks 39 Weeks
Ended Ended
October 2, October 3,
1999 1998
-------------- --------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 10,812 $ 8,495
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 10,657 8,618
Loss on sale of assets (17) (85)
Provision for deferred income taxes - 8
Provision for doubtful accounts 456 333
Non-cash compensation expense 138 -
Changes in assets and liabilities:
Accounts receivable, net (1,999) (1,508)
Merchandise inventories 64 (7,959)
Prepaid expenses and other current assets 452 (1,206)
Other assets 92 (17)
Accounts payable 11,198 4,191
Accrued expenses 12,859 7,707
Deferred items 307 80
-------------- --------------
Net cash provided by operating activities 45,019 18,657
-------------- --------------
INVESTING ACTIVITIES:
Purchases of property and equipment (14,958) (14,803)
-------------- --------------
Net cash used in investing activities (14,958) (14,803)
-------------- --------------
FINANCING ACTIVITIES:
Net repayments on line of credit (25,600) (2,800)
Repayments on long-term debt (1,670) (2,155)
Sale of common stock pursuant to associate stock purchase plan 455 428
Exercise of stock options 268 906
-------------- --------------
Net cash used in financing activities (26,547) (3,621)
-------------- --------------
NET INCREASE IN CASH 3,514 233
CASH AT BEGINNING OF PERIOD 1,024 1,010
-------------- --------------
CASH AT END OF PERIOD $ 4,538 $ 1,243
============== ==============
</TABLE>
See notes to consolidated financial statements.
4
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WEST MARINE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Thirteen and Thirty-Nine Weeks Ended October 2, 1999 and October 3, 1998
(Unaudited)
NOTE 1 - Basis of Presentation
The accompanying unaudited condensed 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 October 2, 1999 (unaudited) and October 3, 1998
(unaudited); and the results of operations and cash flows for the 13-week and
the 39-week periods then ended. The condensed consolidated balance sheet at
January 2, 1999, presented herein, has been derived from the audited
consolidated financial statements of the Company for the fiscal year then ended,
included in the Company's annual report on Form 10-K. The results of operations
for the 13-week and the 39-week periods presented herein are 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 fiscal year ended January 2,
1999. 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 financial statements. The condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements, including the notes thereto, for the fiscal year ended January 2,
1999, included in the Company's annual report on Form 10-K.
NOTE 2 - Accounting Principles
In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS No.
137, "Accounting for Derivative Instruments." SFAS 137 extends the effective
date of SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The statement requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. As
amended by SFAS 137, SFAS 133 is effective for fiscal years beginning after June
15, 2000 and is not to be applied retroactively. In the opinion of management,
SFAS No. 133 will not have a material effect on the Company's financial position
or results of operations.
5
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Item 2 - Management's Discussion and Analysis of Financial Conditions 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), which all sell
after-market recreational boating supplies directly to customers. Currently,
the Company offers its products through 228 stores in 38 states under the names
West Marine and E&B Marine 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 after-
market 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 third quarter and first nine months of fiscal 1999 refer
to the 13-week and 39-week periods, respectively, ended October 2, 1999, and all
references to the third quarter and first nine months of fiscal 1998 refer to
the 13-week and 39-week periods, respectively, ended October 3, 1998.
Results of Operations
- ---------------------
Net sales increased $7.2 million, or 5.9%, to $128.9 million for the third
quarter of fiscal 1999, compared to $121.7 million for the third quarter of
fiscal 1998, primarily due to increases in net sales in the Company's Stores and
Port Supply divisions. Stores net sales were $106.1 million for the third
quarter of fiscal 1999, an increase of $4.4 million, or 4.3%, over the $101.7
million recorded for the same period a year ago. Net sales in new stores were
$4.8 million for the third quarter of fiscal 1999. Net sales from comparable
stores decreased 0.5% or $0.4 million. Sales recorded by Port Supply increased
by $2.2 million, or 22.7%, to $11.8 million for the third quarter of fiscal
1999, compared to $9.6 million for the third quarter of fiscal 1998. Catalog
sales increased by $0.6 million, or 6.2%, to $10.8 million for the third quarter
of fiscal 1999, compared to $10.1 million for the third quarter of fiscal 1998.
Stores, Port Supply, and Catalog net sales represented 82.3%, 9.1%, and 8.4%,
respectively, of the Company's net sales for the third quarter of fiscal 1999,
compared to 83.6%, 7.9%, and 8.3%, respectively, of the Company's net sales for
the third quarter of fiscal 1998. The Company also recorded net sales from its
insurance program, which represented less than 1.0% of the Company's net sales
for the third quarter of fiscal 1999 and 1998.
The Company recorded net sales of $399.3 million for the first nine months of
fiscal 1999, an increase of $34.0 million, or 9.3%, over net sales of $365.3
million recorded for the similar period a year ago. The increase in net sales
was primarily due to increases in net sales in the Company's Stores and Port
Supply divisions. Stores net sales were $326.2 million for the first nine
months of fiscal 1999, an increase of $24.5 million, or 8.1%, over the $301.7
million recorded for the same period in fiscal 1998. Net sales in new stores
were $17.1 million for the first nine months of fiscal 1999. Net sales from
comparable stores increased 2.6% and contributed $7.5 million of the increase in
net sales. Net sales recorded by Port Supply increased by $6.9 million, or
23.4%, to $36.7 million for the first nine months of fiscal 1999, compared to
the same period a year ago. Catalog net sales increased by $2.2 million, or
6.7%, to $35.8 million for the first nine months of fiscal 1999, compared to
$33.6 million for the same period a year ago. Stores, Port Supply, and Catalog
net sales represented 81.7%, 9.2%, and 9.0%, respectively, of the Company's net
sales for the first nine months of fiscal 1999, compared to 82.6%, 8.1%, and
9.2%, respectively, of the Company's net sales for the first nine months of
fiscal 1998. Net sales from the Company's insurance program represented less
than 1% of the Company's net sales for the first nine months of fiscal 1999 and
1998. Net sales were
6
<PAGE>
favorably impacted during the first nine months of fiscal 1999 by marketing
programs undertaken by West Marine to expand its customer base and improve brand
name recognition.
The Company's gross profit increased by $3.5 million, or 10.9%, to $35.5 million
for the third quarter of fiscal 1999, compared to $32.0 million for the third
quarter of 1998. Gross profit represented 27.6% of net sales in the third
quarter of fiscal 1999, compared to 26.3% in the same period a year ago. The
increase in gross profit as a percentage of net sales was primarily due to
continued process improvements leading to increased efficiencies at the
Company's new Rock Hill, South Carolina distribution center in the third quarter
of 1999 compared to the same period a year ago.
The Company's gross profit was $110.7 million for the first nine months of
fiscal 1999, an increase of $9.7 million, or 9.6%, over gross profit of $101.0
million for the same period a year ago. Gross profit represented 27.7% of net
sales in the first nine months of fiscal 1999, compared to 27.6% in the same
period a year ago.
Selling, general, and administrative expenses increased by $3.5 million, or
13.6%, to $29.2 million for the third quarter of fiscal 1999 compared to the
similar period a year ago. Selling, general, and administrative expenses
represented 22.6% of net sales for the third quarter of fiscal 1999 compared to
21.1% for the third quarter of fiscal 1998. The increase was primarily due to
increased recruiting and relocation costs to strengthen the Company's management
team, as well as increased marketing costs related to the company's summer
promotions. For the first nine months of fiscal 1999, selling, general, and
administrative expenses increased by $9.1 million, or 11.5%, to $88.0 million,
compared to $78.9 million for the same period a year ago, primarily due to
increases in direct expenses related to the growth in Stores, increased
recruiting and relocation to strengthen the Company's management team and
increased marketing expenses. Selling, general, and administrative expenses
increased to 22.0% of net sales for the first nine months of 1999, compared to
21.6% for the first nine months of 1998.
Results for the first nine months of 1998 included one-time expenses (not
included in selling, general, and administrative expenses) related to the
relocation and consolidation of the Company's East Coast distribution centers.
Interest expense was $1.1 million and $1.4 million, respectively, for the
quarter ended October 2, 1999 and October 3, 1998. Interest expense for the
first nine months of fiscal 1999 was $4.4 million, compared to $4.5 million for
the same period a year ago. The decreases were primarily due to a lower average
balance of outstanding borrowings, in the 13-week and 39-week periods ended
October 2, 1999, partially offset by a higher weighted average interest rate on
borrowings.
Liquidity and Capital Resources
- -------------------------------
At the end of the third quarter of 1999, the Company had outstanding a $40.0
million senior guarantee note which matures on December 23, 2004, with the first
principal payment due on December 23, 2000. This note is unsecured and contains
certain amended restrictive covenants including required fixed charge coverage
and debt to capitalization ratios and minimum net worth. Note currently bears
interest at the rate of 7.6%.
At the end of the third quarter of 1999, the Company had available a $50.0
million revolving line of credit with two banks which expires October 4, 2000.
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 of up to
2.0%. At the end of the third quarter of 1999, borrowings from the credit line
were $27.4 million bearing interest at rates ranging from 6.875% to 8.25%. The
Company is in the process of amending its line of credit. The amendment to the
line of credit is expected to be finalized by the end of the fiscal year.
7
<PAGE>
In addition, the Company had available a $2.0 million revolving line of credit
with a bank, which expires on October 4, 2000. The line bears interest at the
bank's reference rate (8.25% at the end of third quarter of 1999) and has a ten
day paydown requirement. At the end of the third quarter of 1999, no amounts
were outstanding under this line of credit.
The Company's primary sources of funds are income from operations and borrowings
under its line of credit. Net cash provided by operating activities for the
first nine months of fiscal 1999 amounted to $45.0 million, consisting primarily
of a $12.9 million increase in accrued expenses, a $11.2 million increase in
accounts payable, net income of $10.8 million, and $10.7 million of depreciation
and amortization. These amounts were partially offset by a $2.0 million
increase in accounts receivable.
Net cash used in investing activities during the first nine months of fiscal
1999 was $15.0 million, compared to $14.8 million a year ago, primarily related
to new store construction and remodels. Net cash used in financing activities
during the first nine months of 1999 was $26.5 million, consisting primarily of
$25.6 million of repayments on the Company's line of credit.
In the opinion of management, cash flows from operations in conjunction with the
Company's bank line of credit will be sufficient to fund the Company's
operations throughout 1999.
Segment Information
- -------------------
The Company's 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 qualify 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):
<TABLE>
<CAPTION>
39 Weeks 39 Weeks
Ended Ended
Oct 2, 1999 Oct 3, 1998
--------------- --------------
<S> <C> <C>
Net sales:
Stores $326,243 $301,710
Other 73,084 63,624
--------------- --------------
Consolidated net sales $399,327 $365,334
--------------- --------------
Contribution:
Stores $ 45,663 $ 46,294
Other 11,716 8,346
--------------- --------------
Consolidated contribution $ 57,379 $ 54,640
--------------- --------------
Reconciliation of consolidated contribution to net income:
Consolidated contribution $ 57,379 $ 54,640
Less:
Cost of goods sold not included in consolidated contribution (21,094) (21,383)
General and administrative expenses (13,581) (11,112)
Expenses related to distribution center move - (3,284)
Interest expense (4,378) (4,462)
Income tax expense (7,514) (5,904)
--------------- --------------
Net income $ 10,812 $ 8,495
=============== ==============
</TABLE>
8
<PAGE>
Year 2000
- ---------
The Company has developed and implemented a plan to ensure its computer systems
and applications are compliant for the year 2000 ("Y2K"). The Company's plan
included a detailed survey of the current systems and associated upgrades, and a
definition of system modifications that were required to achieve Y2K compliance.
Systems programming and testing of the modifications were completed during the
first six months of 1999, and final integration testing and conversions to new
systems were completed and implemented third quarter of 1999. There are still
some minor systems modifications, but management believes that the majority of
system changes have been completed and all significant Y2K-related system and
vendor issues have been resolved. In the opinion of management, conversions to
new systems that took place during the third quarter will prevent Y2K issues
from posing significant operational problems for the Company. However, there
can be no guarantee that the Company's systems will not fail, or that the
failure of such systems to be Y2K compliant will not have a material adverse
effect on the Company's results of operations, financial condition or liquidity.
In addition, as a normal part of investing in systems, during 1999 the Company
upgraded certain systems to improve operational efficiencies, improve services
to customers, and provide better information to management. The upgrades will
ensure that these systems will be Y2K compliant. Systems that have been
upgraded prior to this filing include the point of sale (POS) system, the
wholesale sales system, the warehouse management, merchandising, and finance
systems, and the basic operating systems on the AS400 system.
Due to Company efforts related to Y2K, certain planned systems enhancement and
improvement projects, unrelated to Y2K, have been deferred until late 1999 and
2000. Deferring these projects is not expected to have a material adverse
effect on the Company's results of operations, financial condition, or
liquidity.
The plan developed to address vendor issues covers product and systems issues
and includes product certification, systems integration, testing, and
communication strategies. During 1999, the Company reviewed the Y2K compliance
of substantially all major vendors, of which over 90% reported that they were
Y2K compliant . The Company is currently taking measures to replace those
vendors that were not Y2K compliant at the end of the third quarter of 1999.
While management believes it is taking adequate measures to protect the Company
from the Y2K problems of other companies, there can be no guarantee that the
systems and products of other companies on which the Company relies will be Y2K
compliant, or that the failure of such systems and products to be Y2K compliant
will not have a material adverse effect on the Company's results of operations,
financial condition, or liquidity.
As of October 2, 1999, the Company had incurred approximately $276,000 of
expenses related to the Y2K issue. The total cost of the Company's Y2K
compliance efforts is expected to be approximately $300,000. The Company has
funded and will continue to fund these expenditures through operating cash
flows.
While management believes that all Y2K related deadlines will be met, the
Company's contingency plans include the reallocation of information systems
resources, if needed, to address areas of concern. In addition, the Company
will work with vendors to consider the need for forward purchases of inventory
in the event that Y2K deadlines are not met.
9
<PAGE>
Seasonality
- -----------
Historically, the Company's business has been highly seasonal. The Company's
expansion through acquisition and new store openings have made the Company even
more susceptible to seasonality, as an increasing percentage of stores sales
occur in the second and third quarters of each year. In 1998, 62.6% 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.
"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.
West Marine's growth has been fueled principally by geographic expansion through
acquisition, the opening of new stores, and, to a lesser extent, by comparable
stores net sales increases. Although the Company believes that the Catalog and
Port Supply divisions will continue to grow, future Company net sales and profit
growth, if any, will be increasingly dependent on the opening and profitability
of new stores. The Company's Catalog division has faced market share erosion in
areas where the Company or its competitors have opened stores. Management
expects this trend to continue.
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 successfully 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 watersports 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. In addition, 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. In most of the Company's product categories,
prices have remained stable or have declined over the last three years, a trend
which management expects is likely to continue. As a result, net sales
increases during such periods have generally not been attributable to increases
in prices.
Additional factors which may affect the Company's financial results include
inventory management and shrink issues, fluctuations in consumer spending on
recreational boating supplies, the impact of the Internet on the supply chain,
environmental regulations, demand for and acceptance of the Company's products,
costs and inefficiencies associated with the Company's Rock Hill distribution
center and other risk factors disclosed from time to time in the Company's SEC
filings.
10
<PAGE>
PART II. OTHER INFORMATION
Item 5. The Company issued a press release on October 13, 1999 announcing
Martin Louie, as Vice President of Finance and Interim CFO.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
10.1 Employment Agreement between Registrant and Richard Everett
27 Financial Data Schedule
(b) Exhibits and Reports on Form 8-K
No reports on Form 8-K have been filed for the period being
reported.
11
<PAGE>
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: November 15, 1999 WEST MARINE, INC.
-----------------
By: /s/ John Edmondson
--------------------
John Edmondson
President and Chief Executive Officer
By: /s/ Marty Louie
--------------------
Marty Louie
Vice President, Controller
12
<PAGE>
EXHIBIT 10.1
EXECUTIVE TERMINATION COMPENSATION AGREEMENT
--------------------------------------------
This EXECUTIVE TERMINATION COMPENSATION AGREEMENT ("the Agreement") is
entered into as of August 24, 1999 by and between West Marine, Inc., a Delaware
corporation (the "Company"), and Richard Everett, the undersigned individual
("Executive").
RECITAL
-------
The Board of Directors of the Company has determined that it is in the
best interests of the Company and its stockholders for the Company to agree to
pay Executive termination compensation in the event Executive should leave the
employ of the Company under the circumstances described below. The Board also
wishes to reward loyal and dedicated management personnel. Accordingly, the
parties wish to enter into this Agreement to set forth the rights and
obligations of the parties upon the termination of Executive's employment with
the Company.
AGREEMENT
---------
In consideration of the mutual covenants and agreements set forth
below, the Company and Executive agree as follows:
1. Position.
--------
Executive is currently employed as Chief Operating Officer and
President of the Store Division of the Company.
2. Termination of Employment.
-------------------------
(a) For Cause. Upon termination of Executive's employment with the
---------
Company for Cause (as defined below), the Company shall pay all accrued but
unpaid salary, vacation and other benefits up to the date of termination. For
purposes of this Agreement, the term "Cause" means personal dishonesty by
Executive in performing his job duties or in any other respect or falsification
of Company documents; gross negligence; Executive's insubordination or willful
failure to follow Company policies, procedures, rules, regulations or management
directives; actions by Executive that are seriously detrimental to the
reputation of the Company; Executive's conviction of a criminal offense
involving moral turpitude or in connection with Executive's performance of his
job duties on behalf of the Company; or any willful misconduct by Executive.
(b) Without Cause. In the event that Executive's employment is
-------------
terminated without Cause, then the Company shall continue to pay to Executive as
a consultant, on the Company's regularly scheduled pay days, an amount equal to
Executive's base salary, for such pay period, until the earlier to occur of: (i)
Executive is employed by another entity or is self-employed or (ii) eighteen
(18) months from the date of termination of Executive's employment (the
"Severance Period"). Executive agrees to notify the Company in writing within
10 days of any such employment or self-employment. Health insurance benefits
(e.g. medical, dental,
<PAGE>
optical, and mental health) and life insurance benefits with the same coverage
provided to Executive prior to the termination, and in all other respects
significantly comparable to those in place immediately prior to the termination,
will be provided at the Company's cost (less any portion of such costs paid by
Executive immediately prior to termination) over the Severance Period.
(c) Voluntary Termination. In the event that Executive resigns or
---------------------
otherwise voluntarily terminates his employment with the Company, Executive
shall not be entitled to any form of additional salary, severance pay or any
other similar benefit, except as provided in Section 2(f), 3 and 7 below.
(d) Constructive Termination. In the event that Executive resigns or
------------------------
otherwise voluntarily terminates his employment with the Company as the result
of a Constructive Termination then Executive will be entitled to receive the
same benefits as if he were terminated without Cause as set forth in Section
2(b). For purposes of this section, a "Constructive Termination" shall be
------------------------
deemed to occur if (1)(A) there is a material adverse change in Employee's
position causing such position to be of materially reduced stature or
responsibility or (B) a reduction of Employee's base compensation; and (2)
within the 30-day period immediately following such material change or reduction
Employee elects to terminate his employment voluntarily.
(e) Cooperation. Executive shall cooperate with the Company, as
-----------
requested by the Company, for a period of three months, to effect a transition
of Executive's responsibilities and to ensure that the Company is aware of all
matters being handled by Executive. In addition, upon request by the Company,
Executive agrees to cooperate to the extent necessary to protect the interests
of the Company or any of its affiliates or related entities, including without
limitation, in providing any information that Executive has about the Company's
business and its operations and/or in providing truthful testimony as a witness
or declarant in connection with any potential future litigation which may arise
as to which Executive may have any relevant information.
(f) Consulting Services. If Executive is terminated pursuant to
-------------------
Sections 2(b) or 2(d) hereof, the Company agrees to retain Executive as a
consultant for a period commencing the day after the Severance Period and ending
five (5) years from the date of termination, or if Executive terminates pursuant
to Section 2(c), the Company agrees to retain Executive as a consultant for a
period commencing the day after termination and ending five (5) years from the
date of termination (the "Consulting Period"). The Company will use Executive's
consulting services for a minimum of one (1) hour per month and a maximum of ten
(10) hours per month. The Company agrees to pay Executive an hourly rate
determined by dividing his annual salary immediately prior to termination by 52
weeks and dividing that number by 40 hours. By way of example, if Executive's
annual salary is $250,000 immediately prior to termination then the hourly
consulting rate shall be $120 ((250,000/52)/40). The Company agrees to provide
health insurance benefits (e.g. medical, dental, optical, and mental health) and
life insurance benefits with the same coverage provided to Executive prior to
the termination, and in all other aspects significantly comparable to those in
place immediately prior to the termination, at the
2
<PAGE>
Company's cost (less any portion of such costs paid by Executive immediately
prior to termination) over the Consulting Period.
3. Stock Options. Nothing contained herein shall in any way affect
-------------
any options to purchase the Company's Common Stock that Executive has been or
may be granted pursuant to the Company's 1993 Omnibus Equity Incentive Plan (the
"Plan") or earlier plan or otherwise. Such options shall be governed by the
terms and conditions of the Plan and any related stock option or other
agreements. Notwithstanding any language to the contrary in any stock option or
other agreement, vesting of all outstanding options will terminate upon
termination of Executive's employment and if such options are non-qualified
options, Executive will be required to exercise such options by the earlier of
(i) five (5) years from the date of Executive's termination or (ii) the
expiration date of such option as set forth in the related stock option or other
agreement. To the extent the foregoing is inconsistent with any option
agreement between the Company and Executive, the Company will use its best
efforts to cause the Compensation Committee of the Board of Directors of the
Company to amend such agreement to be consistent with terms hereof.
4. Confidential Information.
------------------------
(a) Delivery of Confidential Information. Upon request or when his
------------------------------------
employment with the Company terminates, Executive will immediately deliver to
the Company all copies of any and all materials and writings received from,
created for or belonging to the Company including, but not limited to, any which
relate to or contain Confidential Information.
(b) Survival. The obligations under this Section shall survive
--------
termination of this Agreement for any reason.
5. Exclusive Employment and Non-Solicitation. During his employment
-----------------------------------------
with the Company, Executive will not do anything to compete with the Company's
present or contemplated business, nor will he plan or organize any competitive
business activity. During his employment with the Company, Executive will also
not engage in any activity or enter into any agreement that conflicts with the
interests of the Company or his job duties or obligations to the Company.
Executive also will not within one (1) year after his employment terminates,
directly or indirectly, hire, solicit, divert or attempt to hire, solicit,
divert, or encourage to terminate or alter any relationship with the Company of
any employee, independent contractor, supplier, customer, consultant or any
other person or company without the Company's express written consent.
6. Assignment and Transfer. Executive's rights and obligations under
-----------------------
this Agreement shall not be transferable by assignment or otherwise, and any
purported assignment, transfer or delegation thereof shall be void. This
Agreement shall inure to the benefit of, and be enforceable by, any purchaser of
substantially all of Company's assets, any corporate successor to Company or any
assignee thereof.
7. Associate Discount. Notwithstanding that Executive shall no
------------------
longer be an Associate upon termination of his employment with the Company,
Executive shall remain
3
<PAGE>
eligible for the Company's Associate Discount program for his lifetime if
Executive's employment is terminated pursuant to Sections 2(b), 2(c) or 2(d) of
this Agreement. Executive shall be subject to all other rules and regulations of
the Associate Discount program then in effect.
8. Miscellaneous.
-------------
(a) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California.
(b) Entire Agreement. This Agreement contains the entire agreement
----------------
and understanding between the parties as to the matters covered herein and
supersedes any prior or contemporaneous written or oral agreements between them
respecting the subject matter hereof. Parol evidence will be inadmissible to
show agreement by and among the parties to any term or condition contrary to or
in addition to the terms and conditions contained in this Agreement.
(c) Amendment. This Agreement may be amended only by a writing signed
---------
by Executive and either an officer of the Company (other than Executive) or
other duly authorized agent of the Company.
(d) Remedy for Breach. The parties hereto agree that, in the event of
-----------------
breach or threatened breach of the covenants of Executive set forth in Sections
4 and 5, the damage or imminent damage to the value and the goodwill of the
Company's business shall be inestimable, and that therefore any remedy at law or
in damages shall be inadequate. Accordingly, the parties hereto agree that the
Company shall be entitled to injunctive relief against Executive in the event of
any breach or threatened breach of any of such provisions by Executive, in
addition to any other relief (including damages) available to the Company under
this Agreement or under law.
(f) Arbitration. With the exception of a suit for injunctive or
-----------
equitable relief, in the event that a dispute arises concerning the
interpretation or enforcement of this Agreement, or any other related matter,
the parties agree that any such dispute shall be resolved by a three-member
arbitration panel in San Francisco, California in accordance with the then
prevailing commercial arbitration rules of the American Arbitration Association.
Executive therefore specifically waives any right to jury trial on such
disputes. Such decisions and awards rendered by the arbitrator shall be final
and conclusive and may be entered in any court having jurisdiction thereof as a
basis of judgment and of the issuance of execution for its collection. The
parties shall keep confidential the existence of the claim, controversy or
disputes from third parties (other than arbitrator(s)), and the determination
thereof, unless otherwise required by law. Nothing in this subsection 8(f)
shall be construed as precluding the Company from bringing an action for
injunctive relief or other equitable relief.
[Signature Page Follows]
4
<PAGE>
The parties hereto have duly executed this Agreement as of the date
set forth below next to their respective signatures.
COMPANY
Date: August 24, 1999 By: /s/ John Edmondson
--------------- -----------------------
Name: John Edmondson
-----------------------
Title: Chief Executive Officer
-----------------------
EXECUTIVE
Date: August 17, 1999 /s/ Richard Everett
--------------- --------------------------------
Richard Everett
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-02-1999
<PERIOD-END> OCT-02-1999
<CASH> 4,538
<SECURITIES> 0
<RECEIVABLES> 5,582<F1>
<ALLOWANCES> 497
<INVENTORY> 160,005
<CURRENT-ASSETS> 181,868
<PP&E> 40,989<F2>
<DEPRECIATION> 44,256
<TOTAL-ASSETS> 288,312
<CURRENT-LIABILITIES> 56,512
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 161,561
<TOTAL-LIABILITY-AND-EQUITY> 288,312
<SALES> 399,327
<TOTAL-REVENUES> 399,327
<CGS> 288,647
<TOTAL-COSTS> 288,647
<OTHER-EXPENSES> 87,976<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,378
<INCOME-PRETAX> 18,326
<INCOME-TAX> 7,514
<INCOME-CONTINUING> 10,812
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,812
<EPS-BASIC> 0.63
<EPS-DILUTED> 0.62
<FN>
<F1>Amounts represents receivables, net of allowances for doubtful accounts.
<F2>Amount represents PP&E, net of accumulated depreciation.
<F3>Amount represents selling, general, and administrative expenses.
</FN>
</TABLE>
