<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 30, 2000
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 of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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: (831) 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
At October 28, 2000, the number of shares outstanding of the registrant's common
stock was 17,268,337.
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Index
Part I
Financial Statements............................................... 2
Notes to Condensed Consolidated Financial Statements............... 5
Management's Discussion and Analysis of Financial Conditions
and Results of Operations......................................... 6
Part II
Other Information................................................... 9
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
September 30, October 2, January 1,
2000 1999 2000
----------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 5,281 $ 4,538 $ 3,231
Accounts receivable, net 5,899 6,203 5,101
Merchandise inventories, net 180,391 160,005 165,838
Prepaid expenses and other current assets 8,267 11,122 9,029
-------- -------- --------
Total current assets 199,838 181,868 183,199
Property and equipment, net 71,960 65,455 66,036
Intangibles and other assets, net 36,725 40,989 37,625
-------- -------- --------
Total assets $308,523 $288,312 $286,860
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 47,535 $ 34,957 $ 30,810
Accrued expenses 16,800 17,289 9,828
Deferred income tax current liability 3,333 3,263 3,333
Line of credit and current portion of long-term debt 8,430 1,003 8,689
-------- -------- --------
Total current liabilities 76,098 56,512 52,660
Long-term debt 56,326 67,877 71,843
Deferred items and other non-current obligations 2,709 2,362 2,460
-------- -------- --------
Total liabilities 135,133 126,751 126,963
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: 17,267,397 at
September 30, 2000 and 17,190,274 at January 1, 2000 17 17 17
Additional paid-in capital 107,579 106,578 107,015
Retained earnings 65,794 54,966 52,865
-------- -------- --------
Total stockholders' equity 173,390 161,561 159,897
-------- -------- --------
Total liabilities and stockholders' equity $308,523 $288,312 $286,860
======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
2
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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
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $137,728 $128,888 $416,333 $399,327
Cost of goods sold, including buying
and occupancy 99,460 93,377 297,801 288,647
------------- ------------- ------------- -------------
Gross profit 38,268 35,511 118,532 110,680
Selling, general and administrative expense 29,998 29,164 92,161 87,976
------------- ------------- ------------- -------------
Income from operations 8,270 6,347 26,371 22,704
Interest expense 1,165 1,118 4,460 4,378
------------- ------------- ------------- -------------
Income before income taxes 7,105 5,229 21,911 18,326
Income tax expense 2,913 2,144 8,985 7,514
------------- ------------- ------------- -------------
Net Income $ 4,192 $ 3,085 $ 12,926 $ 10,812
============= ============= ============= =============
Net income per common and common
equivalent shares:
Basic $0.24 $0.18 $0.75 $0.63
============= ============= ============= =============
Diluted $0.24 $0.18 $0.74 $0.62
============= ============= ============= =============
Weighted average common and common
equivalent shares outstanding:
Basic 17,265 17,111 17,234 17,061
============= ============= ============= =============
Diluted 17,581 17,598 17,579 17,568
============= ============= ============= =============
Stores open at end of period 232 227 232 227
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
39 Weeks 39 Weeks
Ended Ended
September 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 12,926 $ 10,812
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 11,972 10,657
Gain (Loss) on sale of assets 0 (17)
Provision for doubtful accounts 240 456
Compensation expense related to stock benefit plan 0 138
Changes in assets and liabilities:
Accounts receivable (1,038) (1,999)
Merchandise inventories, net (14,553) 64
Prepaid expenses and other current assets 761 452
Other assets 34 92
Accounts payable 16,725 11,198
Accrued expenses 6,972 12,859
Deferred items 249 307
------------- -------------
Net cash provided by operating activities 34,288 45,019
------------- -------------
INVESTING ACTIVITIES:
Purchases of property and equipment (17,026) (14,958)
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FINANCING ACTIVITIES:
Net payments on line of credit (15,200) (25,600)
Net repayments on long-term debt (576) (1,670)
Sale of common stock pursuant to associate stock purchase plan 363 455
Proceeds from exercise of stock options 201 268
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Net cash used by financing activities (15,212) (26,547)
------------- -------------
NET INCREASE IN CASH 2,050 3,514
CASH AT BEGINNING OF PERIOD 3,231 1,024
------------- -------------
CASH AT END OF PERIOD $ 5,281 $ 4,538
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
4
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WEST MARINE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Thirty-Nine Weeks Ended September 30, 2000 and October 2, 1999
(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 September 30, 2000 and October 2, 1999; and the interim
results of operations and cash flows for the 13-week and the 39-week periods
then ended.
The condensed consolidated balance sheet at January 1, 2000, 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 1,
2000. 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 fiscal year ended
January 1, 2000, included in the Company's annual report on Form 10-K.
NOTE 2 - Accounting Policies
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which defines
derivatives, requires that derivatives be carried at fair value and provides for
hedge accounting when certain conditions are met. This statement is effective
for the Company beginning in the year 2001. The Company believes adoption of
this statement will not have a material impact on its consolidated financial
statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which provides the SEC staff's views on selected revenue
recognition issues. The guidance in SAB 101 must be adopted during the
Company's quarter ended December 30, 2000 and the effects, if any, are
required to be recorded through a retroactive, cumulative-effect adjustment as
of the beginning of the fiscal year, with a restatement of all prior interim
quarters in the year. Management does not believe that the adoption of the
provisions of SAB 101 will have a material impact on the Company's income
statement presentation, operating results or financial position.
NOTE 3 - Segment Information
The Company has three divisions (Stores, Wholesale ("Port Supply"), and Catalog)
which all sell after market recreational boating supplies directly to customers.
The customer base overlaps between Stores and Port Supply, and between Stores
and Catalog. All processes for all divisions within the supply chain are
commingled, including purchases from merchandise vendors, distribution center
activity, and customer delivery.
The Stores division qualifies as a reportable segment under SFAS 131 as it is
the only division that represents 10% or more of the combined revenue of all
operating segments when viewed on an annual basis. Segment assets are not
presented, as the Company's assets are commingled and are not available by
segment. Contribution is defined as net sales, less product costs and direct
expenses. Following is financial information related to the Company's business
segments (in thousands):
<TABLE>
<CAPTION>
39 Weeks 39 Weeks
Ended Ended
September 30, October 2,
2000 1999
------------- -----------
<S> <C> <C>
Net sales:
Stores $346,509 $326,243
Other 69,824 73,084
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Consolidated net sales $416,333 $399,327
============ ==========
Contribution:
Stores $ 52,927 $ 45,663
Other 10,661 11,716
------------- ----------
Consolidated contribution $ 63,588 $ 57,379
============ ==========
Reconciliation of consolidated contribution to net income:
Consolidated contribution $ 63,588 $ 57,379
Less:
Cost of goods sold not included in consolidated contribution (20,805) (21,094)
General and administrative expense (16,412) (13,581)
Interest expense (4,460) (4,378)
Income tax expense (8,985) (7,514)
------------- ----------
Net income $ 12,926 $ 10,812
============ ==========
</TABLE>
5
<PAGE>
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:
-----
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.
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 addition, the Company's Catalog
division has faced market share erosion in areas where stores have been opened
by either the Company or its competitors. Management expects this trend to
continue. The Company's growth has been fueled principally by the Company's
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, as well as increasing net sales
at its existing stores.
The Company's planned expansion is subject to a number of factors, including the
adequacy of the Company's capital resources and the Company's ability to locate
suitable store sites and negotiate acceptable lease terms; to hire, train and
integrate employees; and to successfully adapt its distribution and other
operations systems.
The market for recreational water sports and boating supplies is highly
competitive. The Company's gross profit may be impacted by competitors' pricing
policies.
Additional factors which may affect the Company's financial results include
inventory management issues, the impact of e-commerce, fluctuations in consumer
spending on recreational boating supplies, environmental regulations, demand for
and acceptance of the Company's products, and other risk factors disclosed from
time to time in the Company's SEC filings.
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 232 stores in 38 states 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 2000 refer
to the 13-week and 39-week periods, respectively, ended September 30, 2000 and
all references to the third quarter and first nine months of 1999 refer to the
13-week and 39-week periods, respectively, ended October 2, 1999.
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 1999, 62.8% of the
Company's net sales and all of its net income occurred during the second and
third quarters, principally during the period from April through July, which
represents the peak boating months in most of the Company's markets. Management
expects net sales to become more susceptible to seasonality and weather as the
Company continues to expand its operations.
Results of Operations
---------------------
Net sales increased $8.8 million, or 6.9%, to $137.7 million for the third
quarter of fiscal 2000, compared to $128.9 million for the third quarter of
fiscal 1999, primarily due to increases in net sales in the Company's Stores
division, offset in part by decreases in port supply and catalog net sales.
Stores net sales were $116.8 million for the third quarter of fiscal 2000, an
increase of $10.7 million, or 10.1%, over the $106.1 million recorded for the
same period a year ago. During the third quarter of fiscal 2000, the Company
opened one store and closed two stores. Net sales in new stores opened since the
third quarter 1999 and remodeled stores not included in comparable sales were
$3.3 million. Net sales from comparable stores increased 7.4%, or $7.4 million.
Sales recorded by Port Supply decreased by $0.7 million, or 5.7%, to $11.1
million for the third quarter of fiscal 2000, compared to $11.8 million for the
third quarter of fiscal 1999. Catalog sales decreased by $1.2 million, or 11.5%,
to $9.5 million for the third quarter of fiscal 2000, compared to $10.8 million
for the third quarter of fiscal 1999. Catalog sales in fiscal 2000 declined in
part due to a reduction of the number of catalogs mailed to unprofitable
customers. Stores, Port Supply, and Catalog net sales represented 84.8%, 8.1%,
and 6.9%, respectively, of the Company's net sales for the third quarter of
fiscal 2000, compared to 82.3%, 9.1%, and 8.4%, respectively, of the Company's
net sales for the third quarter of fiscal 1999. 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 2000 and 1999.
The Company recorded net sales of $416.3 million for the first nine months of
fiscal 2000, an increase of $17.0 million, or 4.3%, over net sales of $399.3
million recorded for the same period a year ago. The increase in net sales was
primarily due to increases in net sales in the Company's Stores division,
offset in part by a decrease in net sales from the Company's catalog division.
Store net sales were $346.5 million for the first nine months of fiscal 2000, an
increase of $20.3 million, or 6.2%, over the $326.2 million recorded for the
same period in fiscal 1999. During the first nine months of fiscal 2000, the
Company opened eight new stores and closed three stores. Net sales in new stores
opened since the first nine months of fiscal 1999 and remodeled stores not
included in comparable sales were $12.0 million. Net sales from comparable
stores increased 2.6%, or $8.3 million, compared to the same period a year ago.
Sales recorded by Port Supply were unchanged at $36.7 million for the first nine
months of fiscal 2000 and for the same period a year ago. Catalog sales
decreased $3.5 million, or 9.8%, to $32.3 million for the first nine months of
fiscal 2000. Stores, Port Supply and Catalog net sales represented 83.2%, 8.8%
and 7.8% respectively, of the Company's net sales for the first nine months of
fiscal 2000, compared to 81.7%, 9.2% and 9.0%, respectively of the Company's net
sales for the first nine months of fiscal 1999. Catalog sales decreased in both
periods due to market share erosion in areas where stores have been opened by
either the Company or its competitors. Net sales from the Company's insurance
program represented less than 1% of net sales for the first nine months of
fiscal 2000 and 1999.
The Company's gross profit increased by $2.8 million, or 7.8%, to $38.3 million
for the third quarter of fiscal 2000, compared to $35.5 million for the third
quarter of 1999. Gross profit represented 27.8% of net sales in the third
quarter of fiscal 2000, compared to 27.6% in the same period a year ago.
6
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The Company's gross profit was $118.5 million for the first nine months of
fiscal 2000, an increase of $7.9 million, or 7.1%, over the gross profit of
$110.7 million for the same period a year ago. Gross profit represented 28.5% of
net sales in the first nine months of fiscal 2000, compared to 27.7% in the same
period a year ago. The increase in gross profit as a percentage of sales for the
third quarter of fiscal 2000 and for the first nine months of fiscal 2000 was
primarily due to a shift to more profitable products.
Selling, general, and administrative expenses increased by $0.8 million, or
2.9%, to $30.0 million for the third quarter of fiscal 2000 compared to the
similar period a year ago. Selling, general, and administrative expenses
represented 21.8% of net sales for the third quarter of fiscal 2000 compared to
22.6% for the third quarter of fiscal 1999. For the first nine months of fiscal
2000, selling, general and administrative expenses increased $4.2 million, or
4.8%, to $92.2 million for the same period a year ago. Selling, general and
administrative expenses increased to 22.2% of net sales for the first nine
months of 2000, compared to 22.0% for the first nine months of 1999. The
increase in both periods is primarily due to increased marketing dollar
expenditures related to the rollout of the new water sports line and West
Advantage customer loyalty programs.
Interest expense of $1.2 million in the third quarter ended September 30, 2000,
an increase of less than $0.1 million over the same period a year ago. Interest
expense for the first nine months of fiscal 2000 was $4.5 million for the first
nine months of 2000, an increase of $0.1 million over the same period a year
ago. Lower average borrowings were offset by higher interest rates in the 13-
week and 39-week periods ended September 30, 2000.
7
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Liquidity and Capital Resources
-------------------------------
At the end of the third quarter of fiscal 2000, the Company had outstanding a
$40.0 million senior guarantee note, which matures on December 23, 2004, with
the first annual principal payment of $8.0 million 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. The note currently bears interest at the rate of 7.6%.
At September 30, 2000, the Company had available a $80.0 million credit line
which expires on January 2, 2003. Depending on the Company's election at the
time of borrowing, the line bears interest at either the bank's reference rate
or LIBOR plus a factor of up to 2.25%. At September 30, 2000, borrowings from
the credit line were $24.3 million bearing interest at rates ranging from
8.6475% to 8.73%. In addition, the Company had available a $2.0 million
revolving line of credit with a bank, expiring January 2, 2003. The line bears
interest at the bank's reference rate (9.5% at the end of third quarter of 2000)
and has a ten-day paydown requirement. At September 30, 2000, no amounts were
outstanding under this line of credit.
The Company's primary sources of liquidity are income from operations and bank
borrowings. In the first nine months of fiscal 2000 the Company's source of
liquidity was from operations. Net cash provided by operating activities for the
first nine months of fiscal 2000 amounted to $34.3 million, consisting primarily
of a $16.7 million increase in accounts payable, a $7.0 million increase in
accrued expenses payable and $12.9 million in net income. These amounts were
partially offset by an $14.6 million increase in merchandise inventories and a
$1.0 million increase in accounts receivable. The increase in accounts payable
and inventories is primarily attributable to the early receipt of winter
merchandise intended to position the Company for fourth quarter sales.
Net cash used in investing activities for the first nine months of fiscal 2000
was $17.0 million, compared to $15.0 million a year ago, primarily related to
the capitalization of new computer systems and new store construction and
remodels. Net cash used in financing activities during the first nine months of
fiscal 2000 was $15.2 million, consisting primarily of $15.2 million of payments
on the Company's line of credit.
In the opinion of management, cash flows from operations and borrowings under
the Company's credit agreements will be sufficient to fund the Company's
operations through 2001.
8
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PART II. OTHER INFORMATION
Item 5. Exhibits and reports on Form 8-K.
(a) Exhibits
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.
9
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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 14, 2000 WEST MARINE, INC.
-------------------------
By: /s/ John Edmondson
-------------------------------------
John Edmondson
President and Chief Executive Officer
By: /s/ Russell Solt
-------------------------------------
Russell Solt
Sr. Vice President and
Chief Financial Officer
