-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G+SebUDDCim4TG7enRSk0VChdC07ICILIVHrtbi84/r7cOjp7eUWp9TcnVg58HGU ng860T3uYLcOwuFXm7xYlQ== 0000929624-96-000250.txt : 19961113 0000929624-96-000250.hdr.sgml : 19961113 ACCESSION NUMBER: 0000929624-96-000250 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960928 FILED AS OF DATE: 19961112 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEST MARINE INC CENTRAL INDEX KEY: 0000912833 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO DEALERS & GASOLINE STATIONS [5500] IRS NUMBER: 770355502 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22512 FILM NUMBER: 96659737 BUSINESS ADDRESS: STREET 1: 500 WESTRIDGE DR CITY: WATSONVILLE STATE: CA ZIP: 95076-4100 BUSINESS PHONE: 4087282700 10-Q 1 FORM 10-Q 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 - -------------------------------------------------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 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 - -------------------------------------------------------------------------------- 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 September 28, 1996, the number of shares outstanding of the registrant's common stock was 16,398,038. PART 1. FINANCIAL INFORMATION Item 1. Financial Statements WEST MARINE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
September 28, December 30, ASSETS 1996 1995 ------ ------------- ------------- (Unaudited) 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 ------------- ------------- 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 ------------- ------------- 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 ------------- ------------- Total stockholders' equity 123,844 67,279 ------------- ------------- Total liabilities and stockholders' equity $200,922 $95,845 ============= =============
See notes to condensed consolidated financial statements. WEST MARINE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited, in thousands, except per share amounts and store data)
13 Weeks 13 Weeks 39 Weeks 39 Weeks Ended Ended Ended Ended September 28, September 30, September 28, September 30, 1996 1995 1996 1995 ------------ ------------ ------------ ------------ 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 ============ ============
See notes to condensed consolidated financial statements. WEST MARINE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands)
39 Weeks 39 Weeks Ended Ended September 28, September 30, 1996 1995 ------------ ------------ 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 ============
See notes to condensed consolidated financial statements. 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. 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: - -----------------------------------
39 Weeks Ended 39 Weeks Ended September 28 , 1996 September 30, 1995 ------------------- ------------------- Net sales $311,016 $269,857 ======== ======== Net income $ 11,336 $ 9,951 ======== ======== Net income per share $ .65 $ .63 ======== ========
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. 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 - ----------------------------------------------------------------------------- 1995: Any forward looking statements contained in the following discussion or - ----- 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 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 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. 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 - ----------- 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. 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 EX-11.1 2 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11.1 WEST MARINE, INC. STATEMENT RE: COMPUTATION OF NET INCOME PER SHARE
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 - ------- 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 ============ ============ ============ ============
EX-27 3 FINANCIAL DATA SCHEDULE
5 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. 1,000 9-MOS DEC-28-1996 DEC-31-1995 SEP-28-1996 1,821 0 4,311 505 113,714 130,516 27,016 15,168 200,922 49,907 0 0 0 16 0 200,922 253,974 253,974 178,332 178,332 55,997 0 1,070 18,575 7,550 11,025 0 0 0 11,025 .66 .66
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