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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the year ended
January 1, 2000
Commission file number
0-22515
WEST MARINE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 77-0355502
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
500 Westridge Drive
Watsonville, CA 95076-4100
(Address of Principal Executive Offices) (Zip Code)
Telephone Number: (831) 728-2700
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
------------
(Title of Class)
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 [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S) 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Yes [X]. No [ ].
At February 29, 2000, the aggregate market value of the registrant's Common
Stock held by non-affiliates of the registrant was approximately $80,990,932.
At February 29, 2000, the number of shares outstanding of registrant's Common
Stock was 17,196,851.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Company's 2000 Annual Meeting
of Stockholders are incorporated by reference in Part III of this Form 10-K.
PART I
ITEM 1 - BUSINESS
General
West Marine, Inc. ("West Marine" or the "Company") 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. At year-end 1999, the Company offered its
products through 227 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 aftermarket 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.
West Marine was incorporated in Delaware in September 1993 as the holding
company for West Marine Products, Inc., which was incorporated in California in
1976. Unless the context otherwise requires, "West Marine" and "the Company"
refer to West Marine, Inc. and its subsidiaries. The Company's principal
executive offices are located at 500 Westridge Drive, Watsonville, California
95076-4100 and its telephone number is (831) 728-2700.
Recent developments
The Company expanded its operations during 1999, opening 17 new stores and
entering into new geographic markets in Alaska, Delaware, Nevada, Tennessee, and
Utah. The Company opened a new prototype store in Point Richmond, California,
which presents both merchandise and information visually for the consumer while
enabling the stores' staff to efficiently serve a large volume of customers.
Merchandise is arranged to enable customers to select everything needed to
complete a project. The Company plans to incorporate many of the features of
this prototype store in the 24 stores planned for remodeling in 2000.
The Company has transformed the marine supply industry to become the largest
specialty retailer of recreational and commercial boating supplies and apparel.
The Company continues to strengthen its offerings to powerboaters by more fully
addressing on-water activities. Early in 2000 the Company plans to aggressively
expand their water sports selection throughout the chain, and introduce a
leading brand of outboard motors.
During 1999, West Marine formed a dedicated Internet team which rolled out a new
international website in July. Since going "live" with this site, domestic and
international sales through year-end have dramatically increased over the same
period a year ago. In 2000, it is expected that all stores will have internet
access to the website which offers more than 40,000 merchandise products focused
on all boating segments. In addition, the Company believes the site drives
business to both the retail stores through the store locator and through the
catalog. The site is dynamically updated on a daily basis with any product,
pricing and inventory changes.
Expansion strategy
Since opening its first store in 1975, the Company has grown through internal
expansion and acquisitions, and operated 227 stores in 38 states at year-end
1999. As shown in the table below, the Company has achieved increasing
geographic diversification within the United States in recent years. The
following table sets forth, by geographic region, the number of stores open at
the end of each of the following years:
1999 1998 1997 1996 1995
West 43 39 35 27 24
Great Lakes 33 29 24 18 6
Gulf Coast 22 20 11 7 4
Northeast 50 45 44 44 16
Mid-Atlantic 33 33 24 11 4
Southeast 46 46 46 44 18
---- ---- ---- ---- ----
Total 227 212 184 151 72
==== ==== ==== ==== ====
2
The Company intends to pursue a growth strategy through geographic
diversification and by pursuing acquisition opportunities that complement or
expand its existing business. The Company's planned expansion is subject to a
number of factors, including the adequacy of the Company's capital resources, as
well as the Company's ability to locate suitable store sites and negotiate
acceptable lease terms, its ability to hire, train and integrate associates, and
to adapt its distribution and other operational systems. Acquisitions involve a
number of risks, including potential adverse short-term effects on the Company's
operating results, costs associated with the amortization of acquired intangible
assets, and the risk that the attention of management will be diverted to the
assimilation of the operations and personnel of the acquired business.
While the expansion plans of the Company are focused primarily on store
operations, growth is also expected in the Port Supply and Catalog business
lines. Port Supply has increased its customer base to include governmental and
industrial businesses. Port Supply also added new delivery routes on the East
Coast and in Northern California and hired additional sales personnel and
telemarketing associates to boost sales. Catalog continues to focus marketing
efforts in geographic areas not served by the Company's stores, including Canada
and certain other international locations.
Merchandising
Merchandise sold by the Company can be divided into four general merchandise
categories:
Marine Supplies and Sail Hardware. These products range from maintenance
products to galley supplies and include brand name offerings, as well as "West
Marine" private label merchandise. The Company will focus on basic marine
hardware where it dominates in projects and applications. These are the largest
combined categories in volume and gross profit dollars.
Electronics and Marine Technology. The Company carries a broad selection of the
most current electronics equipment. The selection includes global positioning
navigational systems, as well as other electronic equipment such as ship-to-
shore radios, marine stereos, autopilots, fish finders and radars. The Company
also offers private label VHF radios and other electronic equipment. The Company
will also focus on expanding the Software and Navigation areas, which show high
growth potential.
Soft goods. West Marine features a broad selection of high quality boating
apparel and footwear including well-known brands. The Company also offers a
selection of foul weather gear, shirts, shorts, jackets, hats, boots, and other
apparel bearing the Company's private label.
Water Sports and Power Boating. West Marine continues to expand its selection
of water sports, fishing, and power boating categories. It is believed that
this segment of the market represents a growth opportunity for the Company. The
Company plans to substantially increase the number of products in the water
sports market it offers in 2000, and is currently providing such merchandise to
160 stores to expand the water sports category.
The Company strives to maintain consistent in-stock availability of merchandise.
An individual store's merchandise mix is tailored to respond to local market
conditions and buying preferences. Any items stocked by the Company but not
available in a particular store can be shipped to the customer from the
distribution centers. In addition, the Company's special orders department can
acquire products that the Company does not normally stock. The Company has
implemented extensive planning systems to provide forecasts to each of its key
vendors.
The Company's policy is to offer its products at prices that are competitive
with the prices charged by other national and regional marine supply specialty
retailers and prices that are generally lower than prices charged by local
independent operators. Replaceable price signage is clearly posted on shelving
instead of directly on each item, enabling rapid price changes on items in the
stores. The Company's commitment to offering competitive prices is supported by
its price matching program where the Company will, for a period of 30 days,
either match a competitor's price or refund the difference between the Company's
price and the competitor's price. The Company's merchandising group makes most
pricing decisions centrally. Store managers, however, are responsible for
monitoring local competition and adjusting prices to remain competitive. The
Company believes that its competitive pricing policy, together with its price
matching program, are important factors in establishing and maintaining a
favorable reputation among customers.
3
Sourcing and purchasing
The Company purchased merchandise from more than 950 vendors during 1999 and
achieved significant efficiencies through quantity purchases and direct orders.
West Marine offers many of the brands best known to its target customers. In
1999, no vendor accounted for more than 8% of the Company's merchandise
purchases and the Company's 20 largest vendors accounted for approximately 40%
of the Company's merchandise purchases. The Company deals with its suppliers on
an order-by-order basis and has minimal long-term purchase contracts or other
contractual assurances of continued supply or pricing.
The Company strives to maintain strong relationships with its vendors. The
Company's buyers meet regularly with major vendors to stay abreast of new
products, new technology and new pricing. In addition, West Marine conducts a
yearly program at which key vendors are encouraged to discuss their business and
their relationship with the Company's key executives and buyers. The Company
works closely with its vendors, frequently sharing information regarding market
research and the Company's performance and goals. The Company also receives
cooperative advertising allowances from certain vendors.
The Company's private label merchandise is manufactured to the Company's
specifications on a contract basis domestically, and to a lesser extent, in
Europe and the Pacific Rim, and typically has higher gross margins than
comparable brand name merchandise. The Company has no long-term contracts with
its manufacturing sources and competes with other companies for production
facilities and import quota capacity.
The Company's Executive Vice President of Merchandising oversees the purchasing
of the Company's merchandise. This person supervises a Senior Vice President of
Replenishment, Senior Vice President of Marketing, Vice President of Technical
Product information and development, and a Vice President Merchandise Manager
who supervise a group of buyers. Each buyer is responsible for specified product
categories. The Company's buyers are also responsible for specifying private
label merchandise and for contracting the manufacture of these goods and
assuring their quality and delivery. The Company's Senior Vice President of
Merchandise Planning and Allocation oversees a staff responsible for managing
inventory levels in the distribution facilities and the stores, and for
minimizing in-store out-of-stocks. Inventory managers are assisted by a
sophisticated management information system that provides them with current
inventory, price and volume information by SKU and recommended purchase
quantities, allowing them to react quickly to market changes.
Customer service
The Company is committed to achieving "better than expected" customer
satisfaction to encourage repeat business. To develop responsive, well-trained
sales associates, the Company has devoted significant resources to developing
and implementing extensive employee training programs aimed at increasing
product knowledge and responsiveness to customer needs. In addition, the
Company provides a price-matching program, special order capabilities and a "no
hassle" satisfaction guarantee that permits customers who are not completely
satisfied to return any items for an exchange, credit or refund. To educate
customers on the latest developments in boating and product offerings, the
Company conducts classes and seminars. Store managers, most of whom are drawn
from the Company's sales associates, complete an intensive training program.
The Company's master catalog also provides technical information relating to
various marine subjects. The Company places great emphasis on new hire
training, associate training, on-the-job training, additional self-paced
training and field tests to help ensure that sales associates are thoroughly
familiar with the technical elements of the Company's product offerings. To
provide customers easy access to factory authorized repair service, the Company
maintains an in-house service center at its facility in Hollister, California.
Based on information received from its customers, the Company believes it has
established a reputation for excellent customer service.
Site selection and store design
This year, in conjuction with a leading retail architecture and design group,
the Company developed a new concept store in Point Richmond, California that
further advances the art and science of marine retailing. This new store
presents both merchandise and information in a visually exciting way that's
designed to make the shopping experience fun while enabling a minimal store
staff to efficiently serve a large volume of customers. Key areas of the store
feature signage, displays and detailed step-by-step instructions to lead
customers through a logical selection process with or without a sales
associate's assistance. The Company plans to incorporate many of the features
of this prototype store in the 24 stores slated for remodeling in 2000.
4
In selecting which markets to enter, the Company evaluates a number of criteria,
including proximity to existing operations and the performance of catalog sales
in that market, as well as the size and strength of potential competitors. In
choosing specific sites within a market, the Company applies standardized site
selection criteria which takes into account numerous factors including the
number of boat slips and boats within a certain radius, local demographics and
overall retail activity.
The Company's stores are conveniently located either near boat marinas or at
central locations accessible to boaters. Most stores have large, readily
identifiable signage, easy access from major roads and adequate customer
parking. The stores currently range in size from approximately 3,000 to 15,000
square feet. Stores are generally open seven days a week, including most
holidays.
The format of West Marine stores depends on the size of the store and the buying
patterns of the local markets. Merchandise is displayed in functional product
groupings clearly identified by signs hanging in each aisle. The layout of the
store is designed to expose each customer to a large proportion of the store's
product offerings and to stimulate customer purchases. For example, frequently
purchased items such as rope, varnish and other maintenance supplies are
generally displayed at the rear of the store, whereas items that are higher
margin and have a strong impulse purchasing orientation are displayed in the
front of the store. Eye-catching end-cap displays feature new product offerings
or promotional items or focus on a particular product category, such as safety
equipment. The Company's brightly lit, well-organized stores are designed to
provide a convenient shopping environment.
Store operations
The Company's stores are organized into geographic regions with a regional
manager responsible for each region. Regional managers report to the President
of the Stores Division. Each region is organized into districts, each with a
district manager responsible for the store operations within his or her
district. The Company's district managers frequently visit the stores within
their respective geographic areas to monitor financial performance and ensure
adherence to the Company's operating standards. The typical staff for a West
Marine store consists of one store manager, an assistant store manager and
between four and twenty additional hourly sales associates, many of whom work
part-time. Store managers make all hiring decisions, monitor and respond to
local competitive forces.
Store and district managers participate in an incentive plan that ties
compensation awards to the achievement of specified store profits, group
performance goals and overall Company profits. The Company advocates broad-
based participation in its stock option plans and all associates and managers
are eligible to receive option grants.
Other business lines
The Company believes that its Catalog business line has served as an effective
marketing and advertising tool for the Company's store operations. The Company
mails several versions of a master merchandise catalog throughout the world.
These versions are based on boat size and type and range from 604 to 892 pages.
In addition, smaller seasonal full-color catalogs and flyers are mailed monthly.
The catalogs also provide technical information regarding product offerings.
The Company also rents mailing lists from boating magazines and other industry
sources to better target its customers with its Catalog versions.
The Company designs and produces its catalogs at its executive offices in
Watsonville, California, utilizing a desktop publishing system. This enables
the Company to make both pricing and product changes until shortly before the
catalogs are printed.
The Company receives all catalog orders by mail, fax, Internet or telephone at
its Watsonville, California call center. Merchandise is then distributed to
customers from one of the Company's distribution facilities. The Hollister,
California distribution facility services primarily the West Coast while the
Rock Hill, South Carolina distribution facility services customers east of the
Rockies.
Port Supply was created to address a broader customer base and to take advantage
of the Company's purchasing and distribution efficiencies. The Company
distributed marine supplies to approximately 20,000 wholesale customers in 1999,
including customers involved in boat sales, boat building, boat repair, yacht
chartering and marine supply retailers who resell the items. In addition, Port
Supply sells to industrial and government customers who use marine related
products.
The Company has addressed the growing significance of e-commerce in the
marketplace, and has redesigned its website
5
to target all segments of boating enthusiasts. The site was made available in
July 1999 and is updated on a daily basis with any product, pricing and
inventory changes. Orders are filled in the same manner as catalog orders. In
mid-2000, Port Supply expects to launch its business-to-business e-commerce
website, and projected for completion in 2000, all stores will have Internet
access to the website. The website includes online advisors, technical
information areas, news, feature stories and other information of interest to
boaters.
The Company's Boat Insurance program experienced significant revenue growth in
1999. Additional services-oriented programs were developed in late 1999 to
better serve customers as well as to support the growth of the Insurance
program. In early 2000, the Company anticipates introducing an on-water boat
towing program as well as a boat financing program. These services provide a
complete one-stop source for customers, and will contribute to significant
revenue growth in 2000.
Distribution
The Company has two distribution centers located on the West and East Coasts.
The West Coast distribution center is approximately 162,000 square feet and is
located in Hollister, California. The East Coast distribution center is
approximately 457,000 square feet and is located in Rock Hill, South Carolina.
The Distribution Centers support all of West Marine's business units; Retail
Stores, Catalog and Port Supply.
Vendors ship products to one of the distribution centers where the merchandise
is inspected, verified against the original purchase order, ticketed and
repackaged for shipment to stores and customers. Both distribution centers use
radio frequency devices for managing a majority of the distribution centers
procedures. Various methods of transportation are used to ship products,
including truck and air freight, as well as the Company's owned trucks and vans.
The inventory purchasing system maintains stock levels for each SKU in each
distribution center. Normally, merchandise is sent to stores once a week,
however, during certain seasonal periods, many stores may receive more than one
shipment per week.
Information systems
West Marine has deployed state-of-the-art business systems that provide Company
management with advanced tools and daily information on sales, gross margins and
inventory levels. The Company utilizes an integrated software system that runs
on multiple IBM AS/400 computers. This system has been designed to support all
aspects of the business including Retail, Catalog and Port Supply sales with
emphasis on improved productivity and reduced cost. Specific programs have
focused on features to insure accuracy and safeguard both data and material. All
purchasing functions including planning are processed through a secondary
software application that is fully integrated with the core system.
Each of the Company's stores is linked to the Company's headquarters through a
proven, dedicated network that provides access to up-to-the-minute information
and secure bi-directional communication for voice, inventory, pricing, credit
card approval, sales and customer service functions. The point-of-sale system
keeps a record, updated daily, of each merchandise item from receipt to sale.
The system is designed to support the convergence of technologies supporting all
areas of the Company's operations, including Internet.
The Company believes that the systems it has deployed will provide a competitive
advantage and enable it to continue to improve customer service, operational
efficiency and management's ability to monitor critical performance factors.
Marketing
The Company's overall marketing objective is to communicate the attributes of
its brand while creating a compelling "value equation" for its customers. The
West Marine brand stands for superior selection, friendly and knowledgeable
service, competitive prices and shopping convenience.
The Company markets its products and services through direct mail catalogs and
flyers, space advertisements in boating specialty publications, cable
television, newspapers and the internet.
The Company also sponsors a number of boating-related events, ranging from
sailing regattas and fishing derbies, to waterway clean-up campaigns. These
events are designed to encourage participation in boating and to increase the
number of people enjoying the boating lifestyle.
The Company rolled out a new customer affinity points program in March of 2000
after successful pilot testing was
6
completed in 1999. The West Advantage program enables customers to earn
incentives in the form of Company gift certificates based on their purchase
activity. The Company also plans to offer a private label credit card to its
customers in 2000. This program will reward loyal customers and attract new
customers by offering the option of deferred billing on major purchases.
Competition
The retail market for marine supplies is highly competitive and the Company
expects the level of competition to increase. The Company's stores compete with
other national specialty marine supply stores such as Boat/U.S. and Boater's
World. Many of these competitors have stores in the markets in which the
Company now operates and in which it plans to expand. The Company also competes
with a wide variety of local and regional specialty stores and, to a lesser
extent, sporting good stores and mass merchants. The Company also has a number
of competitors in the Catalog and wholesale distribution of marine products.
Certain of the Company's competitors have greater financial, marketing and other
resources than the Company.
The principal factors of competition in the Company's marketplace are quality,
availability, price, customer service, convenience, and access to a variety of
merchandise. The Company believes that it competes successfully on the basis of
all such factors.
Trademarks and service marks
The Company is the owner in the United States of the trademarks and service
marks "West Marine" and "E&B Marine", among others. These marks are registered
with the United States Patent and Trademark Office. Each federal registration is
renewable indefinitely if the mark is still in use at the time of renewal.
As of January 1, 2000, the Company had 3,576 associates, of whom approximately
2,066 were full-time and approximately 1,510 were part-time and temporary. In
addition, a significant number of seasonal associates were hired during the
Company's peak selling seasons.
Executive officers
The following table sets forth information regarding the executive officers of
the Company:
Name Age Position
Randolph K. Repass 56 Chairman of the Board
John Edmondson 55 President, Chief Executive Officer
Richard E Everett 46 President of Stores Division, Chief Operating Officer
Mike Edwards 39 Executive Vice President of Merchandising
Russell Solt 52 Senior Vice President, Finance, Chief Financial Officer and Secretary
Patrick Murphy 51 Senior Vice President, Distribution and Logistics
Randolph K. Repass has been Chairman of the Board of the Company since founding
the Company in 1968 and was the Company's Chief Executive Officer from 1968
until April 1995 and August 1998 to November 1998. He served as President from
1968 to 1990 and from August 1993 to March 1994. Mr. Repass began his career in
engineering and marketing with Fairchild Semiconductor in 1966. He is President
of Sail America, a sailing industry association. Mr. Repass is also Chairman of
New England Ropes. He received a B.S. degree in electrical engineering from
Duke University.
John Edmondson joined West Marine as President and Chief Executive Officer and a
director effective November 13, 1998. Since 1992, Mr. Edmondson held the roles
of Corporate Chief Operating Officer as well as President and Chief Executive
Officer of Duty Free International Inc. Mr. Edmondson began his career with
Allied Store's Maas Bros./Jordan Marsh division and has held various senior
management positions with several retailers. Prior to joining Duty Free
International, Inc., Mr. Edmondson was General Manager of Marriott's Host
Airport Merchandise and their Sports and Entertainment divisions.
Richard E Everett joined West Marine in 1980 and became President of Stores
Division in August 1998. Mr. Everett has been Chief Operating Officer and has
served as a director since 1994. Prior to his current position in West Marine,
Mr. Everett was Executive Vice President of Store Operations. He currently
oversees the Company's store operations,
7
visual merchandising, real estate, store planning, and construction. During his
career with West Marine, Mr. Everett has held various positions since joining
the Company in 1983. He founded and operated a sailboat rigging company prior to
joining West Marine. Mr. Everett received a B.S. degree from the University of
California, Berkeley.
Mike Edwards joined the Company in July 1999 as Executive Vice President of
Merchandising. Prior to that, Mr. Edwards was Vice President of General
Merchandise Manager of Golf Smith, a specialty retailer, from Sept. 1998 to May
1999. Also, Mr. Edwards was Senior Vice President and General Merchandise
Manager for CompUSA, a specialty retailer, from 1990 to 1998. He holds a B.S.
degree in Business and Marketing from Drexel University.
Russell Solt joined the Company in January 2000 as Senior Vice President, Chief
Financial Officer and Secretary. Prior to that, Mr. Solt was President of
Venture Stores, a discount retailer, from 1998 to 1999 and Executive Vice
President of Finance and Administration from 1995 to 1998. Also, Mr. Solt was
Chief Financial Officer for Williams Sonoma, a specialty retailer, from 1994 to
1995. He holds a B.S. in Business Administration from California State
University, Northridge and is a CPA.
Patrick Murphy joined the Company in March 1999 as Senior Vice President,
Distribution and Logistics. Prior to that, Mr. Murphy was Vice President of
Logistics for Borders Group, Inc., a specialty retailer, from 1993 to 1999. Mr.
Murphy holds a B.S. degree in Marketing and Economics from the University of
Missouri-Kansas City.
ITEM 2 - PROPERTIES
The Company's corporate offices are located in a 90,000 square foot facility in
Watsonville, California, which the Company occupies under a lease expiring in
2006. The Company operates a 162,000 square foot distribution center located in
Hollister, California with a lease that expires in 2011. The Company operates a
457,000 square foot distribution center located in Rock Hill, South Carolina
with a lease that expires in 2007.
At January 1, 2000, the Company's 227 stores included an aggregate of
approximately 1.6 million square feet of space. The Company's stores are all
leased, typically for a ten-year term, with options to renew for additional
terms. In most cases, the Company pays a fixed rent. Substantially all of the
leases require the Company to pay insurance, utilities, real estate taxes and
repair and maintenance expenses.
ITEM 3 - LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
West Marine, Inc. common stock trades on the Nasdaq National Market tier of the
Nasdaq Stock Market under the symbol WMAR. The following table sets forth for
the period indicated, the high and low closing sales prices for the Company's
common stock, as reported by the Nasdaq Stock Market.
First Second Third Fourth
Quarter Quarter Quarter Quarter
1999
Stock trade price:
High $13 1/16 $14 15/16 $13 7/8 $9
Low $ 8 1/2 $ 8 5/16 $ 8 $7 9/16
8
1998
Stock trade price:
High $30 1/8 $28 5/16 $18 7/8 $12
Low $21 1/16 $16 $ 7 3/8 $ 6 7/16
As of February 29, 2000, there were approximately 1,491 holders of record of the
Company's common stock.
9
ITEM 6-SELECTED FINANCIAL DATA
(in thousands, except per share and operating data)
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
Consolidated Income Statement Data:
Net sales $486,491 $449,296 $415,208 $323,300 $224,204
Income from operations 20,395 8,665 29,116 21,156 16,198
Income before income taxes 14,765 2,594(1) 25,487 19,490(2) 14,819
Net income 8,711 1,098(1) 15,173 11,566(2) 8,975
Net income per common and
common equivalent share:
Basic $ 0.51 $ 0.06(1) $ 0.91 $ 0.73(2) $ 0.64
Diluted $ 0.50 $ 0.06(1) $ 0.86 $ 0.68(2) $ 0.61
Consolidated Balance Sheet Data:
Working capital $130,539 $143,974 $149,242 $ 92,948 $ 58,619
Total assets 286,860 279,545 275,888 211,514 95,845
Long-term debt 71,843 94,367 92,960 37,997 8,284
Operating Data:
Stores open at year-end 227 212 184 151 72
Comparable stores net sales increase 1.8% 1.2% 5.0% 5.4% 9.0%
- ---------------------------------------------------------------------------------------------------------------------------
(1) Includes a $3.3 million pre-tax charge for expenses related to the
distribution center move in 1998. The impact of this charge represents
$0.08 per basic and diluted share.
(2) Includes a $3.0 million pre-tax charge for expenses related to the
integration of E&B Marine, Inc. in 1996. The impact of this charge
represents $0.11 and $0.10 per basic and diluted share, respectively.
ITEM 7-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Company Overview
West Marine distributes its merchandise through three divisions, Stores (retail
and wholesale), under the names of West Marine and E&B Marine, and Catalog
(retail and Internet) as well as Port Supply (wholesale). West Marine operated
227 stores in 38 states as of January 1, 2000, compared to 212 stores in 34
states as of January 2, 1999. All references to 1999, 1998, and 1997 refer to
the Company's fiscal years ended on January 1, 2000, January 2, 1999, and
January 3, 1998, respectively. 1999 and 1998 were 52-week years. 1997 was a
53-week year.
10
Results of Operations
The following table sets forth certain income statement components expressed as
a percent of sales:
1999 1998 1997
Net sales 100.0% 100.0% 100.0%
Cost of goods sold including buying and occupancy 73.2% 74.8% 70.4%
----- ----- -----
Gross profit 26.8% 25.2% 29.6%
Selling, general and administrative expenses 22.6% 22.6% 22.6%
Expenses related to distribution center move - 0.7% -
----- ----- -----
Income from operations 4.2% 1.9% 7.0%
Interest expense 1.2% 1.4% 0.8%
----- ----- -----
Income before income taxes 3.0% 0.5% 6.2%
Provision for income taxes 1.2% 0.3% 2.5%
----- ----- -----
Net income 1.8% 0.2% 3.7%
===== ===== =====
1999 Compared to 1998
West Marine's fiscal 1999 results reflect continuing progress in the
implementation of the Company's strategic plan to improve operating fundamentals
and execute initiatives to stimulate growth. In 1999, West Marine achieved
record net sales of $486.5 million, an increase of $37.2 million, or 8.3%, over
net sales of $449.3 million in 1998. Net income of $8.7 million, or $0.50 per
diluted share, in 1999 compares to net income of $1.1 million, or $0.06 per
diluted share, in 1998. Results of operations for 1998 included $3.3 million of
expenses incurred by the Company for the relocation and consolidation of West
Marine's two East Coast distribution facilities into a single facility located
in Rock Hill, South Carolina.
Net sales attributable to the Company's Stores division increased $25.7 million,
or 7.0%, to $395.5 million in 1999, primarily due to the addition of 17 new
stores, which contributed $18.8 million to net sales growth. Comparable store
net sales increased $6.9 million, or 1.8%, in 1999. Port Supply net sales
increased $8.6 million, or 23.1%, in 1999 primarily as a result of the Company's
continued territory expansion, new sales marketing programs, and significant
improvements in the Company's distribution center fill rates and merchandise
shipment rates. Catalog net sales increased $2.7 million, or 6.5%, to $44.4
million. Catalog net sales included Internet sales of $2.3 million and $0.6
million, respectively, in 1999 and 1998.
Gross profit increased 14.9% in 1999 compared to 1998. Gross profit as a
percentage of net sales increased to 26.8% in 1999 from 25.2% in 1998, primarily
reflecting reduced distribution and shipping costs, as well as a shift to a more
profitable product mix.
Selling, general and administrative expenses increased $8.5 million, or 8.4%, in
1999, primarily due to increases in direct expenses related to the growth in
Stores, consulting costs related to process improvements, and higher marketing
costs. Selling, general and administrative expenses as a percentage of net
sales were unchanged from 1998.
Income from operations increased $11.7 million, or 135.4%, from 1998 to 1999.
As a percentage of net sales, income from operations increased to 4.2% in 1999,
from 1.9% in 1998.
Interest expense declined $441,000, or 7.3%, in 1999 compared to 1998, primarily
as a result of a lower average borrowings partially offset by a rise in interest
rates.
1998 Compared to 1997
Net sales for 1998 increased 8.2% to $449.3 million, compared to $415.2 million
in 1997. This increase was primarily attributable to the increase in net sales
from the Company's Stores. Stores net sales increased 10.5% to $369.8 million.
The increase in Stores net sales was primarily due to 28 additional West Marine
Stores opened in 1998. Net sales from comparable West Marine Stores increased
1.2% and contributed $3.8 million, or 10.9% of the increase. The E&B Marine
locations entered the Company's comparable Stores net sales base in August 1997.
Catalog net sales decreased 7.8% to $41.7 million. The Company believes that
the decrease in Catalog net sales was attributable to new Store
11
openings by the Company and its competitors, in addition to service problems
related to the distribution center. Port Supply net sales increased 5.6% to
$37.3 million, resulting primarily from the Company's continued territory
expansion and additional van delivery routes.
Gross profit decreased 7.7% in 1998 compared to 1997. Gross profit as a
percentage of net sales decreased to 25.2% in 1998 from 29.6% in 1997, primarily
reflecting increased payroll, equipment rental and supply expenses at the Rock
Hill distribution center as well as increased inventory shrink.
Selling, general and administrative expenses increased $7.7 million, or 8.2%, in
1998, primarily due to increases in direct expenses related to the growth in
Stores. Stores direct expense represented approximately 72.1% of the $7.2
million increase. As a percentage of net sales, selling, general and
administrative expenses remained relatively flat due to the Company's
advertising and promotional cost reduction efforts.
In the first quarter of 1998, the Company incurred $3.3 million of expenses for
the relocation and consolidation of West Marine's two East Coast distribution
facilities into a single facility located in Rock Hill, South Carolina.
Income from operations decreased $20.5 million, or 70.2%, from 1997 to 1998. As
a percentage of net sales, income from operations decreased to 1.9% in 1998 from
7.0% in 1997.
Interest expense increased $2.4 million or 67.3%, in 1998 compared to 1997,
primarily as a result of higher average borrowings under the Company's line of
credit during 1998.
Liquidity and Capital Resources
During 1999, the Company's primary sources of capital have been income from
operations and bank borrowings. Net cash provided by operations during 1999 was
$35.3, consisting primarily of earnings after tax of $22.8 million excluding
depreciation and amortization, a $12.4 million increase in accounts payable and
accrued expenses, a $3.1 million increase in provision for deferred income taxes
and a $2.5 decrease in prepaid expenses and other current assets offset by a
$5.8 million increase in inventory. The inventory increase was attributable to
a contingency plan for possible Y2K issues. Net cash used in financing activity
was $14.5 million, consisting of $15.6 repayment of the Company's line of credit
and long-term debt offset by $1.2 million received from the exercise of stock
options and the net sales of common stock pursuant to the associate stock
purchase plan.
West Marine's primary cash requirements are related to capital expenditures for
new Stores, including leasehold improvement costs and fixtures, and merchandise
inventory for Stores. The Company expects to spend between $13.0 to $15.0
million on capital expenditures during 2000. The Company intends to pay for its
expansion through cash generated from operations and bank borrowings. The
Company believes that cash from operations together with the current credit line
will be sufficient to fund the Company throughout 2000.
At the end of 1999, the Company had outstanding a $40.0 million senior guarantee
note which matures on December 23, 2004, with the first annual principal payment
due on December 23, 2000. During 1999, the note was amended to bear interest at
7.6%. The note is unsecured, and contains certain restrictive covenants
including fixed charge coverage and debt to capitalization ratios, and minimum
net worth.
The Company has an $80.0 million credit line. In January 2000, the line was
replaced with a credit line that extends the due date to 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
1.0% to 2.25%. At the end of 1999, borrowings from the credit line were $39.5
million bearing interest at rates ranging from 7.78% to 9.0%. At the end of
1998, borrowings from the credit line were $53.0 million bearing interest at
rates ranging from 6.1% to 7.4%.
In addition, The Company has 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 (8.50% at the end of 1999) and has a ten-day paydown requirement.
At the end of 1999 and 1998, no amounts were outstanding under the revolving
line of credit.
Both of the aforementioned credit lines are unsecured and contain various
covenants which require maintaining certain financial ratios, including debt to
earnings and current ratios. The covenants include minimum levels of net worth
and limitations on levels of certain investments. These covenants also restrict
the repurchase or redemption of the Company's common stock and payment of
dividends, investments in subsidiaries and annual capital expenditures.
At the end of 1999, the Company had $364,000 of outstanding stand-by letters of
credit, compared to $100,000 at year-
12
end 1998. At the end of 1999 and 1998, the Company had $520,000 and $613,000,
respectively, of outstanding commercial letters of credit.
During 1999 and 1998, the weighted average interest rates in effect were 6.9%
and 6.4% respectively.
Year 2000 and Other System Enhancements
During 1999, the Company implemented a plan to ensure its computer systems and
applications were compliant for the year 2000 ("Y2K"). 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 in the third quarter of 1999. The Company did not experience any
significant adverse effects of Year 2000 system modifications.
Due to the Company's focus on Y2K issues during 1999, certain other planned
systems enhancement and improvement projects were deferred until 2000. The
deferral of these projects is not expected to have a material adverse effect on
the Company's results of operations, financial condition, or liquidity.
As of January 1, 2000, the Company had incurred a total of $280,000 to convert
systems to Y2K compliance. In the opinion of management, no additional expenses
will be incurred related to the Y2K systems conversion.
Also during 1999, the Company successfully upgraded certain systems to improve
operational efficiencies, improve services to customers, and provide better
information to management. System upgrades in 1999 included the point of sale
(POS) system, the wholesale sales system, the warehouse management, and the
basic operating systems on the AS400 system.
Seasonality
Historically, the Company's business has been highly seasonal. The Company's
expansion into new markets has made it 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.
Business Trends
West Marine's growth in net sales has been principally fueled by geographic
expansion through 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 continues to
face market share erosion in markets where stores have been opened by either the
company or competitors. Management expects that this trend may continue. To
address the growing significance of e-commerce in the marketplace, the Company
redesigned its website to target all segments of boating enthusiasts. Since
launching the site, sales have dramatically increased over 1998 sales. The
Company has allocated resources to further develop the website to generate
increases in international and domestic sales.
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 not been
attributable to increases in prices. In recent years, competition has increased
which has adversely affected the Company's gross profits. These competitive and
pricing pressures are likely to continue.
ITEM 7A- Quantitative and Qualitative Disclosures about Market Risk
The Company does not undertake any specific actions to cover its exposure to
interest rate risk and is not a party to any interest rate risk management
transactions. The Company does not purchase or hold any derivative financial
instruments.
A 69 basis point change in interest rate (10% of the Company's weighted average
interest rate) affecting the Company's floating financial instruments would have
an effect of approximately $280,000 on the Company's pretax income and
13
cash flows over the next year, and would have an immaterial effect on the fair
value of the Company's fixed rate financial instruments (see "Notes to
Consolidated Financial Statements - Line of Credit and Long-Term Debt").
"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.
The Company's Catalog division has faced market share erosion in areas where
Stores have been open 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 Stores 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 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.
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.
14
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
[Deloitte & Touche Letterhead]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
West Marine, Inc.,
We have audited the accompanying consolidated balance sheets of West Marine,
Inc. and subsidiaries (the "Company") as of January 1, 2000 and January 2,
1999 and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three fiscal years in the period
ended January 1, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well and evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at January 1, 2000
and January 2, 1999 and the results of it operations and its cash flows for
each of the three fiscal years in the period ended January 1, 2000 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
San Francisco, California
February 17, 2000
15
WEST MARINE, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 1, 2000 AND JANUARY 2, 1999
(in thousands, except share data)
Year-End Year-End
1999 1998
--------- --------
ASSETS
Current assets:
Cash $ 3,231 $ 1,024
Accounts receivable, net 5,101 4,660
Merchandise inventories, net 165,838 160,069
Prepaid expenses and other current assets 9,029 11,574
--------- ---------
Total current assets 183,199 177,327
Property and equipment, net 66,036 60,219
Intangibles and other assets, net 37,625 41,999
--------- ---------
TOTAL ASSETS $286,860 $279,545
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 30,810 $ 23,759
Accrued expenses 9,828 4,548
Deferred current liabilities 3,333 3,263
Current portion of long-term debt 8,689 1,783
--------- ---------
Total current liabilities 52,660 33,353
Long-term debt 71,843 94,367
Deferred items and other non-current obligations 2,460 2,055
--------- ---------
Total liabilities 129,963 129,775
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: 17,190,274 at
January 1, 2000 and 16,984,528 at January 2, 1999 17 17
Additional paid-in capital 107,015 105,599
Retained earnings 52,865 44,154
--------- ---------
Total stockholders' equity 159,897 149,770
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $286,860 $279,545
========= =========
See notes to consolidated financial statements.
16
WEST MARINE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share and store data)
1999 1998 1997
-------------- -------------- --------------
Net sales $486,491 $449,296 $415,208
Cost of goods sold, including buying
and occupancy 356,215 335,956 292,395
--------- --------- ---------
Gross profit 130,276 113,340 122,813
Selling, general and administrative expense 109,881 101,391 93,697
Expenses related to distribution center move - 3,284 -
--------- --------- ---------
Income from operations 20,395 8,665 29,116
Interest expense 5,630 6,071 3,629
--------- --------- ---------
Income before taxes 14,765 2,594 25,487
Provision for income taxes 6,054 1,496 10,314
--------- --------- ---------
Net income $ 8,711 $ 1,098 $ 15,173
========= ========= =========
Net income per common and common
equivalent share:
Basic $0.51 $0.06 $0.91
========= ========= =========
Diluted $0.50 $0.06 $0.86
========= ========= =========
Weighted average common and common
equivalent shares outstanding:
Basic 17,086 16,893 16,648
========= ========= =========
Diluted 17,557 17,520 17,583
========= ========= =========
Stores open at end of period 227 212 184
========= ========= =========
See notes to consolidated financial statements.
17
WEST MARINE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
Common stock Additional Total
--------------------------- Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
--------------------------------------------------------------------------
Balance at year-end, 1996 $16,494,205 $16 $ 98,632 $27,883 $126,531
Net income 15,173 15,173
Exercise of stock options 245,838 1 1,789 1,790
Tax benefit from exercise of non-qualified
stock options 1,916 1,916
Sale of common stock pursuant to
associate stock purchase plan 46,025 908 908
--------------------------------------------------------------------------
Balance at year-end, 1997 16,786,068 17 103,245 43,056 146,318
Net income 1,098 1,098
Exercise of stock options 122,821 933 933
Tax benefit from exercise of non-qualified
stock options 677 677
Sale of common stock pursuant to
associate stock purchase plan 75,639 744 744
--------------------------------------------------------------------------
Balance at year-end, 1998 16,984,528 17 105,599 44,154 149,770
Net income 8,711 8,711
Exercise of stock options 67,599 276 276
Restricted stock award 138 138
Tax benefit from exercise of non-qualified
stock options 113 113
Sale of common stock pursuant to
associate stock purchase plan 138,147 889 889
--------------------------------------------------------------------------
Balance at year-end, 1999 $17,190,274 $17 $107,015 $52,865 $159,897
==========================================================================
See notes to consolidated financial statements.
18
WEST MARINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
1999 1998 1997
---------------- ---------------- ---------------
OPERATING ACTIVITIES:
Net income $ 8,711 $ 1,098 $ 15,173
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 14,075 11,926 8,604
Provision for deferred income taxes 3,092 298 4,704
Provision for doubtful accounts 533 586 315
Non-cash compensation expense 138 - -
Changes in assets and liabilities:
Accounts receivable (974) (243) (1,576)
Merchandise inventories (5,769) 6,221 (43,559)
Prepaid expenses and other current assets 2,545 86 (3,808)
Other assets 141 (10) 195
Accounts payable 7,051 (2,870) (6,998)
Accrued expenses 5,393 (231) (3,529)
Deferred items 405 166 125
--------- --------- ---------
Net cash provided by (used in) operating activities 35,341 17,027 (30,354)
--------- --------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment (18,681) (17,487) (24,470)
--------- --------- ---------
Net cash used in investing activities (18,681) (17,487) (24,470)
--------- --------- ---------
FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit (13,500) 950 15,050
Borrowings (repayments) on long-term debt (2,118) (2,153) 37,192
Sale of common stock pursuant to associate stock purchase plan 889 744 908
Exercise of stock options 276 933 1,790
--------- --------- ---------
Net cash provided by (used in) financing activities (14,453) 474 54,940
--------- --------- ---------
NET INCREASE IN CASH 2,207 14 116
CASH AT BEGINNING OF PERIOD 1,024 1,010 894
--------- --------- ---------
CASH AT END OF PERIOD $ 3,231 $ 1,024 $ 1,010
========= ========= =========
Other cash flow information:
Cash paid for interest $ 6,190 $ 6,480 $ 4,096
Cash paid for income taxes 4,302 4,918 8,338
Equipment acquired through non-cash capital lease transactions - 2,545 2,996
Tax benefit from exercise of non-qualified stock options 113 677 1,916
See notes to consolidated financial statements.
19
WEST MARINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - West Marine, Inc. (the "Company"), a Delaware corporation, is a
specialty retailer and wholesaler of boating supplies and apparel, which it
markets through 227 retail stores in the United States and mail order catalogs.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of West Marine, Inc. and its subsidiaries. Intercompany balances and
transactions are eliminated in consolidation.
FISCAL YEAR - The Company's fiscal year-ends on the Saturday closest to December
31 based on a 52- or 53-week year. The years 1999, 1998, and 1997 ended on
January 1, 2000, January 2, 1999, and January 3, 1998, respectively. 1999 and
1998 were 52-week years. 1997 was a 53-week year.
ACCOUNTING ESTIMATES - The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
MERCHANDISE INVENTORIES are stated at the lower of cost (first-in, first-out
method) or market. Cost includes acquisition and distribution costs that have
been capitalized in merchandise inventories in order to better match net sales
with these related costs.
DEFERRED CATALOG AND ADVERTISING COSTS - The Company capitalizes the direct cost
of producing and distributing its catalogs. Capitalized catalog costs are
amortized, once the catalog is mailed, over the expected net sales period, which
is generally six months. Deferred catalog costs amounted to $110,000 and
$1,893,000 at year-end 1999 and 1998, respectively. Advertising costs, which
are expensed as incurred, amounted to $14.0 million, $12.6 million, and $13.8
million in 1999, 1998 and 1997, respectively.
PROPERTY AND EQUIPMENT is stated at cost. Furniture and equipment is
depreciated using the straight-line method over the estimated useful lives of
the various assets, which range from three to five years. Leasehold
improvements are amortized over the lesser of the lease term or the estimated
useful lives of the improvements. Whenever events or changes in circumstances
have indicated that the carrying amount of its assets might not be recoverable,
the Company, using its best estimates based on reasonable and supportable
assumptions and projections, has reviewed for impairment the carrying value of
long-lived assets.
PRE-OPENING COSTS are expensed as incurred.
INTANGIBLES AND OTHER ASSETS - The excess of cost over tangible net assets
acquired is amortized over periods ranging from 5 to 40 years. Debt issuance
costs are amortized over the terms of the related credit agreements. The
Company periodically assesses the recoverability of the carrying value of its
goodwill based on a review of projected undiscounted cash flows of the related
operations. Accumulated amortization at the end of 1999 and 1998 was $5.0
million and $3.7 million, respectively.
DEFERRED RENT - Certain of the Company's operating leases contain predetermined
fixed increases of the minimum rental rate during the lease term. For these
leases, the Company recognizes the related rental expense on a straight-line
basis over the life of the lease and records the difference between the amount
charged to rent expense and the rent paid as deferred rent.
INCOME TAXES - The Company's income taxes are accounted for under the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", which requires the asset and liability method of accounting.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying value of cash, accounts
receivable, accounts payable and long-term debt approximates the estimated fair
values.
20
STOCK-BASED COMPENSATION - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Accordingly, no compensation cost has been recognized for its fixed cost stock
option plans or its associate stock purchase plan. In 1999, the Company
recognized $138,000 of compensation expense related to a restricted stock award.
RECLASSIFICATIONS - Certain 1998 and 1997 amounts have been reclassified to
conform with the 1999 presentation.
COMPREHENSIVE INCOME - Comprehensive income consists of net income or loss for
the current period and other comprehensive income (incomes, expenses, gains and
losses that currently bypass the income statement and are reported directly as a
separate component of equity). The Company's comprehensive net income equals
net income for all periods presented.
CAPITALIZED INTEREST - The Company's policy is to capitalize interest on debt
incurred that is directly related to major construction projects. During 1999,
1998, and 1997, the Company incurred approximately $6.1 million, $6.7 million,
and $4.2 million, respectively, of interest, of which approximately $423,000,
$576,000, and $587,000, respectively, was capitalized.
NET INCOME PER SHARE - Basic net income per share excludes dilution and is
computed by dividing net income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted net income
per share reflects the potential dilution that could occur if options to issue
common stock were exercised into common stock.
The following is a reconciliation of the Company's basic and diluted net income
per share computations (shares in thousands):
1999 1998 1997
--------------------------- ------------------------- -------------------------
Per Share Per Share Per Share
Shares Amount Shares Amount Shares Amount
--------------------------- ------------------------- -------------------------
Basic 17,086 $ 0.51 16,893 $0.06 16,648 $ 0.91
Effect of dilutive stock options 471 (0.01) 627 0.00 935 (0.05)
--------------------------- ------------------------- -------------------------
Diluted 17,557 $ 0.50 17,520 $0.06 17,583 $ 0.86
=========================== ========================= =========================
The following options were not included in the computation of diluted EPS
because such options' exercise price was greater than the average market price
of the common shares (shares in thousands):
1999 1998 1997
Options to purchase
shares of common stock 2,703 1,895 563
Exercise prices $8.31 - $34.50 $11.13 - $34.50 $24.74 - $34.50
Expiration dates March 2003 - March 2003 - February 2004 -
August 2009 August 2008 May 2007
NEW ACCOUNTING PRONOUNCEMENTS - 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," which established 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.
21
NOTE 2: PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at year-end 1999 and 1998 (in
thousands):
At Year-End
-------------------------------------
1999 1998
Furniture and equipment $ 37,540 $ 32,245
Computer equipment 44,388 34,233
Leasehold improvements 29,857 27,141
Land and building 806 728
--------------- ---------------
Total, at cost 112,591 94,347
Accumulated depreciation and amortization (46,555) (34,128)
--------------- ---------------
Total property and equipment, net $ 66,036 $ 60,219
=============== ===============
NOTE 3: LINES OF CREDIT AND LONG-TERM DEBT
At the end of 1999, the Company had outstanding a $40.0 million senior guarantee
note which matures on December 23, 2004, with the first annual principal payment
due on December 23, 2000. During 1999, the note was amended and bears interest
at 7.6%. The note is unsecured, and contains certain restrictive covenants
including fixed charge coverage and debt to capitalization ratios, and minimum
net worth.
The Company has an $80.0 million credit line. In January 2000, the line was
amended to extend the due date to 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 1.0% to 2.25%. At the end of
1999, borrowings from the credit line were $39.5 million bearing interest at
rates ranging from 7.78% to 9.0%. At the end of 1998, borrowings from the
credit line were $53.0 million bearing interest at rates ranging from 6.1% to
7.4%.
In addition, the Company has 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 (8.50% at the end of 1999) and has a ten-day paydown requirement.
At the end of 1999 and 1998, no amounts were outstanding under the revolving
line of credit.
Both of the aforementioned credit lines are unsecured and contain various
covenants which require maintaining certain financial ratios, including debt to
earnings and current ratios. The covenants include minimum levels of net worth
and limitations on levels of certain investments. These covenants also restrict
the repurchase or redemption of the Company's common stock and payment of
dividends, investments in subsidiaries and annual capital expenditures.
At the end of 1999, the Company had $364,000 of outstanding stand-by letters of
credit, compared to $100,000 at year-end 1998. At the end of 1999 and 1998, the
Company had $520,000 and $613,000, respectively, of outstanding commercial
letters of credit.
During 1999 and 1998, the weighted average interest rates in effect were 6.9%
and 6.4% respectively.
22
At year-end 1999 and 1998, long-term debt consisted of the following (in
thousands):
At Year-End
-------------------------------
1999 1998
Lines of credit $ 39,500 $53,000
Note payable 40,000 40,000
Capital lease obligations (interest at 3.6% to 8.7%) 1,032 3,150
------------- -------------
80,532 96,150
Less current portion of long-term debt (8,689) (1,783)
------------- -------------
$ 71,843 $94,367
============= =============
At year-end 1999, future minimum principal payments on long-term debt were as
follows (in thousands):.
2000 $ 8,689
2001 8,311
2002 8,032
2003 47,500
2004 8,000
------------
$80,532
============
NOTE 4: RELATED PARTY TRANSACTIONS
The Company purchases merchandise from a supplier in which the Company's
Principal Stockholder owns stock and is a member of the board of directors.
Additionally, the Principal Stockholder's brother is the president and his
father is a member of the board of directors and a major stockholder of the
supplier. The Company's cost of net sales during 1999, 1998, and 1997 included
$7.2 million, $6.4 million, and $5.2 million, respectively, related to purchases
from such related party. Accounts payable to the supplier at year-end 1999 and
1998 were $215,000 and $384,000, respectively.
The Company leases its corporate headquarters and two retail stores from three
partnerships in which the Company's Principal Stockholder is the general partner
(see Note 5). In addition, one retail Store is leased directly from the
Principal Stockholder.
NOTE 5: LEASES
The Company leases certain equipment, retail stores, its distribution centers
and its corporate headquarters. The Company also sublets space at various
locations with both month-to-month and noncancelable sublease agreements. The
operating leases of certain Stores provide for rent adjustments based on the
consumer price index and planned rent increases.
23
The aggregate minimum annual rental payments and sublease income under
noncancelable leases in effect at year-end 1999 were as follows (in thousands):
Capital Operating Sublease Net Lease
Leases Leases Income Commitments
2000 $ 702 $15,665 $ 53 $16,314
2001 314 17,968 20 18,262
2002 32 16,015 16 16,031
2003 14,957 16 14,941
2004 12,846 5 12,841
Thereafter 20,299 - 20,299
----------------------------------------------------------
Total minimum lease commitment 1,048 $97,750 $110 $98,688
==============================================
Less amount representing interest (16)
------------
Present value of obligations
under capital leases 1,032
Less current portion (689)
------------
Long-term obligations
under capital leases $ 343
============
The cost and related accumulated amortization of assets under capital leases
aggregated $5.5 million and $2.1 million, respectively, at year-end 1999 and
$5.5 million and $1.1 million, respectively, at year-end 1998.
A summary of rent expense by component for 1999, 1998, and 1997 follows (in
thousands):
1999 1998 1997
Minimum rent $20,027 $19,219 $15,942
Percent rent 176 178 182
Sublease income 161 159 202
Rents paid to related parties 1,253 1,161 1,065
NOTE 6: STOCK OPTION PLANS
Fixed Stock Option Plans
The Company's 1990 Stock Option Plan ("the 1990 Plan") provides for options to
be granted to employees and directors for the purchase of an aggregate of 2.1
million shares of common stock at prices not less than 100% of the fair market
value at the date of grant. Options under this plan are generally exercisable
equally over five years from the date of the grant, unless otherwise provided.
The Company's 1993 Omnibus Equity Incentive Plan as amended (the "1993 Plan")
provides for options to be granted for the purchase of an aggregate of 5.2
million shares of common stock at prices not less than 85% of fair market value
at the date of the grant. Options under this plan are generally exercisable
equally over five years from the date of the grant, unless otherwise provided.
The Company's Non-employee Director Stock Option Plan ("the Director Plan") has
reserved 200,000 shares of common stock for issuance to non-employee directors
of the Company. Options are granted at 100% of fair market value at the date of
the grant, and are generally exercisable six months after the grant date.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") requires the disclosure of pro forma net income and
earnings per share had the Company adopted the fair value method of accounting
for stock-based compensation as of the beginning of 1995. Under SFAS 123, the
fair value of stock-based awards is calculated through the use of option pricing
models, even though such models were developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. These models also
require subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values. The
Company's
24
calculations were made using the Black-Scholes option pricing model with the
following weighted average assumptions: four to eight year expected life from
date of grant; stock volatility of 56%, 63%, and 62%, respectively, in 1999,
1998, and 1997; risk-free interest rates of 4.96% to 5.59% in 1999, 5.03% to
5.27% in 1998, and 5.65% to 6.44% in 1997; and no dividends during the expected
term. The Company's calculations are based on a single option valuation approach
and forfeitures are recognized as they occur. If the computed fair values of the
1999, 1998, and 1997 awards had been amortized to expense over the vesting
period of the awards, pro forma net income would have been $7.2 million in 1999
($0.42 per basic share and $0.41 per diluted share), $0.1 million in 1998 ($0.01
per basic and diluted share), and $14.4 million in 1997 ($0.86 per basic share
and $0.82 per diluted share). The impact of outstanding non-vested stock options
granted prior to 1995 has been excluded from the pro forma calculation.
Accordingly, the 1999, 1998, and 1997 pro forma adjustments are not indicative
of future period pro forma adjustments, when the calculation will apply to all
future applicable stock options.
A summary of stock option transactions under the fixed stock option plans for
the years 1999, 1998, and 1997 follows:
Weighted
Average
Number of Exercise
Shares Price
--------------- ------------
Outstanding at year-end 1996 (1,084,741 exercisable at
a weighted average price of $7.37) 2,697,379 $11.09
Granted (weighted average fair value at grant date: $18.29) 543,929 $25.31
Exercised (245,838) $ 7.33
Canceled (242,089) $16.87
- ---------------------------------------------------------------------------------------------
Outstanding at year-end 1997 (1,384,874 exercisable at
a weighted average price of $9.89) 2,753,381 $13.72
Granted (weighted average fair value at grant date: $ 9.16) 1,452,906 $13.71
Exercised (122,821) $ 7.49
Canceled (563,357) $18.68
- ---------------------------------------------------------------------------------------------
Outstanding at year-end 1998 (1,563,633 exercisable at
a weighted average price of $10.90) 3,520,109 $13.14
Granted (weighted average fair value at grant date: $ 6.03) 739,236 $ 8.87
Exercised (67,599) $ 4.14
Canceled (113,344) $16.93
- ---------------------------------------------------------------------------------------------
Outstanding at year-end 1999 (2,184,843 exercisable at
a weighted average price of $11.74) 4,078,402 $12.24
=============================================================================================
Additional information regarding options outstanding at year-end 1999 is as
follows:
Outstanding Options Exercisable Options
- ----------------------------------------------------------------------------- -----------------------------
Weighted Avg
Remaining Weighted Avg Weighted Avg
Range of Shares Contractual Exercise Exercise
Exercise Prices Outstanding Life (Years) Price Shares Price
- ----------------------------------------------------------------------------------------------------------------
$ 0.43 - $ 7.81 1,375,034 6.55 $ 5.90 638,174 $ 3.76
$ 8.25 - $ 12.50 1,532,500 6.71 $10.55 964,126 $11.09
$ 14.75 - $ 34.50 1,170,868 6.78 $21.90 582,543 $21.53
- ----------------------------------------------------------------------------------------------------------------
$ 0.43 - $ 34.50 4,078,402 6.67 $12.24 2,184,843 $11.74
================================================================================================================
At year-end 1999, 1,372,468 shares were available for future grants under the
1993 Plan, and 61,208 shares were available under the Director Plan. The
Company does not intend to grant any additional options under the 1990 Plan.
Associate Stock Purchase Plan
The Company has a stock-buying plan, covering all eligible associates.
Participants in the plan may purchase West
25
Marine stock through regular payroll deductions. The stock is purchased on the
last business day of April and October at 85% of the fair market value. In 1999,
1998, and 1997, respectively, 138,121, 75,639 and 46,025 shares were issued
under the plan at weighted average prices of $6.53, $9.85, and $17.74,
respectively. The weighted average fair value of the 1999, 1998, and 1997 awards
was $9.22, $13.12 and $22.95, respectively. At the end of 1999, 62,039 shares
were reserved for future issuances under the stock-buying plan.
NOTE 7: INCOME TAXES
The components of the provision for income taxes for 1999, 1998, and 1997 are as
follows (in thousands):
1999 1998 1997
Currently payable:
Federal $2,646 $ 998 $ 4,827
State 316 200 783
----------- ----------- -----------
Total current 2,962 1,198 5,610
----------- ----------- -----------
Deferred:
Federal 2,791 633 3,944
State 301 (335) 760
----------- ----------- -----------
Total deferred 3,092 298 4,704
----------- ----------- -----------
Total current and deferred $6,054 $1,496 $10,314
=========== =========== ===========
The provision of income taxes consisted of the following:
1999 1998 1997
Statutory federal tax rate 35.0% 35.0% 35.0%
Non-deductible permanent items 3.1% 18.1% 1.8%
State income taxes, net
of federal tax benefit 4.6% 4.6% 4.6%
Settlement of prior year's taxes 7.1%
Other (1.7%) (7.1%) (0.9%)
--------- ----------- -----------
Effective tax rate 41.0% 57.7% 40.5%
========= =========== ===========
26
Deferred income taxes reflect the impact of "temporary differences" between
amounts of assets and liabilities for financial reporting purposes and such
amounts measured by tax laws. Temporary differences that give rise to deferred
tax assets (liabilities) are as follows (in thousands):
1999 1998
---------- ------------
Current:
Reserves $ 604 $ 449
Net operating loss carryforwards 139 923
Paid time off 649 362
State tax benefit (137) (272)
Change of tax accounting method - 21
Deferred catalog costs (823) (1,194)
Capitalized inventory costs (3,020) (2,938)
Cash discounts (921) (818)
Other 176 204
---------- ------------
Total current (3,333) (3,263)
Noncurrent:
Deferred rent 671 488
Fixed assets (2,155) 14
Reserves 195 195
Net operating loss carryforward 1,402 2,466
Other 72 44
---------- ------------
Total noncurrent 185 3,207
---------- ------------
Total current and noncurrent $(3,148) $ (56)
========== ============
At year-end 1999, the Company had unused federal tax net operating loss
carryforwards, attributable to E&B Marine, of approximately $6.2 million, which
expire in the years 2002 through 2003. The utilization of the tax loss
carryforwards may be limited in subsequent years as a result of prior ownership
changes as required under sections 381 and 382 of the Internal Revenue Code.
NOTE 8: EMPLOYEE BENEFIT PLANS
The Company has a defined contribution savings plan covering all eligible
associates. The Company matches 33% of an employee's contribution up to 5% of
the employee's annual compensation. The Company's contributions to the plan for
1999, 1998, and 1997 were $391,000, $366,000, and $330,000, respectively.
In 1998, the Company adopted SFAS 132, "Employer's Disclosures about Pensions
and Other Post-Retirement Benefits." SFAS 132 standardizes the disclosure
requirements for pensions and other post-retirement benefits to the extent
practicable.
The Company has a suspended defined benefit plan ("the Defined Benefit Plan"),
under which the minimum benefit contribution is calculated by the plan
actuaries. The Defined Benefit Plan provides an existing participant with the
excess, if any, of amounts required under the Company's pension formula over the
value of the retiree's account balance as of the date the Defined Benefit Plan
was suspended (January 28, 1994). A discount rate of 6.75% and 5.25% and a rate
of return on assets of 8% were used by the actuary in determining the Defined
Benefit Plan status at year-end 1999 and 1998, respectively. The Defined
Benefit Plan invests primarily in publicly traded stocks and bonds.
27
The actuarial present value of the benefit obligations for 1999 and 1998 was (in
thousands):
1999 1998
Changes in Benefit Obligation
Benefit obligation at beginning of year $ 3,892 $3,409
Interest cost 211 198
Actuarial loss (gain) (824) 326
Benefits paid (56) (41)
---------- -----------
Benefit obligation at end of year $ 3,223 $3,892
========== ===========
Change in Plan Assets
Fair value of plan assets at beginning of year $ 3,138 $2,710
Actual return on plan assets 715 469
Employer contribution - -
Benefits paid (56) (41)
---------- -----------
Fair value of plan assets at end of year $ 3,797 $3,138
========== ===========
Funded status $ 574 $ (754)
Unrecognized net actuarial gain (1,352) (61)
---------- -----------
Accrued pension liability $ (778) $ (815)
========== ===========
Components of Net Periodic Pension Cost
Interest cost $ 211 $ 198
Expected return on plan assets (248) (214)
---------- -----------
Net periodic benefit cost (income) $ (37) $ (16)
========== ===========
28
NOTE 9: SEGMENT INFORMATION
The Company has three divisions (Stores, Catalog, and Wholesale ("Port Supply"))
which all sell after-market recreational boating supplies directly to customers.
The customer base overlaps between its Stores and Port Supply divisions, and
between 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 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):
1999 1998 1997
-------------- ------------------ ------------------
Net sales:
Stores $ 395,519 $369,781 $334,623
Other 90,972 79,515 80,585
-------------- ------------------ ------------------
Consolidated net sales $ 486,491 $449,296 $415,208
-------------- ------------------ ------------------
Contribution:
Stores $ 50,184 $ 45,754 $ 49,557
Other 13,951 9,943 10,337
-------------- ------------------ ------------------
Consolidated contribution $ 64,135 $ 55,697 $ 59,894
-------------- ------------------ ------------------
Reconciliation of consolidated contribution to net income:
Consolidated contribution $ 64,135 $ 55,697 $ 59,894
Less:
Cost of goods sold not included in consolidated contribution (26,609) (28,431) (18,014)
General and administrative expenses (17,131) (15,317) (12,764)
Expenses related to distribution center move - (3,284) -
Interest expense (5,630) (6,071) (3,629)
Income tax expense (6,054) (1,496) (10,314)
-------------- ------------------- ------------------
Net income $ 8,711 $ 1,098 $ 15,173
============== =================== ==================
29
QUARTERLY FINANCIAL DATA
(Unaudited, in thousands, except per share data)
Fiscal 1999
--------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
Net sales $ 93,572 $176,867 $128,888 $87,164
Gross profit 22,128 53,041 35,511 19,596
Income (loss) from operations (2,997) 19,354 6,347 (2,309)
Net income (loss) (2,778) 10,505 3,085 (2,101)
Net income (loss) per common and
common equivalent share:
Basic $ (0.16) $ 0.61 $ 0.18 $ (0.12)
Diluted $ (0.16) $ 0.60 $ 0.18 $ (0.12)
Stock trade price:
High $ 13 1/4 $ 15 1/4 $ 14 1/8 $9 1/2
Low $ 7 7/8 $ 8 $ 7 1/2 $7 9/16
Fiscal 1998
-------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
Net sales $ 84,198 $159,462 $121,673 $ 83,963
Gross profit 21,871 47,124 32,016 12,329
Income (loss) from operations (1) (4,318) 16,825 6,354 (10,196)
Net income (loss)(1) $ (3,567) $ 9,133 $ 2,929 $ (7,397)
Net income (loss) per common and
common equivalent share:
Basic $ (0.21) $ 0.54 $ 0.17 $ (0.44)
Diluted $ (0.21) $ 0.52 $ 0.17 $ (0.42)
Stock trade price:
High $ 30 1/8 $28 5/16 $ 18 7/8 $ 12
Low $21 1/16 $ 16 $ 7 3/8 $ 6 7/16
1. Loss from operations and net loss for the first quarter of 1998 is net of a
$3.3 million pre-tax charge for expenses related to the distribution center
move in 1998.
West Marine, Inc. common stock trades on the NASDAQ National Market System under
the symbol WMAR.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
30
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference
from the Company's Definitive Proxy Statement for the 2000 Annual Meeting of
Stockholders under the captions "Election of Directors" and "Section 16(a)
Information." see also Item I above, for information about executive
officers.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
Company's Definitive Proxy Statement for the 2000 Annual Meeting of Stockholders
under the captions "Further Information Concerning the Board of Directors" and
"Executive Compensation".
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
Company's Definitive Proxy Statement for the 2000 Annual Meeting of Stockholders
under the captions "Election of Directors" and "Ownership of Management and
Principal Stockholders."
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
Company's Definitive Proxy Statement for the 2000 Annual Meeting of Stockholders
under the caption "Executive Compensation".
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1 & 2. Independent Auditor's Report
Consolidated Balance Sheets as of year end 1999 and 1998
Consolidated Statements of Income for years 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for years 1997,
1998, and 1999
Consolidated Statements of Cash Flows for years 1999, 1998 and
1997
Notes to Consolidated Financial Statements
Quarterly Financial Data
3. Exhibits:
See attached Exhibit Index on pages 34-36 of this Form 10-K.
(b) Reports on Form 8-K
None.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: March 31, 2000 WEST MARINE, INC.
By: /s/ John Edmondson
------------------
John Edmondson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 31, 2000.
Signature
Capacity
/s/ Randolph K. Repass
-------------------------------
(Randolph K. Repass)
Chairman of the Board
/s/ John Edmondson
-------------------------------
(John Edmondson)
President and Chief Executive Officer
/s/ Richard E Everett
-------------------------------
(Richard E Everett)
President of Stores Division and Chief Operating Officer
/s/ Russell Solt
-------------------------------
(Russell Solt)
Senior Vice President, Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
/s/ James P. Curley
-------------------------------
(James P. Curley)
Director
/s/ Geoff Eisenberg
-------------------------------
(Geoff Eisenberg)
Director
/s/ Jeanne Jackson
-------------------------------
(Jeanne Jackson)
Director (resigned February, 2000)
/s/ David McComas
-------------------------------
(David McComas)
32
Director
/s/ Walter Scott
-------------------------------
(Walter Scott)
Director
/s/ Henry Wendt
-------------------------------
(Henry Wendt)
Director
33
EXHIBIT INDEX
Exhibit Exhibit
Number -------
- -------
2.1 Agreement and plan of merger dated as of April 2, 1996 among then
Registrant, WM Merger Sub, Inc. and E&B Marine Inc. ("E&B Marine")
(incorporated by reference to Exhibit 2.1 to Registrant's Current
Report on Form 8-K dated April 2, 1996).
2.2 Stockholders Agreement, dated as of April 2, 1996 by and between
the Registrant and certain stockholders of E&B Marine
(incorporated by reference to Exhibit 2.2 to Registrant's Current
Report of Form 8-K dated April 2, 1996).
2.3 Letter Amendment of Stockholders Agreement, dated May 10, 1996,
between the Registrant and certain stockholders of E&B Marine
(incorporated by reference to Exhibit 2.3 to the Company's
Registration Statement on Form S-4 (Registration No. 333-02903)).
3.1 Certificate of Incorporation (incorporated by reference to exhibit
3.1 to the Company's registration statement on Form S-1
(Registration No. 33-69604)).
3.2 Registrant's Bylaws (incorporated by reference to exhibit 3.2 to
the Company's registration statement on Form S-1 (Registration No.
33-69604)).
4.1 Specimen Common Stock Certificate (incorporated by reference to
exhibit 4.1 to the Company's registration statement on Form S-1
(Registration No. 33-69604)).
10.1 Credit Agreement dated as of November 2, 1995 among WMP, Bank of
America National Trust and Savings Association, Nations Bank of
Texas, National Association and the other financial institutions
party thereto (incorporated by reference to exhibit 10.1 to the
Company's Annual Report on Form 10K for the fiscal year ended
December 30, 1995).
10.1.1 Amendment to credit agreement dated February 20, 1997 among WMP,
Bank of America National Trust and Savings Association and other
financial institutions party thereto. (incorporated by reference
to exhibit 10.1.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 28, 1996.)
10.1.2 Second amendment to credit agreement dated March 28, 1997 among
WMP, Bank of America National Trust and Savings Association, and
other financial institutions party thereto. (incorporated by
reference to exhibit 10.1.2 in the Company's Quarterly Report on
Form 10-Q for the quarter ended March 29, 1997.)
10.1.3 Third amendment to credit agreement dated June 27, 1997 among WMP,
Bank of America National Trust and Savings Association, and other
financial institutions party thereto. (incorporated by reference
to exhibit 10.1.3 in the Company's Quarterly Report on Form 10-Q
for the quarter ended June 28, 1997.)
34
Exhibit
Number Exhibit
- ------- -------
10.1.4 Fourth amendment to credit agreement dated September 24, 1997
among WMP, Bank of America National Trust and Savings Association,
and other financial institutions party thereto. (incorporated by
reference to exhibit 10.14 in the Company's Quarterly Report on
Form 10-Q for the quarter ended September 27, 1997.)
10.2 Guaranty entered into as of November 2, 1995 by Registrant in
favor of Bank of America National Trust and Savings Association
(incorporated by reference to exhibit 10.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 30, 1995).
10.3* 1990 Stock Option Plan and form of incentive stock option
agreement (incorporated by reference to exhibits 4.2 and 4.4,
respectively, to the Company's registration statement on Form S-8
(Registration No. 33-72956) ).
10.4 Form of Indemnification Agreement between the Registrant and its
directors and officers (incorporated by reference to exhibit 10.4
to the Company's registration statement on Form S-1 (Registration
No. 33-69604 )).
10.5* 1993 Omnibus Equity Incentive Plan including form of Stock Option
Agreement (incorporated by reference to exhibits 4.1 and 4.3,
respectively, to the Company's registration statement on Form S-8
(Registration No. 33-72956)).
10.6* 401(k) Plan (incorporated by reference to exhibit 10.6 to the
Company's registration statement on Form S-1 (Registration No. 33-
69604)).
10.7 Sublease Agreement dated August 31, 1992 between Holtzman's Little
Folk Shop, Inc. and WMP for the Charlotte, North Carolina
distribution facilities (incorporated by reference to exhibit 10.8
to the Company's registration statement on Form S-1 (Registration
No. 33-69604)).
10.8 Lease dated June 15, 1995 between John E. Van Valkenburgh and Carl
D. Panattoni and WMP for the Hollister, California distribution
facility (incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 30, 1995).
10.9 Lease dated December 20, 1985 between Randolph K. Repass and West
Marine Products, Inc. for the Palo Alto, Ca store (incorporated by
reference to exhibit 10.11 to the Company's registration statement
on Form S-1 (Registration No. 33-69604)).
10.10 Lease dated December 30, 1992 between Braintree Freeholders and
WMP for the Braintree, MA store (incorporated by reference to
exhibit 10.12 to the Company's registration statement on Form S-1
(Registration No. 33-69604)).
10.11 Lease dated July 28, 1982 between Santa Cruz Freeholders and WMP
for the Santa Cruz, CA store (incorporated by reference to exhibit
10.13 to the Company's registration statement on Form S-1
(Registration No. 33-69604)).
10.12* Nonemployee Director Stock Option Plan and form of option
agreement thereunder (incorporated by reference to exhibit 10.18
in the Company's Quarterly Report on Form 10-Q for the quarter
ended April 2, 1994).
10.14 Lease dated March 11, 1997 between W/H No. 31 L.L.C. and West
Marine Inc. for Rock Hill, South Carolina Distribution facility
and other agreements thereto (incorporated by reference to exhibit
10.14 in the Company's Quarterly Report on Form 10-Q for the
quarter ended March 29, 1997.)
35
Exhibit
Number Exhibit
- ------- -------
10.15 Lease dated June 26, 1997 between Watsonville Freeholders and West
Marine Products Inc. for the Watsonville, California offices and
other agreements thereto (incorporated by reference to exhibit
10.14 in the Company's Quarterly Report on Form 10-Q for the
quarter ended June 28, 1997.)
10.16 Note purchase agreement, dated December 23, 1997 by and between
the Registrant's wholly owned subsidiary, West Marine Finance
Company, Inc.and five insurance investors for Forty Million
Dollars ($40,000,000) of an unsecured 6.85% Senior Guaranteed Note
due December 23, 2004 (incorporated by reference to Exhibit A to
Registrant's Current Report on Form 8-K dated December 23, 1997.)
10.16.1 First Amendment to the Guaranty Agreement dated December 29, 1998
among West Marine, Inc. and other financial institutions thereto.
10.16.2 First Amendment to the Note Purchase Agreements and Second
Amendment to the Guaranty Agreement, both dated February 15, 1999
among West Marine Finance Company, Inc., West Marine, Inc., and
other financial institutions party thereto.
10.17 Credit Agreement dated as of November 24, 1997 among West Marine
Finance Company, Inc., Bank of America National Trust and Savings
Association, Nations Bank of Texas, National Association and Fleet
National Bank.
10.17.1 First Amendment to credit agreement dated April 10, 1998 among
West Marine Finance Company, Inc., Bank of America National Trust
and Savings Association, and other financial institutions party
thereto.
10.17.2 Second Amendment to credit agreement dated September 30, 1998
among West Marine Finance Company, Inc., Bank of America National
Trust and Savings Association, and other financial institutions
party thereto.
10.17.3 Third Amendment to credit agreement dated February 23, 1999 among
West Marine Finance Company, Inc., Bank of America National Trust
and Savings Association, and other financial institutions party
thereto.
10.18 Credit Agreement Dated January 13, 2000 among West Marine Finance
Company, Inc., Bank of America, N.A., Fleet National Bank and
Union Bank of California,
N.A..
21.1 List of Subsidiaries.
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule for 1999.
__________________________
* Indicates, as required by Item 14(a)(3), a management contract
or compensatory plan required to be filed as an exhibit to this
Form 10-K.
36