Prepared by R.R. Donnelley Financial -- Quarterly Report for the Period Ended June 29, 2002
Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 10-Q
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 29, 2002
 
OR
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________ to __________
 
Commission file number 0-22512
 
 
WEST MARINE, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
     
77-0355502
(State or Other Jurisdiction of
Incorporation or Organization)
     
(IRS Employer
Identification No.)
 
500 Westridge Drive
Watsonville, CA 95076-4100
(Address of Principal Executive Offices) (Zip Code)
 
Registrant’s Telephone Number, Including Area Code:    (831) 728-2700
 
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 ¨
 
At July 26, 2002, the number of shares outstanding of the registrant’s common stock was 19,223,297.
 

Table of Contents
 
TABLE OF CONTENTS
 
PART I—Financial Information
Item 1.
  
Financial Statements
     
      
2
      
3
      
4
      
5
Item 2.
     
6
Item 3.
     
8
 
PART II—Other Information
Item 1.
     
10
Item 2.
     
10
Item 3.
     
10
Item 4.
     
10
Item 5.
     
11
Item 6.
     
11

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Table of Contents
 
PART I—FINANCIAL INFORMATION
 
ITEM 1—FINANCIAL STATEMENTS
 
WEST MARINE, INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 29, 2002, DECEMBER 29, 2001 AND JUNE 30, 2001
(Unaudited, in thousands, except share data)
 
    
June 29,
2002
   
December 29, 2001
   
June 30, 2001
ASSETS
                     
Current assets:
                     
Cash
   
$
11,034
   
$
1,044
   
$
6,123
Trade receivables
   
 
9,454
   
 
6,302
   
 
7,934
Merchandise inventories
   
 
216,664
   
 
192,748
   
 
198,014
Prepaid expenses and other current assets
   
 
16,344
   
 
12,078
   
 
15,308
    
  
  
Total current assets
   
 
253,496
   
 
212,172
   
 
227,379
Property and equipment, net
   
 
75,080
   
 
73,511
   
 
76,081
Intangibles and other assets, net
   
 
35,316
   
 
35,126
   
 
36,547
    
  
  
TOTAL ASSETS
   
$
363,892
   
$
320,809
   
$
340,007
    
  
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                     
Current liabilities:
                     
Accounts payable
   
$
55,823
   
$
38,755
   
$
72,433
Accrued expenses
   
 
29,640
   
 
20,245
   
 
28,808
Line of credit and current portion of long-term debt
   
 
8,782
   
 
8,774
   
 
8,753
    
  
  
Total current liabilities
   
 
94,245
   
 
67,774
   
 
109,994
Long-term debt
   
 
47,607
   
 
59,426
   
 
46,718
Deferred items and other non-current obligations
   
 
5,879
   
 
5,796
   
 
4,137
    
  
  
Total liabilities
   
 
147,731
   
 
132,996
   
 
160,849
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: 19,223,273 at June 29, 2002, 18,134,152 at December 29, 2001 and 17,638,493 at June 30, 2001
   
 
19
   
 
18
   
 
17
Additional paid-in capital
   
 
128,529
   
 
113,622
   
 
108,407
Retained earnings
   
 
87,613
   
 
74,173
   
 
70,734
    
  
  
Total stockholders’ equity
   
 
216,161
   
 
187,813
   
 
179,158
    
  
  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
   
$
363,892
   
$
320,809
   
$
340,007
    
  
  
 
See notes to condensed consolidated financial statements.

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WEST MARINE, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share and store data)
 
    
13 weeks
Ended
June 29,
2002
   
13 weeks
Ended
June 30,
2001
   
26 weeks
Ended
June 29,
2002
   
26 weeks
Ended
June 30,
2001
Net sales
   
$
190,042
   
$
188,244
   
$
287,208
   
$
277,982
Cost of goods sold, including buying and occupancy
   
 
124,660
   
 
127,109
   
 
196,978
   
 
194,706
    
  
  
  
Gross profit
   
 
65,382
   
 
61,135
   
 
90,230
   
 
83,276
Selling, general and administrative expense
   
 
38,154
   
 
36,992
   
 
65,943
   
 
62,866
    
  
  
  
Income from operations
   
 
27,228
   
 
24,143
   
 
24,287
   
 
20,410
Interest expense, net
   
 
1,084
   
 
1,365
   
 
2,169
   
 
2,947
    
  
  
  
Income before income taxes
   
 
26,144
   
 
22,778
   
 
22,118
   
 
17,463
Income taxes
   
 
10,327
   
 
9,111
   
 
8,737
   
 
6,985
    
  
  
  
Net income
   
$
15,817
   
$
13,667
   
$
13,381
   
$
10,478
    
  
  
  
Net income per share:
                            
—Basic
   
$
0.83
   
$
0.78
   
$
0.71
   
$
0.60
    
  
  
  
—Diluted
   
$
0.79
   
$
0.77
   
$
0.68
   
$
0.59
    
  
  
  
Weighted average common and common equivalent shares outstanding:
                            
—Basic
   
 
19,127
   
 
17,618
   
 
18,809
   
 
17,595
    
  
  
  
—Diluted
   
 
20,002
   
 
17,752
   
 
19,728
   
 
17,696
    
  
  
  
Stores open at end of period
                 
 
250
   
 
240
                  
  
 
See notes to condensed consolidated financial statements.

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WEST MARINE, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
    
26 weeks
Ended
June 29,
2002
     
26 weeks
Ended
June 30,
2001
  
OPERATING ACTIVITIES:
                  
Net income
   
$
13,381
 
   
$
10,478
 
Adjustments to reconcile net income to net cash provided by operating activities:
                  
Depreciation and amortization
   
 
9,546
 
   
 
8,817
 
Tax benefit from exercise of stock options
   
 
4,311
 
   
 
—  
 
Provision for doubtful accounts
   
 
126
 
   
 
77
 
Changes in assets and liabilities:
                  
Trade receivables
   
 
(3,278
)
   
 
(3,047
)
Merchandise inventories
   
 
(23,916
)
   
 
(17,451
)
Prepaid expenses and other current assets
   
 
(4,266
)
   
 
(5,429
)
Other assets
   
 
(217
)
   
 
(877
)
Accounts payable
   
 
17,068
 
   
 
30,092
 
Accrued expenses
   
 
9,395
 
   
 
11,073
 
Deferred items
   
 
83
 
   
 
(79
)
    
  
Net cash provided by operating activities
   
 
22,233
 
   
 
33,654
 
    
  
INVESTING ACTIVITY:
                  
Purchases of property and equipment
   
 
(11,029
)
   
 
(10,846
)
    
  
FINANCING ACTIVITIES:
                  
Net repayments on line of credit
   
 
(11,429
)
   
 
(19,400
)
Repayments on long-term debt and capital leases
   
 
(382
)
   
 
(359
)
Proceeds from exercise of stock options
   
 
10,290
 
   
 
—  
 
Proceeds from issuance of common stock
   
 
307
 
   
 
420
 
    
  
Net cash used in financing activities
   
 
(1,214
)
   
 
(19,339
)
    
  
NET INCREASE IN CASH
   
 
9,990
 
   
 
3,469
 
CASH AT BEGINNING OF PERIOD
   
 
1,044
 
   
 
2,654
 
    
  
CASH AT END OF PERIOD
   
$
11,034
 
   
$
6,123
 
    
  
 
See notes to condensed consolidated financial statements.

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WEST MARINE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Twenty-six Weeks Ended June 29, 2002 and June 30, 2001
(Unaudited)
 
NOTE 1:    Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements have been prepared from the records of West Marine, Inc. without audit and, in the opinion of management, include all adjustments (consisting only of normal, recurring items) necessary to fairly present the financial position at June 29, 2002 and June 30, 2001, and the interim results of operations and cash flows for the 13-week and the 26-week periods then ended. The results of operations for the 13-week and the 26-week periods presented herein are not necessarily indicative of the results to be expected for the full year.
 
The consolidated balance sheet at December 29, 2001, presented herein, has been derived from the audited consolidated financial statements of West Marine for the year then ended which were included in West Marine’s annual report on Form 10-K.
 
Accounting policies followed by West Marine are described in Note 1 to its audited consolidated financial statements for the year ended December 29, 2001. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted for purposes of the condensed consolidated interim financial statements. The condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, for the year ended December 29, 2001 which were included in West Marine’s annual report on Form 10-K.
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the thirteen week and the twenty-six week periods ended June 29, 2002 are not necessarily indicative of the results to be expected for the year ending December 28, 2002 or any other interim period.
 
NOTE 2:    Accounting Policies
 
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets.” SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, SFAS 142 includes provisions for the reclassification of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill.
 
West Marine adopted SFAS 142 effective December 30, 2001 and, during the first quarter of 2002, completed a transitional goodwill impairment test. The adoption of SFAS 142 did not result in an impairment charge. The amortization of existing goodwill, however, ceased upon the adoption of SFAS 142. During the first six months of 2001, West Marine recorded approximately $486,000 of goodwill amortization. Excluding amortization of goodwill, net income for the second quarter and six months ended June 30, 2001 would have been $13.8 million and $10.6 million, respectively. At June 29, 2002, West Marine had approximately $33.7 million of goodwill recorded, net of amortization.
 
In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” that replaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” SFAS 144 requires that long-lived assets to be disposed of by sale, including those of discontinued operations, be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet been incurred. SFAS 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The provisions of SFAS 144 are effective for our fiscal year 2002, and are generally to be applied prospectively. The adoption of SFAS 144 did not have a material impact on the financial position, results of operations or cash flows of West Marine.
 
In June 2002, the FASB issued SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities”, which addresses accounting for restructuring and similar costs. SFAS 146 supersedes previous accounting guidance, principally Emerging Issues Task Force Issue No. 94-3. SFAS 146 requires that the liability for costs associated with an exit or disposal activity be recognized

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when the liability is incurred. West Marine will adopt the provisions of SFAS 146 for restructuring activities initiated after December 28, 2002.
 
NOTE 3:    Segment Information
 
West Marine has three divisions—Stores, Wholesale and Catalog (including Internet)—which all sell aftermarket recreational boating supplies directly to customers. The customer base overlaps between West Marine’s Stores and Wholesale divisions and between its Stores and Catalog divisions. All processes for the three divisions within the supply chain are commingled, including purchases from merchandise vendors, distribution center activity and customer delivery.
 
The Stores 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. Assets are not presented by segment, as West Marine’s assets overlap among segments. Contribution is defined as net sales, less product costs and direct expenses. The following is financial information related to West Marine’s Stores business segment (in thousands):
 
    
26 weeks
Ended
June 29,
2002
     
26 weeks
Ended
June 30,
2001
  
Net sales:
                  
Stores
   
$
242,016
 
   
$
229,843
 
Other
   
 
45,192
 
   
 
48,139
 
    
  
Consolidated net sales
   
$
287,208
 
   
$
277,982
 
    
  
Contribution:
                  
Stores
   
$
38,069
 
   
$
35,477
 
Other
   
 
8,181
 
   
 
7,218
 
    
  
Consolidated contribution
   
$
46,250
 
   
$
42,695
 
    
  
Reconciliation of consolidated contribution to net income:
                  
Consolidated contribution
   
$
46,250
 
   
$
42,695
 
Less:
                  
Cost of goods sold not included in consolidated contribution
   
 
(12,055
)
   
 
(10,742
)
General and administrative expenses
   
 
(9,908
)
   
 
(11,543
)
Interest expense
   
 
(2,169
)
   
 
(2,947
)
Income tax expense
   
 
(8,737
)
   
 
(6,985
)
    
  
Net income
   
$
13,381
 
   
$
10,478
 
    
  
 
ITEM 2—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
General
 
West Marine, Inc. is the largest specialty retailer of recreational and commercial boating supplies and apparel in the United States. We have three divisions—Stores, Wholesale (Port Supply) and Catalog (including Internet)—which all sell aftermarket recreational boating supplies directly to customers. At the end of the second quarter, we offered our products through 250 stores in 38 states, Puerto Rico, and Canada; on the Internet (www.westmarine.com); and through catalogs. We are also engaged, through our Port Supply division and our stores, in the wholesale distribution of products to commercial customers and other retailers.
 
Unless the context otherwise requires, “West Marine” refers to West Marine, Inc. and its subsidiaries. Our principal offices are located at 500 Westridge Drive, Watsonville, California 95076-4100, and our telephone number is (831) 728-2700.
 
All references to the second quarter and first six months of 2002 mean the 13-week and 26-week periods, respectively, ended June 29, 2002, and all references to the second quarter and first six months of 2001 mean the 13-week period and 26-week periods, respectively, ended June 30, 2001.

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Seasonality
 
Historically, our business has been highly seasonal. Our 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 2001, 64.8% of our net sales and all of our 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 our markets. Management expects the seasonal fluctuation in net sales to become more pronounced as we continue to expand our operations.
 
Results of Operations
 
Net sales increased $1.8 million, or 1.0%, to $190.0 million for the second quarter of 2002, compared to $188.2 million for the second quarter of 2001, primarily due to increases in net sales at our stores. Net sales attributable to our Stores division were $162.6 million for the second quarter of 2002, an increase of $4.2 million, or 2.7%, over the $158.4 million recorded for the same period a year ago. During the second quarter of 2002, seven new stores were opened, including a store in Canada, and one store was closed. Net sales in new stores opened since the second quarter of 2001 and remodeled stores not included in comparable sales were $12.4 million. Second quarter net sales from comparable stores decreased 0.4%, or $0.6 million. Wholesale sales decreased by $0.9 million, or 6.2%, to $13.5 million for the second quarter of 2002, compared to $14.4 million for the same period a year ago. Catalog (including Internet) sales decreased by $1.5 million, or 9.7%, to $14.0 million for the second quarter of 2002, compared to $15.5 million for the same period last year. Stores, Wholesale and Catalog (including Internet) sales represented 85.5%, 7.1% and 7.4%, respectively, of our net sales for the second quarter of 2002, compared to 84.1%, 7.7% and 8.2%, respectively, of our net sales for the second quarter of 2001.
 
For the first six months of 2002, net sales increased $9.2 million, or 3.3%, to $287.2 million, compared to $278.0 million for the first six months of 2001, primarily due to increases in net sales in our stores. Stores’ net sales were $242.0 million for the first six months of 2002, an increase of $12.2 million, or 5.3%, compared to the $229.8 million recorded for the same period a year ago. Net sales in new stores opened since the first six months of 2001 and remodeled stores not included in comparable sales were $16.9 million. Net sales from comparable stores for the first six months of 2002 increased 2.2%, or $4.7 million. Wholesale sales decreased by $1.4 million, or 5.6%, to $23.8 million for the first six months of 2002 from $25.2 million for the same period a year ago. Catalog (including Internet) sales decreased by $1.6 million, or 6.9%, to $21.3 million for the first six months of 2002, compared to $22.9 million for the same period last year. Stores, Port Supply, and Catalog (including Internet) sales represented 84.3%, 8.3% and 7.4%, respectively, of our net sales for the first six months of 2002, compared to 82.7%, 9.1% and 8.2%, respectively, of our net sales for the first six months of 2001.
 
Our gross profit increased by $4.2 million, or 6.9%, to $65.4 million for the second quarter of 2002, compared to $61.1 million for the second quarter of 2001. Gross profit margins were 34.4% in the second quarter of 2002, compared to 32.5% in the same period a year ago. Our gross profit was $90.2 million for the first six months of 2002, an increase of $6.9 million, or 8.4%, compared to gross profit of $83.3 million for the same period a year ago. Gross profit represented 31.4% of net sales for the first six months of 2002, compared to 30.0% in the same period last year. Gross profit as a percentage of sales increased for the second quarter and the first six months of 2002 compared to the prior year primarily because of reduced operating costs at our distribution centers, favorable vendor price adjustments, a shift to a more profitable product mix and lower inventory shrink expenses.
 
Selling, general and administrative expenses increased by $1.2 million, or 3.1%, to $38.2 million for the second quarter of 2002 compared to $37.0 million for the same period last year. Selling, general and administrative expenses represented 20.1% of net sales for the second quarter of 2002, compared to 19.7% for the same period last year. For the first six months of 2002, selling, general, and administrative expenses increased by $3.0 million, or 4.9%, to $65.9 million compared to $62.9 million for the first six months last year. Selling, general, and administrative expenses represented 23.0% of net sales for the first six months of 2002 compared to 22.6% for the same period a year ago. The increase in selling, general and administrative expenses for both the second quarter and the first six months of 2002 is primarily due to operating costs for new stores opened this year.
 
Interest expense was $1.1 million in the second quarter of 2002, a decrease of $0.3 million from the same period a year ago. For the first six months of 2002, interest expense decreased by $0.7 million, to $2.2 million from $2.9 million. The decrease in interest expense for both the second quarter and the first six months of 2002 is primarily due to lower average interest rates and lower average outstanding indebtedness compared to last year.

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Liquidity and Capital Resources
 
During the first six months of 2002, our primary sources of liquidity were $22.2 million from operating activities and $10.3 million in proceeds from the exercise of stock options. Net cash provided by operating activities consisted primarily of net income, excluding depreciation and amortization, of $22.9 million and an increase in trade payables and accrued expenses of $26.5 million, partially offset by an increase in inventories of $23.9 million. Our primary cash requirements were related to merchandise inventories for stores, repayments on our line of credit of $11.4 million and for capital expenditures. The inventory and trade payables increases reflect stocking of merchandise at stores during the peak boating season and our commitment to increasing fill rates, which enhances sales.
 
During the first six months of 2002, we spent $11.0 million for capital expenditures, primarily for new stores and the remodeling of existing stores, including leasehold improvement costs and fixtures. We expect to spend a total of $24.0 to $27.0 million on capital expenditures in 2002. We intend to pay for our expansion through cash generated from operations and bank borrowings.
 
At June 29, 2002, we had outstanding a $24.0 million senior guarantee note, which matures on December 23, 2004, and requires annual principal payments of $8.0 million. The note bears interest at 7.6%. The note is unsecured and contains certain restrictive covenants, including fixed charge coverage, debt-to-capitalization ratios and minimum net worth requirements.
 
On March 4, 2002, we entered into a $100.0 million credit line, which expires on March 1, 2005. At any time prior to March 4, 2004, we have the option to increase this new credit line to $125.0 million (provided we are not then in default under the credit line). The credit line includes a $20.0 million sub-facility for standby and commercial letters of credit, of which up to $15.0 million is available for the issuance of commercial letters of credit and up to $5.0 million is available for standby letters of credit. The credit line includes a sub-limit of up to $10.0 million for same day advances.
 
Depending on our election at the time of borrowing, the line bears interest at either (a) the higher of (i) the bank’s prime rate or (ii) the federal funds rate plus 0.5% or (b) LIBOR plus a factor ranging from 1.0% to 2.25%. On June 29, 2002 borrowings under the credit line were $31.4 million, bearing interest at rates ranging from 3.9% to 5.0%.
 
The credit line is unsecured and contains various covenants which require us to maintain certain financial ratios, including debt-to-earnings, and current ratios. The covenants also require us to maintain minimum levels of net worth and place limitations on the levels of certain investments. These covenants also restrict the repurchase or redemption of our common stock, payment of dividends, investments in subsidiaries and annual capital expenditures.
 
At the end of the second quarter of 2002, we had $2.6 million of outstanding standby letters of credit and $0.7 million of outstanding commercial letters of credit.
 
We believe existing credit facilities and cash flows from operations will be sufficient to satisfy liquidity needs through 2003.

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“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995
 
The statements in this Form 10-Q 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. These forward-looking statements include, among other things, statements that relate to West Marine’s future plans, expectations, objectives, performance and similar projections, as well as facts and assumptions underlying these statements or projections. Actual results may differ materially from the results expressed or implied in these forward-looking statements due to various risks, uncertainties or other factors.
 
Set forth below are certain important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements.
 
Because consumers often consider boats to be luxury items, the market is subject to changes in consumer confidence and spending habits. Recent slowing of the domestic economy may adversely affect sales volumes, as well as our ability to maintain current gross profit levels.
 
Our 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.
 
Our Catalog division has faced market share erosion in areas where either our competitors or we have opened stores. Management expects this trend to continue.
 
Our growth has been fueled principally by our stores’ operations. Our continued growth depends to a significant degree on our ability to continue to expand our operations through the opening of new stores and to operate these stores profitably, as well as to increase net sales at our existing stores. Our planned expansion is subject to a number of factors, including the adequacy of our capital resources and our ability to locate suitable store sites and negotiate acceptable lease terms, to hire, train and integrate employees and to adapt our distribution and other operations systems.
 
The markets for recreational water sports and boating supplies are highly competitive. Competitive pressures resulting from competitors’ pricing policies are expected to continue.
 
Additional factors which may affect our financial results include inventory management issues, the impact of the Internet and e-commerce on the supply chain, fluctuations in consumer spending on recreational boating supplies, environmental regulations, demand for and acceptance of our products and other risk factors disclosed from time to time in our filings with the Securities and Exchange Commission.
 
We assume no responsibility to update any forward-looking statements as a result of new information, future events or otherwise.
 
ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
We believe there has been no material change in our exposure to market risk from that discussed in our 2001 Annual Report on Form 10-K.

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PART II—OTHER INFORMATION
 
ITEM 1—LEGAL PROCEEDINGS
 
None.
 
ITEM 2—CHANGES IN SECURITIES AND USE OF PROCEEDS
 
None.
 
ITEM 3—DEFAULTS UPON SENIOR SECURITIES
 
None.
 
ITEM 4—SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
West Marine held its Annual Meeting of Stockholders on May 3, 2002. Four matters were voted on at the meeting: (a) the election of eight directors to the Board of Directors to serve until the 2003 Annual Meeting of Stockholders or until their successors are duly elected and qualified; (b) the approval of West Marine’s amended and restated Omnibus Equity Incentive Plan; (c) the approval of West Marine’s Associates Stock Buying Plan, as amended through March 2002; and (d) the ratification of the appointment of Deloitte & Touche LLP, independent certified public accountants, as West Marine’s independent auditors for the fiscal year ending December 28, 2002.
 
The following table sets forth the nominees for director and the votes for and withheld with respect to each such nominee:
 
Nominee
   
Votes For
   
Votes Withheld
Randolph K. Repass
   
15,977,155
   
69,466
John Edmondson
   
14,464,328
   
1,582,293
Richard E Everett
   
14,466,546
   
1,580,075
Geoffrey A. Eisenberg
   
15,976,788
   
69,833
David McComas
   
15,977,623
   
68,998
Peter Roy
   
15,977,537
   
69,084
Daniel J. Sweeney
   
15,974,629
   
71,992
William U. Westerfield
   
15,975,679
   
70,942
 
The amended and restated Omnibus Equity Incentive Plan was approved with 10,430,343 votes in favor, 2,622,222 votes in opposition and 36,292 abstentions.
 
The Amended Associates Stock Buying Plan was approved with 12,863,492 votes in favor, 187,976 votes in opposition and 37,389 abstentions.
 
The appointment of Deloitte & Touche LLP, independent certified public accountants, as independent auditors for the fiscal year ending December 28, 2002, was ratified with 15,970,234 votes in favor, 40,476 votes in opposition and 35,911 abstentions.
 
ITEM 5—OTHER INFORMATION
 
As of March 29, 2002, West Marine entered into an employment agreement with John H. Edmondson to serve at least through February 28, 2004 as President and Chief Executive Officer at his current annual base salary subject to merit increases. Under the agreement, Mr. Edmondson is entitled to a potential annual bonus set at 75% of salary, subject to adjustment based on whether West Marine achieves certain financial results. Mr. Edmondson will be eligible for a long-term bonus after audited financial results for 2003 become available. Any amount of annual bonus over 50% of salary received by Mr. Edmondson is to be used to purchase West Marine’s common stock on the open market. Mr. Edmondson is entitled to receive annual stock option grants at a minimum market value of $1 million in underlying stock; provided, however, that if West Marine’s stock is selling at less than $20 per share, the grant

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is to be for 50,000 shares. The vesting schedule for the options is 20% per year, and Mr. Edmondson is required to maintain certain minimum ownership levels of West Marine common stock. If the employment agreement is terminated prior to its expiration other than for cause, Mr. Edmondson will be entitled to his salary and estimated bonuses for the remainder of the term of the agreement or 12 months, whichever is greater, and all outstanding stock options will immediately vest and be exercisable through February 2005. As part of the employment agreement, Mr. Edmondson entered into West Marine’s employee confidentiality and non-compete agreement.
 
As of May 1, 2002, West Marine entered into an employment agreement with Russell Solt to serve at least through April 30, 2003 as Chief Financial Officer, Executive Vice President and Secretary, and, upon termination of such position, as Director of Investor Relations. As Chief Financial Officer, Mr. Solt will be entitled to his current annual base salary subject to merit increases, to an annual bonus under West Marine’s then current executive bonus program and to participate in all benefit plans available to West Marine executives, including stock option plans. As Director of Investor Relations, Mr. Solt will be entitled to an annual salary of $50,000, subject to increase based on quarterly reviews. If the employment agreement is terminated prior to its expiration other than for cause, Mr. Solt will be entitled to the balance of his unpaid annual salary for the remaining term of employment or six months, whichever is greater and, if then serving as Chief Financial Officer, any estimated annual bonus, and in any event all outstanding stock options will continue to vest during the remaining term of employment. As part of the employment agreement, Mr. Solt entered into West Marine’s employee confidentiality and non-compete agreement.
 
ITEM 6—EXHIBITS AND REPORTS ON FORM 8-K
 
(a)    Exhibits:
 
3.1
 
   
Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to West Marine’s Registration Statement on Form S-1 (Registration No. 33-69604)).
3.2
 
   
Bylaws (incorporated by reference to Exhibit 3.2 to West Marine’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 West Marine’s Registration Statement on Form S-1 (Registration No. 33-69604)).
10.1
 
   
Form of Indemnification Agreement between West Marine, Inc. and its directors and officers.
10.2
*
   
Omnibus Equity Incentive Plan.
10.3
*
   
Associates Stock Buying Plan, as amended through March 2002.
10.4
*
   
Employment Agreement, dated March 29, 2002, between West Marine, Inc. and John Edmondson.
10.5
*
   
Employment Agreement, dated May 1, 2002, between West Marine, Inc. and Russell Solt.
99.1
 
   
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2
 
   
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*
 
Indicates a management contract or compensatory plan or arrangement within the meaning of Item 601(b)(10)(iii) of Regulation S-K.
 
(b)    Reports on Form 8-K filed during the quarter ended June 29, 2002:
 
None.

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SIGNATURES
 
Pursuant to the requirements 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: August 13, 2002
  
WEST MARINE, INC.
   
 
By:     /s/    JOHN EDMONDSON                                                       
   
John Edmondson
President and Chief Executive Officer
   
 
By:     /s/    RUSSELL SOLT                                                             
   
Russell Solt
Executive Vice President and Chief Financial Officer
   
 
By:     /s/    ERIC NELSON                                                                
   
Eric Nelson
Vice President, Finance and Chief Accounting Officer

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