Form 10-Q
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 30, 2007

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  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

At July 28, 2007, the number of shares outstanding of the registrant’s common stock was 21,795,457.

 



Table of Contents

TABLE OF CONTENTS

 

          Page No.
PART I – Financial Information   
Item 1.    Financial Statements    3
   Condensed Consolidated Balance Sheets as of June 30, 2007, December 30, 2006 and July 1, 2006    3
   Condensed Consolidated Statements of Income for the 13 weeks ended June 30, 2007 and July 1, 2006 and the 26 weeks ended June 30, 2007 and July 1, 2006    4
   Condensed Consolidated Statements of Cash Flows for the 26 weeks ended June 30, 2007 and July 1, 2006    5
   Notes to Condensed Consolidated Financial Statements    6
   Report of Independent Registered Public Accounting Firm    8
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations    9
Item 3.    Quantitative and Qualitative Disclosures About Market Risk    12
Item 4.    Controls and Procedures    12
PART II – Other Information     13
Item 1.    Legal Proceedings    13
Item 1A.    Risk Factors    13
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds    13
Item 3.    Defaults Upon Senior Securities    13
Item 4.    Submission of Matters to a Vote of Security Holders    13
Item 5.    Other Information    13
Item 6.    Exhibits    13


Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

WEST MARINE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2007, DECEMBER 30, 2006 AND JULY 1, 2006

(Unaudited and in thousands, except share data)

 

     June 30,
2007
    December 30,
2006
    July 1,
2006
 

ASSETS

      

Current assets:

      

Cash

   $ 13,754     $ 6,223     $ 20,395  

Trade receivables, net

     9,752       5,713       9,181  

Merchandise inventories

     280,994       254,017       310,853  

Deferred income taxes

     7,504       7,372       6,445  

Other current assets

     26,148       22,794       28,631  
                        

Total current assets

     338,152       296,119       375,505  

Property and equipment, net

     71,338       70,781       77,400  

Goodwill

     56,905       56,905       56,905  

Intangibles

     211       230       249  

Other assets

     3,731       4,053       3,602  
                        

TOTAL ASSETS

   $ 470,337     $ 428,088     $ 513,661  
                        

LIABILITIES AND STOCKHOLDERS’ EQUITY

      

Current liabilities:

      

Accounts payable

   $ 71,531     $ 37,945     $ 66,573  

Accrued expenses

     51,867       41,824       48,756  
                        

Total current liabilities

     123,398       79,769       115,329  

Long-term debt

     53,889       69,027       110,056  

Deferred items and other non-current liabilities

     7,841       6,939       8,305  
                        

Total liabilities

     185,128       155,735       233,690  
                        

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; 21,796,837 shares issued and 21,773,234 shares outstanding at June 30, 2007; 21,572,521 shares issued and 21,553,365 shares outstanding at December 30, 2006; and 21,432,757 shares issued and 21,413,601 shares outstanding at July 1, 2006

     22       22       22  

Treasury stock

     (348 )     (282 )     (282 )

Additional paid-in capital

     168,347       164,632       162,212  

Accumulated other comprehensive income (loss)

     135       (427 )     241  

Retained earnings

     117,053       108,408       117,778  
                        

Total stockholders’ equity

     285,209       272,353       279,971  
                        

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 470,337     $ 428,088     $ 513,661  
                        

See notes to condensed consolidated financial statements.

 

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WEST MARINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited and in thousands, except per share data)

 

     13 Weeks Ended    26 Weeks Ended
     June 30, 2007    July 1, 2006    June 30, 2007    July 1, 2006

Net sales

   $ 247,770    $ 264,547    $ 373,822    $ 397,188

Cost of goods sold

     161,692      174,778      260,924      276,183
                           

Gross profit

     86,078      89,769      112,898      121,005

Selling, general and administrative expense

     52,237      59,904      96,073      108,034

Asset impairment charge

     —        3,532      —        3,532
                           

Income from operations

     33,841      26,333      16,825      9,439

Interest expense

     1,273      2,210      2,696      4,069
                           

Income before income taxes

     32,568      24,123      14,129      5,370

Income taxes

     12,439      9,926      5,245      3,099
                           

Net income

   $ 20,129    $ 14,197    $ 8,884    $ 2,271
                           

Net income per share:

           

Basic

   $ 0.93    $ 0.67    $ 0.41    $ 0.11

Diluted

   $ 0.92    $ 0.66    $ 0.40    $ 0.11

Weighted average common and common equivalent shares outstanding:

           

Basic

     21,754      21,298      21,677      21,265

Diluted

     21,923      21,527      21,982      21,503

See notes to condensed consolidated financial statements.

 

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WEST MARINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)

 

     26 Weeks Ended  
     June 30,
2007
    July 1,
2006
 

OPERATING ACTIVITIES:

    

Net income

   $ 8,884     $ 2,271  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     9,837       11,538  

Provision (benefit) for deferred income taxes

     364       (1,564 )

Asset impairment charge

     —         3,532  

Tax benefit from equity issuance

     321       155  

Excess tax benefit from stock-based compensation

     (328 )     (186 )

Stock-based compensation

     757       1,221  

Provision for doubtful accounts

     91       189  

Loss on asset disposals

     104       59  

Changes in assets and liabilities:

    

Accounts receivable

     (4,130 )     (3,244 )

Merchandise inventories

     (26,977 )     (32,921 )

Prepaid expenses and other current assets

     (3,353 )     745  

Other assets

     302       (78 )

Accounts payable

     33,330       28,890  

Accrued expenses

     10,043       13,207  

Deferred items and other non-current liabilities

     519       38  
                

Net cash provided by operating activities

     29,764       23,852  
                

INVESTING ACTIVITIES:

    

Proceeds from sale of property and equipment

     202       12  

Purchases of property and equipment

     (10,196 )     (10,331 )
                

Net cash used in investing activities

     (9,994 )     (10,319 )
                

FINANCING ACTIVITIES:

    

Net repayments on line of credit

     (15,138 )     (6,944 )

Payment of loan costs

     —         (102 )

Proceeds from exercise of stock options

     2,075       338  

Proceeds from sale of common stock pursuant to Associates Stock Buying Plan

     562       607  

Excess tax benefit from stock-based compensation

     328       186  

Treasury shares purchased

     (66 )     (281 )
                

Net cash used in financing activities

     (12,239 )     (6,196 )
                

NET INCREASE IN CASH

     7,531       7,337  

CASH AT BEGINNING OF PERIOD

     6,223       13,058  
                

CASH AT END OF PERIOD

   $ 13,754     $ 20,395  
                

See notes to condensed consolidated financial statements.

 

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WEST MARINE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Thirteen and Twenty-six Weeks Ended June 30, 2007 and July 1, 2006

(Unaudited)

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared from the records of West Marine, Inc. and its subsidiaries (collectively, “the Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting only of normal recurring items) necessary to fairly present the financial position at June 30, 2007 and July 1, 2006, and the interim results of operations for the 13-week and the 26-week periods and cash flows for the 26-week periods then ended have been included.

The condensed consolidated balance sheet at December 30, 2006, presented herein, has been derived from the audited consolidated financial statements of the Company for the year then ended that was included in the Company’s Annual Report on Form 10-K.

Accounting policies followed by the Company are described in Note 1 to its audited consolidated financial statements for the year ended December 30, 2006. Certain information and disclosures normally included in the notes to annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted for purposes of the condensed consolidated interim financial statements presented herein. These condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, for the fiscal year ended December 30, 2006, that were included in the Company’s Annual Report on Form 10-K.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 13-week and 26-week periods ended June 30, 2007 are not necessarily indicative of the results to be expected for any other interim period or for the fiscal year ending December 29, 2007.

Comprehensive income (loss) consists of net income (loss) and other comprehensive income (income, expenses, gains and losses that bypass the income statement and are reported directly as a separate component of equity). The Company’s comprehensive income (loss) consists of net income (loss) and foreign currency translation adjustments for all periods presented.

NOTE 2: INCOME TAXES

In June 2006, the Financial Accounting Standards Board (“FASB”) issued interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes,” effective for fiscal years beginning after December 15, 2006. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

West Marine adopted FIN 48 on December 31, 2006, and as a result, the Company determined that approximately $3.2 million of tax benefits previously recognized should be considered uncertain tax positions, of which $1.9 million would impact the Company’s effective tax rate, if recognized. The difference between the total amount of uncertain tax positions and the amount that would impact the effective tax rate consists of items that are offset by deferred tax assets, and the federal tax benefit of state income tax items. Accordingly, the Company recorded a $0.2 million reduction to retained earnings as of December 31, 2006 (the beginning of fiscal year 2007). As of December 31, 2006, the Company had $0.2 million of accrued interest and penalties related to uncertain tax positions. The Company’s policy is to recognize interest and penalties related to uncertain tax positions as part of its provision for income taxes.

The Company reduced unrecognized tax benefits by $0.6 million during the first six months of 2007, primarily as a result of the settlement of various state tax liabilities. As of June 30, 2007, $0.1 million in current liabilities and $0.9 million in deferred items and other non-current liabilities related to uncertain tax positions were reflected on the Company’s consolidated balance sheet. The amount classified as a current liability represents the Company’s anticipated payment of cash in settlement of uncertain tax positions within one year.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various states, Puerto Rico and Canada. Generally, the statute of limitations for income tax return examinations is three years for U.S. federal, four years for Puerto Rico, seven years for Canada and varies among state and local jurisdictions.

NOTE 3: STOCK-BASED COMPENSATION

West Marine follows the accounting provisions of SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS 123 (R)), using the estimated grant date fair value method of accounting for awards of stock options and restricted shares under the Omnibus Equity Incentive Plan (the “Plan”) and issuances under the Company’s Associates Stock Buying Plan. Almost all of the Company’s stock-based compensation expense is included in selling, general and administrative expense; a small portion is included in cost of goods sold. Related tax benefits are included in the Company’s condensed consolidated statements of operations. The Company recognized stock-based compensation expense of $0.4 million and $0.8 million for the second quarter and first six months of 2007, respectively, and $0.9 million and $1.2 million for the second quarter and first six months of 2006, respectively. The Company reported related excess tax benefits of $0.3 million and $0.2 million for the first six months of 2007 and 2006, respectively, which are classified as financing activities in the Company’s condensed consolidated statements of cash flows.

West Marine awards options to purchase shares of common stock to certain eligible associates employed at the time of the grant. Options awarded under the Plan in 2007 generally vest over three years and expire five years following the grant date; options awarded under the Plan in 2006 generally vest over four years and expire five years following the grant date. During the first six months of 2007, the Company awarded options to purchase 591,671 shares with a weighted average exercise price of $15.02 per share and an average grant date fair value of $5.14 per share. Options to purchase 92,696 shares vested during the first six months of 2007, with a weighted-average exercise price of $14.74 per share. During the first six months of 2006, the Company awarded options to purchase 411,076 shares with a weighted-average exercise price of $14.75 per share and an average grant date fair value of $5.54 per share. No options vested during the first six months of 2006. At June 30, 2007, the total compensation cost related to unvested awards not yet recognized was $4.5 million with a weighted-average expense recognition period of 3.0 years.

 

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NOTE 4. SEGMENT INFORMATION

The Company has three segments—Stores, Port Supply (wholesale) and Direct Sales (catalog and Internet)—all of which sell merchandise directly to customers. The customer base overlaps between the Stores and Port Supply segments, and between the Stores and Direct Sales segments. All processes for the three segments within the supply chain are commingled, including purchases from vendors, distribution center activity and customer delivery.

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):

 

     13 Weeks Ended     26 Weeks Ended  
     June 30, 2007     July 1, 2006     June 30, 2007     July 1, 2006  

Net sales:

        

Stores

   $ 219,332     $ 235,849     $ 326,152     $ 349,951  

Direct Sales

     15,088       15,342       23,885       23,355  

Port Supply

     13,350       13,356       23,785       23,882  
                                

Consolidated net sales

   $ 247,770     $ 264,547     $ 373,822     $ 397,188  
                                

Contribution:

        

Stores

   $ 46,830     $ 40,960     $ 44,684     $ 36,529  

Direct Sales

     2,203       2,129       3,111       3,428  

Port Supply

     1,459       2,047       1,966       3,365  
                                

Consolidated contribution

   $ 50,492     $ 45,136     $ 49,761     $ 43,322  
                                

Reconciliation of consolidated contribution to net income:

        

Consolidated contribution

   $ 50,492     $ 45,136     $ 49,761     $ 43,322  

Less:

        

Indirect costs of goods sold not included in consolidated contribution

     (9,072 )     (9,420 )     (15,769 )     (16,679 )

General and administrative expense

     (7,579 )     (9,383 )     (17,167 )     (17,204 )

Interest expense

     (1,273 )     (2,210 )     (2,696 )     (4,069 )

Income taxes

     (12,439 )     (9,926 )     (5,245 )     (3,099 )
                                

Net income

   $ 20,129     $ 14,197     $ 8,884     $ 2,271  
                                

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

West Marine, Inc.

Watsonville, California

We have reviewed the accompanying condensed consolidated balance sheets of West Marine, Inc. and subsidiaries as of June 30, 2007 and July 1, 2006, and the related condensed consolidated statements of income for the 13-week and 26-week periods ended June 30, 2007 and July 1, 2006, and of cash flows for the 26-week periods ended June 30, 2007 and July 1, 2006. These interim financial statements are the responsibility of West Marine’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of West Marine, Inc. and subsidiaries as of December 30, 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 27, 2007, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standard No. 123(R), Share-Based Payment. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 30, 2006 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ DELOITTE TOUCHE LLP

San Francisco, California

August 3, 2007

 

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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is based upon our financial statements as of the dates and for the periods presented in this section. You should read this discussion and analysis in conjunction with the financial statements and notes thereto found in Item 1 of this Form 10-Q and our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 30, 2006. All references to the second quarter and the first six months of 2007 mean the 13-week and 26-week periods ended June 30, 2007, and all references to the second quarter and first six months of 2006 mean the 13-week and 26-week periods ended July 1, 2006. Unless the context otherwise requires, “West Marine,” “we,” “us” and “our” refer to West Marine, Inc. and its subsidiaries.

General

West Marine is one of the largest boating supplies retailers in the world. We have three divisions – Stores, Port Supply (wholesale) and Direct Sales (catalog and Internet) – all of which sell aftermarket recreational boating supplies directly to customers. At the end of the second quarter of 2007, we offered our products through 380 stores in 38 states, Puerto Rico and Canada; on the Internet ( www.westmarine.com and www.boatus-store.com ); and through catalogs. We are also engaged, through our Port Supply division, our stores and the Internet ( www.portsupply.com ), in the wholesale distribution of boating products to commercial customers. Our principal executive offices are located at 500 Westridge Drive, Watsonville, California 95076-4100, and our telephone number is (831) 728-2700.

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes,” effective for fiscal years beginning after December 15, 2006. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” West Marine adopted FIN 48 on December 31, 2006 (the beginning of fiscal year 2007) and recorded a cumulative adjustment of $0.2 million as a reduction in beginning retained earnings. For more information, see Note 2 to our condensed consolidated financial statements in Item 1 of this report.

In June 2006, the FASB ratified the consensuses reached by the Emerging Issues Task Force (“EITF”) in Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should be Presented in the Income Statement (That is, Gross Versus Net Presentation).” EITF 06-3, which is effective for interim and annual reporting periods beginning after December 15, 2006, requires disclosure of an entity’s accounting policy regarding the presentation of taxes assessed by a governmental authority that are directly imposed on a revenue-producing transaction between a seller and a customer including sales, use, value added and some excise taxes. We present such taxes on a net basis (excluded from net sales). The adoption of EITF 06-3 did not have a material effect on our financial position, cash flows or results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and accordingly does not require any new fair value measurements. SFAS 157 will be effective for West Marine beginning in fiscal year 2008. We do not expect the adoption of SFAS 157 to have a material impact on our financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115.” SFAS 159 will permit entities to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159 will be effective for West Marine beginning in fiscal year 2008. We do not expect the adoption of SFAS 159 to have a material impact on our financial position, results of operations or cash flows.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of West Marine’s financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the appropriate application of certain accounting policies, many of which require us to make estimates and assumptions about future events and their impact on amounts reported in our financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results inevitably will differ from our estimates. Such differences could be material to the financial statements.

We believe our application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates are periodically reevaluated and adjustments are made when facts and circumstances dictate a change. Our accounting policies are more fully described in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2006. We have identified certain critical accounting policies which are described below.

Lease accounting. Our accounting practices and policies with respect to leasing transactions include: recording rent expense starting on the date we gain possession of leased property, conforming the lease term used in calculating straight-line rent expense with the term used to amortize improvements on leased property; and recording tenant improvement allowances received from landlords as an adjustment to deferred rent, reducing straight-line rent expense. Certain of our operating leases contain periods of free or reduced rent or contain predetermined fixed increases in the minimum rent amount during the lease term. For these leases, we recognize rent expense on a straight-line basis over the expected minimum life of the lease, generally about ten years, including periods of free rent, and record the difference between the amount charged to rent expense and the rent paid as deferred rent. Tenant improvement allowances received from landlords generally are treated as deferred rent adjustments, reducing straight-line rent expense over the life of the lease.

Revenue recognition. We recognize revenue at the time the products are received by the customers in accordance with the provisions of Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements,” as amended by SAB 104, “Revenue Recognition.” Revenue is recognized for store sales at the point at which the customer receives and pays for the merchandise at the register. For direct sales, revenue is recognized at the time the customer receives the product. Customers typically receive goods within three days of shipment. Shipping charges billed to customers are included in net sales.

We record a reserve for estimated product returns based on historical return trends. If actual returns are greater than those projected, additional sales returns may be recorded in the future. Discounts offered to customers consist primarily of point of sale markdowns and are recorded at the time of the related sale as a reduction of revenue. Gift cards sold or issued for store credit in exchange for returned goods are carried as a liability and revenue is recognized as amounts under the gift card are redeemed. The value of points and awards under our loyalty programs are recorded as a liability and deducted from revenue at the time the points and awards are earned, based on historical conversion and redemption rates. The associated revenue is recognized when the rewards are redeemed or expire.

Stock-based compensation. Effective January 1, 2006, we adopted SFAS 123(R), “Share-Based Payment,” and began recognizing compensation expense for share-based payments based on the fair value of the awards under the modified prospective application method. Share-based payments consist of stock option grants, restricted share awards and Associates Stock Buying Plan issuances. The effect of the adoption of SFAS 123(R) on future results will depend, among other things, on levels of stock-based payments granted in the future, actual forfeiture rates and the timing of option exercises. For more information, see Note 3 to our condensed consolidated financial statements in Item 1 of this report.

 

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Merchandise inventories and vendor allowances. Our merchandise inventories are carried at the lower of cost or market on a first-in, first-out basis. Inventory cost includes certain indirect costs related to the purchasing, transportation and warehousing of merchandise. Capitalized indirect costs include freight charges for moving merchandise to warehouses or store selling locations and operating costs of our merchandising, replenishment and distribution activities. Indirect costs included in inventory value at June 30, 2007 and July 1, 2006 were $27.6 million and $30.9 million, respectively. We recognize indirect costs included in inventory value as an increase in cost of goods sold as the related products are sold.

We make certain assumptions based upon historical experience and current information to adjust inventory value for estimated shrinkage and to adjust inventory value to the lower of cost or market. Our reserve for estimated inventory shrinkage is based on historical shrinkage rates determined by our physical merchandise inventory counts and cycle counts and was $2.8 million and $3.4 million at fiscal quarter-end June 30, 2007 and July 1, 2006, respectively. Inventories are written down to market value when cost exceeds market value, which we estimate using current levels of aged and discontinued product and historical analysis of inventory sold below cost. Our reserve for estimated inventory market value below cost at fiscal quarter-end June 30, 2007 and July 1, 2006 was $6.1 million and $4.1 million, respectively.

We receive consideration from a variety of vendor-sponsored programs and arrangements such as volume rebates, markdown allowances, promotions and payment terms discounts. Vendor allowances related to merchandise purchases are treated as a reduction of inventory value and recognized as a reduction in cost of goods sold as the related products are sold.

We establish a receivable for income generated from vendor-sponsored programs that is earned but not yet received from our vendors, which we calculate based on provisions of the programs in place. Due to the complexity and diversity of the individual agreements with vendors, we perform detailed analyses and review historical trends to determine an appropriate level of the receivable.

Impairment of long-lived assets. In accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we evaluate the recoverability of long-lived assets annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recorded, if required, for the portion of the asset’s carrying value that exceeds the asset’s estimated fair value. We may also accelerate depreciation over the asset’s revised useful life, if appropriate. When evaluating long-lived assets for potential impairment, we group and evaluate assets at the lowest level at which individual cash flows can be identified. We group and evaluate store assets for impairment at the individual store level. We compare asset carrying values to the store’s estimated future cash flows.

Asset retirement obligations and facility closing costs. In accordance with SFAS 143, “Accounting for Asset Retirement Obligations,” we estimate the fair value of our obligations to clean-up and restore leased properties under our agreements with landlords and record the amount as a liability when incurred. We account for closed store and warehouse lease termination costs in accordance with SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities.” In the period we close a store or warehouse, we write off the book value of any abandoned leasehold improvements and record as an obligation the present value of estimated costs that will not be recovered. These costs include future lease payments, less any expected sublease income. These costs could increase or decrease based upon general economic conditions, circumstances in specific locations, our ability to sublease facilities and the accuracy of our related estimates.

Self insurance. We are self-insured for certain losses related to employee medical claims, workers’ compensation and general liability. Our reserve is developed based on historical claims data and includes an assessment of self-insured losses that are incurred but not reported as of the end of the period. The resulting estimate is recorded as a liability. Our assumptions are reviewed periodically and compared with actual claims experience and external benchmarks to ensure that our reserves are appropriate.

Income taxes. We record a valuation allowance to reduce our deferred tax assets to the amount we believe is more likely than not to be realized. While we have considered future taxable income, state tax apportionment and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. Likewise, should we determine that we would be able to realize our deferred tax assets in the future in excess of our recorded amount, an adjustment to the deferred tax assets would increase income in the period such determination was made.

Our tax filings are subject to audit by authorities in the jurisdictions where we conduct business, which may result in assessments of additional taxes, penalties and interest. We believe we have adequately provided for obligations that would result from legal and/or tax proceedings that result from these audits where it is probable we will pay some amounts and the amounts can be estimated; in some cases, however, it is too early to predict a final outcome.

Results of Operations

The following table sets forth certain statement of operations components expressed as a percent of net sales:

 

     13 Weeks Ended     26 Weeks Ended  
     June 30, 2007     July 1, 2006     June 30, 2007     July 1, 2006  

Net sales

   100.0 %   100.0 %   100.0 %   100.0 %

Cost of goods sold

   65.3     66.1     69.8     69.5  
                        

Gross profit

   34.7     33.9     30.2     30.5  

Selling, general and administrative expense

   21.0     22.6     25.7     27.2  

Asset impairment charge

   0.0     1.3     0.0     0.9  
                        

Income from operations

   13.7     10.0     4.5     2.4  

Interest expense, net

   0.6     0.9     0.7     1.0  
                        

Income before income taxes

   13.1     9.1     3.8     1.4  

Income taxes

   5.0     3.7     1.4     0.8  
                        

Net income

   8.1     5.4     2.4     0.6  
                        

Three Months Ended June 30, 2007 Compared to Three Months Ended July 1, 2006

Net sales for the second quarter of 2007 were $247.8 million, a decrease of $16.8 million, or 6.3%, compared to net sales of $264.5 million in the second quarter of 2006, primarily due to the closure of certain under-performing stores during the second half of 2006. Net income for the second quarter of 2007 was $20.1 million, or $0.92 per share, compared to net income of $14.2 million, or $0.66 per share, in the second quarter of 2006, primarily due to cost savings from closing certain under-performing stores and other initiatives implemented in 2006.

Net sales attributable to our Stores division decreased $16.5 million to $219.3 million in the second quarter of 2007, a 7.0% decrease compared to the second quarter of 2006, primarily due to the closure of certain under-performing stores during the latter half of 2006. Comparable store sales decreased 2.9% in the second quarter of 2007, compared to a comparable sales increase of 2.3% in the second quarter last year. The decline in comparable store sales reflects softer sales of higher-priced

 

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discretionary items and lower in-store traffic levels, which we believe indicates reduced boat usage, and was particularly evident in Florida, which is a key boating market. Wholesale (Port Supply) net sales through our distribution centers remained relatively flat at $13.4 million in the second quarter of 2007 compared to the same period in 2006, but we did see increased sales to Port Supply customers through our store locations, which are included in Stores division results. Net sales of our Direct Sales division decreased $0.3 million, or 1.7%, to $15.1 million in the second quarter of 2007 compared to the same period in 2006, reflecting overall boating market weakness. We believe reduced catalog sales were partially offset by increased Internet sales as more customers used our catalogs for researching products and placed orders on our Internet website.

Gross profit decreased by $3.7 million, or 4.1%, to $86.1 million in the second quarter of 2007, compared to $89.8 million for the same period last year. Gross profit increased as a percentage of net sales to 34.7% in the second quarter of 2007, an 80 basis point increase compared to 33.9% for the same period last year. The increase in gross profit as a percentage of sales primarily was the result of reduced buying and distribution expenses, which had 120 basis points favorable impact, and higher raw product margin, with 40 basis points favorable impact, partly offset by lower vendor allowances recognized, with an unfavorable impact of 65 basis points. Raw product margin improved year over year due to better sourcing and from a sales mix shift toward higher-margin maintenance and hardware and away from electronics.

Selling, general and administrative expenses decreased $7.7 million, or 12.8%, to $52.2 million in the second quarter of 2007, compared to $59.9 million for the same period last year, and decreased as a percentage of sales to 21.0% in the second quarter of 2007, a 160 basis point improvement, compared to 22.6% for the same period last year, primarily as a result of closing certain under-performing stores and cost cutting initiatives implemented during 2006, which contributed 120 basis points improvement, and a change in the interim period timing of compensation-related expenses, with a 35 basis point improvement.

Interest expense decreased $0.9 million, or 42.4%, to $1.3 million in the second quarter of 2007, compared to $2.2 million for the same period last year. The decrease in interest expense was due to lower average outstanding bank borrowings in 2007, driven by lower inventory levels compared to last year.

Our effective income tax rate for the second quarter of 2007 was approximately 38.2% compared with approximately 41.1% for the same period last year. Our effective income tax rate is subject to change based on the mix of income from different state jurisdictions that tax at different rates, as well as the change in status or outcome of uncertain tax positions. We evaluate our effective income tax rate on a quarterly basis and update our estimate of the full year effective income tax rate as necessary. The change in our effective income tax rate in the second quarter of 2007 was largely due to the derecognition of income tax reserves and valuation allowances as we resolved uncertain tax positions as well as increased state enterprise zone credits.

Six Months Ended June 30, 2007 Compared to Six Months Ended July 1, 2006

Net sales for the first six months of 2007 were $373.8 million, a decrease of $23.4 million, or 5.9%, compared to net sales of $397.2 million for the first six months of 2006. Net income for the first six months of 2007 was $8.9 million, or $0.40 per share, compared to net income of $2.3 million, or $0.11 per share, for the first six months of 2006, primarily due to cost savings from closing certain under-performing stores and other initiatives implemented in 2006.

Net sales attributable to our Stores division decreased $23.8 million to $326.2 million in the first six months of 2007, a 6.8% decrease compared to the first six months of 2006, primarily due to the closure of certain under-performing stores during the second half of 2006. Comparable store sales decreased 2.8% in the first six months of 2007 compared to the same period last year. The decline in comparable store sales reflects softer sales of higher-priced discretionary items and lower in-store traffic levels extending into the peak part of the boating season, which we believe indicates reduced boat usage, and was particularly evident in Florida, which is a key boating market. Wholesale (Port Supply) net sales through our distribution centers decreased $0.1 million, or 0.4%, to $23.8 million in the first six months of 2007 compared with the same period in 2006, primarily because wholesale customers purchased more merchandise through our store locations, which are included in Stores division results. Direct Sales net sales increased $0.5 million, or 2.3%, to $23.9 million in the first six months of 2007 compared with the same period in 2006, primarily due to increased traffic on our West Marine Internet shopping website in 2007, particularly during the first quarter.

Gross profit decreased by $8.1 million, or 6.7%, to $112.9 million in the first six months of 2007, compared to $121.0 million for the first six months of 2006. Gross profit as a percentage of net sales decreased to 30.2% for the first six months of 2007, compared to 30.5% for the same period last year. The 30 basis point reduction in gross profit as a percentage of sales primarily was due to our decision to execute clearance sales of lower-performing products earlier in 2007 compared to last year.

Selling, general and administrative expenses decreased $12.0 million, or 11.1%, to $96.1 million in the first six months of 2007, compared to $108.0 million for the same period last year, and decreased as a percentage of sales to 25.7% in the first six months of 2007, a 150 basis point improvement, compared to 27.2% for the same period last year, primarily due to closing certain under-performing stores and cost cutting initiatives implemented during 2006.

Interest expense decreased $1.4 million, or 33.7%, to $2.7 million in the first six months of 2007, compared to $4.1 million for the same period last year. The decrease in interest expense was due to lower average outstanding bank borrowings in 2007, driven by inventory levels compared to the same period last year.

Our effective income tax rate for the first six months of 2007 was approximately 37.1% compared with approximately 57.7% for the same period last year. Our effective income tax rate is subject to change based on the mix of income from different state jurisdictions that tax at different rates, as well as the change in status or outcome of uncertain tax positions. We evaluate our effective income tax rate on a quarterly basis and update our estimate of the full year effective income tax rate as necessary. The change in our effective income tax rate was largely due to the derecognition of income tax reserves and valuation allowances as we resolved uncertain tax positions as well as increased state enterprise zone credits.

Liquidity and Capital Resources

Our cash needs primarily are for working capital to support our inventory requirements and capital expenditures for new and remodeled stores and information systems improvements. We believe our existing credit facility and cash flow from operations will be sufficient to satisfy our liquidity needs over the next 12 months.

Operating Activities

During the first six months of 2007, net cash provided by operating activities was $29.8 million, primarily due to a $43.3 million increase in accounts payable and accrued expenses and $18.7 million in net income, excluding depreciation and amortization, partially offset by a $27.0 million increase in merchandise inventories. Inventory value decreased by 9.6% and inventory per square foot decreased by 3.4% at the end of the second quarter of 2007, compared to the same period last year, primarily due to the implementation of inventory management initiatives.

Investing Activity

We spent $10.2 million on capital expenditures during the first six months of 2007, a $0.1 million decrease from $10.3 million spent during the same period in the prior year, primarily due to fewer new store openings this year. We expect to spend a total of $20.0 million to $25.0 million on capital expenditures during 2007, primarily for new and remodeled stores and information systems improvements. We expect to open approximately ten stores during 2007, six of which we have already opened. We intend to close 15 stores during 2007, three of which have already closed. We intend to pay for our investing activities with cash generated from operations and bank borrowings.

Financing Arrangements

Net cash used in financing activities was $12.2 million for the first six months of 2007, primarily due to $15.1 million in net repayments under our credit facility, partially offset by $2.1 million in proceeds from the exercise of stock options.

 

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We have a $225.0 million credit agreement with a group of lenders that expires in December 2010. Borrowing availability is based on a percentage of our inventory and accounts receivable. At our option, subject to certain conditions and restrictions, the agreement provides up to $25.0 million in additional financing during the term. The credit facility is guaranteed by West Marine and its subsidiaries and is secured by a security interest in all of the accounts receivable and inventory of West Marine and its subsidiaries, certain other assets related thereto, and all proceeds thereof. The credit facility includes a $50.0 million sub-facility available for the issuance of commercial and stand-by letters of credit. The credit facility also includes a sub-limit of up to $20.0 million for same day advances.

At our election, borrowings under the loan facility will bear interest at one of the following rates: (1) the prime rate announced by Wells Fargo Bank, National Association at its principal office in San Francisco, California or (2) the interest rate per annum at which deposits in U.S. dollars are offered by reference lenders to prime banks in designated markets located outside the U.S. In each case, the applicable interest rate is increased by a margin imposed by the loan agreement.

The applicable margin for any date will depend upon the amount of available credit under the revolving loan facility. The loan agreement also imposes a commitment fee on the unused portion of the revolving loan facility. For the second quarter of 2007, the weighted-average interest rate on all of our outstanding borrowings was 6.8%.

The loan agreement contains customary covenants, including but not limited to, restrictions on the ability of West Marine and its subsidiaries to incur liens, make acquisitions and investments, pay dividends and sell or transfer assets. Additionally, a minimum revolving credit availability equal to the lesser of $15.0 million or 7.5% of the borrowing base must be maintained. As of June 30, 2007, we were in compliance with our bank covenants.

At June 30, 2007, borrowings under this credit facility were $53.8 million, bearing interest at rates ranging from 6.4% to 8.3%, and $135.8 million was available to be borrowed. At July 1, 2006, borrowings under this credit facility were $110.1 million, bearing interest at rates ranging from 5.7% to 8.3%. At June 30, 2007, we had $6.1 million of outstanding stand-by and commercial letters of credit, compared to $5.7 million of outstanding stand-by letters of credit at July 1, 2006.

Off-Balance Sheet Arrangements

Substantially all of the real property used in our business is leased under operating lease agreements, as described in Item 2 – Properties and Note 8 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 30, 2006.

We do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as special purpose entities or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other limited purposes. As of June 30, 2007, we were not involved in any unconsolidated special purpose entities or variable interest entities.

Seasonality

Historically, our business has been highly seasonal. In 2006, 64% of our net sales and all of our net income occurred during the second and third quarters, principally during the period from April through August, which represents the peak months for boat buying, usage and maintenance in most of our retail markets.

Business Trends

Our research indicates that the U.S. boating industry currently is experiencing a down cycle, as evidenced by lower new and used boat sales and declining boat registrations in key states. During the remainder of 2007, we plan to continue to respond to this challenging industry climate by identifying ways to control spending as warranted by our 2007 sales results, increasing specialized and localized product assortments in our stores, and seeking to grow our Port Supply and Direct Sales businesses.

Internet Address and Access to SEC Filings

Our Internet address is www.westmarine.com. Interested readers may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in the “Investor Relations” portion of our website as well as through the Securities and Exchange Commission’s website, www.sec.gov.

“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995

This Quarterly Report on Form 10-Q contains forward-looking statements within the “safe harbor” provisions of the Section 21E of the Exchange Act. All statements other than those that are purely historical are forward-looking statements. Words such as “expect,” “anticipate,” “believe,” “estimate,” “plan,” “project,” and similar expressions also identify forward-looking statements. 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.

West Marine’s operations could be adversely affected if unseasonably cold weather, prolonged winter-like conditions, natural disasters such as hurricanes, or extraordinary amounts of rainfall occur during the peak boating season in the second and third quarters. Risk factors that may affect our earnings in the future include the risk factors set forth in West Marine’s Annual Report on Form 10-K for the fiscal year ended December 30, 2006, and those risks which may be described from time to time in West Marine’s other filings with the Securities and Exchange Commission. Except as required by applicable law, West Marine assumes 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 do not undertake any specific actions to diminish our exposure to interest rate risk, and we are not a party to any interest rate risk management transactions. We do not purchase or hold any derivative financial instruments. We believe there has been no material change in our exposure to market risk from that discussed in our last Annual Report on Form 10-K.

Based on our operating results for the year ended December 30, 2006, a 67 basis point change in the interest rate (10% of our weighted-average interest rate) affecting our floating financial instruments would have an effect of reducing or increasing our pretax income and cash flows by approximately $0.7 million over the next year, and would have an immaterial effect on the fair value of our fixed-rate financial instruments (see Note 6 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 30, 2006).

ITEM 4 – CONTROLS AND PROCEDURES

West Marine’s management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on this review, management, including the Chief Executive Officer and the Chief Financial Officer, has concluded that our disclosure controls and procedures were effective as of June 30, 2007.

 

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There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2007 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

Currently and from time to time, we are a party to various legal proceedings that are incidental to the conduct of our business, including inquiries or notices that we receive from time to time from regulatory authorities, which we respond to in the ordinary course of business. In our opinion, after consultation with legal counsel responsible for these matters, the ultimate liability with respect to those proceedings is not presently expected to materially affect the financial position, results of operations or cash flows of West Marine.

ITEM 1A – RISK FACTORS

There have been no material changes from the risks disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 30, 2006.

ITEM 2 – UNREGISTERED SALES OF EQUITY 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 10, 2007. At this meeting, West Marine’s stockholders elected eight directors, approved an amendment to the West Marine, Inc. Associates Stock Buying Plan and ratified the selection of Deloitte and Touche LLP as West Marine’s independent auditors for the fiscal year ending December 29, 2007.

The following table sets forth the names of the nominees for director and the votes for and withheld with respect to each such nominee:

 

Nominee

   Votes For    Votes Withheld

Randolph K. Repass

   16,552,605    4,259,946

Peter L. Harris

   20,708,372    104,179

Geoffrey A. Eisenberg

   20,701,954    110,597

David McComas

   20,713,256    99,295

Alice M. Richter

   16,632,118    4,180,433

Peter Roy

   20,754,139    58,412

Daniel J. Sweeney

   20,780,406    32,145

William U. Westerfield

   20,754,273    58,278

In connection with the approval of an amendment to the West Marine, Inc. Associates Stock Buying Plan, 18,713,868 shares were voted in favor of approval, 42,655 against and 50,179 abstained, and there were 2,005,849 broker non-votes.

In connection with the ratification of the selection of Deloitte and Touche LLP as West Marine’s independent auditors for the year ending December 29, 2007, 20,772,442 shares were voted in favor of approval, 38,002 against and 2,107 abstained.

ITEM 5 – OTHER INFORMATION

None.

ITEM 6 – EXHIBITS

 

  3.1

   Certificate of Incorporation of West Marine, Inc., as amended (incorporated by reference to Exhibit 3.1 to West Marine’s Annual Report of Form 10-K filed March 18, 2004).

  3.2

   Bylaws of West Marine, Inc., as amended (incorporated by reference to Exhibit 3.2 to West Marine’s Annual Report of Form 10-K filed March 18, 2004).

  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*

   Omnibus Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to West Marine’s Current Report on Form 8-K dated May 4, 2006 and filed on May 10, 2006).

10.1.1*

   Form of Notice of Grant of Stock Options and Option Agreement for Employees.

10.1.2*

   Form of Notice of Grant of Stock Options for Non-Employee Directors (incorporated by reference to Exhibit 10.3.2 to West Marine’s Annual Report of Form 10-K for the year ended January 1, 2005).

10.1.3*

   Form of Notice of Grant of Stock Options and Option Agreement for Peter Harris (incorporated by reference to Exhibit 10.3.3 to West Marine’s Annual Report of Form 10-K for the year ended January 1, 2005).

10.1.4*

   Notice to holders of West Marine, Inc. stock options regarding accelerated vesting (incorporated by reference to Exhibit 10.4 to West Marine’s Current Report on Form 8-K dated December 22, 2005 and filed with the Commission on December 29, 2005).

10.2*

   West Marine, Inc. Associates Stock Buying Plan, as amended and restated effective March 2002 (incorporated by reference to Appendix III of West Marine’s Proxy Statement, filed on April 3, 2002).

10.2.1*

   Amendment Number One to the Associates Stock Buying Plan (incorporated by reference to Exhibit 10.2 to West Marine’s Registration Statement on Form S-8 (Registration No. 333-143285)).

10.3*

   Offer Letter, dated February 7, 2006, to Ronald Japinga.

10.4*

   Executive Termination Compensation Agreement, dated February 13, 2006, by and between West Marine, Inc. and Ronald Japinga.

15.1

   Letter regarding Unaudited Interim Financial Information.

31.1

   Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

31.2

   Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

32.1

   Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended.

* Indicates a management contract or compensatory plan or arrangement within the meaning of Item 601(b)(10)(iii) or Regulation S-K.

 

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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 3, 2007    WEST MARINE, INC.
   By:  

/s/ Peter L. Harris

     Peter L. Harris
     Chief Executive Officer
   By:  

/s/ Thomas R. Moran

     Thomas R. Moran
     Senior Vice President and Chief Financial Officer
   By:  

/s/ Peter Van Handel

     Peter Van Handel
     Vice President and Chief Accounting Officer

 

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