10-Q 1 wmar2015q310-q.htm 10-Q Q3-2015 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 10-Q
 
  
Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 3, 2015
OR 
o
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  Q    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  Q    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act). (Check one): 
Large accelerated filer
o
 
Accelerated filer
Q
 
 
 
 
 
Non-accelerated filer
o  (Do not check if a smaller reporting company)
 
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  Q
At October 26, 2015, the number of shares outstanding of the registrant’s common stock was 24,696,473.



TABLE OF CONTENTS
 
 
 
Page No.
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.

2


PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

WEST MARINE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
OCTOBER 3, 2015, JANUARY 3, 2015 AND SEPTEMBER 27, 2014
(Unaudited and in thousands, except share data)
 
 
October 3,
2015
 
January 3,
2015
 
September 27,
2014
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
60,486

 
$
45,675

 
$
63,603

Trade receivables, net
8,565

 
6,843

 
8,460

Merchandise inventories
236,984

 
214,298

 
215,232

Deferred income taxes
5,597

 
5,585

 
5,666

Other current assets
18,167

 
25,791

 
16,370

Total current assets
329,799

 
298,192

 
309,331

Property and equipment, net
78,980

 
79,447

 
79,950

Long-term deferred income taxes
3,580

 
3,993

 
4,055

Other assets
3,348

 
3,869

 
3,577

TOTAL ASSETS
$
415,707

 
$
385,501

 
$
396,913

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
38,203

 
$
33,244

 
$
34,451

Accrued expenses and other
47,302

 
40,922

 
46,325

Total current liabilities
85,505

 
74,166

 
80,776

Deferred rent and other
20,852

 
20,327

 
15,984

Total liabilities
106,357

 
94,493

 
96,760

Commitments and Contingencies - see Note 5

 

 

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; 25,384,450 shares issued and 24,695,561 shares outstanding at October 3, 2015; 25,092,550 shares issued and 24,403,661 shares outstanding at January 3, 2015; and 25,014,180 shares issued and 24,325,291 shares outstanding at September 27, 2014
25

 
25

 
25

Treasury stock
(9,285
)
 
(9,171
)
 
(9,171
)
Additional paid-in capital
210,743

 
207,863

 
206,700

Accumulated other comprehensive loss
(567
)
 
(564
)
 
(534
)
Retained earnings
108,434

 
92,855

 
103,133

Total stockholders’ equity
309,350

 
291,008

 
300,153

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
415,707

 
$
385,501

 
$
396,913

See accompanying notes to condensed consolidated financial statements.

3


WEST MARINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE 13 WEEKS AND 39 WEEKS ENDED OCTOBER 3, 2015 AND SEPTEMBER 27, 2014
(Unaudited and in thousands, except per share data)
 
 
13 Weeks Ended
 
39 Weeks Ended
 
October 3, 2015
 
September 27, 2014
 
October 3, 2015
 
September 27, 2014
Net revenues
$
194,375

 
$
196,510

 
$
574,620

 
$
546,331

Cost of goods sold
138,115

 
138,124

 
400,618

 
380,744

Gross profit
56,260

 
58,386

 
174,002

 
165,587

Selling, general and administrative expense
47,576

 
48,511

 
146,044

 
142,267

Income from operations
8,684

 
9,875

 
27,958

 
23,320

Interest expense
107

 
99

 
338

 
322

Income before income taxes
8,577

 
9,776

 
27,620

 
22,998

Provision for income taxes
3,685

 
4,839

 
12,041

 
10,772

Net income
$
4,892

 
$
4,937

 
$
15,579

 
$
12,226

Net income per common and common equivalent share:
 
 
 
 
 
 
 
Basic
$
0.20

 
$
0.20

 
$
0.63

 
$
0.51

Diluted
$
0.20

 
$
0.20

 
$
0.63

 
$
0.50

Weighted average common and common equivalent shares outstanding:
 
 
 
 
 
 
 
Basic
24,694

 
24,323

 
24,599

 
24,202

Diluted
24,718

 
24,341

 
24,709

 
24,393

See accompanying notes to condensed consolidated financial statements.


4


WEST MARINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE 13 WEEKS AND 39 WEEKS ENDED OCTOBER 3, 2015 AND SEPTEMBER 27, 2014
(Unaudited and in thousands)
 
 
13 Weeks Ended
 
39 Weeks Ended
 
October 3, 2015
 
September 27, 2014
 
October 3, 2015
 
September 27, 2014
Net income
$
4,892

 
$
4,937

 
$
15,579

 
$
12,226

Other comprehensive income, net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustment, net of tax
(8
)
 
21

 
(3
)
 
30

Total comprehensive income
$
4,884

 
$
4,958

 
$
15,576

 
$
12,256

See accompanying notes to condensed consolidated financial statements.



5


WEST MARINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 39 WEEKS ENDED OCTOBER 3, 2015 AND SEPTEMBER 27, 2014
(Unaudited and in thousands)
 
 
39 Weeks Ended
 
October 3,
2015
 
September 27,
2014
OPERATING ACTIVITIES:
 
 
 
Net income
$
15,579

 
$
12,226

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
15,385

 
13,378

Share-based compensation
2,154

 
2,376

Excess tax benefit from share-based compensation

 
(223
)
Deferred income taxes
878

 
(603
)
Provision for doubtful accounts
62

 
82

Lower of cost or market inventory adjustments
2,128

 
1,112

Loss on asset disposals
716

 
325

Changes in assets and liabilities:
 
 
 
Trade receivables
(1,784
)
 
(2,101
)
Merchandise inventories
(24,814
)
 
(13,308
)
Other current assets
7,624

 
2,990

Other assets
308

 
(261
)
Accounts payable
5,070

 
12,594

Accrued expenses and other
5,622

 
9,104

Deferred items and other non-current liabilities
95

 
1,180

Net cash provided by operating activities
29,023

 
38,871

INVESTING ACTIVITIES:
 
 
 
Proceeds from sale of property and equipment
29

 
36

Purchases of property and equipment
(15,640
)
 
(20,832
)
Net cash used in investing activities
(15,611
)
 
(20,796
)
FINANCING ACTIVITIES:
 
 
 
Borrowings on line of credit
816

 
2,087

Repayments on line of credit
(816
)
 
(2,087
)
Proceeds from exercise of stock options
1,141

 
1,314

Proceeds from sale of common stock pursuant to Associates Stock Buying Plan
296

 
318

Excess tax benefit from share-based compensation

 
223

Treasury shares acquired
(114
)
 
(4,766
)
Net cash provided by (used in) financing activities
1,323

 
(2,911
)
Effect of exchange rate changes on cash
76

 
31

NET INCREASE IN CASH
14,811

 
15,195

CASH AT BEGINNING OF PERIOD
45,675

 
48,408

CASH AT END OF PERIOD
$
60,486

 
$
63,603

Other cash flow information:
 
 
 
Cash paid for interest
$
220

 
$
227

Cash paid for income taxes, net of refunds of $80 and $1,391
44

 
2,067

Non-cash investing activities
 
 
 
Property and equipment additions in accounts payable
836

 
1,326


See accompanying notes to condensed consolidated financial statements.

6


WEST MARINE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Thirteen and Thirty-nine Weeks Ended October 3, 2015 and September 27, 2014
(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 (“GAAP”) for interim financial information, 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 state the financial position, results of operations and cash flows for the interim periods presented, have been included.
The condensed consolidated balance sheet at January 3, 2015 presented herein has been derived from the audited consolidated financial statements of the Company that were included in the Company's Annual Report on Form 10-K for the year ended January 3, 2015 (the “2014 Form 10-K”). These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, for the fiscal year ended January 3, 2015 that were included in the 2014 Form 10-K.
Accounting policies followed by the Company are described in Note 1 in the audited consolidated financial statements for the year ended January 3, 2015. Certain information and disclosures normally included in the notes to annual financial statements prepared in accordance with GAAP have been omitted for purposes of the condensed consolidated interim financial statements presented herein. The preparation of financial statements in conformity with GAAP 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 39-week periods ended October 3, 2015 are not necessarily indicative of the results to be expected for any other interim period or for the fiscal year ending January 2, 2016. Historically, the Company's revenues and net income are higher in the second and third quarters and are lower in the first and fourth quarters of the fiscal year. The increase in revenues and earnings, principally during the period from April through August, is representative of the peak months for boat buying, usage and maintenance in most of the Company's retail markets.
The Company's fiscal year consists of 52  or 53 weeks, ending on the Saturday closest to December 31. The 2015 fiscal year consists of 52 weeks ending on January 2, 2016, and the 2014 fiscal year consisted of 53 weeks that ended on January 3, 2015. All quarters of both fiscal years 2015 and 2014 consist of 13 weeks, other than the fourth quarter of 2014, which consisted of 14 weeks. All references to years relate to fiscal years rather than calendar years.
Cash and Cash Equivalents
The Company's cash and cash equivalents consist of cash on hand, bank deposits and amounts in transit from banks for customer credit card and debit card transactions. As of October 3, 2015, January 3, 2015 and September 27, 2014 cash balances were $60.5 million, $45.7 million and $63.6 million, respectively.
Reportable Segment
West Marine is an omni-channel retail organization operating one reporting segment in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 280, Segment Reporting. The metrics used by our Chief Executive Officer (as the Company's chief operating decision maker) to assess the performance of the Company and the process he uses to allocate resources focus on viewing the business as a single integrated business. The Company has integrated systems and has commingled sales channel payroll expense, inventories, merchandise procurement and distribution networks to concentrate its strategy as an omni-channel retailer.
Revenues from customers are derived from merchandise sales and the Company does not rely on any individual major customers.
The Company considers its merchandise expansion strategy to be extremely important to the future success of the Company and is providing the following product category information. The Company's merchandise mix for the periods ended October 3, 2015 and September 27, 2014, respectively, is reflected in the table below:

7


 
13 Weeks Ended
 
39 Weeks Ended
 
October 3, 2015
 
September 27, 2014
 
October 3, 2015
 
September 27, 2014
Core boating products
79.1
%
 
80.6
%
 
80.1
%
 
82.0
%
Merchandise expansion products
20.9
%
 
19.4
%
 
19.9
%
 
18.0
%
Total
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
The Company considers core boating products to be maintenance related products, electronics, sailboat hardware, anchors/docking/moorings, engine systems, safety, electrical, plumbing, boats, outboards, ventilation, deck hardware/fasteners, navigation, trailering, seating/boat covers and barbecues/appliances. The Company considers its merchandise expansion products to be apparel, footwear, clothing accessories, fishing, watersports, paddlesports, coolers, bikes and cabin/galley.
Recently Issued Accounting Pronouncements
In April 2014, FASB issued Accounting Standards Update ("ASU") 2014-08, Reporting of Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 provides a narrower definition of discontinued operations. The new guidance requires that only disposal of a component of an entity, or a group of components of an entity, that represents a strategic shift that has, or will have, a major effect on the reporting entity's operations and financial results should be reported in the financial statements as discontinued operations. ASU 2014-08 also provides guidance on the financial statement presentations and disclosures of discontinued operations. ASU 2014-08 became effective for disposals (or classifications as held for disposal) of components of an entity that occur in annual or interim periods beginning after December 15, 2014. The provisions of this guidance did not have a material impact on the Company's consolidated financial statements.
In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 supersedes the revenue recognition requirements in Topic 605, Revenue Recognition and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606), which defers the effective date of ASU 2014-09 to December 15, 2017 for annual reporting periods beginning after that date. FASB also approved permitting early adoption of the standard, but not before the original effective date of December 15, 2016. The Company is currently evaluating the new standard, and has not concluded whether the adoption of ASU 2014-09 will have a material impact on the Company's consolidated financial statements.
NOTE 2: INCOME TAXES
The Company calculates its interim income tax provision by estimating the annual effective tax rate and applying that rate to its year-to-date ordinary earnings. The Company's effective income tax rate for the 13-week period ended October 3, 2015 was 43.0%, which resulted in a provision of $3.7 million, while the effective tax rate for the 13-week period ended September 27, 2014 was 49.5%, which resulted in a provision of $4.8 million. The Company's effective income tax rate for the 39-week period ended October 3, 2015 was 43.6%, which resulted in a provision of $12.0 million, while the effective tax rate for the 39-week period ended September 27, 2014 was 46.8%, which resulted in a provision of $10.8 million. The decrease in the effective tax rate was due largely to a change in valuation allowances.
The Company maintains a valuation allowances against its California Enterprise Zone credits in the amount of $3.9 million, against its South Carolina state tax credits in the amount of $0.9 million, and against its Canadian net deferred tax assets in the amount of $1.4 million. The Company continues to monitor and adjust these valuation allowances based on current evaluations of its ability to realize these deferred tax assets.
During the 13-week period ended October 3, 2015, the Company recognized less than $0.1 million expense related to uncertain tax positions, including accrued interest and penalties.
The Company files income tax returns in the U.S. federal jurisdiction, various states and cities, Puerto Rico and Canada. The Company has substantially settled all federal income tax matters through 2011, as well as all state and foreign jurisdictions through 2010 and 2007, respectively.
NOTE 3: SHARE-BASED COMPENSATION
The Company recognized share-based compensation expense of $0.7 million for the 13-week period ended October 3, 2015 and $0.6 million for the 13-week period ended September 27, 2014, the majority of which was recorded as selling, general and administrative ("SG&A") expense. The Company recognized share-based compensation expense of $2.2 million for the 39-week period ended October 3, 2015 and $2.4 million for the 39-week period ended September 27, 2014, the majority of which was recorded as SG&A expense. The Company received no excess tax benefit associated with share-based compensation expense for the 13-week and 39-week periods ended October 3, 2015. The tax benefit associated with share-based compensation expense for

8


the 13-week and 39-week periods ended September 27, 2014 were less than $0.1 million and $0.2 million, respectively, and were recognized as excess tax benefit in additional paid-in capital.
The Manager Share Appreciation Plan ("MSAP") compensation expense for the 13-week and 39-week periods ended October 3, 2015 was minimal and a credit to expense of $0.4 million due to fluctuation in the Company's share price. The corresponding liability at October 3, 2015 was $0.1 million. The MSAP compensation expense for both the 13-week and 39-week periods ended September 27, 2014 was minimal. The corresponding liability at September 27, 2014 was $0.1 million.
NOTE 4: COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes 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 consists of net income and foreign currency translation adjustments for all periods presented.
NOTE 5: CONTINGENCIES
In October 2014, a putative class action was filed against the Company in the Superior Court of the State of California, County of San Diego, by a California former hourly employee claiming violations of the California Labor Code and the California Business and Professions Code. The complaint sought unspecified damages and attorney’s fees, alleging the Company's failure to pay overtime to hourly California store employees who earned bonus wages or commissions during pay periods in which they worked overtime, and the derivative claims of failure to provide accurate wage statements and all wages owed upon termination of employment. Although the Company continued to vigorously defend the claims underlying the lawsuit, on October 16, 2015, the parties agreed in principle to settle this matter on an individual and class-wide basis to avoid the uncertainty and costs associated with protracted litigation. The Company’s estimated aggregate obligation, including settlement funds, plaintiff’s attorneys’ fees and costs and settlement administration costs had no material impact on the Company's financial statements. This settlement is subject to the court’s preliminary and final approval and the parties expect to file a motion seeking preliminary approval in November 2015.
The Company also is involved in various other legal and administrative proceedings, claims and litigation and regulatory compliance audits arising in the ordinary course of business. Accordingly, material adverse developments, settlements or resolutions may occur and negatively impact our results in the quarter and/or fiscal year in which such developments, settlements or resolutions are reached.
Based on the facts currently available, the Company does not believe that the disposition of any claims, regulatory compliance audits, legal or administrative proceedings that are pending or asserted, individually and in the aggregate, will have a material adverse effect on the Company's financial position. However, an adverse judgment by a court, administrative or regulatory agency, arbitrator or a settlement could adversely impact the Company's results of operations in any given period.
For the class action lawsuit and for any other claims, regulatory compliance audits, legal or administrative proceedings where the Company has determined that a loss is probable, there is no material difference between the amount accrued and the reasonably possible amount of loss. For any such matters where a loss is reasonably possible, the range of estimated loss is not material individually and in aggregate.
 

9


NOTE 6: NET INCOME PER SHARE
Basic net income per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per share reflects the potential dilution that could occur if unvested restricted shares and outstanding options to purchase common stock were exercised. Options to purchase approximately 0.6 million and 1.2 million shares of common stock that were outstanding for the quarters ended October 3, 2015 and September 27, 2014, respectively, have been excluded from the calculation of diluted income per share because inclusion of such shares would be anti-dilutive. Options to purchase approximately 0.6 million and 0.3 million shares of common stock that were outstanding for the first 39-weeks ended October 3, 2015 and September 27, 2014, respectively, have been excluded from the calculation of diluted income per share because inclusion of such shares would be anti-dilutive.
The following is a reconciliation of the Company’s basic and diluted net income per share computations (shares in thousands):
 
13 Weeks Ended
 
October 3, 2015
 
September 27, 2014
 
Shares
 
Net Income
Per Share
 
Shares
 
Net Income
Per Share
Basic
24,694

 
$
0.20

 
24,323

 
$
0.20

Effect of dilutive stock options
24

 

 
18

 

Diluted
24,718

 
$
0.20

 
24,341

 
$
0.20

 
 
 
39 Weeks Ended
 
October 3, 2015
 
September 27, 2014
 
Shares
 
Net Income
Per Share
 
 
 
Net Income
Per Share
Basic
24,599

 
$
0.63

 
24,202

 
$
0.51

Effect of dilutive stock options
110

 

 
191

 
(0.01
)
Diluted
24,709

 
$
0.63

 
24,393

 
$
0.50

 

10


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 Quarterly Report on Form 10-Q and our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended January 3, 2015 (the “2014 Form 10-K”). All references to the third quarter and the first nine months of 2015 mean the 13-week and 39-week periods ended October 3, 2015, respectively, and all references to the third quarter and the first nine months of 2014 mean the 13-week and 39-week periods ended September 27, 2014, respectively. Unless the context otherwise requires, “West Marine,” “we,” “us” and “our” refer to West Marine, Inc. and its subsidiaries.
Overview
West Marine was founded in 1968 by a sailor and is the largest omni-channel specialty retailer offering boating supplies, gear, apparel, footwear and other waterlife-related products to anyone who enjoys recreational time on or around the water. With 265 stores located in 38 states, Puerto Rico and Canada as of the end of the third quarter of 2015 and two eCommerce websites serving our retail and professional services customers, West Marine is recognized as a leading waterlife outfitter for cruisers, sailors, anglers, paddle sports enthusiasts, and industry service providers. We strive to provide exceptional customer experiences and offer the convenience of both our store and online shopping. In support of our omni-channel business strategy, we will continue our current focus on growing revenues from core boating products and from investment in our three growth strategies.
As previously announced, over the next couple years, to enable us to invest in our growth strategies, we will be closing each of our Canadian stores as leases expire. We also will consider earlier terminations if negotiated with the landlords and asset sales. As of October 3, 2015, we closed seven of our 10 stores in Canada.
Our principal executive offices are located at 500 Westridge Drive, Watsonville, California 95076-4100, and our telephone number is (831) 728-2700.
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We have identified certain policies that require the application of significant judgment by management. Our most critical accounting policies are those related to inventory valuations (including valuation adjustments and capitalization of indirect costs), vendor allowances receivable, costs associated with exit activities, impairment of long-lived assets, income taxes, liabilities for self-insurance or high-deductible losses, and share-based compensation. These critical accounting policies are described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2014 Form 10-K. The following discussion and analysis should be read in conjunction with such description of critical accounting policies and with our unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this report.
Results of Operations
The following table sets forth certain statement of operations components expressed as a percentage of net revenues: 
 
13 Weeks Ended
 
 
39 Weeks Ended
 
 
October 3, 2015
 
 
September 27, 2014
 
 
October 3, 2015
 
 
September 27, 2014
 
Net revenues
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
Cost of goods sold
71.1
 
 
70.3
 
 
69.7
 
 
69.7
 
Gross profit
28.9
 
 
29.7
 
 
30.3
 
 
30.3
 
Selling, general and administrative expense
24.4
 
 
24.7
 
 
25.4
 
 
26.0
 
Income from operations
4.5
 
 
5.0
 
 
4.9
 
 
4.3
 
Interest expense
0.1
 
 
 
 
0.1
 
 
0.1
 
Income before income taxes
4.4
 
 
5.0
 
 
4.8
 
 
4.2
 
Provision for income taxes
1.9
 
 
2.5
 
 
2.1
 
 
2.0
 
Net income
2.5
%
 
2.5
%
 
2.7
%
 
2.2
%

11


Thirteen Weeks Ended October 3, 2015 Compared to Thirteen Weeks Ended September 27, 2014
Net revenues for the third quarter of 2015 were $194.4 million, a decrease of $2.1 million, or 1.1%, compared to net revenues of $196.5 million in the third quarter of 2014. Comparable store sales decreased 0.7%. Sales comparison were impacted negatively this year by a shift in the fiscal calendar and decreased sales by approximately 6% as compared to the third quarter last year. As the boating season entered our peak selling months, we benefited during the first half of the year from this calendar shift. As we moved through the third quarter, we expected negative year-over-year comparisons due to the calendar shift, particularly during the third quarter as we move out of the key boating season. We anticipate our quarterly sales comparisons will be unfavorable by approximately 2% in the fourth quarter. The annualized impact, however, is expected to be negligible.
We saw favorable top-line sales growth in the quarter from each of our three key strategies: eCommerce; merchandise expansion; and store optimization. Additionally, we continued to see sales increases driven by a new promotional strategy test of moving to fewer, larger marketing events at key points during the season. During the third quarter, our eCommerce sales increased by 22.4% and represented 8.2% of our revenues, as compared to 6.6% last year. Sales in our merchandise expansion categories (including footwear, apparel, clothing accessories, fishing products and paddle sports equipment) grew by 7.0%. Merchandise expansion products represented 20.9% of our third quarter total sales, as compared to 19.4% last year. Sales of core products, which represented 79.1% of our total sales and tend to be dependent upon boat-usage, declined by 3.7% during the third quarter as compared to the same period last year. During the third quarter last year, core products represented 80.6% of total sales. Finally, with respect to our store optimization strategy, sales from stores in our optimized markets, where we have moved to a larger format store from multiple, smaller locations, increased to 39.0% of total sales compared to 35.9% last year.
We experienced increased sales to our professional services customers during the second quarter, primarily through our store locations, which we believe resulted from our ongoing efforts to better serve this group of customers through our stores. We had 265 stores open at the end of the third quarter of 2015, compared to 279 stores open at the end of the third quarter of 2014. While store count declined by 5.0% year-over-year, selling square footage decreased by 2.9%.
Gross profit decreased by $2.1 million, or 3.6%, to $56.3 million in the third quarter of 2015, compared to $58.4 million for the same period last year. Gross profit decreased as a percentage of net revenues to 28.9% in the third quarter of 2015, compared to 29.7% for the same period last year. This was driven by a 0.9% increase in raw product cost of goods sold driven by greater clearance-marked merchandise margins, customer mix shift from retail customers to professional services customers as well as a product mix shift from core boating products to include more merchandise expansion products. We also deleveraged due to the the liquidation of inventory from the closure of six stores in Canada. Partially offsetting the increase was a 0.1% decrease for lower inventory shrinkage year-over-year.
Selling, general and administrative expense ("SG&A") was $47.6 million, a decrease of $0.9 million, or 1.9%, compared to $48.5 million for the same period last year. SG&A decreased as a percentage of net revenues to 24.4% in the third quarter of 2015, compared to 24.7% for the same period last year. We recorded $1.7 million of variable compensation expense compared to none last year, when the entire management variable compensation accrual was released earlier in the year due to performance below thresholds. Additionally, productive payroll and benefits were $1.6 million lower and variable costs to support lower sales decreased by $0.8 million, as compared to the prior year period.
Net income for the 13-week period ended October 3, 2015 was $4.9 million, which was flat compared to the same period last year. Our effective income tax rate for the 13-week period ended October 3, 2015 was 43.0%, which resulted in a provision of $3.7 million, while the effective tax rate for the 13-week period ended September 27, 2014 was 49.5%, which resulted in a provision of $4.8 million.
Our effective 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.
Thirty-nine Weeks Ended October 3, 2015 Compared to Thirty-nine Weeks Ended September 27, 2014
Net revenues for the first 39 weeks of 2015 were $574.6 million, an increase of $28.3 million, or 5.2%, compared to net revenues of $546.3 million in the first 39 weeks in 2014. Comparable store sales increased 5.5%. Sales comparisons benefited this year from a shift in the fiscal calendar and increased sales by approximately 0.5% as compared to the first nine months of last year. Sales of core products, which represented 80.1% of our total sales and tend to be dependent upon boat-usage, grew by 2.8% during the first nine months of the year, as compared to the same period last year. During the first nine months last year, core products represented 82.0% of total sales.
As compared to the same period last year, we saw favorable top-line sales growth from each of our three key strategies: eCommerce; merchandise expansion; and store optimization. eCommerce sales increased by 25.1% and represented 8.3% of our revenues, as compared to 7.0% last year. Sales in our merchandise expansion categories (including footwear, apparel, clothing accessories, fishing products and paddle sports equipment) grew by 15.2%. Merchandise expansion products represented 19.9% of our total sales for the first nine months of this year, as compared to 18.0% last year. Finally, with respect to our store optimization

12


strategy, sales from stores in our optimized markets, where we have moved to a larger format store from multiple, smaller locations, increased to 40.8% of total sales compared to 36.1% last year.
Gross profit increased by $8.4 million, or 5.1%, to $174.0 million in the first 39 weeks of 2015, compared to $165.6 million for the same period last year. Gross profit as a percentage of net revenues, however, remained flat at 30.3% for both the first 39 weeks of 2015 and 2014. This was driven by a decrease in occupancy expense of 0.5%, given the higher sales on the relatively fixed cost basis of occupancy, and a 0.3% decrease in unit buying and distribution costs incurred this year. The increase in gross profit margin was offset by a 0.7% increase in raw product cost of goods sold, primarily due to a product mix shift from core boating products to include more merchandise expansion products and a 0.1% increase for higher inventory shrinkage over last year.
SG&A was $146.0 million, an increase of $3.8 million, or 2.7%, compared to $142.3 million for the same period last year. SG&A decreased as a percentage of net revenues to 25.4% in the first 39 weeks of 2015, compared to 26.0% for the same period last year. We have incurred $3.9 million in higher variable compensation expense given this year’s current financial performance, as compared to none accrued in the prior year. We also incurred $2.3 million higher depreciation associated with the increased capital expenditures over the past several years. Partially offsetting these increases to variable compensation and depreciation were a $1.5 million decrease in variable costs and a $1.0 million decrease in productive payroll and benefits.
Net income for the 39-week period ended October 3, 2015 was $15.6 million, a $3.4 million increase when compared to the same period last year. Our effective income tax rate for the 39-week period ended October 3, 2015 was 43.6%, which resulted in a provision of $12.0 million, while the effective tax rate for the 39-week period ended September 27, 2014 was 46.8%, which resulted in a provision of $10.8 million.
Liquidity and Capital Resources
We ended the third quarter of 2015 with $60.5 million of cash, compared to $63.6 million at the end of the third quarter of 2014. Working capital (the excess of current assets over current liabilities) increased to $244.3 million at the end of the third quarter of 2015, compared to $228.6 million last year. The increase in working capital from the third quarter of 2014 to the third quarter of 2015 primarily was attributable to $21.8 million of higher merchandise inventory, principally in our core merchandise categories to support our 2015 season and holiday early merchandise buys, partially offset by a $3.1 million decrease in cash and an increase of $4.7 million in accounts payable and accrued expenses.
Operating Activities
During the first nine months of 2015, net cash provided by operating activities was $29.0 million, compared to $38.9 million of cash provided by operating activities during the same period last year. The decrease in cash provided by operating activities year-over-year primarily was due to current year changes in merchandise inventories of $24.8 million offset by higher net income of $3.4 million and changes in other current assets of $7.6 million, accounts payable of $5.1 million, and accrued expenses of $5.6 million. During the first nine months of 2014, the higher cash provided by operating activities year-over-year primarily was due to changes in merchandise inventories of $13.3 million, other current assets of $3.0 million and changes accounts payable of $12.6 million and accrued expenses of $9.1 million, partially offset by lower net income.
Investing Activities
Net cash used in investing activities was $15.6 million for the first nine months of 2015, compared to net cash used of $20.8 million for the first nine months of 2014.
We spent $15.6 million on capital expenditures during the first nine months of 2015 and $20.8 million during the first nine months of 2014. Under our store optimization strategy, we opened two flagship stores, completed nine store revitalization projects and finished six revitalization-light projects. During the first nine months of 2014, we opened two flagship stores, four large-format stores and completed 11 revitalization projects. During the remaining three months of 2015, we expect to spend approximately $9.0 million on capital expenditures, mainly for our store optimization program and information technology enhancements. We will continue to invest in eCommerce and our network infrastructure, but at a slower pace than in 2014.
Financing Activities
Net cash provided in financing activities was $1.3 million for the first nine months of 2015, mostly attributable to proceeds from the exercise of stock options. For the first nine months of 2014, net cash used in financing activities was $2.9 million, mostly attributable to stock repurchases and partially offset by proceeds from the exercise of stock options.
Credit Agreement
We maintain an asset-backed line of credit with Wells Fargo Bank, N.A., which provides us with a secured revolving credit facility of up to $120 million, which matures November 30, 2017. In addition, at our option and subject to certain conditions, we may increase our borrowing capacity up to an additional $25.0 million. The amount available to be borrowed is based on a percentage of our inventory (excluding capitalized indirect costs) and accounts receivable. The revolving credit facility is available

13


for general working capital and general corporate purposes. At our election, borrowings under the revolving credit facility will bear interest at one of the following options:
1.The prime rate, which is defined in the loan agreement as the highest of:
a.Federal funds rate, as in effect from time to time, plus one-half of one percent;
b.LIBOR rate for a one-month interest period plus one percent; or
c.The rate of interest in effect for such day as publicly announced from time to time by Wells Fargo as its “prime rate,” or
2.The LIBOR rate quoted by the British Bankers Association for the applicable interest period.
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 credit facility. The margin range for option (1) above is between 0.5% and 1.0% and for option (2) above is between 1.5% and 2.0%. The loan agreement also imposes a fee on the unused portion of the revolving credit facility available. For both the third quarter of 2015 and 2014, the weighted-average interest rate on all of our outstanding borrowings was 3.7%. For both the first nine months of 2015 and 2014, the weighted-average interest rate on all of our outstanding borrowings was 3.7%.
Although the loan agreement contains customary covenants, including, but not limited to, restrictions on our ability to incur liens, make acquisitions and investments, pay dividends and sell or transfer assets, it does not contain debt or other similar financial covenants, such as maintaining certain specific leverage, debt service or interest coverage ratios. Instead, our loan is asset-based (which means our lenders maintain a security interest in our inventory and accounts receivable which serve as collateral for the loan), and the amount we may borrow under our revolving credit facility at any given time is determined by the estimated value of these assets as determined by the lenders’ appraisers. Additionally, we must maintain a minimum revolving credit availability equal to the greater of $7 million or 10% of the borrowing base. In addition, there are customary events of default under our loan agreement, including failure to comply with our covenants. If we fail to comply with any of the covenants contained in the loan agreement, an event of default occurs which, if not waived by our lenders or cured within the applicable time periods, results in the lenders having the right to accelerate repayment of all outstanding indebtedness under the loan agreement before the stated maturity date and the revolving credit facility could be terminated. As of October 3, 2015, we were in compliance with the covenants under our loan agreement, had no amounts outstanding under our revolving credit facility and $115.8 million available for future borrowings. The highest outstanding balance during the third quarter of 2015 and 2014 was $0.2 million and less than $0.1 million, respectively. The highest outstanding balance during the first nine months of 2015 and 2014 was $0.2 million and $0.3 million, respectively.
We may borrow against the aggregate borrowing base up to the maximum revolver amount, which was $120.0 million at October 3, 2015 and January 3, 2015 and September 27, 2014. Our borrowing base at the periods then ended consisted of the following (in millions): 
 
October 3, 2015
 
January 3, 2015
 
September 27, 2014
Accounts receivable availability
$
7.1

 
$
5.0

 
$
7.4

Inventory availability
135.6

 
118.4

 
122.7

Less: reserves
(5.7
)
 
(6.4
)
 
(5.8
)
Less: minimum availability
(13.7
)
 
(11.7
)
 
(12.4
)
Less: suppressed availability
(3.3
)
 

 

Total borrowing base
$
120.0

 
$
105.3

 
$
111.9

Our aggregate borrowing base was reduced by the following obligations (in millions): 
Ending loan balance/(overpayment)
$

 
$

 
$

Outstanding letters of credit
4.2

 
4.2

 
4.2

Total obligations
$
4.2

 
$
4.2

 
$
4.2

 
 
 
 
 
 
Accordingly, our availability as of October 3, 2015, January 3, 2015 and September 27, 2014, respectively, was (in millions):
 
 
 
 
 
Total borrowing base
$
120.0

 
$
105.3

 
$
111.9

Less: obligations
(4.2
)
 
(4.2
)
 
(4.2
)
Total availability
$
115.8

 
$
101.1

 
$
107.7



14


EBITDA
In addition to disclosing financial results that are determined in accordance with accounting principles generally accepted in the U.S. ("GAAP"), we are providing EBITDA, which is a non-GAAP financial measure, as a supplemental measure to help investors evaluate our fundamental operational performance. EBITDA is defined as net income (loss) plus interest expense, income tax (benefit), and depreciation and amortization. EBITDA is not a presentation made in accordance with GAAP, is not a measure of financial performance or condition, liquidity or profitability, and should not be considered as an alternative to (1) net income, operating income or any other performance measures determined in accordance with GAAP or (2) operating cash flows determined in accordance with GAAP. Additionally, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements or replacement of fixed assets. By eliminating interest, income taxes, depreciation and amortization, we believe the result is a useful measure across time in evaluating our fundamental core operating performance.
Our presentation of EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Because not all companies use identical calculations, the presentation of EBITDA may not be comparable to other similarly titled measures of other companies. Management believes that the presentation of EBITDA is useful to investors because these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of the operating performance of companies in industries similar to ours. Management also uses EBITDA to evaluate our operations. However, as indicated, EBITDA does not include interest expense on borrowed money, the payment of income taxes, amortization of our definite-lived intangible assets, or depreciation expense on our capital assets, which are necessary elements of our operations. Since EBITDA does not account for these and other expenses, its utility as a measure of our operating performance has limitations. Due to these limitations, management does not view EBITDA in isolation but also uses other measurements, such as net income, revenues and gross profit, to measure operating performance.
The following table sets forth a reconciliation of net income, the most directly comparable GAAP financial measure, to EBITDA (in millions):
 
13 Weeks Ended
 
39 Weeks Ended
 
October 3, 2015
 
September 27, 2014
 
October 3, 2015
 
September 27, 2014
Net income
$
4.9

 
$
4.9

 
$
15.6

 
$
12.2

Add:
 
 
 
 
 
 
 
Interest expense
0.1

 
0.1

 
0.3

 
0.3

Depreciation and amortization
5.2

 
4.6

 
15.2

 
13.2

Income tax expense
3.7

 
4.8

 
12.0

 
10.8

EBITDA
$
13.9

 
$
14.4

 
$
43.1

 
$
36.5


Off-Balance Sheet Arrangements
Operating leases are the only financing arrangements not reported on our condensed consolidated balance sheets. 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 October 3, 2015, we were not involved in any unconsolidated special purpose entities or variable interest entities.
Substantially all of the real property used in our business is leased under operating lease agreements, as described in Item 2, “Properties” and Note 6 to our consolidated financial statements in the 2014 Form 10-K.
Seasonality
Currently our business is highly seasonal. In 2014, approximately 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 markets.

15


Business Trends
We believe that there are fundamental trends continuing to emerge in our industry that are affecting our customers and their purchase patterns. These trends reinforce our realization that the core boat parts and accessories business is not going to be sufficient to meet our goals of achieving steady, profitable growth. We believe that we can accomplish our goals by accelerating the execution of our growth strategies to continue to position West Marine as a broader waterlife outfitter, as well as the leading boat parts specialty retailer. This will expand our potential customer base and reduce our dependence on weather.
Our key growth strategies, including our 15/50 plan, have delivered solid results:
eCommerce: The first number in the 15/50 plan refers to our objective to grow our eCommerce business to 15% of total sales by the end of 2019. Sales from eCommerce were up by 25.1% for the first nine months as compared to last year, and represented 8.3% of total sales this year, up from 7.0% for the same period last year.
Store optimization: The second number in the 15/50 plan reflects our goal of deriving 50% of total sales from our consolidated or revitalized stores by the end of 2019. Collectively, we refer to these as "experience stores" because they provide a new shopping experience for our customers, both in terms of store design and expanded product assortment. For the first nine months of 2015, sales through optimized stores represented 40.8% of total sales, compared to 36.1% for the first nine months of 2014.
Merchandise expansion: Sales in our merchandise expansion categories (including soft goods, fishing, paddle sports, and accessories) support our eCommerce and store optimization strategies and grew by 15.2% for the first 39 weeks ended October 3, 2015. Sales from our core categories increased by 2.8% during the same period.
We continue to drive inter-dependence across our growth strategies. Specifically, our eCommerce and store optimization strategies enable us to better present our merchandise expansion product offerings, and all of our strategies attract new customers to build our customer base. For full-year 2014, sales of merchandise expansion products represented 17.2% of our eCommerce sales and 23.8% of the sales in our stores.
Given the success of our growth strategies and the need to continue to drive them at a faster pace in order to position our business to provide steady profitable growth, our financial plans for 2015 reflect the investment of significant resources in these strategies, including approximately $25 million of capital investments for the year. Approximately $10 million to $12 million of these investments are targeted toward our expanded store optimization program, which includes approximately three store consolidation projects and 14 store revitalizations. During the first nine months of 2015, we completed two of the three store consolidations and nine store revitalization projects. We will direct approximately $9 million to upgrade our information technology infrastructure (including hardware and software), to enhance security of sensitive information and to deliver further improvements to our eCommerce websites. Both the eCommerce and store optimization strategies allow us to continue to increase sales through our merchandise expansion strategy and our core business. These strategies and our investments in them support our realization of an omni-channel retail model, which is designed to provide a seamless customer experience across all shopping channels, and better position us to deliver incremental sales and operating margin improvement, both in the short and long term. The remainder of our 2015 capital investments will be directed toward other maintenance and infrastructure needs.
For more information see the "Overview," “Fiscal 2014 Compared with Fiscal 2013 - Revenues,” and "Business Trends" discussions in "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations” in the 2014 Form 10-K.
Internet Address and Access to SEC Filings
Our Internet address is 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 amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) 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, sec.gov.
Forward-Looking Statements
All statements other than those that are purely historical are forward-looking statements. Words such as “expect,” “anticipate,” “believe,” “estimate,” “plan,” “project,” "will," and similar expressions also identify forward-looking statements. These forward-looking statements include, among other things, expectations related to our earnings, growth and profitability, statements that relate to West Marine's future plans, expectations and objectives; expectations and projections with respect to our ability to continue to appropriately invest in, and execute on, our key growth strategies; experience increased sales from expanded merchandise assortments; continue to successfully execute our store optimization strategy; successfully and fully execute our 15/50 plan; continue to invest in our technology infrastructure, inventory, maintain in-stock levels; improve financial performance; increase sales through all channels and control operating expenses; 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.

16


West Marine's operations could be adversely affected if participation in the boating industry declines, if boat usage decreases, if fuel prices were to significantly increase, or if unseasonably cold weather, prolonged winter-like conditions, natural disasters such as hurricanes, man-made disasters or extraordinary amounts of rainfall occur during the peak boating season in the second and third quarters. Risk factors that may affect our operating results in the future include the risk factors set forth in the 2014 Form 10-K, 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.
Recently Issued Accounting Pronouncements
Please see Note 1 to our condensed consolidated financial statements in Part I, Item 1 of this report for a discussion of new and recently-issued accounting pronouncements.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not undertake any specific actions to diminish our exposure to interest rate or currency rate risk, and we are not a party to any interest rate or currency 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 the 2014 Form 10-K.
At the end of the third quarter ended October 3, 2015, we had no outstanding long-term debt and as such would not be impacted by a change in interest rates. We have up to $120.0 million in borrowing capacity under our credit facility. There are various interest rate options available, as described above.
Our only significant risk exposure is from U.S. dollar to Canadian dollar exchange rate fluctuations. A 10% increase in the exchange rate of the U.S. dollar versus the Canadian dollar would have an effect of reducing our pre-tax income and cash flows by approximately $0.3 million over the next year.
ITEM 4 – CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We conducted, under the supervision and with the participation of our management, including the Chief Executive Officer and Principal Financial Officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on our evaluation, our Chief Executive Officer and Principal Financial Officer concluded that, as of October 3, 2015, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the third quarter of 2015 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


17


PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS
Please see Part I, Item 1, Note 5 to our condensed consolidated financial statements for a discussion of our legal proceedings.
ITEM 1A – RISK FACTORS
We have included in Part I, Item 1A of the 2014 Form 10-K, a description of certain risks and uncertainties that could affect our business, future performance or financial condition, referred to as “Risk Factors.” Investors should consider these Risk Factors prior to making an investment decision with respect to our common stock. There has been no material change in our Risk Factors since we filed the 2014 Form 10-K.
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 – MINE SAFETY DISCLOSURE
None.
ITEM 5 – OTHER INFORMATION
None.

18


 
ITEM 6 – EXHIBITS
 
 
3.1
Certificate of Incorporation of West Marine, Inc., as amended (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K filed March 18, 2004).
 
 
3.2
Bylaws of West Marine, Inc., as amended (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated December 6, 2012 and filed on December 11, 2012).
 
 
4.1
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 29, 2012).
 
 
10.1*

Offer Letter, dated September 4, 2015 and approved September 8, 2015, between West Marine, Inc. and Jeffrey Lasher (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated September 4, 2015 and filed on September 8, 2015).
 
 
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 Principal 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 Principal Financial Officer Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended.
 
 
101.INS†
XBRL Instance Document.
 
 
101.SCH†
XBRL Taxonomy Extension Schema Document.
 
 
101.CAL†
XBRL Taxonomy Calculation Linkbase Document.
 
 
101.DEF†
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
101.LAB†
XBRL Taxonomy Label Linkbase Document.
 
 
101.PRE†
XBRL Taxonomy Presentation Linkbase Document.
 
*
Indicates a management contract or compensatory plan or arrangement within the meaning of Item 601(b)(10)(iii) of Regulation S-K.
Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the condensed consolidated balance sheets as of October 3, 2015, January 3, 2015 and September 27, 2014; (ii) the condensed consolidated statements of income for the 13 weeks ended October 3, 2015 and September 27, 2014 and 39 weeks ended October 3, 2015 and September 27, 2014; (iii) the condensed consolidated statements of comprehensive income for the 13 weeks ended October 3, 2015 and September 27, 2014 and 39 weeks ended October 3, 2015 and September 27, 2014; and (iv) the condensed consolidated statements of cash flows for the 39 weeks ended October 3, 2015 and September 27, 2014.

19


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:
November 3, 2015
 
WEST MARINE, INC.
 
 
 
 
 
 
 
 
By:
/s/ Matthew L. Hyde
 
 
 
 
Matthew L. Hyde
 
 
 
 
Chief Executive Officer
 
 
 
 
 
 
 
 
By:
/s/ Deborah Ajeska
 
 
 
 
Deborah Ajeska
 
 
 
 
Principal Financial Officer

20