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 December 31, 2016 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 December 31, 2016 (the “2016 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 December 31, 2016 that were included in the 2016 Form 10-K.

On June 29, 2017, the Company entered into an agreement and plan of merger (the "Merger Agreement") with Rising Tide Parent Inc., a Delaware corporation (“Parent”), and Rising Tide Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Sub”). Parent and Sub are entities affiliated with Monomoy Capital Partners, a New York-based private equity fund ("Monomoy"). For more information, see Note 8.

Accounting policies followed by the Company are described in Note 1 in the audited consolidated financial statements for the year ended December 31, 2016. 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 26-week periods ended July 1, 2017 are not necessarily indicative of the results to be expected for any other interim period or for the fiscal year ending December 30, 2017. 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 2017 fiscal year and 2016 fiscal year consist of 52 weeks ending on December 30, 2017 and December 31, 2016, respectively. All quarters of both fiscal years 2017 and 2016 consist of 13 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 July 1, 2017, December 31, 2016 and July 2, 2016, cash balances were $113.3 million, $76.1 million and $89.6 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 the Company's Chief Executive Officer (as the 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 activities, 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 customer.

The Company considers its merchandise expansion strategy to be important to the future success of the Company and is providing the following product category information. Net revenues from the Company's merchandise mix for the periods ended July 1, 2017 and July 2, 2016, respectively, is reflected in the table below:



	13 Weeks Ended				26 Weeks Ended
Net Revenues from:	July 1, 2017		July 2, 2016		July 1, 2017		July 2, 2016
Core boating products	77.0	%	77.2	%	77.7	%	77.9	%
Merchandise expansion products	23.0	%	22.8	%	22.3	%	22.1	%
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

ASU 2014-09, Revenue from Contracts with Customers (Topic 606)

ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date

ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing

ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients

In May 2014, FASB issued an accounting standards update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 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): Deferral of the Effective Date, which deferred 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 did not early adopt the standard; therefore, the new standard will be effective for the Company's 2018 fiscal year. The standard permits the use of either the full retrospective or modified retrospective approach. The Company currently expects to adopt the new standard using the modified retrospective approach.

In April 2016, FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies the following two aspects of Topic 606: identifying performance obligations; and licensing implementation guidance. The Company did not early adopt the standard; therefore, the new standard will be effective for the Company's 2018 fiscal year. The Company is currently assessing and evaluating the new standard and has not yet concluded whether the adoption of ASU 2016-10 will have a material impact on the Company's consolidated financial statements. The Company currently expects to adopt an accounting policy to account for shipping and handling activities that occur after the customer has obtained control of a good as an activity to fulfill the promise to transfer the good, rather than as an additional promised service. This guidance does not represent a change from current practice for the Company. The Company does not have any license or royalty revenue.

In May 2016, FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which focuses on clarifying the guidance on assessing collectability, presentation of sales taxes, non-cash consideration, and completed contracts and contract modification at transition. The Company did not early adopt the standard; therefore, the new standard will be effective for the Company's 2018 fiscal year. The Company has not yet concluded whether the adoption of ASU 2016-12 will have a material impact on its consolidated financial statements. Consistent with its current accounting policy, the Company currently expects to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price.

In February 2016, FASB issued ASU 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability among organizations by recognizing all lease assets and liabilities on the balance sheet for leases with a term of more than 12 months. In addition, the update will require additional disclosures regarding key information about leasing arrangements. Under existing guidance, operating leases with a term of more than 12 months are not recorded as lease assets and lease liabilities on the balance sheet. The update will be effective for the Company beginning in the first quarter of fiscal year 2019, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this accounting guidance on its consolidated financial statements. The Company expects the adoption of this accounting guidance to result in an increase in lease assets and a corresponding increase in lease liabilities on its consolidated balance sheets.

In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,which is intended to decrease the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this update provide guidance on specific cashflow issues. The amendments in ASU 2016-15 are effective for the Company for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, and should be applied using the retrospective transition method for each period presented. Early adoption is permitted, but all amendments must be adopted in the same period. The Company is not planning to early adopt and is currently evaluating the impact that the amendments will have on its consolidated financial statements.

In May 2017, FASB issued ASU 2017-09, Stock Compensation (Topic 718): Scope of Modification Accounting, which is intended to provide clarity and reduce diversity in practice when applying the guidance in Topic 718 to a change to the terms or conditions of a share-based payment award. The effective date for ASU 2017-09 is for fiscal years beginning after December 15, 2017, with early adoption permitted. West Marine will apply the guidance prospectively at the beginning of its 2018 fiscal year.