[West Marine Letterhead]
January 23, 2009
VIA FACSIMILE: (202) 772-9203
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Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Attention: H. Christopher Owings
Assistant Director
--------------------------------
Re: West Marine, Inc.
Form 10-K for the Fiscal Year Ended December 29, 2007
Filed April 4, 2008
Definitive Proxy Statement filed on Schedule 14A
Filed April 22, 2008
Form 10-Q for Fiscal Quarters Ended March 29, June 28 and September 27, 2008
Filed May 7, August 4 And November 4, 2008
File No. 0-22512
Dear Mr. Owings:
We have received your comments with respect to the above-referenced
filings set forth in a letter dated December 29, 2008 and addressed to Geoffrey
A. Eisenberg, our chief executive officer. The remainder of this letter contains
the text of your comments followed by our corresponding responses.
Form 10-K for Fiscal Year Ended December 27, 2007
- -------------------------------------------------
Item 1A. Risk Factors, page 4
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1. We note the risk factor you include on page 10, which discusses the
consequences of your failure to file your periodic reports in a timely manner.
You state that your failure to timely file your periodic reports "could result
in an event of default under [y]our credit facility" (emphasis added). Please
revise to state in concrete terms whether such a default has occurred, the
quantified consequences of such a default and whether the default can be cured
or waived.
RESPONSE
--------
We included the referenced risk factor at a time when we were restating our
financial statements for the reasons described in Note 2 to the
consolidated financial statements included in our annual report on Form
10-K for the fiscal year ended December 29, 2007 (the "2007 Form 10-K").
The restatement was more complicated and took longer than we initially
anticipated and, as a result, the 2007 Form 10-K was not timely filed last
year. Our year-end closing process is currently on-track, and we expect to
timely file our annual report on Form 10-K for the fiscal year ended
January 3, 2009 (the "2008 Form
Securities and Exchange Commission
January 23, 2009
Page 2
10-K"). Accordingly, we do not expect to include the referenced risk factor
in the 2008 Form 10-K. However, to answer your inquiry, our loan agreement
requires us to provide our consolidated audited financial statements to the
lenders within 90 days following each fiscal year end, but no event of
default occurs if the required financial statements are provided within
five business days of the due date. Our fiscal 2007 consolidated financial
statements were provided on April 4, 2008, within the five-business-day
cure period. As a result, there was no event of default.
Additionally, in "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital
Resources-Financial arrangements," we will revise and expand the disclosure
describing the restrictive covenants of our loan agreement in future
filings, beginning with the 2008 Form 10-K, substantially as follows:
The loan agreement contains customary covenants, including but not
limited to, restrictions on our ability and that of our subsidiaries
to incur liens, make acquisitions and investments, pay dividends and
sell or transfer assets. Additionally, minimum revolving credit
availability equal to the lesser of $15.0 million or 7.5% of the
borrowing base must be maintained. 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 these
covenants, 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 credit facility before the stated maturity
date. A default under our loan agreement also could significantly and
adversely affect our ability to obtain additional or alternative
financing. For example, the lenders' obligation to extend credit is
dependent upon our compliance with these covenants. As of January 3,
2009, we were in compliance with our loan covenants.
Management's Discussion and Analysis of Financial Condition and Results of
- -------------------------------------------------------------------------------
Operations, page 16
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2. Please expand this section to discuss known material trends and
uncertainties that will have, or are reasonably likely to have, a material
impact on your revenues or income or result in your liquidity decreasing or
increasing in any material way. We note that you discuss business trends in your
quarterly reports filed on Form 10-Q. For example, the trend disclosed in your
10-Qs that you are experiencing lower sales because of economic conditions.
Considering your Form 10-K (on page 30) states that your primary source of
liquidity has been cash flow from operations, please discuss the consequences
such lower sales will have upon liquidity, your continued plans for expansion,
if any, and any other relevant consequences. Discuss whether you expect these
trends to continue and [their] impact on your business. Please provide
additional analysis concerning the quality and variability of your earnings and
cash flows so that
Securities and Exchange Commission
January 23, 2009
Page 3
investors can ascertain the likelihood of the extent past performance is
indicative of future performance. Please discuss whether you expect levels to
remain at this level or to increase or decrease. Further, please discuss in
reasonable detail:
* Economic or industry-wide factors relevant to your company, and
* Material opportunities, challenges, and
* Risk in short and long term and the actions you are taking to address
them.
See Item 303 of Regulation S-K and SEC Release No. 33-8350.
RESPONSE
--------
In future filings, beginning with the 2008 Form 10-K, we will expand our
disclosures to provide enhanced information regarding known material trends
and uncertainties that are reasonably likely to have a material impact on
our revenues or income or result in our liquidity decreasing or increasing
in any material way. For example, on page 27 of the 2007 Form 10-K, we
described the following:
The decline in comparable store sales reflects the 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
is indicative of reduced boat usage. These trends were particularly
evident in Florida, which is a key boating market. We expect consumers
to continue to reduce spending on boating supplies; the duration of
reduced spending is difficult to predict, and we believe, is somewhat
dependent on general improvements in the overall economy.
We further updated our disclosures of economic and industry-wide factors
impacting our business in the "Business Trends" sections of our quarterly
reports. We discussed that the U.S. boating industry is experiencing a down
cycle, as evidenced by lower sales trends in each of our business segments
compared to last year, lower new and used boat sales, and declining boat
registrations in key states. In this regard, our discussion of results of
operations in the 2007 Form 10-K included a quantitative discussion of
comparative sales in each business segment, and we will enhance and
cross-reference that discussion in future filings, beginning with the 2008
Form 10-K, to highlight identified trends, as appropriate.
We also have described our efforts to respond to recent challenges. These
initiatives included, among other things, controlling our operating
expenses, closing 25 to 30 stores, reducing overhead, closing our Maryland
distribution center and our Florida call center, and implementing service
model changes in our wholesale (Port Supply) business segment. In addition,
we quantified certain costs we incurred or expected to incur in fiscal 2008
for the closures of the stores, the Maryland distribution center and the
Florida call center. These disclosures will be updated in the 2008 Form
10-K, and if subsequent
Securities and Exchange Commission
January 23, 2009
Page 4
or similar initiatives are deemed necessary or appropriate, we will include
similar disclosure in future filings.
We also refer you to the additional risk factor included in our quarterly
report on Form 10-Q for the quarter ended September 27, 2008, which reads:
We believe worsening economic conditions and turmoil in the financial
markets may further adversely impact discretionary consumer spending
in an already challenging climate for the boating industry. However,
it is unclear the extent to which these circumstances will persist and
what overall impact they will have on future discretionary consumer
spending.
At the time of filing the 2007 Form 10-K, the extent of the market downturn
and subsequent financial market crisis was not known or otherwise
predictable. However, during the course of the remainder of 2008, as we
began to see the impact of the financial collapse on the broader and
worsening economy and on our business, we appropriately updated our
disclosure, as described above. We will provide an overview of these
efforts, quantified to the extent practicable, in the 2008 Form 10-K of the
short and long term risks associated with the current economic and
industry-wide factors relevant to our company, and we will disclose the
actions we are taking to address them substantially as follows (subject to
any revisions as may be appropriate to reflect changing conditions
affecting the economy, our industry or our company specifically, which may
occur between the date of this letter and the filing of the 2008 Form
10-K):
Sales Revenues. At a fundamental level, we believe that the weakness
in the economy has had, and will continue to have, a depressing effect
on our sales revenue, with corresponding risks to our earnings and
cash flow. We believe our customer traffic and sales are most closely
tied to boat usage, which is a discretionary spending item. As
consumers have to make economic tradeoffs, we believe that spending on
boating-related activities is being reduced.
There are a number of steps we are taking to respond to lower sales
expectations, to ensure orderly management of the business and
preserve our financial strength to survive the current downturn and
maximize the benefit if and when the marketplace recovers. The common
theme has been to reduce expenses and maximize cash flow. Two
initiatives through which we are accomplishing this are: the
restructuring that was executed in 2008 (e.g., store, distribution
center and call center closings, as well as overhead expense
reductions); and the conservative budget put into place for 2009,
which focuses on expense control and cash management designed to
deliver positive cash flow, debt reduction and higher inventory
turnover despite continued negative sales trends.
Securities and Exchange Commission
January 23, 2009
Page 5
Liquidity and Capital Resources. Our cash needs for working capital
are supported by a secured line of credit. There is risk to this
capital resource resulting from current market conditions in that the
amount we have available to borrow from this credit facility primarily
is driven by the estimated liquidation value of our inventory.
External factors, such as increased liquidations and bankruptcies in
the marketplace, could put downward pressure on this liquidation value
and thus our associated borrowing availability. However, we are taking
steps to mitigate this risk. First, we are focusing on maximizing cash
flow and minimizing borrowing needs through inventory productivity
management, expense controls and reduced capital spending. Second, we
are improving the quality of our inventory by reducing the proportion
of overstocked or discontinued goods. Third, we are maintaining
frequent communications with our lenders to keep them apprised of our
business plans as well as to monitor their ability to fund the loan
commitment.
We will continue to provide disclosure similar to that described above, as
appropriate, and to provide greater detail regarding the impact that
evolving business trends are expected to have on our liquidity and future
plans. We also will endeavor to provide additional analysis regarding the
quality and variability of our earnings and cash flows, and we will discuss
with greater clarity whether we expect levels to remain at this level or to
increase or decrease. At the current time, by way of example and as
explained above, we expect earnings and cash flows to remain under pressure
from lower sales volume, as the economy works through this recession, and
we will continue our efforts to control costs and maximize cash flows.
Liquidity and Capital Resources, page 30
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3. We note the discussion you include under "Financing arrangements" and
your $225 million credit facility. Please revise your disclosure to clearly
explain how you determined that you had $91.8 million available for future
borrowings. We note that you discuss the amount you currently have outstanding
as well as the minimum revolving credit provision and the fact that $50 million
of this amount is allocated to a sub-facility available for the issuance of
commercial and stand-by letters of credit, however, the manner in which you
arrived at this remaining balance could be stated with greater clarity.
RESPONSE
--------
We will state with greater clarity the manner in which we determine
availability for future borrowings in our future filings, beginning with
the 2008 Form 10-K, by providing disclosure substantially similar to the
following example. This example is based on our most recent results (third
quarter 2008), as year-end results are still being finalized. This
disclosure will appear under "Management's Discussion and Analysis of
Financial
Securities and Exchange Commission
January 23, 2009
Page 6
Condition and Results of Operations-Liquidity and Capital Resources-
Financial arrangements" in future filings, beginning with the 2008 Form
10-K.
At September 27, 2008, borrowings under this credit facility were
$29.3 million, bearing interest at rates ranging from 3.5% to 5.0%,
and $98.8 million was available to be borrowed. This availability was
calculated as follows:
Our aggregate borrowing base not to exceed $225 million was $148.8
million as of September 27, 2008 and consisted of the following
(dollars in millions):
Accounts receivable availability: $ 6.8
Inventory availability: 146.2
Less: reserves (4.2)
------
Total borrowing base: $148.8
------
------
Our aggregate borrowing base was reduced by the following obligations
(dollars in millions):
Ending loan balance: $ 29.3
Outstanding letters of credit 5.7
------
Total obligations $ 35.0
------
------
Accordingly, our availability as of September 27, 2008 was (dollars in
millions):
Total borrowing base: $ 148.8
Less: obligations (35.0)
Less: minimum availability (15.0)
------
Availability $ 98.8
------
------
Item 9A. - Controls and Procedures, page 63
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4. We note your indication that you are in the process of implementing
changes to your internal control over financial reporting as a result of the
material weaknesses and deficiencies you identified. Where changes to your
internal controls are ongoing, you should indicate when you expect to finish
formalizing such policies. Please confirm that, in future filings, you will
revise your discussion accordingly.
RESPONSE
--------
In future filings, where we identify ongoing changes to our internal
control over financial
Securities and Exchange Commission
January 23, 2009
Page 7
reporting that are reasonably likely to affect our internal control
over financial reporting, we will disclose our estimate of when we
expect to finish formalizing such policies or procedures.
5. Considering you also state that your disclosure controls and procedures
were ineffective as of December 29, 2007, please separately discuss the changes
you are implementing, if different from those already discussed with respect to
your internal controls, to remedy the deficiencies you identified.
RESPONSE
--------
We determined that our disclosure controls and procedures were not
effective as of December 29, 2007 because of the material weaknesses
that we identified in our internal control over financial reporting.
We did not identify any other deficiencies in our disclosure controls
and procedures. Accordingly, the changes that we have implemented to
remediate our internal control over financial reporting will remediate
our disclosure controls and procedures as well. In future filings, if
applicable, we will either clarify that the material weaknesses in
internal control over financial reporting are the same as those
identified in our disclosure controls and procedures or separately
discuss changes to remediate material weaknesses identified in our
disclosure controls and procedures.
Exhibit 31.1
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6. Your certification should appear exactly as set forth in current Item
601(b)(31) of Regulation S-K. In this regard, please delete the word "quarterly"
from paragraph 4(a). The last clause in the paragraph should read "particularly
during the period in which this report is being prepared."
RESPONSE
--------
We will delete the word "quarterly" and revise the last clause of the
certification as requested in future filings, beginning with the 2008
Form 10-K.
Definitive Proxy Statement filed on Schedule 14A
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Compensation Discussion and Analysis, page 13
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7. We note your disclosure on page 14 that total "compensation is allocated
between cash and non-cash and short-term and long-term incentive compensation."
Please clarify your policies for allocating between long-term and currently paid
out compensation. See Item 402(b)(l)(v) and 402(b)(2)(i) of Regulation S-K.
Securities and Exchange Commission
January 23, 2009
Page 8
RESPONSE
--------
Our Governance and Compensation Committee (the "G&CC") does not have a
formal policy or formula for allocating our executives' total
compensation between cash and non-cash and short-term and/or long-term
compensation. As generally described on page 14 of last year's proxy
statement, the G&CC uses a variety of sources of market data to assist
in determining total cash compensation and long-term compensation
(which in our case has consisted solely of stock options). However,
the G&CC does not start with a total compensation target for each
executive and then allocate amounts to the various elements of
compensation. Rather, the G&CC determines each element of compensation
separately and then assesses the total against comparative data to
ensure that total compensation is within the norms of the retail
industry and for companies of the same relative size, as further
discussed in our response to comment 8 below. In future filings,
beginning with the proxy statement for our annual meeting of
stockholders later this year (the "2009 Proxy Statement"), the
Compensation Discussion and Analysis (the "CD&A") will describe this
methodology more clearly. Further, if and to the extent, any element
of an executive's compensation is changed to bring it within industry
or peer company norms, the CD&A will appropriately discuss any such
adjustment.
8. Further, you make several references throughout your discussion to
"benchmark information," "industry compensation surveys and publicly available
sources" and information that you obtained from "peer companies." Where you use
these terms, please clarify whether you are referring to the sources you list on
pages 13-14 such as the "study of proxy statement data" or the "2006 Retail
Compensation and Benefits Survey" or other sources or any combination of the
former. Further, clarify whether you engage in benchmarking in setting
compensation and, if so, please identify the benchmark and its components, such
as the companies that comprise the 2006 Retail Compensation and Benefits Survey.
In this regard, we note your indication that you use "this benchmark information
as a point of reference for compensation." See Item 402(b)(2)(xiv) of Regulation
S-K and Question 118.05 of our Regulation S-K Compliance and Disclosure
Interpretations located at our web-site, www.sec.gov.
RESPONSE
--------
The references cited in your comment are to the specialty retail
companies analyzed by Compensation Venture Group ("CVG") for its study
and those represented in Mercer's annual study for the National Retail
Federation, as described from the bottom of page 13 to the top of page
14 of last year's proxy statement. In future filings, beginning with
the 2009 Proxy Statement, the CD&A will clarify which study or other
comparative data is being discussed and use consistent terminology for
each particular resource.
The G&CC used both the CVG and the National Retail Federation studies
to create an overall framework for making decisions regarding total
compensation and long-term incentive compensation. For benchmarking
purposes, the G&CC relied heavily on the CVG study, because the CVG
study was individually tailored for the company. The
Securities and Exchange Commission
January 23, 2009
Page 9
G&CC, in turn, used the National Retail Federation study more as
background information to develop an understanding of current
compensation practices in the industry and to compare and contrast
with the range of compensation identified in the CVG study. Last
year's proxy statement identified the component companies considered
in the CVG study at the bottom of page 13, and to the extent that the
G&CC uses CVG or a similar consultant this year or in the future, the
CD&A will identify the companies surveyed. Because the G&CC used the
National Retail Federation study more generally, last year's proxy
statement described the study as an annual survey of compensation from
140 companies, including six companies in the peer group used for the
company's performance graph (i.e., the Hemscott Industry Group 745).
In future filings, beginning with the 2009 Proxy Statement, if the
G&CC benchmarks compensation in reliance on the National Retail
Federation or any other study (for example, because it does not
commission its own study, such as the one it received from CVG), the
CD&A will list all of the component companies in such study.
Annual Cash Incentive Compensation, page 15
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9. In the discussion of annual cash incentives, you indicate that they are
awarded based on individual objectives. Please revise to elaborate upon how you
arrived on these individual objectives. In addition, if the individual
objectives are quantified, please specify those objectives. See Item
402(b)(2)(v) of Regulation S-K.
RESPONSE
--------
The reference to the "individual objectives" at the top of page 15 in
last year's proxy statement is in the context of discussing annual
merit increases in base salary, not annual cash incentive pay. The
referenced statement was intended to be generic, describing the
practice generally applicable to all employees, not just executive
officers. To the extent the G&CC decided to increase an executive's
base salary, the CD&A discusses the reasons for the increase for each
individual executive. For example, Mr. Moran's base salary was
increased by $25,000 in 2008, and we disclosed on page 15 that such
increase was related to the G&CC's recognition of Mr. Moran's key role
as chief financial officer as well as other factors such as historic
compensation, peer company data, internal equity and retention
concerns. The G&CC historically has not used individual objectives in
determining annual cash incentives (i.e., bonuses) for executive
officers. Rather, the criteria used for payment of annual cash
incentives to our executive officers has been the achievement of the
certain financial performance targets, as further discussed in our
responses to comments 10, 11 and 12 below.
10. We note that you have not provided the actual performance targets to be
achieved to earn executive bonuses for 2007. We further note, however, that you
disclose that the 2007 performance targets were "considered to be challenging,
but achievable." Please disclose your financial thresholds for 2007. See
Instruction 4 to Item 402(b) of Regulation S-K and Question
Securities and Exchange Commission
January 23, 2009
Page 10
118.04 of our Regulation S-K Compliance and Disclosure Interpretations located
at our web-site, www.sec.gov.
RESPONSE
--------
As discussed further in our response to comment 11 below,
historically, we have treated these targets as confidential and
proprietary information. Furthermore, as the lead-in to Item 402(b) of
Regulation S-K and other relevant Securities and Exchange Commission
("Commission") interpretations suggest, the CD&A should focus on
material information, and because no bonuses were paid for 2007, we
did not consider the actual performance targets for 2007 to be
material to an investor. That is, since investor concern over
executive compensation seems to have been focused on payouts for
perceived substandard performance, it seemed to us that no payout when
a pre-determined target was missed was consistent with investor
expectations and, therefore, the precise target was not relevant. The
performance targets for 2007 were: comparable store sales of 3.8%
(weighted 30%); and pre-tax, pre-bonus earnings from operations of
$27.0 million (weighted 70%). In future filings, beginning with the
2009 Proxy Statement, the CD&A will quantify targets for the prior
year.
11. We note that you also have not provided either a discussion concerning
the actual quantitative terms of the performance targets or the difficulty of
meeting those targets for 2008. Please disclose your performance targets for
2008 or, to the extent you believe disclosure of these targets are not required
because it would result in competitive harm, provide us on a supplemental basis
a detailed explanation under Instruction 4 to Item 402(b) of Regulation S-K for
this conclusion. If disclosure of the performance-related factor would cause
competitive harm, please discuss how difficult it will be for the executive or
how likely it will be for you to achieve the target levels or other factors.
RESPONSE
--------
The performance target for 2008 was pre-tax, pre-bonus earnings from
operations of $12.0 million. In the past, we have treated such targets
as confidential and proprietary information. We believe the actual
current-year targets, if disclosed, could be potentially used by
competitors to poach key employees. That is, if the target is
disclosed and our reported financial results are not on-track to meet
the target, a competitor could use this as leverage in soliciting a
key employee. Loss of key employees could cause substantial harm to
our business. We also believed that the detailed description of the
bonus formula and the related discussion provided context for
investors to evaluate how challenging it would be to achieve the
targets. In addition, while we did believe that the change from two
performance targets for fiscal 2007 to one performance target for
fiscal 2008 was a material change, we did not believe the specific
target amount was necessarily material to understand our compensation
policies or decisions. After further consideration, in future filings,
beginning with the 2009 Proxy Statement, the CD&A will quantify
current-year targets.
Securities and Exchange Commission
January 23, 2009
Page 11
12. We note that in 2008 operating earnings would need to exceed internal
budgets by a "significant amount" in order for executives to reach the 100%
bonus payout. Please elaborate upon how you will determine whether this
threshold has been met and what discretion may be exercised in granting such
bonuses given the lack of an objective performance target for purposes of
reaching 100% bonus payout. Please see Instruction 4 to Item 402(b) of
Regulation S-K.
RESPONSE
--------
There is a specific objective performance target for purposes of
determining whether executives would earn a 100% bonus payout; it is
the target described in the response to comment 11 above. Our comment
in the CD&A regarding the executive's need for 2008 performance to
exceed internal budgets by a significant amount was intended to let
shareholders know that performance that merely meets the internal
budget projections would pay bonuses only at a 58% level, not 100%,
thereby indicating that the bonus targets were aggressive and
providing a context for investors to understand how difficult it would
be to meet the target. The following table quantifies the range of
payouts expressed as a percentage of achievement against established
goals for fiscal 2008:
Pre-Tax Earnings Pre-Tax Earnings Executive Bonus Payout
(in $ Millions) (as % of Internal Budget) (as % of target bonus)
----------------------------------------------------------------------
Under 6.0 - None
6.0 77% 40%
7.8 100% 58%
12.0 153% 100%
16.0 or more 204% or more 140%
While the pre-tax earnings and bonus payout percentages were included
as textual disclosure in last year's proxy statement, we expect to use
a tabular format similar to that used in this response when possible
and where appropriate in future filings.
Long-term Equity Incentive Compensation, page 17
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13. We note your indication that the [Committee] approved a fixed amount of
the recommended stock option awards in 2007. Please revise to elaborate upon how
the fixed amounts were arrived at, including a discussion how the CVG data
assisted you.
RESPONSE
--------
For 2007, we determined the fixed amounts for the stock option awards
based upon information provided by CVG in its review of our equity
compensation practices. CVG
Securities and Exchange Commission
January 23, 2009
Page 12
developed a range of stock option awards made to each executive
position based upon a review of the compensation practices of our peer
companies. These peer companies were identified at the bottom of page
13 in last year's proxy statement. CVG then recommended that our stock
option awards be within 50% of the specific midpoint of the range that
was developed, as adjusted for individual performance and grants
already received by the particular executive. CVG also recommended
specific awards for each of our executive officers. Based on these
specific recommendations, and taking into consideration prior grants
to the particular executive officer: Mr. Harris was awarded the
midpoint of the range provided by CVG; Mr. Moran received an award in
the 25th percentile because he was new to the company (hired in
January 2007) and had received a substantial award of 50,000 stock
options on March 8, 2007 under his employment agreement; and Messrs.
Japinga and Edwards received awards above the 50th percentile
because of their respective promotions to executive vice president
status, to recognize their overall contributions to the company and to
retain them in their respective key roles. In future filings,
beginning with the 2009 Proxy Statement, the manner for determining
the exact number of equity awards will be described in a similar, more
precise manner.
Severance and Change-in-Control Agreements, page 19
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14. With respect to the potential payments upon termination and change of
control, please discuss and analyze how the amounts payable were negotiated and
how and why the company agreed to the specified amounts.
RESPONSE
--------
The severance and change-in-control agreements for Messrs. Harris,
Eisenberg, Moran and Japinga were negotiated in arms-length
discussions with the company's chief executive officer and/or the
Chairman of our board of directors, with the advice and consent of
the G&CC. The amounts of these benefits were considered as part of the
executive's overall compensation package and were deemed to be within
the range of reasonable severance or change-in-control benefits for
executives, based upon the company's past practices. Only Mr. Harris'
and Mr. Eisenberg's agreements reflected severance benefits in the
event of a change in control. Mr. Edwards' severance pay compensation
was set by the company's former chief executive officer, with the
advice and consent of the G&CC, at a time when the company was going
through a transition in the senior management team, and all employees
at the assistant vice president level or above were given a specific,
formula-based severance benefit based on the current salary as
follows:
Securities and Exchange Commission
January 23, 2009
Page 13
Title Severance
----- ---------
Assistant Vice Presidents and
Regional Vice Presidents.......................6 months
Vice Presidents.................................9 months
Senior Vice Presidents.........................12 months
The purpose of this benefit was to keep the executives focused on the
company's overall business without being overly distracted by pending
changes in the company's senior management. We will include more
detailed disclosure regarding the background of severance arrangements
in our future filings, beginning with the 2009 Proxy Statement.
Executive Officers, page 21
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15. Please revise to describe the business experience of Messrs. Moran and
Japinga for the past five years, or clarify your disclosure by adding dates or
the duration of employment. Refer to Item 401(e) of Regulation S-K.
RESPONSE
--------
Future disclosures regarding the business experience of Messrs. Moran
and Japinga will clarify their duration of employment in each
position. Specifically, with respect to Mr. Moran, the disclosure in
the 2009 Proxy Statement will indicate that he served as chief
financial officer of the Wearguard-Crest Division of ARAMARK
Corporation from June 2004 until January 2007 and, with respect to Mr.
Japinga, the disclosure will state that he was Vice President,
Planning Director at Kohl's Department Stores from 2001 to 2002 and
Vice President, Divisional Merchandise Manager at Kohl's from 2002
until he joined West Marine in February 2006.
Security Ownership of Management and Certain Beneficial Owners, page 36
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16. Please disclose the natural person(s) or public company that has the
ultimate voting or investment control over the shares held by Franklin
Resources, Inc., Thales Fund Management, L.L.C., Dimensional Fund Advisors, LP
and Royce Associates, L.L.C. Refer to Question 140.02 of our Regulation S-K
Compliance and Disclosure Interpretations located at our web-site, www.sec.gov.
RESPONSE
--------
With respect to our 2009 Proxy Statement disclosure of the security
ownership of certain beneficial owners, we will include footnote
disclosure in our security ownership table
Securities and Exchange Commission
January 23, 2009
Page 14
substantially similar to the following for Franklin Resources, Inc.
and Thales Management, L.L.C.:
The information contained in the table and these footnotes with
respect to Franklin Resources, Inc. is based solely on a
statement on Schedule 13G/A filed January 31, 2008 reporting
beneficial ownership as of December 31, 2007 by Franklin
Resources, Charles B. Johnson, Rupert H. Johnson, Jr., and
Franklin Advisory Services, LLC to the effect that (a) each
(directly or indirectly) has dispositive and voting power over
all these shares and (b) these shares are held by investment
companies and institutional accounts which are advised by
subsidiaries of Franklin Resources pursuant to advisory contracts
which grant to such subsidiaries all investment and voting power
over these shares.
The information contained in the table and these footnotes with
respect to Thales Fund Management, LLC is based solely on a
statement on Schedule 13G/A filed February 11, 2008 reporting
beneficial ownership as of December 31, 2007 by Temujin Fund
Management, LLC, Thales Fund Management, Marek T. Fludzinski and
Marco Battaglia to the effect that (a) each (directly or
indirectly) has dispositive and voting power over all these
shares and (b) these shares are held by Temujin Holdings, Ltd. to
which Temujin Fund Management serves as investment advisor, which
is in turn jointly owned by Mr. Battaglia, the chief executive
and investment officer of Temujin Fund Management, and Thales
Fund Management, the chief executive officer and chairman of
which is Mr. Fludzinski.
The above disclosure revises our prior disclosure by adding the natural
persons that are disclosed in the Schedule 13G/A filings for each of
Franklin Resources and Thales Fund Management as having ultimate beneficial
ownership over the shares held by the respective entities. Assuming
Franklin Resources and Thales Fund Management owned 5% or more of our
shares as of year-end 2008, upon filing of their respective Schedules 13G/A
disclosing their 2008 year-end holdings, we will update the foregoing draft
disclosure as appropriate.
With respect to Dimensional Fund Advisors LP and Royce & Associates, LLC,
the disclosure in last year's proxy statement regarding the ownership of
shares held by Dimensional Fund Advisors and Royce & Associates included
all information that was available in their most recent Schedule 13G/A
filings. Pursuant to Instruction 3 to Item 403 of Regulation S-K, we may
rely on the information set forth in such statements unless we know or have
reason to believe that such information is not complete or accurate or that
a statement or amendment should have been filed and was not. We know of no
other information with respect to the beneficial ownership of Dimensional
Fund Advisors and Royce & Associates other than as set forth in their
respective Schedule 13G/A filings, and we have no reason to believe the
information provided was not
Securities and Exchange Commission
January 23, 2009
Page 15
complete or accurate. Assuming Dimensional Fund Advisors and Royce &
Associates Management owned 5% or more of our shares as of year-end 2008,
upon filing of their respective Schedules 13G/A disclosing their 2008
year-end holdings, we will update our disclosure and include any additional
information with respect to ultimate beneficial ownership that is provided
in such filings, as appropriate, including to the extent that any
information regarding the beneficial ownership of such shares by any
natural person may be provided in such filings.
Certain Transactions, page 37
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17. We note that you have disclosed some transactions with related parties.
However, it is not clear how these transactions are reviewed and approved.
Please revise to describe your policies and procedures for review, approval, or
ratification of related party transactions as required by Item 404(b) of
Regulation S-K. In this regard, indicate whether any of the related party
transactions you describe were reviewed in accordance with your procedures and,
if not, state why they did not require such review. Please also confirm that all
documents reflecting these transactions have been filed with the Commission or
explain why they have not been filed.
RESPONSE
--------
The related party transactions disclosure in last year's proxy statement
indicated that, using comparative information, management determined that
the described transactions are at terms that are favorable to West Marine.
The transactions during the fiscal years covered by last year's proxy
statement disclosure were reviewed and approved by our Audit Committee. In
the 2009 Proxy Statement, however, we will include more detailed disclosure
substantially similar to the following in the "Certain Transactions"
section:
The transactions described above have been reviewed and approved by
our Audit Committee in accordance with West Marine's related party
transaction policy. The Audit Committee generally administers our
related party transaction policy on behalf of the Board of Directors
pursuant to its delegated authority. Under this written policy, any
transaction between West Marine, including subsidiaries and controlled
affiliates, and a related person (other than compensation arrangements
with directors and executive officers, which, in any case, are
approved by the Governance and Compensation Committee) may only be
entered into when the Audit Committee, the Board of Directors or, if
management determines it is not practicable to wait until the next
scheduled meeting, the Chair of the Audit Committee determines that
the transaction in question is in, or is not inconsistent with, the
best interests of West Marine and its stockholders. If the Chair of
the Audit Committee acts under the policy, the Chair must report any
interim approvals at the next scheduled meeting of the Audit Committee
or Board of Directors, as the case may
Securities and Exchange Commission
January 23, 2009
Page 16
be. To date, the Chair of the Audit Committee has not been asked to
provide interim approval of any transaction under the policy. To
facilitate the review of transactions under the policy, management
furnishes the person or body making the determination all material
information relevant to the transaction, including, but not limited
to, the business purpose, the financial interest and impact on the
related person(s) involved and the availability of other sources for
comparable products or services. For purposes of this policy, related
persons are: identified beneficial owners of more than 5% of our
outstanding shares of common stock; West Marine directors or executive
officers and their immediate family members; any director-nominee; and
any person deemed to be an affiliate of the foregoing.
With respect to the filing of documents related to the transactions
described in last year's proxy statement, please note that the lease
relating to our executive offices and support center in Watsonville,
California, and amendments to that lease have been filed and are referenced
on the exhibit index to the 2007 Form 10-K at Exhibit 10.7, Exhibit 10.7.1
and Exhibit 10.7.2. The other two leases described in the first paragraph
of the "Certain Transactions" section are for stores in Santa Cruz,
California, and Braintree, Massachusetts. These store leases were not filed
because, individually or in the aggregate, they are immaterial in amount
and significance. See Item 601(b)(10)(ii) of Regulation S-K. That is, of
the $1.9 million of aggregate lease payments disclosed for these three
properties for 2007, $1.4 million, or 74%, was related to the Watsonville
lease. The amount and proportion of aggregate payments represented by the
Watsonville lease were substantially the same this fiscal year and in other
prior years. Moreover, the two store leases were West Marine's standard
form of lease at the time they were entered into and represent less than 1%
of both our aggregate number of stores and our aggregate leased retail
square footage.
With respect to our arrangement with the supplier described in the second
paragraph of the "Certain Transactions" section, we do not have any other
agreement with this supplier other than our standard vendor agreement which
sets forth the general terms and conditions for all of our vendors and does
not provide for any set purchase requirements. Our purchases are made by
means of purchase orders as our needs dictate. This vendor arrangement was
entered into in the ordinary course of our business and is not material to
our business. Please note that this vendor is no longer a related person as
of July 2007, as disclosed in last year's proxy statement, and we continue
to purchase merchandise from the vendor, although at a lower volume that
has been primarily driven by our continued inventory management in response
to deteriorating market and economic conditions generally.
Securities and Exchange Commission
January 23, 2009
Page 17
Form 10-Q for Fiscal Quarters Ended March 29, June 28 and September 27, 2008
- ----------------------------------------------------------------------------
18. As applicable, please apply the above comments to your quarterly
reports on Form 10-Q.
RESPONSE
--------
Future filings on Form 10-Q will reflect the above comments, as applicable.
* * * *
As requested, we acknowledge that:
* we are responsible for the adequacy and accuracy of the disclosure in our
Commission filings;
* Commission staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action with
respect to our filings; and
* we may not assert staff comments as a defense in any proceeding initiated
by the Commission or any person under the federal securities laws of the
United States.
We hope you will find this letter responsive to your comments. If you have
questions regarding our responses, please contact me at 831-761-4489.
Sincerely,
/s/ Thomas R. Moran
-----------------------------------
Thomas R. Moran
Chief Financial Officer
cc: Geoffrey A. Eisenberg
Pamela J. Fields
David L. Kral, Deloitte & Touche, USA LLP
Thomas D. Twedt, Dow Lohnes PLLC
Scott Anderegg, Staff Attorney, Division of Corporation Finance,
Securities and Exchange Commission