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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR FISCAL YEAR ENDED SEPTEMBER 30, 1999
COMMISSION FILE NUMBER 1-14173
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MARINEMAX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 59-3496957
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
18167 U.S. HIGHWAY NORTH
SUITE 499
CLEARWATER, FLORIDA 33764
(727) 531-1700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
PRINCIPAL EXECUTIVE OFFICES)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of Common Stock held by nonaffiliates of the
registrant (7,455,939 shares) based on the closing price of the registrant's
Common Stock as reported on the New York Stock Exchange on December 21, 1999,
was $72,695,405. For purposes of this computation, all officers, directors, and
10% beneficial owners of the registrant are deemed to be affiliates. Such
determination should not be deemed to be an admission that such officers,
directors, or 10% beneficial owners are, in fact, affiliates of the registrant.
As of December 21, 1999, there were outstanding 15,136,966 shares of
registrant's Common Stock, par value $.001 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 2000 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
Report.
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MARINEMAX, INC.
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C> <C>
PART I
ITEM 1. BUSINESS...................................................................................... 1
ITEM 2. PROPERTIES.................................................................................... 28
ITEM 3. LEGAL PROCEEDINGS............................................................................. 29
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................... 29
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..................... 30
ITEM 6. SELECTED FINANCIAL DATA....................................................................... 31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS, AND RESULTS OF OPERATIONS....... 32
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................... 38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................... 38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.......... 38
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................ 39
ITEM 11. EXECUTIVE COMPENSATION........................................................................ 39
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................ 39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................ 39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.............................. 39
SIGNATURES.................................................................................................. 41
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................................................................. F-1
</TABLE>
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PART I
ITEM 1. BUSINESS
INTRODUCTION
THE COMPANY
We are the largest recreational boat dealer in the United States.
Through 51 retail locations in Arizona, California, Florida, Delaware, Georgia,
Minnesota, Nevada, New Jersey, North Carolina, Ohio, Pennsylvania, South
Carolina, and Texas, we sell new and used recreational boats, including pleasure
boats (such as sport boats, sport cruisers, sport yachts, and yachts) and
fishing boats, with a focus on premium brands in each segment. We also sell
related marine products, including engines, trailers, parts, and accessories. In
addition, we arrange related boat financing, insurance, and extended service
contracts; provide repair and maintenance services; and offer boat brokerage
services.
We are the nation's largest retailer of Sea Ray, Boston Whaler, and
other boats manufactured by Brunswick Corporation, which is the world's largest
manufacturer of recreational boats. Sales of new Brunswick boats accounted for
91% of our new boat sales in fiscal 1999, which we believe represented
approximately 30% of all new Sea Ray boat sales and approximately 9% of all
Brunswick marine product sales during that period. Each of our principal
operating subsidiaries is a party to a 10-year dealer agreement with Brunswick
covering Sea Ray products and is the exclusive dealer of Sea Ray boats in its
geographic market.
We commenced operations as a combined company as a result of the March
1, 1998 acquisition of five previously independent recreational boat dealers and
have acquired nine additional previously independent recreational boat dealers
and two boat brokerage operations since that time. We are capitalizing on the
experience and success of each of the acquired dealers in order to establish a
new national standard of customer service and responsiveness in the highly
fragmented retail boating industry. While the average new boat retailer
generates less than $3.0 million in annual sales, our retail locations, which
operated at least 12 months, averaged $12.9 million in annual sales in fiscal
1999. As a result of our emphasis on premium brand boats, our average selling
price for a new boat in fiscal 1999 was approximately $57,000 compared to the
estimated industry average selling price of approximately $17,000. For the
fiscal year ended September 30, 1999, we had revenue of approximately $450.1
million, operating income of approximately $32.2 million, and net income of
approximately $18.2 million. Our same-store sales increased by approximately 18%
in fiscal 1999 and has increased an average of 18% for the last five years.
We are adopting the best practices of our acquired dealers as
appropriate to enhance our ability to attract more customers, foster an overall
enjoyable boating experience, and offer boat manufacturers stable and
professional retail distribution and a broad geographic presence. We believe
that our full range of services, two years of free maintenance, which we call
"MarineMax Care," MarineMax Value-Price sales approach, prime retail locations,
extensive facilities, and emphasis on customer service and satisfaction before
and after a boat sale are competitive advantages that enable us to be more
responsive to the needs of existing and prospective customers.
The recreational boating industry generated approximately $19.2 billion
in retail sales in calendar 1998, including sales of new and used boats; marine
products, such as engines, trailers, equipment, and accessories; and related
expenditures, such as fuel, insurance, docking, storage, and repairs. Retail
sales of new boats, engines, trailers, and accessories accounted for
approximately $10.0 billion of these sales in 1998. We estimate that the boat
retailing industry includes more than 5,000 boat retailers, most of which are
small retailers that operate in a single market and provide varying degrees of
merchandising, professional management, and customer service. We believe that
many dealers are finding it increasingly difficult to make the managerial and
capital commitments necessary to achieve higher customer service levels and
upgrade systems and facilities as required by boat manufacturers, particularly
during a period of stagnant industry growth. We also believe that many dealers
lack an exit strategy for their owners.
Our goal is to enhance our position as the nation's leading retailer of
recreational boats. Key elements of our strategies include the following:
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- emphasizing customer satisfaction and loyalty by creating an
overall enjoyable boating experience beginning with the
negotiation-free purchase process, two years of free
maintenance, superior service and premier facilities,
- implementing the "best practices" of each of our acquired
dealers as appropriate throughout our dealerships,
- achieving operating efficiencies and synergies among our
dealerships to enhance internal growth and profitability,
- emphasizing employee training,
- opening additional retail facilities in our existing and new
territories,
- offering additional product lines and services throughout our
dealerships,
- pursuing strategic acquisitions to capitalize upon the
significant consolidation opportunities in the highly
fragmented recreational boat dealer industry by acquiring
additional dealers and improving their performance and
profitability through the implementation of our operating
strategies,
- promoting national brand name recognition and North-South
connection,
- operating with a decentralized approach to the operational
management of our dealerships, and
- utilizing technology throughout operations.
We maintain our executive offices at 18167 U.S. 19 North, Suite 499,
Clearwater, Florida 33764, and our telephone number is (727) 531-1700. We were
incorporated in the state of Delaware in January 1998. Unless the context
otherwise requires, all references to "MarineMax" mean MarineMax, Inc. prior to
its acquisition of five previously independent recreational boat dealers in
March 1998 (including their related real estate companies) and all references to
the "Company," "we," "us," and "our" mean, as a combined company, MarineMax,
Inc. and the 14 recreational boat dealers and two brokerage operations acquired
to date (the "Operating Subsidiaries" or the "Acquired Dealers").
DEVELOPMENT OF THE COMPANY; ACQUISITIONS
MarineMax was founded in January 1998. MarineMax itself, however,
conducted no operations until the acquisition of five independent recreational
boat dealers on March 1, 1998. We acquired a sixth recreational boat dealer on
April 30, 1998. Since our initial public offering in June 1998, we have acquired
eight additional recreational boat dealers and two boat brokerage operations.
Each of our acquired dealers is continuing its operations as a wholly
owned operating subsidiary of our company. The following table sets forth
information regarding the acquired dealers and the retail locations, or
dealerships, they operate.
<TABLE>
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ACQUIRED DEALERS ACQUISITION DATE BUSINESS
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<S> <C> <C>
Bassett Boat Company of Florida March 1998 Operates five retail locations in Miami, Miami
Beach, Palm Beach, Pompano Beach, and Stuart,
Florida
Louis DelHomme Marine March 1998 Operates eight retail locations in Lewisville
(Dallas), League City, and Houston, Texas
Gulfwind USA, Inc. March 1998 Operates five retail locations in Apollo Beach,
Clearwater, St. Petersburg, and Tampa, Florida
Gulfwind South, Inc. March 1998 Operates two retail locations in Fort Myers and
Naples, Florida
</TABLE>
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<TABLE>
<CAPTION>
ACQUIRED DEALERS ACQUISITION DATE BUSINESS
- ---------------- ---------------- --------
<S> <C> <C>
Harrison's Boat Center, Inc. and Harrison's March 1998 Operates six retail locations in Oakland, Redding,
Marine Centers of Arizona, Inc. Santa Rosa, and Sacramento, California, and Tempe,
Arizona
Stovall Marine, Inc. April 1998 Operates three retail locations in Kennesaw
(Atlanta), Forest Park (Atlanta), and Lake Lanier,
Georgia
Cochran's Marine, Inc. and C & N Marine July 1998 Operates five retail locations in Rogers, Walker,
Corporation Oakdale, and Woodbury, Minnesota
Sea Ray of Wilmington, Inc. July 1998 Operates two retail locations in Wrightsville
Beach, North Carolina and Myrtle Beach, South
Carolina
Brevard Boat Company September 1998 Operates one retail location in Cocoa, Florida
Sea Ray of Las Vegas September 1998 Operates one retail location in Las Vegas, Nevada
Treasure Cove Marina, Inc. September 1998 Operates four retail locations in Cleveland
(Flats), Port Clinton, and Toledo, Ohio
Woods & Oviatt, Inc. October 1998 Operates one boat brokerage operation
headquartered in Ft. Lauderdale, Florida
Boating World February 1999 Operates one retail location in Arlington, Texas
Merit Marine, Inc. March 1999 Operates three retail locations in Brant Beach,
Ship Bottom, and Somers Point, New Jersey
Suburban Boatworks, Inc. April 1999 Operates three retail locations in Bear, Delaware;
Brick, New Jersey; and Warrington, Pennsylvania
Hansen Marine, Inc. August 1999 Operates one combined boat brokerage and retail
sales operation headquartered in Jacksonville,
Florida
</TABLE>
In October 1998, we received the Hatteras Yachts dealership for the state
of Florida, excluding certain portions of the Florida Panhandle, and became the
U.S. distributor for Hatteras products over 74 feet.
As a part of our acquisition strategy, we frequently engage in discussions
with various recreational boat dealers regarding their potential acquisition by
us. In connection with these discussions, we and each potential acquisition
candidate exchange confidential operational and financial information, conduct
due diligence inquiries, and consider the structure, terms, and conditions of
the potential acquisition. In certain cases, the prospective acquisition
candidate agrees not to discuss a potential acquisition with any other party for
a specific period of time, grants us an option to purchase the prospective
dealer for a designated price during a specific time, and agrees to take other
actions designed to enhance the possibility of the acquisition, such as
preparing audited financial information and converting its accounting system to
the system specified by us. Potential acquisition discussions frequently take
place over a long period of time and involve difficult business integration and
other issues, including in some cases, management succession and related
matters. As a result of these and other factors, a number of potential
acquisitions that from time to time appear likely to occur do not result in
binding legal agreements and are not consummated.
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BUSINESS
GENERAL
We are the largest recreational boat dealer in the United States. Through
51 retail locations in Arizona, California, Delaware, Florida, Georgia,
Minnesota, Nevada, New Jersey, North Carolina, Ohio, Pennsylvania, South
Carolina, and Texas, we sell new and used recreational boats, including pleasure
boats (such as sport boats, sport cruisers, sport yachts, and yachts) and
fishing boats, with a focus on premium brands in each segment. We also sell
related marine products, including engines, trailers, parts, and accessories. In
addition, we arrange related boat financing, insurance, and extended service
contracts; provide repair and maintenance services; and offer boat brokerage
services.
We are the nation's largest retailer of Sea Ray, Boston Whaler, and other
boats manufactured by Brunswick, which is the world's largest manufacturer of
recreational boats. Sales of new Brunswick boats accounted for 91% of our new
boat sales in fiscal 1999, which we believe represented approximately 30% of all
new Sea Ray boat sales and approximately 9% of all Brunswick marine product
sales during that period. Each of our principal operating subsidiaries is a
party to a 10-year dealer agreement with Brunswick covering Sea Ray products.
U.S. RECREATIONAL BOATING INDUSTRY
We believe that total U.S. recreational boating sales generated $19.2
billion in revenue in calendar 1998, including retail sales of new and used
recreational boats; marine products, such as engines, trailers, parts, and
accessories; and related boating expenditures, such as fuel, insurance, docking,
storage, and repairs. We believe that retail sales of new boats, engines,
trailers, and accessories accounted for approximately $10.0 billion of such
sales in 1998. Retail recreational boating sales were $17.9 billion in the late
1980s, but declined to a low of $10.3 billion in 1992. We believe this decline
can be attributed to several factors, including a recession, the Gulf War, and
the imposition throughout 1991 and 1992 of a luxury tax on boats sold at prices
in excess of $100,000. The luxury tax was repealed in 1993, and retail
recreational boating sales have increased each year thereafter.
Sales in the recreational boat industry are impacted significantly by other
recreational opportunities; economic factors, including general economic
conditions, consumer income levels, tax law changes, and fuel prices; and
demographics. The share of recreational dollars that U.S. consumers spend on
boating declined from 3.1% in 1988, the boating industry's peak year, to 2.0% in
1996. We believe that the decline in boating is attributable to poor customer
service throughout the industry, lack of boater education, and the perception
that boating is time consuming, costly, and difficult.
Most boat purchasers are in the 35 to 54 age group. Although these
individuals account for 36% of the U.S. population over age 16, they account for
over 50% of discretionary income and represent the fastest growing segment of
the U.S. population.
The recreational boat retail market remains highly fragmented with little
consolidation having occurred to date. We estimate that the boat retailing
industry includes more than 5,000 boat retailers, most of which are small
companies owned by individuals that operate in a single market, have annual
sales of less than $3 million, and provide varying degrees of merchandising,
professional management, and customer service. We believe that many such
retailers are encountering increased pressure from boat manufacturers to improve
their levels of service and systems, increased competition from larger national
retailers in certain product lines, and, in certain cases, business succession
issues.
STRATEGY
Our goal is to enhance our position as the nation's leading operator of
recreational boat dealerships. Key elements of our strategies include the
following:
Emphasizing Customer Satisfaction and Loyalty. We seek to achieve a high
level of customer satisfaction and establish long-term customer loyalty by
creating an overall enjoyable boating experience beginning with the
negotiation-free purchase process. We further enhance and simplify the purchase
process by offering financing and insurance at our retail locations with
competitive terms and streamlined turnaround. We provide the customer with
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a thorough in-water orientation of boat operation as well as ongoing boat
safety, maintenance, and use seminars and demonstrations for the customer's
entire family. We also continue our customer service after the sale by leading
and sponsoring MarineMax Getaways! group boating trips to various destinations,
rendezvous gatherings, and on-the-water organized events to provide our
customers with pre-arranged opportunities to enjoy the pleasures of the boating
lifestyle. We also endeavor to provide superior maintenance and repair services,
often through mobile service at the customer's wet slip and with extended
service department hours and emergency service availability, that minimize the
hassles of boat maintenance.
Implementing Best Practices. We are implementing the "best practices" of
each of our acquired dealers as appropriate throughout our dealerships. In
particular, we are phasing in throughout our dealerships the MarineMax
Value-Price sales approach, now implemented at most of our dealerships. Under
the MarineMax Value-Price approach, we sell our boats at posted prices,
generally representing a discount from the manufacturer's suggested retail
price, without further price negotiation, thereby eliminating the anxieties of
price negotiations that occur in most boat purchases. In addition, we are
adopting, where beneficial, the best practices of each acquired dealer in terms
of location design and layout, product purchases, maintenance and repair
services (including extended service hours and mobile or dockside services),
product mix, employee training, and customer education and services.
Achieving Operating Efficiencies and Synergies. We strive to increase the
operating efficiencies of and achieve certain synergies among our dealerships in
order to enhance internal growth and profitability. We centralize certain
administrative functions at the corporate level, such as accounting, finance,
insurance coverage, employee benefits, marketing, strategic planning, legal
support, purchasing and distribution, and management information systems.
Centralization of these functions reduces duplicative expenses and permits the
dealerships to benefit from a level of scale and expertise that would otherwise
be unavailable to each dealership individually. We also seek to realize cost
savings from reduced inventory carrying costs as a result of purchasing boat
inventories on a national level and directing boats to dealership locations that
can more readily sell such boats; lower financing costs through new credit
facilities; and volume purchase discounts and rebates for certain marine
products, supplies, and advertising. The ability of each of our retail locations
to offer complementary services of our other retail locations, such as offering
customer excursion opportunities, providing maintenance and repair services at
the customer's boat location, and giving access to a larger inventory, increases
the competitiveness of each retail location.
Emphasizing Employee Training. To promote continued internal growth, we
devote substantial efforts to train our employees to understand our core retail
philosophies which focus on making the purchase of a boat and its subsequent use
as hassle free and enjoyable as possible. In 1999, we developed our Clearwater,
Florida-based MarineMax University, or "MMU," to teach our retail philosophies
to existing employees and employees added through acquisitions. MMU is a
modularized and instructor led educational program that focuses on our retailing
philosophies and provides instruction on such matters as the sales process,
customer service, F&I, accounting, and human resources.
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Opening New Facilities. We intend to establish additional retail facilities
in our existing and new territories. We believe that the demographics of our
existing geographic territories support the opening of additional facilities and
have opened seven new retail locations in Sacramento and Tower Park (near San
Francisco, California); Apollo Beach (near Tampa), Miami Beach, and Palm Beach,
Florida; Cleveland, Ohio; and Myrtle Beach, South Carolina since our acquisition
of the five original acquired dealers in March 1998. We also plan to reach new
customers by expanding various innovative retail formats developed by the
operating subsidiaries, such as mall stores and floating retail facilities. Our
mall store concept is unique to the boating industry and is designed to draw
mall traffic, thereby providing exposure to boating for the non-boating public
as well as displaying our new product offerings to boating enthusiasts. Floating
retail facilities place the sales facility, with a customer reception area and
sales offices, on or anchored to a dock in a marina and use adjacent boat slips
to display our new and used boats in areas of high boating activity.
Offering Additional Product Lines and Services. We plan to offer throughout
our existing and acquired dealerships product lines that previously have been
offered only at certain of our locations. We also may obtain additional product
lines through the acquisition of distribution rights directly from manufacturers
and the acquisition of dealerships with distribution rights. For example, we
added Baja, Sea Hunt, and Sea Pro product lines in fiscal 1996; Boston Whaler
product lines in fiscal 1997; and Hattaras and Supra product lines in fiscal
1999. In addition, we plan to increase our used boat sales and boat brokerage
services through an increased emphasis on these activities and cooperative
efforts among our dealerships. We also plan to offer enhanced financing and
insurance packages and programs designed to better serve customers and thereby
increase sales and improve profitability.
Pursuing Strategic Acquisitions. We capitalize upon the significant
consolidation opportunities available in the highly fragmented recreational boat
dealer industry by acquiring independent dealers and improving their performance
and profitability through the implementation of our operating strategies. The
primary acquisition focus is on well-established, high-end recreational boat
dealers in geographic markets not currently served by our operating
subsidiaries, particularly geographic markets with strong boating demographics,
such as areas within the coastal states and the Great Lakes region. We also may
seek to acquire boat dealers that, while located in attractive geographic
markets, have not been able to realize favorable market share or profitability
and that can benefit substantially from our systems and operating strategies. We
may expand our range of product lines and our market penetration by acquiring
dealers that distribute recreational boat product lines different from those we
currently offer. As a result of the considerable industry experience and
relationships of our management team, we believe we are well positioned to
identify and evaluate acquisition candidates and assess their growth prospects,
the quality of their management teams, their local reputation with customers,
and the suitability of their locations. We believe we are regarded as an
attractive acquiror by boat dealers because of (1) historical performance and
the experience and reputation of our management team within the industry; (2)
our decentralized operating strategy, which generally enables the managers of an
acquired dealer to continue their involvement in dealership operations; (3) the
ability of management and employees of an acquired dealer to participate in our
growth and expansion through potential stock ownership and career advancement
opportunities; and (4) the ability to offer liquidity to the owners of acquired
dealers through the receipt of common stock or cash. Brunswick has agreed to
cooperate in good faith with us and not to unreasonably withhold its consent to
the acquisition by us each year of Sea Ray boat dealers with aggregate total
revenue not exceeding 20% of our revenue in our prior fiscal year to the extent
such Sea Ray dealers desire to be acquired by us. See "Business - Brunswick
Agreement Relating to Acquisitions."
Promoting Brand Name Recognition and North-South Connection. We are
promoting our brand name recognition to take advantage of our status as the
nation's only coast-to-coast marine retailer. This strategy also recognizes that
many existing and potential customers who reside in Northern markets and
vacation for substantial periods in Southern markets will prefer to purchase and
service their boats from the same well-known company. As a result, we have
launched a signage campaign to emphasize the MarineMax name at each of our
locations and are increasing our national advertising in various print and other
media.
Operating with Decentralized Management. We maintain a decentralized
approach to the operational management of our dealerships. The decentralized
management approach takes advantage of the extensive experience of local
managers, enabling them to implement policies and make decisions, including the
appropriate product mix, based on the needs of the local market. Local
management authority also fosters responsive customer service and promotes
long-term community and customer relationships. In addition, the centralization
of certain administrative functions at the corporate level enhances the ability
of local managers to focus their efforts on day-to-day dealership operations.
Utilizing Technology Throughout Operations. We believe that our management
information system, which currently is being utilized by each operating
subsidiary and was developed over the past eight years through cooperative
efforts with a common vendor, enhances our ability to integrate successfully the
operations of our operating subsidiaries and future acquired dealers. The system
facilitates the interchange of information and enhances cross-selling
opportunities throughout our company. The system integrates each level of
operations on a company-wide basis, including purchasing, inventory,
receivables, financial reporting and budgeting, and sales management. The system
also provides sales representatives with prospect and customer information that
aids them in tracking the status of their contacts with prospects, automatically
generates follow-up correspondence to such prospects, facilitates the
availability of a particular boat company-wide, locates boats needed to satisfy
a particular customer request, and monitors the maintenance and service needs of
customers' boats. Our representatives also utilize the computer system to assist
in arranging customer financing and insurance packages.
PRODUCTS AND SERVICES
We offer new and used recreational boats and related marine products,
including engines, trailers, parts, and accessories. While we sell a broad range
of new and used boats, we focus on premium brand products. In addition, we
arrange related boat financing, insurance, and extended service contracts;
provide boat maintenance and repair services; and offer boat brokerage services.
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New Boat Sales
We primarily sell recreational boats, including pleasure boats (such as
sport boats, sport cruisers, sport yachts, and yachts) and fishing boats. The
principal products we offer are manufactured by Brunswick, the leading worldwide
manufacturer of recreational boats, including Sea Ray pleasure boats and Boston
Whaler offshore fishing boats. In fiscal 1999, approximately 91% of new boats
sold by us were manufactured by Brunswick. We believe that we accounted for
approximately 30% of Sea Ray's U.S. marine product sales, and 9% of all of
Brunswick's marine product sales during that period. Certain of our dealerships
also sell luxury yachts, fishing boats, and pontoon boats provided by other
manufacturers. During fiscal 1999, new boat sales accounted for approximately
72% of our revenue.
We offer recreational boats in most market segments, but have a particular
focus on premium quality pleasure boats and yachts as reflected by our fiscal
1999 average new boat sales price of approximately $57,000 compared to our
estimated industry average selling price of approximately $17,000. Given our
locations in some of the more affluent, offshore boating areas in the United
States and emphasis on high levels of customer service, we sell a relatively
higher percentage of large recreational boats, such as yachts and sport
cruisers. We believe that the product lines we offer are among the highest
quality within their respective market segments, with well-established
trade-name recognition and reputations for quality, performance, and styling.
The following table illustrates the range of our new boat product lines.
<TABLE>
<CAPTION>
MANUFACTURER SUGGESTED
NUMBER RETAIL PRICE
PRODUCT LINE AND TRADE NAME OF MODELS OVERALL LENGTH RANGE
- --------------------------- --------- -------------- -----
<S> <C> <C> <C>
MOTOR YACHTS AND CONVERTIBLES
Hatteras Motor Yachts........................... 10 50' to 100'+ $1,000,000 to $8,000,000+
Hatteras Convertibles........................... 8 50' to 90' 1,000,000 to 6,000,000
PLEASURE BOATS
Sea Ray Yachts.................................. 6 51' to 63' 850,000 to 2,100,000
Sea Ray Sport Yachts............................ 10 37' to 48-1/2' 292,000 to 720,000
Sea Ray Sport Cruisers.......................... 19 26' to 33-1/2' 61,000 to 190,000
Sea Ray Sport Boats............................. 19 18' to 25-1/2' 18,000 to 61,500
FISHING BOATS
Boston Whaler................................... 21 11' to 34' 5,000 to 360,000
Sea Pro......................................... 19 17' to 26-1/2' 10,000 to 65,000
Sea Hunt........................................ 10 17' to 21' 14,000 to 23,000
HIGH-PERFORMANCE BOATS
Baja Marine..................................... 23 18' to 42-1/2' 22,000 to 280,000
SKI BOATS
Supra Boats..................................... 7 20' to 21' 19,000 to 55,000
</TABLE>
Motor Yachts and Convertibles. Hatteras Yachts is one of the world's
premier yacht builders. The Hatteras fleet is one of the most extensive serving
the luxury megayacht segment of the market, with configurations for cruising and
sport fishing. All Hatteras models include state-of-the-art designs with
live-aboard luxury. The motor yacht series, ranging from 52 feet to over 100
feet, offers a flybridge with extensive guest seating, covered aft deck, which
may be fully or partially enclosed, providing the boater with additional living
space, an elegant salon, and up to four staterooms for accommodations. The
convertibles are primarily fishing vessels, which are well equipped to meet the
needs of even the most serious tournament-class competitor. Ranging from 50 feet
to 90 feet, Hatteras convertibles feature interiors that offer luxurious
salon/galley arrangements, up to four staterooms with private heads, and a
cockpit that includes a bait and tackle center, fishbox, and freezer.
Pleasure Boats. Sea Ray pleasure boats target both the luxury and the
family recreational boating markets. Sea Ray sport yachts and yachts serve the
luxury segment of the recreational boating market and include top-of-the-line
living accommodations with a salon, a fully equipped galley, and up to three
staterooms. The sport yachts and yachts come in a variety of configurations,
including aft cabin, bridge cockpit, and express cruiser models, to suit each
customer's particular recreational boating style. Sea Ray sport boat and sport
cruiser models are designed for performance and dependability to meet family
recreational needs and include many of the features and accommodations of Sea
Ray's sport yacht and yacht models. All Sea Ray pleasure boats feature custom
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instrumentation that may include an electronics package; Mercury or MerCruiser
engines; various hull, deck, and cockpit designs that can include a swim
platform, bow pulpit, and raised bridge; and various amenities, such as swivel
bucket helm seats, lounge seats, sun pads, wet bars, built-in ice chests,
insulated in-floor fish boxes, fight chairs, rod holders, and bait prep and
refreshment centers.
Fishing Boats. The fishing boats we offer range from entry level models to
advanced models designed for fishing and water sports in lakes, bays, and
off-shore waters, with cabins with limited live-aboard capability. The fishing
boats typically feature livewells, in-deck fishboxes, splash-well gates with
rodholders, rigging stations, cockpit coaming pads, and fresh and saltwater
washdowns.
High-Performance Boats. The high-performance boats that we sell are
manufactured by Baja Marine. Powered by MerCruiser sterndrive engines, Baja
high-performance boats are designed to deliver superior handling and durability
at high speeds. The larger offshore models have cabins featuring a V-berth and a
fully equipped galley.
Ski Boats. We sell Supra and Malibu ski boats designed to achieve a smooth
ride and the flattest wakes possible for increased skier performance and safety.
Used Boat Sales
We offer used versions of the new makes and models we offer and, to a
lesser extent, used boats of other makes and models generally taken as
trade-ins. Approximately 72% of the used boats we sold in fiscal 1999 were
Brunswick models.
Our used boat sales depend on our ability to source a supply of
high-quality used boats at attractive prices. We acquire substantially all of
our used boats through customer trade-ins. We intend to increase our used boat
business as a result of the increased availability of quality used boats
generated from our acquisition of used boats in our expanding sales efforts, the
increasing number of used boats that are well-maintained through our boat
maintenance plans, our ability to market used boats throughout our combined
dealership network to match used boat demand, and the experience of our recently
acquired Woods & Oviatt and Hansen Marine boat brokerage operations.
Additionally, substantially all of our used boat inventory has been posted on
our web site, www.MarineMax.com, which expands the awareness and availability of
our products to a large audience of boating enthusiasts.
In 1998, we introduced at our retail locations the Sea Ray Legacy(TM)
two-year warranty plan available for used Sea Ray boats less than six years old.
The Legacy plan applies to each qualifying used Sea Ray boat, which has passed a
48-point inspection and provides protection against failure of most mechanical
parts. We believe that the Sea Ray Legacy warranty plan, which is only available
for used Sea Ray boats purchased from a Sea Ray dealer, will enhance our sales
of used Sea Ray boats by motivating purchasers of used Sea Ray boats to purchase
only from a Sea Ray dealer and motivating sellers of Sea Ray boats to sell
through a Sea Ray dealer.
Marine Engines and Related Marine Equipment
We offer marine engines and propellers, substantially all of which are
manufactured by Mercury Marine, a division of Brunswick. We sell marine engines
and propellers primarily to retail customers as replacements for their existing
engines or propellers. The engines range in price from $560 to $33,900, and
propellers range in price from $35 to $4,300. In 1998, Mercury Marine introduced
various new engine models that reduce engine emissions to comply with current
Environmental Protection Agency requirements, including our OPTIMAX(R)
200-horsepower outboard engine, featuring a new direct fuel injection technology
that also increases fuel efficiency. See "Business - Environmental and Other
Regulatory Issues." An industry leader for almost six decades, Mercury Marine
specializes in state-of-the-art marine propulsion systems and accessories. Most
of our operating subsidiaries have been recognized by Mercury Marine as
"Platinum Dealers." This designation is generally awarded to the top 5% of
Mercury Marine dealers.
We also sell related marine parts and accessories, including oils,
lubricants, steering and control systems, corrosion control products, engine
care and service products (primarily Mercury Marine's Quicksilver line);
Kiekhaefer high-performance accessories (such as propellers) and instruments;
and a complete line of boating accessories, including life jackets, inflatables,
and wakeboards. We also offer novelty items, such as shirts, caps, and floormats
bearing the manufacturer's or dealer's logo.
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Maintenance and Repair Services
Providing customers with professional, prompt maintenance and repair
services is critical to our sales efforts and contributes to our profitability.
We provide maintenance and repair services at most of our retail locations, with
extended service hours at certain of our locations. In addition, in many of our
markets, we provide mobile maintenance and repair services at the location of
the customer's boat. We believe that this service commitment is a competitive
advantage in the markets in which we compete and is critical to our efforts to
provide a trouble-free boating experience. We also believe that our maintenance
and repair services contribute to strong customer relationships and that our
emphasis on preventative maintenance and quality service increases the potential
supply of well-maintained boats for our used boat sales.
Our MarineMax Care Program provides for hassle-free boating by covering
certain of the manufacturer's scheduled maintenance for up to two years. Our
dealerships generally include the MarineMax Care Program as part of the
MarineMax Value-Price of the boat. Our technicians provide maintenance on a
regularly scheduled basis at either our retail locations or dockside, thereby
encouraging preventative maintenance.
We perform both warranty and non-warranty repair services, with the cost of
warranty work reimbursed by the manufacturer in accordance with the
manufacturer's warranty reimbursement program. For warranty work, Brunswick
reimburses a percentage of the dealer's posted service labor rates, with the
percentage varying depending on the dealer's customer satisfaction index rating
and attendance at service training courses. We derive the majority of our
warranty revenue from Brunswick products, as Brunswick products comprise the
majority of products sold. Certain other manufacturers reimburse warranty work
at a fixed amount per repair. Because boat manufacturers permit warranty work to
be performed only at authorized dealerships, we receive substantially all of the
warranted maintenance and repair work required for the new boats we sell. Our
extended warranty contracts also result in an ongoing demand for our maintenance
and repair services for the duration of the term of the extended warranty
contract.
Our maintenance and repair services are performed by manufacturer-trained
and certified service technicians. In charging for our mechanics' labor, many of
our dealerships use a variable rate structure designed to reflect the difficulty
and sophistication of different types of repairs. The percentage markups on
parts are similarly based on market conditions for different parts.
F&I Products
At each of our retail locations, we offer our customers the ability to
finance new or used boat purchases and to purchase extended service contracts
and insurance coverage, including credit-life, accident/ disability coverage,
and boat property and casualty coverage (collectively, "F&I products"). During
fiscal 1999, F&I products accounted for approximately 2.3% of our revenue. We
believe that our customers' ability to obtain competitive financing quickly and
easily at our dealerships complements our ability to sell new and used boats. We
also believe our ability to provide customer-tailored financing on a "same- day"
basis gives us an advantage over many of our competitors, particularly smaller
competitors that lack the resources to arrange boat financing at their
dealerships or that do not generate sufficient volume to attract the diversity
of financing sources that are available to us.
We have relationships with various national marine product lenders under
which the lenders purchase retail installment contracts evidencing retail sales
of boats and other marine products that are originated by us in accordance with
existing pre-sale agreements between us and the lenders. These arrangements
permit us to receive a portion of the finance charges expected to be earned on
the retail installment contract based on a variety of factors, including the
credit standing of the buyer, the annual percentage rate of the contract charged
to the buyer, and the lender's then current minimum required annual percentage
rate charged to the buyer on the contract. This participation is subject to
repayment by us if the buyer prepays the contract or defaults within a
designated time period, usually 90 to 180 days. To the extent required by
applicable state law, our dealerships are licensed to originate and sell retail
installment contracts financing the sale of boats and other marine products.
We also are able to offer our customers the opportunity to purchase credit
life insurance, credit accident and disability insurance, as well as property
and casualty insurance coverage. Credit life insurance policies provide for
repayment of the boat financing contract if the purchaser dies while the
contract is outstanding. Accident and disability insurance policies provide for
payment of the monthly contract obligation during any period in which the
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buyer is disabled. Property and casualty insurance covers loss or damage to the
boat. Some buyers choose to include their insurance premiums in their financing
contract. We do not act as an insurance broker or agent or issue insurance
policies on behalf of insurers. We, however, provide marketing activities and
other related services to insurance companies and brokers for which we receive
marketing fees. One of our strategies is to generate increased marketing fees by
offering more competitive insurance products.
We also offer extended service contracts under which, for a predetermined
price, we provide all designated services pursuant to the service contract
guidelines during the contract term at no additional charge above a deductible.
While we sell all new boats with the boat manufacturer's standard hull warranty
of generally five years and standard engine warranty of generally one year,
extended service contracts provide additional coverage beyond the time frame or
scope of the manufacturer's warranty. Purchasers of used boats generally are
able to purchase an extended service contract, even if the selected boat is no
longer covered by the manufacturer's warranty. Generally, we receive a fee,
often up to 50% of the premium, for arranging an extended service contract. We
manage the service obligations that we sell and provide the parts and service
(or pay the cost of others that may provide such parts and services) for claims
made under the contracts. Most required services under the contracts are
provided by us.
Boat Brokerage Services
Through employees or subsidiaries that are licensed boat brokers, we offer
boat brokerage services at most of our retail locations. For a commission of
typically between 10% and 14%, we offer for sale brokered boats, listing them on
the "BUC" system, and advising our other retail locations of their availability
through our integrated computer system and posting them on our web site,
www.MarineMax.com. The BUC system, which is similar to a real estate multiple
listing service, is a national boat listing service of approximately 900 brokers
maintained by BUC International. Often sales are co-brokered, with the
commission split between the buying and selling brokers. We believe that our
access to potential used boat customers and methods of listing and advertising
customers' brokered boats is more extensive than is typical among boat brokers.
In addition to generating revenue from brokerage commissions, our boat brokerage
services also enable us to offer a broad array of used boats without increasing
related inventory costs.
Our brokerage customers receive the same high level of customer service as
our new and used boat customers. Our waterfront retail locations enable in-water
demonstrations of an on-site brokered boat. Our maintenance and service,
including mobile service, also is available to our brokerage customers. The
purchaser of a Sea Ray boat brokered through us also can take advantage of
MarineMax Getaways! weekend and day trips and other rendezvous gatherings and
in-water events, as well as boat operation and safety seminars. We believe that
the array of services we offer are unique in the boat brokerage business.
RETAIL LOCATIONS
We sell our recreational boats and other marine products and offer our
related boat services through 51 retail locations in Arizona, California,
Delaware Florida, Georgia, Minnesota, Nevada, New Jersey, North Carolina, Ohio,
Pennsylvania, South Carolina, and Texas. Each retail location generally includes
an indoor showroom (including some of the industry's largest indoor boat
showrooms) and an outside area for displaying boat inventories, a business
office to assist customers in arranging financing and insurance, and repair and
maintenance facilities.
Many of our retail locations are waterfront properties on some of the
nation's most popular boating locations, including the Delta Basin in northern
California; the Intracoastal Waterway, the Atlantic Ocean, Naples Bay (next to
the Gulf of Mexico), Tampa Bay, and the Caloosahatchee River in Florida; Lake
Lanier in Georgia; Leech Lake and the St. Croix River in Minnesota; Barnegat
Bay, Little Egg Harbor, and the Manasquan River in New Jersey; Lake Erie in
Ohio; and Clear Lake, Lake Canroe, and Lake Lewisville in Texas. Our waterfront
retail locations, most of which include marina-type facilities and docks at
which we display our boats, are easily accessible to the boating populace, serve
as in-water showrooms, and enable the sales force to give the customer immediate
in-water demonstrations of various boat models. Most of our other locations are
in close proximity to water.
We plan to reach new customers by expanding in new locations through
various innovative retail formats, such as mall stores and floating retail
facilities. Located in a shopping mall and utilizing a wooden dock set in a
seaside scene to "anchor" seven to 10 new boat models offered by us, our mall
store concept is unique to the boating
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industry and is designed to draw mall traffic, thereby providing exposure to
boating to the non-boating public as well as displaying our new product
offerings to boating enthusiasts. Floating retail facilities place the sales
facility, with a customer reception area and sales offices, on or anchored to a
dock in a marina and use adjacent boat slips to display new and used boats in
areas of high boating activity. We currently have two mall stores and three
floating retail facilities. See "Properties."
OPERATIONS
Dealership Operations and Management
We have adopted a decentralized approach to the operational management of
our dealerships. While certain administrative functions are centralized at the
corporate level, local management is primarily responsible for the day-to-day
operations of the retail locations. Each retail location is managed by a store
manager, who oversees the day-to-day operations, personnel, and financial
performance of the individual store, subject to the direction of a district
manager, who generally has responsibility for the retail locations within a
specified geographic region. Typically, each retail location also has a staff
consisting of a sales manager, an F&I manager, a parts and service manager,
sales representatives, maintenance and repair technicians, and various support
personnel.
We attempt to attract and retain quality employees at our retail locations
by providing them with ongoing training to enhance sales professionalism and
product knowledge, career advancement opportunities within a larger company, and
favorable benefit packages. We established a formal training program in
Clearwater, Florida, called MarineMax University, or "MMU," to provide training
for employees in all aspects of our operations. Extensive training sessions are
held periodically throughout the year covering a variety of topics. Highly
trained, professional sales representatives are an important factor to our
successful sales efforts. These sales representatives are trained at MMU to
recognize the importance of fostering an enjoyable sales process, to educate
customers on the operation and use of the boats, and to assist customers in
making technical and design decisions in boat purchases. The overall focus of
MMU is to teach our core retailing values, which focus on customer service.
Sales representatives receive compensation primarily on a commission basis.
Store managers are salaried employees with incentive bonuses based on the
performance of the dealership they manage. Maintenance and repair service
managers receive compensation primarily on a salary basis with commission
incentives. Our management information system provides each store manager and
sales representative with daily sales information, enabling them to monitor
their performance on a daily, weekly, and monthly basis. We have a uniform,
fully integrated management information system serving each of our dealerships.
See "Business - Operations - Management Information System."
Sales and Marketing
Our sales philosophy focuses on selling the pleasures of the boating
lifestyle. We believe that the critical elements of our sales philosophy include
our appealing retail locations, hassle-free MarineMax Value-Price approach,
highly trained sales representatives, high level of customer service, emphasis
on educating the customer and the customer's family on boat usage, and providing
our customers with opportunities for boating. We strive to provide superior
customer service and support before, during, and after the sale.
Our retail locations offer each customer the opportunity to evaluate a
large variety of new and used boats in a comfortable and convenient setting. Our
full-service retail locations facilitate a turn-key purchasing process that
includes attractive lender financing packages, extended service agreements, and
insurance. Many of our retail locations are located on waterfronts and marinas,
which attract boating enthusiasts and enable customers to operate various boats
prior to making a purchase decision.
We sell our boats at posted value prices that generally represent a
discount from the manufacturer's suggested retail price, typically including two
years of free maintenance. The MarineMax Value-Price sales approach focuses on
customer service by eliminating customer anxiety associated with price
negotiation and the ongoing hassles of maintaining the boat.
As a part of our sales and marketing efforts, we also participate in boat
shows and in-the-water sales events at area boating locations, typically held in
January and February, in each of our markets and in certain locations in
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close proximity to our markets. These shows and events are normally held at
convention centers or marinas, with area dealers renting space. Boat shows and
other offsite promotions are an important venue for generating sales orders for
our new boats. The boat shows also generate a significant amount of interest in
our products resulting in boat sales after the show.
We emphasize customer education through one-on-one education by our sales
representatives and, at some locations, our delivery captains, before and after
a sale, and through in-house seminars for the entire family on boat safety, the
use and operation of boats, and product demonstrations. Typically, one of our
delivery captains or the sales representative delivers the customer's boat to an
area boating location and thoroughly instructs the customer about the operation
of the boat, including hands-on instructions for docking and trailering the
boat. To enhance our customer relationships after the sale, we lead and sponsor
MarineMax Getaways! group boating trips to various destinations, rendezvous
gatherings, and on-the-water organized events that promote the pleasures of the
boating lifestyle. Each company-sponsored event, planned and led by a company
employee, also provides a favorable medium for acclimating new customers to
boating and enables us to actively promote new product offerings to boating
enthusiasts.
As a result of our relative size, we believe we have a competitive
advantage within the industry by being able to conduct an organized and
systematic advertising and marketing effort. Part of our marketing effort
includes an integrated prospect management system that tracks the status of each
sales representative's contacts with a prospect, automatically generates
follow-up correspondence, facilitates company-wide availability of a particular
boat or other marine product desired by a customer, and tracks the maintenance
and service needs for the customer's boat.
Suppliers and Inventory Management
We purchase substantially all of our new boat inventory directly from
manufacturers, which allocate new boats to dealerships based on the amount of
boats sold by the dealership. We also exchange new boats with other dealers to
accommodate customer demand and to balance inventory.
We purchase new boats and other marine products primarily from Sea Ray
(Brunswick), Hatteras (Genmar), SeaPro, Sea Hunt, Malibu Boats, and Supra Boats.
We are the largest volume purchaser of Brunswick's Sea Ray boats, which we
believe represented approximately 30% of all new Sea Ray boat sales during our
1999 fiscal year. Approximately 91% of our net purchases in fiscal 1999 were
from Brunswick; no other manufacturer accounted for a significant portion of our
net purchases in fiscal 1999. Brunswick has entered into a 10-year dealer
agreement with each of our principal operating subsidiaries covering Sea Ray
products. See "Business Dealer Agreements With Brunswick."
We typically deal with each of our manufacturers, other than the Sea Ray
division of Brunswick, under an annually renewable, non-exclusive dealer
agreement. Manufacturers generally establish prices on an annual basis, but may
change prices in their sole discretion. Manufacturers typically discount the
cost of inventory and offer inventory financing assistance during the
manufacturers' slow seasons, generally October through March. To obtain lower
cost of inventory, we strive to capitalize on these manufacturer incentives to
take product delivery during the manufacturers' slow seasons. This permits us to
gain pricing advantages and better product availability during the selling
season.
The dealer agreements with the Sea Ray division of Brunswick do not
restrict our right to sell any Sea Ray product lines or competing products. See
"Business - Dealer Agreements With Brunswick." Arrangements with certain other
manufacturers may restrict our right to offer some product lines in certain
markets. We do not believe that these restrictions will have a material impact
on our business, financial condition, or results of operations. See "Special
Considerations - Boat Manufacturers' Control Over Dealers."
We transfer individual boats among our retail locations to fill customer
orders that otherwise might take three to four weeks to receive from the
manufacturer. This reduces delays in delivery, helps us maximize inventory
turnover, and assists in minimizing potential overstock or out-of-stock
situations. We actively monitor our inventory levels to maintain the appropriate
inventory levels to meet current market demands. We are not bound by contractual
agreements governing the amount of inventory that we must purchase in any year
from any manufacturer. We participate in numerous end-of-summer manufacturer
boat shows, which manufacturers sponsor
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to sell off their remaining inventory at reduced costs before the introduction
of new model year products, typically beginning in July.
Inventory Financing
Marine manufacturers customarily provide interest assistance programs to
retailers. The interest assistance varies by manufacturer and may include
periods of free financing or reduced interest rate programs. The interest
assistance may be paid directly to the retailer or the financial institution
depending on the arrangements the manufacturer has established. We believe that
our financing arrangements with manufacturers are standard within the industry.
As of September 30, 1999, we owed an aggregate of approximately $98.2 million
under our revolving lines of credit. As of December 27, 1999, the lines of
credit provided us with a maximum borrowing capacity of $235 million. Advances
on the lines accrue interest at a weighted average rate of 7.33% as of September
30, 1999. The lines of credit mature in April 2001 through December 2002. The
availability of loan advances from time to time is based upon the value of new
and used inventory, parts, and accounts receivable of our direct and indirect
subsidiaries. Advances may be used for acquisition of inventory, working
capital, and other purposes satisfactory to the lenders.
Management Information System
We believe that our management information system, which currently is being
utilized by each of our operating subsidiaries and was developed by certain of
the acquired dealers over the past eight years through cooperative efforts with
a common vendor, enhances our ability to integrate successfully the operations
of our operating subsidiaries and future acquisitions, facilitates the
interchange of information, and enhances cross-selling opportunities throughout
the company. The system integrates each level of operations on a company-wide
basis, including purchasing, inventory, receivables, financial reporting and
budgeting, and sales management. The system enables us to monitor each
dealership's operations in order to identify quickly areas requiring additional
focus and to manage inventory. The system also provides sales representatives
with prospect and customer information that aids them in tracking the status of
their contacts with prospects, automatically generates follow-up correspondence
to such prospects, facilitates the availability of a particular boat
company-wide, locates boats needed to satisfy a particular customer request, and
monitors the maintenance and service needs of customers' boats. Company
representatives also utilize the system to assist in arranging financing and
insurance packages. We have implemented changes to our management information
system that we believe address the Year 2000 issue.
BRUNSWICK AGREEMENT RELATING TO ACQUISITIONS
On April 28, 1998, we and Brunswick entered into an agreement providing for
Brunswick to cooperate in good faith and not to unreasonably withhold its
consent to the acquisitions each year by us of Sea Ray boat dealers with
aggregate total revenue not exceeding 20% of our revenue in our prior fiscal
year. Any acquisitions in excess of the 20% benchmark will be at Brunswick's
discretion. In the event that our sales of Sea Ray boats exceed 49% of the sales
of Sea Ray boats by all Sea Ray boat dealers, including us, in any fiscal year
of Brunswick, the agreement provides that we and Brunswick will negotiate in
good faith the standards for acquisitions of Sea Ray boat dealers by us during
Brunswick's next succeeding fiscal year but that Brunswick may grant or withhold
its consent to any such acquisition in its sole discretion for as long as our
Sea Ray boat sales exceed the 49% benchmark.
DEALER AGREEMENTS WITH BRUNSWICK
Brunswick, through its Sea Ray division, and we, through our principal
operating subsidiaries, are parties to Sales and Service Agreements (the "Dealer
Agreements") relating to Sea Ray products. Each Dealer Agreement appoints one of
our operating subsidiaries as a non-exclusive dealer for the retail sale,
display, and servicing of designated Sea Ray products and repair parts currently
or in the future sold by Sea Ray. Each Dealer Agreement designates a
non-exclusive area of primary responsibility for the dealer, which is a
geographical area in proximity to the dealer's retail locations based on such
areas that are customarily designated by Sea Ray and applicable to its domestic
dealers. Each Dealer Agreement also specifies retail locations, which the dealer
may not close, change, or add to without the prior written consent of Sea Ray,
provided that Sea Ray may not unreasonably withhold its consent. Upon at least
one year's prior notice and the failure by the dealer to cure, Sea Ray may
remove the dealer's right to operate any particular retail location if the
dealer fails to meet its material obligations, performance
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standards, or terms, conditions, representations, warranties, and covenants
applicable to that location. Each Dealer Agreement also restricts the dealer
from selling, advertising, soliciting for sale, or offering for resale any Sea
Ray products outside its area of primary responsibility without the prior
written consent of Sea Ray as long as similar restrictions also apply to all
domestic Sea Ray dealers selling comparable Sea Ray products. Each Dealer
Agreement provides for the lowest product prices charged by the Sea Ray division
of Brunswick from time to time to other domestic Sea Ray dealers, subject to the
dealer meeting all the requirements and conditions of Sea Ray's applicable
programs and the right of Brunswick in good faith to charge lesser prices to
other dealers to meet existing competitive circumstances, for unusual and
non-ordinary business circumstances, or for limited duration promotional
programs.
Each Dealer Agreement requires the dealer to (1) promote, display,
advertise, and sell Sea Ray boats at each of its retail locations in accordance
with the agreement and applicable laws; (2) purchase and maintain sufficient
inventory of current Sea Ray boats to meet the reasonable demand of customers at
each of its locations and to meet the minimum inventory requirements applicable
to all Sea Ray dealers; (3) maintain at each retail location, or at another
acceptable location, a service department to service Sea Ray boats promptly and
professionally and to maintain parts and supplies to service Sea Ray boats
properly on a timely basis; (4) perform all necessary installation and
inspection services prior to delivery to purchasers and perform post-sale
services of all Sea Ray products sold by the dealer or brought to the dealer for
service; (5) furnish purchasers with Sea Ray's limited warranty on new products
and with information and training as to the sale and proper operation and
maintenance of Sea Ray boats; (6) assist Sea Ray in performing any product
defect and recall campaigns; (7) maintain complete product sales and service
records; (8) achieve annual sales performance in accordance with fair and
reasonable sales levels established by Sea Ray, after consultation with the
dealer, based on factors such as population, sales potential, local economic
conditions, competition, past sales history, number of retail locations, and
other special circumstances that may affect the sale of products or the dealer,
in each case consistent with standards established for all domestic Sea Ray
dealers selling comparable products; (9) provide designated financial
information; (10) conduct its business in a manner that preserves and enhances
the reputation of Sea Ray and the dealer for providing quality products and
services; (11) maintain the financial ability to purchase and maintain on hand
required inventory levels; (12) indemnify Sea Ray against any claims or losses
resulting from the dealer's failure to meet its obligations to Sea Ray; (13)
maintain customer service ratings sufficient to maintain Sea Ray's image in the
marketplace; and (14) achieve within designated time periods and thereafter
maintain master dealer status (which is Sea Ray's highest performance status)
for the locations designated by Sea Ray and the dealer.
Each Dealer Agreement has an initial term of 10 years. Each Dealer
Agreement, however, may be terminated (a) by Sea Ray if the dealer fails or
refuses to place a minimum stocking order of the next model year's products in
accordance with requirements applicable to all Sea Ray dealers generally or
fails to meet its financial obligations as they become due to Sea Ray or to the
dealer's lenders; (b) by Sea Ray or the dealer where good cause exists
(including the material breach, default, or noncompliance with any material
term, provision, warranty, or obligation under the agreement) and has not been
cured within 60 days of prior written notice of the claimed deficiency or at the
end of the 60-day period without the opportunity to cure where the cause
constitutes bad faith; (c) by Sea Ray or the dealer in the event of the
insolvency, bankruptcy, or receivership of the other; (d) by Sea Ray in the
event of the assignment of the agreement by the dealer without the prior written
consent of Sea Ray; (e) by Sea Ray upon at least 10 days' prior written notice
in the event of the failure to pay any sums due and owing to Sea Ray that are
not disputed in good faith; (f) by Sea Ray if a majority of our Board of
Directors does not consist of the senior executives and Other Designated Members
(as defined in the Stockholders' Agreement); or (g) upon the mutual consent of
the dealer and Sea Ray.
EMPLOYEES
As of September 30, 1999, we had 930 employees, 905 of whom were in
store-level operations and 25 of whom were in corporate administration and
management. We are not a party to any collective bargaining agreements and are
not aware of any efforts to unionize our employees. We consider our relations
with our employees to be excellent.
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TRADEMARKS AND SERVICE MARKS
We have trade name and trademark applications pending with the U.S. Patent
and Trademark Office for various names, including "MarineMax," "MarineMax
Getaways," "MarineMax Care," "Value-Price," "Delivering the Dream," and
"MarineMax and Design." There can be no assurance that any of these applications
will be granted.
SEASONALITY AND WEATHER CONDITIONS
Our business, as well as the entire recreational boating industry, is
highly seasonal. Over the three-year period ended September 30, 1999, the
average net sales for the quarters ended December 31, March 31, June 30, and
September 30 represented 16%, 22%, 34%, and 28%, respectively, of our average
annual net sales. With the exception of Florida, our geographic territories
generally realize significantly lower sales in the quarterly period ending
December 31, with boat sales generally improving in January with the onset of
the public boat and recreation shows, and continue through July.
Our business is also subject to weather patterns, which may adversely
affect the our results of operations. For example, drought conditions (or merely
reduced rainfall levels) or excessive rain, may close area boating locations or
render boating dangerous or inconvenient, thereby curtailing customer demand for
our products. In addition, unseasonably cool weather and prolonged winter
conditions may lead to a shorter selling season in certain locations. Hurricanes
and other storms could result in disruptions of our operations or damage to our
boat inventories and facilities. Although our geographic diversity is likely to
reduce the overall impact to us of adverse weather conditions in any one market
area, these conditions will continue to represent potential, material adverse
risks to us and our future financial performance.
ENVIRONMENTAL AND OTHER REGULATORY ISSUES
Our operations are subject to extensive regulation, supervision, and
licensing under various federal, state, and local statutes, ordinances, and
regulations. While we believe that we maintain all requisite licenses and
permits and are in compliance with all applicable federal, state, and local
regulations, there can be no assurance that we will be able to maintain all
requisite licenses and permits. The failure to satisfy those and other
regulatory requirements could have a material adverse effect on our business,
financial condition, and results of operations. The adoption of additional laws,
rules, and regulations could also have a material adverse effect on our
business. Various federal, state, and local regulatory agencies, including the
Occupational Safety and Health Administration ("OSHA"), the United States
Environmental Protection Agency (the "EPA"), and similar federal and local
agencies, have jurisdiction over the operation of our dealerships, repair
facilities, and other operations with respect to matters such as consumer
protection, workers' safety, and laws regarding protection of the environment,
including air, water, and soil.
The EPA recently promulgated air emissions regulations for outboard marine
engines that impose stricter emissions standards for two-cycle, gasoline
outboard marine engines. Emissions from such engines must be reduced by
approximately 75% over a nine-year period beginning with the 1998 model year.
Costs of comparable new engines, if materially more expensive than previous
engines, or the inability of our manufacturers to comply with EPA requirements,
could have a material adverse effect on our business, financial condition, and
results of operations.
Certain of our facilities own and operate underground storage tanks, or
"USTs," for the storage of various petroleum products. The USTs are generally
subject to federal, state, and, or local laws and regulations that require
testing and upgrading of USTs and remediation of contaminated soils and
groundwater resulting from leaking USTs. In addition, if leakage from
company-owned or operated USTs migrates onto the property of others, we may be
subject to civil liability to third parties for remediation costs or other
damages. Based on historical experience, we believe that our liabilities
associated with UST testing, upgrades, and remediation are unlikely to have a
material adverse effect on our financial condition or operating results.
As with boat dealerships generally, and parts and service operations in
particular, our business involves the use, handling, storage, and contracting
for recycling or disposal of hazardous or toxic substances or wastes, including
environmentally sensitive materials, such as motor oil, waste motor oil and
filters, transmission fluid, antifreeze, freon, waste paint and lacquer thinner,
batteries, solvents, lubricants, degreasing agents, gasoline, and diesel fuels.
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<PAGE> 18
Accordingly, we are subject to regulation by federal, state, and local
authorities establishing requirements for the use, management, handling, and
disposal of these materials and health and environmental quality standards, and
liability related thereto, and providing penalties for violations of those
standards. We are also subject to laws, ordinances, and regulations governing
investigation and remediation of contamination at facilities we operate to which
we send hazardous or toxic substances or wastes for treatment, recycling, or
disposal.
We do not believe we have any material environmental liabilities or that
compliance with environmental laws, ordinances, and regulations will,
individually or in the aggregate, have a material adverse effect on our
business, financial condition, or results of operations. However, soil and
groundwater contamination has been known to exist at certain properties owned or
leased by us. We have also been required and may in the future be required to
remove aboveground and underground storage tanks containing hazardous substances
or wastes. As to certain of our properties, specific releases of petroleum have
been or are in the process of being remedied in accordance with state and
federal guidelines. We are monitoring the soil and groundwater as required by
applicable state and federal guidelines. In addition, the shareholders of the
acquired dealers have indemnified us for specific environmental issues
identified on environmental site assessments performed by us as part of the
acquisitions. We maintain insurance for pollutant cleanup and removal. The
coverage pays for the expenses to extract pollutants from land or water at the
insured property, if the discharge, dispersal, seepage, migration, release or
escape of the pollutants is caused by or results from a covered cause of loss.
We may also have additional storage tank liability insurance and "Superfund"
coverage where applicable. In addition, certain of our retail locations are
located on waterways that are subject to federal or state laws regulating
navigable waters (including oil pollution prevention), fish and wildlife, and
other matters.
Two of the properties we own were historically used as a gasoline service
stations. Remedial action with respect to prior historical site activities on
these properties has been completed in accordance with federal and state law.
Also, one of our properties is within the boundaries of a Superfund site,
although our property has not been and is not expected to be identified as a
contributor to the contamination in the area. We, however, do not believe that
these environmental issues will result in any material liabilities to us.
Additionally, certain states have required or are considering requiring a
license in order to operate a recreational boat. While such licensing
requirements are not expected to be unduly restrictive, regulations may
discourage potential first-time buyers, thereby limiting future sales, which
could adversely affect our business, financial condition, and results of
operations.
PRODUCT LIABILITY
The products we sell or service may expose us to potential liabilities for
personal injury or property damage claims relating to the use of those products.
Historically, the resolution of product liability claims has not materially
affected our business. Our manufacturers generally maintain product liability
insurance, and we maintain third-party product liability insurance, which we
believe to be adequate. However, there can be no assurance that we will not
experience legal claims in excess of our insurance coverage or that claims will
be covered by insurance. Furthermore, any significant claims against us could
adversely affect our business, financial condition, and results of operations
and result in negative publicity.
COMPETITION
We operate in a highly competitive environment. In addition to facing
competition generally from recreation businesses seeking to attract consumers'
leisure time and discretionary spending dollars, the recreational boat industry
itself is highly fragmented, resulting in intense competition for customers,
quality products, boat show space, and suitable retail locations. We rely to a
certain extent on boat shows to generate sales. Our inability to participate in
boat shows in our existing or targeted markets could have a material adverse
effect on our business, financial condition, and results of operations.
We compete primarily with single-location boat dealers and, with respect to
sales of marine equipment, parts, and accessories, with national specialty
marine stores, catalog retailers, sporting goods stores, and mass merchants.
Dealer competition continues to increase based on the quality of available
products, the price and value of the
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<PAGE> 19
products, and attention to customer service. There is significant competition
both within markets we currently serve and in new markets that we may enter. We
compete in each of our markets with retailers of brands of boats and engines we
do not sell in that market. In addition, several of our competitors, especially
those selling boating accessories, are large national or regional chains that
have substantial financial, marketing, and other resources. However, we believe
that our integrated corporate infrastructure and marketing and sales
capabilities, our cost structure, and our nationwide presence enable us to
compete effectively against these companies. Private sales of used boats is an
additional significant source of competition.
EXECUTIVE OFFICERS
The following table sets forth information concerning each of our executive
officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
William H. McGill Jr............. 55 Chairman of the Board, President, Chief Executive Officer, and
Director
Michael H. McLamb................ 34 Vice President, Chief Financial Officer, Secretary, and Treasurer
Richard R. Bassett............... 46 Executive Vice President and Director
Paul Graham Stovall.............. 61 Senior Vice President and Director
David L. Cochran................. 53 Senior Vice President
David H. Pretasky................ 50 Senior Vice President - Operations
</TABLE>
William H. McGill Jr. has served as the President and Chief Executive
Officer of MarineMax since January 23, 1998 and as the Chairman of the Board and
as a director of our company since March 6, 1998. Mr. McGill was the principal
owner and president of Gulfwind USA, Inc., one of the operating subsidiaries,
from 1973 until its merger with us.
Michael H. McLamb has served as Vice President, Chief Financial Officer,
and Treasurer of MarineMax since January 23, 1998 and as Secretary of our
company since April 5, 1998. Mr. McLamb, a certified public accountant, was
employed by Arthur Andersen LLP from December 1987 to December 1997, serving
most recently as a senior manager.
Richard R. Bassett has served as Executive Vice President of our company
since October 1, 1998 and a director of our company since March 6, 1998. Mr.
Bassett served as Senior Vice President of our company from March 6, 1998 until
October 1, 1998. Mr. Bassett was the owner and president of Bassett Boat Company
of Florida, one of the operating subsidiaries, from 1979 until its merger with
us.
Paul Graham Stovall has served as a Senior Vice President and director of
our company since May 1, 1998. Mr. Stovall was a principal owner and president
of Stovall Marine, Inc., one of the operating subsidiaries, from 1960 until its
merger with us.
David L. Cochran has served as a Senior Vice President of our company since
October 1, 1998. Mr. Cochran was a principal owner and president of Cochran's
Marine, Inc. and C&N Marine, Inc. (together "Cochran's"), one of the operating
subsidiaries, from 1977 until its merger with us.
David H. Pretasky has served as Senior Vice President - Operations of our
company since October 1, 1998. Mr. Pretasky was a principal owner and president
of SeaRay of Wilmington, Inc. (f/k/a Skipper Buds of North Carolina, Inc.), one
of the operating subsidiaries, from 1996 until its merger with us. Prior to
1996, Mr. Pretasky was a member of management and principal in a large
multi-state marine retailer.
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<PAGE> 20
SPECIAL CONSIDERATIONS
WE MUST INTEGRATE THE OPERATIONS OF THE DEALERS WE RECENTLY ACQUIRED.
MarineMax was founded in January 1998. On March 1, 1998, MarineMax
acquired five independent recreational boat dealers that operated under their
principal owners for an average of more than 21 years. MarineMax itself,
however, conducted no operations and generated no sales or revenue until its
acquisition of the five dealers on March 1, 1998. Since March 1, 1998, we have
acquired nine additional recreational boat dealers and two boat brokerage
operations. The acquired dealers operated independently prior to their
acquisition by us. The consolidated financial results of MarineMax cover periods
when MarineMax and the acquired dealers were not under common management or
control and are not necessarily indicative of the results that would have been
achieved if MarineMax and the acquired dealers had been operated on an
integrated basis or the results that may be realized on a consolidated basis in
the future.
Our success depends, in part, on our ability to integrate the
operations of the acquired dealers and other dealers we acquire in the future,
including centralizing certain functions to achieve cost savings and pursuing
programs and processes that promote cooperation and the sharing of opportunities
and resources among our dealerships. Our senior executives operated
independently in the recreational boat industry prior to our formation and have
been assembled only recently as a management team. Management may not be able to
oversee the combined entity efficiently or to implement effectively our growth
and operating strategies. To the extent that we successfully implement our
acquisition strategy, our resulting growth will place significant additional
demands on our management and infrastructure. Our failure to implement
successfully our strategies or operate effectively the combined entity could
have a material adverse effect on our business, financial condition, and results
of operations. These effects could include lower revenue, higher cost of sales,
increased selling, general, and administrative expenses, and reduced margins on
a consolidated basis.
WE RELY ON BRUNSWICK AND OTHER KEY MANUFACTURERS.
Our success depends to a significant extent on the continued popularity
and reputation for quality of the boating products of our manufacturers,
particularly Brunswick's Sea Ray boat lines. Approximately 91% of our new boat
revenue in fiscal 1999 resulted from sales of products manufactured by
Brunswick, including 88% from Brunswick's Sea Ray division. The remainder of our
fiscal 1999 revenue from new boat sales resulted from sales of products from a
limited number of other manufacturers, none of which accounted for a significant
portion of our revenue. Any adverse change in the financial condition,
production efficiency, product development, and management and marketing
capabilities of our manufacturers, particularly Brunswick's Sea Ray division
given our reliance on Sea Ray, would have a substantial impact on our business.
To ensure adequate inventory levels to support our expansion, it may be
necessary for Brunswick and other manufacturers to increase production levels or
allocate a greater percentage of their production to us. The interruption or
discontinuance of the operations of Brunswick or other manufacturers could cause
us to experience shortfalls, disruptions, or delays with respect to needed
inventory. Although we believe that adequate alternate sources would be
available that could replace any manufacturer other than Brunswick as a product
source, there can be no assurance that such alternate sources will be available
at the time of any such interruption or that alternative products will be
available at comparable quality and prices.
Through our principal operating subsidiaries, we maintain dealer
agreements with Brunswick covering Sea Ray products. The dealer agreement with
each operating subsidiary has a 10-year term and provides for the lowest product
prices charged by the Sea Ray division of Brunswick from time to time to other
domestic Sea Ray dealers. These terms are subject to
- - the dealer meeting all the requirements and conditions of Sea Ray's
applicable programs, and
- - the right of Brunswick in good faith to charge lesser prices to other
dealers
--to meet existing competitive circumstances,
--for unusual and non-ordinary business circumstances, or
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<PAGE> 21
--for limited duration promotional programs.
The agreements do not give us the exclusive right to sell Sea Ray product lines
within any particular territory or restrict us from selling competing products.
As is typical in the industry, we deal with our manufacturers, other
than the Sea Ray division of Brunswick, under renewable dealer agreements. These
agreements do not contain any contractual provisions concerning product pricing
or required purchasing levels. Pricing is generally established on a model year
basis, but is subject to change at the manufacturer's sole discretion. Any
change or termination of these arrangements for any reason, including changes in
competitive, regulatory, or marketing practices, could adversely affect our
business, financial condition, and results of operations. In addition, the
timing, structure, and amount of manufacturer sales incentives and rebates could
impact the timing and profitability of our sales.
GENERAL ECONOMIC CONDITIONS, DISCRETIONARY CONSUMER SPENDING, AND CHANGES IN TAX
LAWS AFFECT OUR BUSINESS.
Our operations depend upon a number of factors relating to or affecting
consumer spending for luxury goods, such as recreational boats. Unfavorable
local, regional, or national economic developments or uncertainties regarding
future economic prospects could reduce consumer spending in the markets we serve
and adversely affect our business. Consumer spending on luxury goods also may
decline as a result of lower consumer confidence levels, even if prevailing
economic conditions are favorable. In an economic downturn, consumer
discretionary spending levels generally decline, at times resulting in
disproportionately large reductions in the sale of luxury goods. Similarly,
rising interest rates could have a negative impact on the ability or willingness
of consumers to finance boat purchases, which could also adversely affect our
ability to sell our products. Local influences, such as corporate downsizing and
military base closings, also could adversely affect our operations in certain
markets. We may be unable to maintain our profitability during any period of
adverse economic conditions or low consumer confidence. Changes in federal and
state tax laws, such as an imposition of luxury taxes on new boat purchases,
also could influence consumers' decisions to purchase products we offer and
could have a negative effect on our sales. For example, during 1991 and 1992 the
federal government imposed a luxury tax on new recreational boats with sales
prices in excess of $100,000, which coincided with a sharp decline in boating
industry sales from a high of more than $17.9 billion in the late 1980s to a low
of $10.3 billion in 1992.
THE BOATING INDUSTRY HAS BEEN STAGNANT DURING RECENT YEARS.
The recreational boating industry is cyclical and has experienced
stagnant overall revenue growth over the last 10-year period. General economic
conditions, consumer spending patterns, federal tax policies, and the cost and
availability of fuel can impact overall boat purchases. We believe that the lack
of increase in overall boat purchases has resulted from increased competition
from other recreational activities, perceived hassles of boat ownership, and
relatively poor customer service and education throughout the retail boat
industry. Although our strategy addresses many of these industry factors and we
have achieved significant growth during the period of stagnant industry growth,
the cyclical nature of the recreational boating industry or the lack of industry
growth could adversely affect our business, financial condition, or results of
operations in the future.
OUR ACQUISITION STRATEGY INVOLVES SIGNIFICANT RISKS.
Our growth strategy of acquiring additional recreational boat dealers
involves significant risks. This strategy entails reviewing and potentially
reorganizing acquired business operations, corporate infrastructure and systems,
and financial controls. Unforeseen expenses, difficulties, and delays frequently
encountered in connection with rapid expansion through acquisitions could
inhibit our growth and negatively impact our profitability. We may be unable to
identify suitable acquisition candidates or to complete the acquisitions of
candidates that we identify. Increased competition for acquisition candidates
may increase purchase prices for acquisitions to levels beyond our financial
capability or to levels that would not result in the returns required by our
acquisition criteria. In addition, we may encounter difficulties in integrating
the operations of acquired dealers with our own operations or managing acquired
dealers profitably without substantial costs, delays, or other operational or
financial problems.
We may issue common or preferred stock or incur substantial
indebtedness in making future acquisitions. The size, timing, and integration of
any future acquisitions may cause substantial fluctuations in operating results
from quarter to quarter. Consequently, operating results for any quarter may
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<PAGE> 22
not be indicative of the results that may be achieved for any subsequent quarter
or for a full fiscal year. These fluctuations could adversely affect the market
price of our common stock.
Our ability to continue to grow through the acquisition of additional
dealers will depend upon various factors, including the following:
- the availability of suitable acquisition candidates at
attractive purchase prices,
- the ability to compete effectively for available acquisition
opportunities,
- the availability of funds or common stock with a sufficient
market price to complete the acquisitions,
- the ability to obtain any requisite manufacturer or
governmental approvals, and
- the absence of one or more manufacturers attempting to impose
unsatisfactory restrictions on us in connection with their
approval of acquisitions.
As a part of our acquisition strategy, we frequently engage in
discussions with various recreational boat dealers regarding their potential
acquisition by us. In connection with these discussions, we and each potential
acquisition candidate exchange confidential operational and financial
information, conduct due diligence inquiries, and consider the structure, terms,
and conditions of the potential acquisition. In certain cases, the prospective
acquisition candidate agrees not to discuss a potential acquisition with any
other party for a specific period of time, grants us an option to purchase the
prospective dealer for a designated price during a specific time, and agrees to
take other actions designed to enhance the possibility of the acquisition, such
as preparing audited financial information and converting its accounting system
to the system specified by us. Potential acquisition discussions frequently take
place over a long period of time and involve difficult business integration and
other issues, including in some cases, management succession and related
matters. As a result of these and other factors, a number of potential
acquisitions that from time to time appear likely to occur do not result in
binding legal agreements and are not consummated.
WE MAY NEED MANUFACTURERS' CONSENT TO DEALER ACQUISITIONS AND MARKET EXPANSIONS.
We may be required to obtain the consent of Brunswick and various other
manufacturers prior to the acquisition of other dealers. In determining whether
to approve acquisitions, manufacturers may consider many factors, including our
financial condition and ownership structure. Manufacturers also may impose
conditions on granting their approvals for acquisitions, including a limitation
on the number of their dealers that we may acquire. Our ability to meet
manufacturers' requirements for approving future acquisitions will have a direct
bearing on our ability to complete acquisitions and effect our growth strategy.
There can be no assurance that a manufacturer will not terminate its dealer
agreement, refuse to renew its dealer agreement, refuse to approve future
acquisitions, or take other action that could have a material adverse effect on
our acquisition program.
On April 28, 1998, we and Brunswick entered into an agreement providing
for Brunswick to cooperate in good faith and not to unreasonably withhold its
consent to the acquisitions each year by us of Sea Ray boat dealers with
aggregate total revenue not exceeding 20% of our revenue in our prior fiscal
year. Any acquisitions in excess of the 20% benchmark will be at Brunswick's
discretion. In the event that our sales of Sea Ray boats exceed 49% of the sales
of Sea Ray boats by all Sea Ray boat dealers, including us, in any fiscal year
of Brunswick, the agreement provides that we and Brunswick will negotiate in
good faith the standards for acquisitions of Sea Ray boat dealers by us during
Brunswick's next succeeding fiscal year, but that Brunswick may grant or
withhold its consent to any such acquisition in its sole discretion for as long
as our Sea Ray boat sales exceed the 49% benchmark.
Our growth strategy also entails expanding our product lines and
geographic scope by obtaining additional distribution rights from our existing
and new manufacturers. We may not be able to secure additional distribution
rights or obtain suitable alternative sources of supply if we are unable to
obtain such distribution rights. The inability to expand our product lines and
geographic scope by obtaining additional distribution rights could have a
material adverse effect on our business, financial condition, and results of
operations.
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<PAGE> 23
BOAT MANUFACTURERS EXERCISE SUBSTANTIAL CONTROL OVER OUR BUSINESS.
We depend on our dealer agreements. Through dealer agreements, boat
manufacturers, including Brunswick, exercise significant control over their
dealers, restrict them to specified locations, and retain approval rights over
changes in management and ownership. The continuation of our dealer agreements
with most manufacturers, including Brunswick, depends upon, among other things,
our achieving stated goals for customer satisfaction ratings and market share
penetration in the market served by the applicable dealership. Failure to meet
the customer satisfaction, market share goals, and other conditions set forth in
any dealer agreement could have various consequences, including the following:
- the termination of the dealer agreement,
- the imposition of additional conditions in subsequent dealer
agreements,
- limitations on boat inventory allocations,
- reductions in reimbursement rates for warranty work performed
by the dealer, or
- denial of approval of future acquisitions.
Our dealer agreements with manufacturers, including Brunswick,
generally do not give us the exclusive right to sell those manufacturers'
products within a given geographical area. Accordingly, a manufacturer,
including Brunswick, could authorize another dealer to start a new dealership in
proximity to one or more of our locations, or an existing dealer could move a
dealership to a location that would be directly competitive with us. These
events could have a material adverse effect on us and our operations.
WE MAY HAVE SIGNIFICANT CAPITAL NEEDS.
Our growth strategy may require us to secure significant additional
capital. Our future capital requirements will depend upon the size, timing, and
structure of future acquisitions and our working capital and general corporate
needs. If we finance future acquisitions in whole or in part through the
issuance of common stock or securities convertible into or exercisable for
common stock, existing stockholders will experience a dilution in the voting
power of their common stock and earnings per share could be negatively impacted.
The extent to which we will be able or willing to use our common stock for
acquisitions will depend on the market value of our common stock from time to
time and the willingness of potential sellers to accept our common stock as full
or partial consideration. Our inability to use our common stock as
consideration, to generate cash from operations, or to obtain additional funding
through debt or equity financings in order to pursue our acquisition program
could materially limit our growth.
Any borrowings made to finance future acquisitions or for operations
could make us more vulnerable to a downturn in our operating results, a downturn
in economic conditions, or increases in interest rates on borrowings that are
subject to interest rate fluctuations. If our cash flow from operations is
insufficient to meet our debt service requirements, we could be required to sell
additional equity securities, refinance our obligations, or dispose of assets in
order to meet our debt service requirements. In addition, our credit
arrangements generally will contain financial and operational covenants and
other restrictions with which we must comply, including limitations on capital
expenditures and the incurrence of additional indebtedness. Adequate financing
may not be available if and when we need it or may not be available on terms
acceptable to us. The failure to obtain sufficient financing on favorable terms
and conditions could have a material adverse effect on our growth prospects and
our business, financial condition, and results of operations.
As of December 27, 1999, our credit facilities provide for borrowings
of up to approximately $235 million. We believe these credit facilities will be
sufficient for our currently anticipated needs and reflect competitive terms and
conditions. We have pledged certain of our assets, principally boat inventories,
to secure our credit facilities. While we believe we will continue to obtain
adequate financing from lenders, such financing may not be available to us.
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<PAGE> 24
OUR INTERNAL GROWTH AND OPERATING STRATEGIES INVOLVE RISK.
In addition to pursuing growth by acquiring boat dealers, we intend to
continue to pursue a strategy of growth through opening new retail locations and
offering new products in its existing and new territories. Accomplishing these
goals for expansion will depend upon a number of factors, including the
following:
- our ability to identify new markets in which we can obtain
distribution rights to sell our existing or additional product
lines;
- our ability to lease or construct suitable facilities at a
reasonable cost in existing or new markets;
- our ability to hire, train, and retain qualified personnel;
- the timely integration of new retail locations into existing
operations;
- our ability to achieve adequate market penetration at
favorable operating margins without the acquisition of an
existing dealer; and
- our financial resources.
Our dealer agreements with Brunswick require Brunswick's consent to
open, close, or change retail locations that sell Sea Ray products, and other
dealer agreements generally contain similar provisions. We may not be able to
open and operate new retail locations or introduce new product lines on a timely
or profitable basis. Moreover, the costs associated with opening new retail
locations or introducing new product lines may adversely affect our
profitability.
As a result of these growth strategies, we expect that management will
expend significant time and effort in opening and acquiring new retail locations
and introducing new products. Our systems, procedures, controls, or financial
resources may not be adequate to support our expanding operations. The inability
to manage our growth effectively could have a material adverse effect on our
business, financial condition, and results of operations.
Our planned growth also will impose significant added responsibilities
on members of senior management and require us to identify, recruit, and
integrate additional senior level managers. We may not be able to identify,
hire, or train suitable additions to management.
SEASONALITY AND WEATHER CONDITIONS IMPACT OUR OPERATIONS.
Our business, as well as the entire recreational boating industry, is
highly seasonal, with seasonality varying in different geographic markets.
During the three-year period ended September 30, 1999, the average net sales for
the quarterly periods ended December 31, March 31, June 30, and September 30
represented 16%, 22%, 34%, and 28%, respectively, of our average annual net
sales. With the exception of Florida, we generally realize significantly lower
sales in the quarterly period ending December 31 with boat sales generally
improving in January with the onset of the public boat and recreation shows. Our
business could become substantially more seasonal as we acquire dealers that
operate in colder regions of the United States.
Weather conditions may adversely impact our operating results. For
example, drought conditions, reduced rainfall levels, and excessive rain may
force boating areas to close or render boating dangerous or inconvenient,
thereby curtailing customer demand for our products. In addition, unseasonably
cool weather and prolonged winter conditions may lead to shorter selling seasons
in certain locations. Hurricanes and other storms could result in the disruption
of our operations or damage to our boat inventories and facilities. Many of our
dealerships sell boats to customers for use on reservoirs, thereby subjecting
our business to the continued viability of these reservoirs for boating use.
Although our geographic diversity and our future geographic expansion will
reduce the overall impact on us of adverse weather conditions in any one market
area, weather conditions will continue to represent potential material adverse
risks to us and our future operating performance. As a result of the foregoing
and other factors, our operating results in some future quarters could be below
the expectations of stock market analysts and investors.
WE FACE INTENSE COMPETITION.
We operate in a highly competitive environment. In addition to facing
competition generally from non-boating recreation businesses seeking to attract
discretionary spending dollars, the recreational boat industry itself is
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<PAGE> 25
highly fragmented, resulting in intense competition for customers, product
distribution rights, boat show space, and suitable retail locations,
particularly on or near waterways. Competition increases during periods of
stagnant industry growth, such as currently exists.
We compete primarily with single-location boat dealers and, with
respect to sales of marine parts, accessories, and equipment, with national
specialty marine parts and accessories stores, catalog retailers, sporting goods
stores, and mass merchants. Competition among boat dealers is based on the
quality of available products, the features, price, and value of the products,
and attention to customer service. There is significant competition both within
markets we currently serve and in new markets that we may enter. We compete in
each of our markets with retailers of brands of boats and engines we do not sell
in that market. In addition, several of our competitors, especially those
selling marine equipment and accessories, are large national or regional chains
that have substantial financial, marketing, and other resources. Private sales
of used boats represent an additional source of competition.
WE DEPEND ON INCOME FROM FINANCING, INSURANCE, AND EXTENDED SERVICE CONTRACTS.
A portion of our income results from referral fees derived from the
placement of various F&I products, consisting of customer financing, insurance
products, and extended service contracts, the most significant component of
which is the participation and other fees resulting from our sale of customer
financing contracts. During fiscal 1999, F&I products accounted for
approximately 2.3% of our revenue.
The availability of financing for our boat purchasers and the level of
participation and other fees we receive in connection with such financing depend
on the particular agreement between us and the lender. Lenders may impose terms
in their boat financing arrangements with us that may be unfavorable to us or
our customers, resulting in reduced demand for our customer financing programs
and lower participation and other fees.
The reduction of profit margins on sales of F&I products or the lack of
demand for or the unavailability of these products could have a material adverse
effect on our business, financial condition, and results of operations.
WE DEPEND ON KEY PERSONNEL.
Our success depends, in large part, upon the continuing efforts and
abilities of our executive officers. Although we have an employment agreement
with each of our executive officers, we cannot assure that these individuals
will remain with us throughout the term of the agreements, or thereafter. As a
result of our decentralized operating strategy, we also rely on the management
teams of our operating subsidiaries. In addition, we likely will depend on the
senior management of any significant dealers we acquire in the future. The loss
of the services of one or more of these key employees before we are able to
attract and retain qualified replacement personnel could adversely affect our
business.
WE FACE PRODUCT AND SERVICE LIABILITY RISKS.
The products we sell or service may expose us to potential liability
for personal injury or property damage claims relating to the use of those
products. Manufacturers of the products we sell generally maintain product
liability insurance. We also maintain third-party product liability insurance
that we believe to be adequate. We may experience claims that are not covered by
or that are in excess of our insurance coverage. The institution of any
significant claims against us could adversely affect our business, financial
condition, and results of operations as well as our business reputation with
potential customers.
ENVIRONMENTAL AND OTHER REGULATORY ISSUES MAY IMPACT OUR OPERATIONS.
Our operations are subject to extensive regulation, supervision, and
licensing under various federal, state, and local statutes, ordinances, and
regulations. The failure to satisfy those and other regulatory requirements
could have a material adverse effect on our business, financial condition, and
results of operations.
Various federal, state, and local regulatory agencies, including the
Occupational Safety and Health Administration, or OSHA, the United States
Environmental Protection Agency, or the EPA, and similar federal and local
agencies, have jurisdiction over the operation of our dealerships, repair
facilities, and other operations, with respect to matters such as consumer
protection, workers' safety, and laws regarding protection of the environment,
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<PAGE> 26
including air, water, and soil. The EPA recently promulgated emissions
regulations for outboard marine engines that impose stricter emissions standards
for two-cycle, gasoline outboard marine engines. Emissions from such engines
must be reduced by approximately 75% over a nine-year period beginning with the
1998 model year. Costs of comparable new engines, if materially more expensive
than previous engines, or the inability of our manufacturers to comply with EPA
requirements, could have a material adverse effect on our business, financial
condition, and results of operations.
Certain of our facilities own and operate underground storage tanks, or
USTs, for the storage of various petroleum products. USTs are generally subject
to federal, state, and local laws and regulations that require testing and
upgrading of USTs and remediation of contaminated soils and groundwater
resulting from leaking USTs. In addition, we may be subject to civil liability
to third parties for remediation costs or other damages if leakage from our
owned or operated USTs migrates onto the property of others.
Our business involves the use, handling, storage, and contracting for
recycling or disposal of hazardous or toxic substances or wastes, including
environmentally sensitive materials, such as motor oil, waste motor oil and
filters, transmission fluid, antifreeze, freon, waste paint and lacquer thinner,
batteries, solvents, lubricants, degreasing agents, gasoline, and diesel fuels.
Accordingly, we are subject to regulation by federal, state, and local
authorities establishing investigation and health and environmental quality
standards, and liability related thereto, and providing penalties for violations
of those standards.
We also are subject to laws, ordinances, and regulations governing
investigation and remediation of contamination at facilities we operate or to
which we send hazardous or toxic substances or wastes for treatment, recycling,
or disposal. In particular, the Comprehensive Environmental Response,
Compensation and Liability Act, or CERCLA or Superfund, imposes joint, strict,
and several liability on (i) owners or operators of facilities at, from, or to
which a release of hazardous substances has occurred; (ii) parties who generated
hazardous substances that were released at such facilities; and (iii) parties
who transported or arranged for the transportation of hazardous substances to
such facilities. A majority of states have adopted Superfund statutes comparable
to and, in some cases, more stringent than CERCLA. If we were to be found to be
a responsible party under CERCLA or a similar state statute, we could be held
liable for all investigative and remedial costs associated with addressing such
contamination. In addition, claims alleging personal injury or property damage
may be brought against us as a result of alleged exposure to hazardous
substances resulting from our operations. In addition, certain of our retail
locations are located on waterways that are subject to federal or state laws
regulating navigable waters (including oil pollution prevention), fish and
wildlife, and other matters.
Soil and groundwater contamination has been known to exist at certain
properties owned or leased by us. We have also been required and may in the
future be required to remove aboveground and underground storage tanks
containing hazardous substances or wastes. As to certain of our properties,
specific releases of petroleum have been or are in the process of being
remediated in accordance with state and federal guidelines. We are monitoring
the soil and groundwater as required by applicable state and federal guidelines.
We also may have additional storage tank liability insurance and "Superfund"
coverage where applicable. Environmental laws and regulations are complex and
subject to frequent change. Compliance with amended, new or more stringent laws
or regulations, stricter interpretations of existing laws, or the future
discovery of environmental conditions may require additional expenditures by us,
and such expenditures may be material.
Two of the properties we own were historically used as gasoline service
stations. Remedial action with respect to prior historical site activities on
these properties has been completed in accordance with federal and state law.
Also, one of our properties is within the boundaries of a Superfund site,
although our property has not been identified as a contributor to the
contamination in the area.
Additionally, certain states have required or are considering requiring
a license in order to operate a recreational boat. These regulations could
discourage potential buyers, thereby limiting future sales and adversely
affecting our business, financial condition, and results of operations.
FUEL PRICES AND SUPPLY MAY AFFECT OUR BUSINESS.
All of the recreational boats we sell are powered by diesel or gasoline
engines. Consequently, an interruption in the supply, or a significant increase
in the price or tax on the sale, of fuel on a regional or national
24
<PAGE> 27
basis could have a material adverse effect on our sales and operating results.
At various times in the past, diesel or gasoline fuel has been difficult to
obtain. The supply of fuels may be interrupted, rationing may be imposed, or the
price of or tax on fuels may significantly increase in the future.
WE MUST AMORTIZE INTANGIBLE ASSETS.
We are required to amortize the goodwill from acquisitions accounted
for as purchases over a period of time, with the amount amortized in a
particular period constituting an expense that reduces our net income for that
period. Goodwill is an intangible asset that represents the difference between
the aggregate purchase price for the net assets acquired and the amount of such
purchase price allocated to such net assets for purposes of our balance sheet. A
reduction in net income resulting from the amortization of goodwill may have an
adverse impact upon the market price of our common stock. As of September 30,
1999, our acquisitions that have been accounted for as purchases have resulted
in goodwill of approximately $34.2 million, which we are amortizing over a
period of 40 years.
CONFLICTS EXIST RELATING TO TRANSACTIONS WITH AFFILIATES.
We have various arrangements that may involve conflicts of interest. We
lease two retail locations from an irrevocable trust of which relatives of Louis
R. DelHomme Jr., a principal stockholder of our company, are the beneficiaries;
a retail location from David H. Pretasky, an executive officer of our company;
and four retail locations from partnerships in which Paul Graham Stovall, a
director and executive officer of our company, is an owner. These arrangements
were negotiated in conjunction with the acquisition of their respective
companies. The interests of directors or officers of our company or holders of
more than 5% of our common stock, in their individual capacities or capacities
with related third-party entities, may conflict with the interests of these
persons in their capacities with our company.
DIRECTORS, OFFICERS, AND CERTAIN OTHER STOCKHOLDERS OWN A SIGNIFICANT PORTION OF
OUR STOCK.
Our directors and executive officers and persons associated with them
own beneficially a total of approximately 39% of the issued and outstanding
shares of our common stock, exclusive of options to acquire 357,767 additional
shares of our common stock. As a result of this ownership, these persons will
have the power effectively to control our company, including the election of
directors, the determination of matters requiring stockholder approval, and
other matters pertaining to corporate governance. This concentration of
ownership also may have the effect of delaying or preventing a change in control
of our company.
We, Brunswick, and various of our senior executive officers are parties
to a stockholders' agreement, and we and Brunswick are parties to a governance
agreement, each dated April 28, 1998. Subject to certain limitations, the
stockholders' agreement provides various rights of first refusal on the sale of
shares of common stock by the parties to the agreement, particularly in the
event that Brunswick does not own its targeted investment percentage of 19% of
our common stock at the time of the proposed sale or in the event the proposed
sale is to a competitor of Brunswick. The governance agreement provides for
various terms and conditions concerning Brunswick's participation in the
corporate governance of our company. Among other provisions and subject to
certain conditions, the governance agreement requires Brunswick and our senior
executives to vote their common stock for nominees of the board of directors in
the election of directors and to vote their common stock in favor of all
proposals and recommendations approved by our board of directors and submitted
to a vote of our stockholders.
As a result, the stockholders' agreement and the governance agreement
will have the effect of increasing the control of our directors, executive
officers, and persons associated with them and may have the effect of delaying
or preventing a change in control of our company.
OUR STOCK PRICE MAY BE VOLATILE.
The market price of our common stock could be subject to wide
fluctuations as a result of many factors. Factors that could affect the trading
price include the following:
- variations in operating results,
- the level and success of our acquisition program and new store
openings,
25
<PAGE> 28
- variations in same-store sales,
- the success of dealership integration,
- relationships with manufacturers,
- changes in earnings estimates published by analysts,
- general economic, political, and market conditions,
- seasonality and weather conditions,
- governmental policies and regulations,
- the performance of the recreational boat industry in general,
and
- factors relating to suppliers and competitors.
In addition, the relatively few shares held by the public, market
demand for small- and mid-capitalization stocks, and price and volume
fluctuations in the stock market unrelated to our performance could result in
significant fluctuations in market price of our common stock. The performance of
our common stock could adversely affect our ability to raise equity in the
public markets and adversely affect our acquisition program.
STOCKHOLDERS MAY INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.
The issuance of additional common stock in the future, including shares
that we may issue pursuant to option grants and future acquisitions, may result
in dilution in the net tangible book value per share of our common stock. Our
board of directors has the legal power and authority to determine the terms of
an offering of shares of our capital stock, or securities convertible into or
exchangeable for these shares, to the extent of our shares of authorized and
unissued capital stock.
A SUBSTANTIAL NUMBER OF SHARES ARE ELIGIBLE FOR FUTURE SALE.
As of September 30, 1999, there were outstanding 15,136,966 shares of
our common stock. Of these shares, 2,957,799 were freely tradable without
restriction or further registration under the securities laws, unless held by an
"affiliate" of our company, as that term is defined in Rule 144 under the
securities laws. Shares held by affiliates of our company are subject to the
resale limitations of Rule 144 described below. All of the 12,179,167 remaining
outstanding shares of common stock were issued in connection with the
acquisition of the acquired dealers and will be available for resale beginning
one year after the respective dates of the acquisitions, subject to compliance
with the provisions of Rule 144 under the securities laws.
As of September 30, 1999, we had issued options to purchase
approximately 1,583,000 shares of common stock under our 1998 incentive stock
plan and 30,650 of the 500,000 shares of common stock reserved for issuance
under our 1998 employee stock purchase plan. We have filed a registration
statement under the securities laws to register the common stock to be issued
under these plans. As a result, shares issued under these plans will be freely
tradable without restriction unless acquired by affiliates of our company, who
will be subject to the volume and other limitations of Rule 144.
We may issue additional shares of common stock or preferred stock under
the securities laws as part of any acquisition we may complete in the future.
Pursuant to Rule 145 under the securities laws, these shares generally will be
freely tradable after their issuance by persons not affiliated with us or the
acquired companies.
WE RELY ON OUR OPERATING SUBSIDIARIES.
We are a holding company, the principal assets of which are the shares
of the capital stock of our subsidiaries, including the operating subsidiaries.
As a holding company without independent means of generating operating revenue,
we depend on dividends and other payments from our subsidiaries to fund our
obligations and meet our cash needs. Financial covenants under future loan
agreements of our subsidiaries may limit our subsidiaries' ability to make
sufficient dividend or other payments to permit us to fund our obligations or
meet our cash needs, in whole or in part.
26
<PAGE> 29
WE DO NOT PAY CASH DIVIDENDS.
We have never paid cash dividends on our common stock and do not
anticipate paying cash dividends in the foreseeable future. Moreover, financial
covenants under certain of our credit facilities restrict our ability to pay
dividends.
CHANGE IN CONTROL PROVISIONS MAY ADVERSELY AFFECT EXISTING STOCKHOLDERS.
Certain provisions of our restated certificate of incorporation and
bylaws and Delaware law may make a change in the control of our company more
difficult to complete, even if a change in control were in the stockholders'
interest or might result in a premium over the market price for the shares held
by the stockholders. Our restated certificate of incorporation and bylaws divide
the board of directors into three classes of directors elected for staggered
three-year terms. The restated certificate of incorporation also provides that
the board of directors may authorize the issuance of one or more series of
preferred stock from time to time and may determine the rights, preferences,
privileges, and restrictions and fix the number of shares of any such series of
preferred stock, without any vote or action by our stockholders. The board of
directors may authorize the issuance of preferred stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of common stock. The restated certificate of incorporation also
allows our board of directors to fix the number of directors and to fill
vacancies on the board of directors.
We also are subject to the anti-takeover provisions of Section 203 of
the Delaware General Corporation Law, which prohibits us from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
"interested stockholder," unless the business combination is approved in a
prescribed manner. The senior executives of the five original acquired dealers
and Stovall Marine were exempted from the application of Section 203.
Certain of our dealer agreements could also make it difficult for a
third party to attempt to acquire a significant ownership position in our
company. In addition, the stockholders' agreement and governance agreement will
have the effect of increasing the control of our directors, executive officers,
and persons associated with them and may have the effect of delaying or
preventing a change in control of our company.
WE FACE RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE.
We believe that our management information system complies with the
Year 2000 requirements, and we currently do not anticipate that we will
experience any material disruption to our operations as a result of the failure
of our management information system to be Year 2000 compliant. Computer systems
operated by third parties, however, including customers, vendors, credit card
transaction processors, and financial institutions, with which our management
information system interface may not continue to properly interface with our
system and may not otherwise be compliant with Year 2000 requirements. Any
failure of our management information system or the systems of third parties to
timely achieve Year 2000 compliance could have a material adverse effect on our
business, financial condition, and operating results.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements and information contained in this Report under the
headings "Business," "Special Considerations," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" concerning our
future, proposed, and anticipated activities; certain trends with respect to our
revenue, operating results, capital resources, and liquidity or with respect to
the markets in which we compete or the boating industry in general; and other
statements contained in this Report regarding matters that are not historical
facts are forward-looking statements, as such term is defined in the Securities
Act. Forward-looking statements, by their very nature, include risks and
uncertainties, many of which are beyond our control. Accordingly, actual results
may
27
<PAGE> 30
differ, perhaps materially, from those expressed in or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include those discussed elsewhere under "Special Considerations."
ITEM 2. PROPERTIES
We lease our corporate offices in Clearwater, Florida and additional
administrative, and warehouse facilities in Texas. We also lease 34 of our
retail locations under leases that generally contain multi-year renewal options
and often grant us a first right of refusal to purchase the property at fair
value. In all such cases, we pay a fixed rent at market rates. In substantially
all of the leased locations, we are responsible for taxes, utilities, insurance,
and routine repairs and maintenance. We own the property associated with our 17
other retail locations.
The following table reflects the status, approximate size, and facilities
of our various retail locations as of the date of this Report.
<TABLE>
<CAPTION>
OWNED OR SQUARE FACILITIES OPERATED
LOCATION LEASED FOOTAGE(1) AT PROPERTY SINCE WATERFRONT
-------- ------ ---------- ----------- ----- ----------
<S> <C> <C> <C> <C> <C>
ARIZONA
Tempe.................. Company owned 34,000 Retail and service 1992 --
CALIFORNIA
Oakland................ Third-party 17,700 Retail and service; 20 wet 1985 Alameda Estuary
lease slips (San Francisco Bay)
Redding................ Company owned 11,700 Retail and service 1978 --
Santa Rosa............. Third-party 8,100 Retail and service 1990 --
lease
Sacramento............. Company owned 24,800 Retail and service 1995 --
Sacramento (River Bend)
(floating facility).. Third-party 500 Retail and service; 20 wet 1998 Sacramento River
lease slips
Tower Park (near San
Francisco)........... Third-party 400 Retail only 1999 Sacramento River
lease
DELAWARE
Bear Third-party Retail and service; 15 wet
lease 5,000 slips 1995 Chesapeake Bay
FLORIDA
Apollo Beach........... Third-party 500 Retail and service; 3 wet 1999 Tampa Bay
lease slips
Brandon (mall store)... Third-party 1,000 Retail only 1998 --
lease
Clearwater............. Company owned 42,000 Retail and service; 16 wet 1973 Tampa Bay
slips
Cocoa.................. Company owned 15,000 Retail and service 1968 --
Ft. Lauderdale......... Third-party 2,400 Retail and service; 15 wet 1977 Intracoastal
lease slips Waterway
Fort Myers............. Third-party 8,000 Retail and service; 18 wet 1983 Caloosahatchee
lease slips River
Jacksonville........... Third-party 1,000 Retail only; 7 wet slips 1995 St. Johns River
lease
Miami.................. Company owned 7,200 Retail and service; 15 wet 1980 Intracoastal
slips Waterway
Miami Beach............ Third-party 400 Retail only; 8 wet slips 1999 Intracoastal
lease Waterway
Naples................. Company owned 19,600 Retail and service; 13 wet 1997 Naples Bay
slips
Palm Beach............. Company owned 22,800 Retail and service; 8 wet 1998 Intracoastal
slips Waterway
Pompano Beach.......... Company owned 23,000 Retail and service; 16 wet 1990 Intracoastal
slips Waterway
St. Petersburg (mall Third-party 1,000 Retail only 1999 --
store)................. lease
Stuart(2).............. Company owned 6,700 Retail and service; 60 wet 1994 Intracoastal
slips Waterway
Tampa.................. Company owned 13,100 Retail and service 1995 --
GEORGIA Affiliate
Forest Park (Atlanta).. lease 47,300 Retail and service 1973 --
Kennesaw (Atlanta)..... Affiliate 12,000 Retail and service 1996 --
lease
Lake Lanier............ Affiliate 3,000 Retail and service; 50 wet 1981 Lake Lanier
lease slips
MINNESOTA
Bay Port............... Third-party 450 Retail only; 10 wet slips 1996 St. Croix River
lease
Rogers................. Company owned 70,000 Retail, service, and 1991 --
storage
Walker................. Company owned 76,400 Retail, service, and 1989 --
storage
Walker................. Company owned 6,800 Retail and service; 93 wet 1977 Leech Lake
slips
Woodbury............... Third-party 13,392 Retail and service 1997 --
lease
NEVADA
Las Vegas.............. Company owned 21,600 Retail and service 1990 --
NEW JERSEY Retail and service; 225
Brick Company owned 20,000 wet slips 1977 Manasquan River
Brant Beach Third-party 3,800 Retail and service; 36 wet 1965 Barnegat Bay
lease slips
Ship Bottom Third-party 19,300 Retail and service 1972 --
lease
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Somers Point Third-party 31,000 Retail and service; 33 wet 1987 Little Egg Harbor
lease slips Bay
NORTH CAROLINA
Wrightsville Beach..... Affiliate 34,523 Retail, service, and 1996 Intracoastal
lease storage Waterway
OHIO
Cleveland (Flats)...... Third-party 19,000 Retail and service 1999 Lake Erie
lease
Port Clinton........... Affiliate 63,700 Retail, service, and 1974 Lake Erie
lease storage; 155
wet slips
Port Clinton........... Affiliate 93,250 Retail, service, and 1997 Lake Erie
lease storage
Toledo................. Affiliate 12,240 Retail and service 1989 --
lease
PENNSYLVANIA Affiliate
Warrington lease 12,240 Retail and service 1996 --
SOUTH CAROLINA
Myrtle Beach........... Third-party 500 Retail only 1999 Coquina Harbor
lease
TEXAS
Arlington.............. Third-party 21,000 Retail and service 1999 --
lease
Houston................ Affiliate 10,000 Retail only(3) 1987 --
lease
Houston................ Affiliate 10,000 Retail only(3) 1981 --
lease
Houston................ Third-party 10,000 Service only 1999 --
lease
League City (floating
facility)(4)......... Third-party 800 Retail and service; 30 wet 1988 Clear Lake
lease slips
Lewisville (Dallas).... Third-party 10,000 Retail and service 1992 Lake Lewisville
lease
Lewisville (Dallas)
(floating facility).. Third-party 500 Retail only; 20 wet 1994 Lake Lewisville
lease slips(5)
Montgomery (floating
facility)............ Third-party 600 Retail only; 10 wet slips 1995 Lake Conroe
lease
</TABLE>
- ----------
(1) Square footage does not include outside sales space or dock or marina
facilities.
(2) The Stuart retail property consists of two parcels, each of which is
owned by a separate, wholly owned subsidiary of our company.
(3) Service performed at Houston service center leased by us.
(4) We own the floating facility; however, the related dock and marina
space is leased by us from an unaffiliated third party.
(5) Shares service facility located at the other Lewisville retail
location.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various legal proceedings arising out of our operations
in the ordinary course of business. We do not believe that such proceedings,
even if determined adversely, will have a material adverse effect on our
business, financial condition, or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
29
<PAGE> 32
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our common stock has been traded on the New York Stock Exchange under the
symbol HZO since our initial public offering on June 3, 1998 at $12.50 per
share. The following table sets forth high and low sale prices of the common
stock for each calendar quarter indicated as reported on the New York Stock
Exchange.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
1998
SECOND QUARTER (FROM JUNE 3, 1998)................................ $14.19 $12.38
THIRD QUARTER..................................................... $12.38 $ 7.56
FOURTH QUARTER.................................................... $ 9.06 $ 7.31
HIGH LOW
1999
FIRST QUARTER..................................................... $12.75 $ 8.00
SECOND QUARTER.................................................... $12.13 $10.63
THIRD QUARTER..................................................... $12.00 $ 9.38
FOURTH QUARTER (THROUGH DECEMBER 21, 1999)........................ $ 9.81 $ 8.50
</TABLE>
On December 21, 1999, the closing sale price of our common stock was $9.75
per share. On December 21, 1999, there were approximately 89 record holders and
approximately 2,600 beneficial owners of our common stock.
Pursuant to private placements under Section 4(2) of the Securities Act,
and in connection with the following acquisitions, we issued during fiscal 1999
shares of our common stock to the following persons in the following amounts:
<TABLE>
<CAPTION>
PRICE PER
DATE SHARES SHARE(1) ACQUISITIONS ISSUED TO
- ---- ------ -------- ------------ ---------
<S> <C> <C> <C> <C>
March 9, 1999 478,514 $10.01 Merit Marine, Inc. Merit Marine, Inc.
April 5, 1999 121,090 $11.36 Suburban Boatworks, Inc. Suburban Boatworks, Inc.
</TABLE>
- -------------
(1) Approximate market value at acquisition date used for determining purchase
price allocation.
30
<PAGE> 33
ITEM 6. SELECTED FINANCIAL DATA
The following table contains certain financial and operating data and is
qualified by the more detailed Consolidated Financial Statements and notes
thereto included elsewhere in this Report. The Balance Sheet Data as of December
31, 1996, September 30, 1997, 1998 and 1999 and the Statements of Operations
Data for the years ended December 31, 1995 and 1996, the nine months ended
September 30, 1997, and the years ended September 30, 1998 and 1999 were derived
from the Consolidated Financial Statements and notes thereto that have been
audited by Arthur Andersen LLP, independent certified public accountants. The
Balance Sheet Data as of December 31, 1995 and the Statements of Operations Data
for the nine months ended September 30, 1996 have been derived from the
unaudited financial statements of the Company, which in the opinion of
management, have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting of normal recurring
adjustments, which management considers necessary for a fair presentation of the
selected financial data shown. The financial data shown below should be read in
conjunction with the Consolidated Financial Statements and the related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Report.
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR
NINE MONTHS ENDED ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue ............................ $168,111 $197,609 $156,611 $200,414 $ 291,182 $ 450,058
Cost of sales ...................... 128,823 149,948 117,514 150,479 220,364 338,403
-------- -------- -------- -------- ----------- -----------
Gross profit ....................... 39,288 47,661 39,097 49,935 70,818 111,655
Selling, general, and
administrative expenses .......... 31,071 38,650 25,378 30,388 52,479 79,484
Non-recurring settlement(1) ........ -- -- -- -- 15,000 --
-------- -------- -------- -------- ----------- -----------
Income from operations ............. 8,217 9,011 13,719 19,547 3,339 32,171
Interest expense, net .............. 1,414 1,823 1,453 1,806 2,212 2,040
-------- -------- -------- -------- ----------- -----------
Income before tax provision
(benefit) ........................ 6,803 7,188 12,266 17,741 1,127 30,131
Tax provision (benefit) ............ (20) 42 661 596 1,705 11,978
-------- -------- -------- -------- ----------- -----------
Net income (loss) .................. $ 6,823 $ 7,146 $ 11,605 $ 17,146 $ (577) $ 18,153
======== ======== ======== ======== =========== ===========
Net income (loss) per share: Diluted
(2) ............................................................................................ $ (0.05) $ 1.21
=========== ===========
Weighted average number of shares:
Diluted (2) .................................................................................... 11,027,949 14,964,727
=========== ===========
OTHER DATA:
Number of stores(3) ................ 22 23 23 24 41 51
Sales per store(4) ................. $ 6,572 $ 7,124 $ 7,027 $ 8,722 $ 11,269 $ 12,938
Same-store sales growth(5) ......... 14% 14% 8% 28% 18% 18%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------- ---------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................. $7,408 $8,560 $23,556 $29,080 $28,352
Total assets.................................... 59,992 82,312 89,591 150,458 237,334
Long-term debt (including current portion)...... 1,161 1,438 7,414 3,692 7,520
Total stockholders' equity...................... 11,319 12,885 23,298 66,335 90,233
</TABLE>
(1) Consists of Brunswick settlement obligation. See "Special
Considerations -- Necessity for Manufacturers' Consent to
Dealer Acquisitions and Market Expansion."
(2) We have elected to present historical per share data for the
fiscal years ended September 30, 1999 and 1998 only, as the
per share data for the other periods is not meaningful to due
to changes in the historical equity structure and compensation
paid to stockholder employees. See "Management's Discussion
and Analysis of Financial Condition and Results of
Operations."
(3) Includes only those stores open at period end.
(4) Includes only those stores open for the entire preceding 12-
or nine-month period, respectively.
(5) New and acquired stores are included in the comparable base at
the end of the store's thirteenth month of operations.
31
<PAGE> 34
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION, AND
RESULTS OF OPERATIONS
We are the largest recreational boat retailer in the United States with
fiscal 1999 revenue exceeding $450 million. Through 51 retail locations in 13
states, we sell new and used recreational boats and related marine products,
including engines, boats, trailers, parts, and accessories. We also arrange
related boat financing, insurance and extended warranty contracts; provide boat
repair and maintenance services; and offer boat brokerage services.
MarineMax was incorporated in January 1998. MarineMax has consummated a
series of business combinations since its formation. On March 1, 1998, MarineMax
acquired, in separate merger transactions, all of the issued and outstanding
common stock of Bassett Boat Company of Florida, Gulfwind South, Inc., Gulfwind
U.S.A., Inc., 11502 Dumas, Inc. and subsidiaries d/b/a Louis DelHomme Marine,
Harrison's Boat Center, Inc., and Harrison's Marine Centers of Arizona, Inc.
(collectively, the "Original Merged Companies") in exchange for 7,799,844 shares
of common stock. On July 7, 1998, we acquired, in separate merger transactions,
all of the issued and outstanding common stock of Cochran's Marine, Inc. and C &
N Marine Corporation (together "Cochran's Marine") in a merger transaction in
exchange for 603,386 shares of its common stock. On July 30, 1998, we acquired
all of the issued and outstanding common stock of Sea Ray of Wilmington, Inc.
(f.k.a. Skipper Bud's of North Carolina) in a merger transaction in exchange for
412,390 shares of common stock.
These business combinations involving these companies (collectively the
"Pooled Companies") have been accounted for under the pooling-of-interests
method of accounting. Accordingly, the financial statements have been restated
to reflect the operations as if the companies had operated as one entity since
inception.
In addition to the Pooled Companies, we have acquired eight additional boat
retailers, two boat brokerage operations, and companies owning real estate used
in the operations of certain of our subsidiaries (collectively, the "Purchased
Companies"). In connection with these acquisitions, We issued an aggregate of
2,764,578 shares of common stock and paid an aggregate of approximately $17.4
million in cash, resulting in the recognition of an aggregate of $34.2 million
in goodwill, which represents the excess of the purchase price over the
estimated fair value of the net assets acquired. The Purchased Companies have
been reflected in our financial statements subsequent to their respective
acquisition dates. Each of the Purchased Companies is continuing its operations
as a wholly owned subsidiary of our company.
Each of the Pooled Companies and Purchased Companies historically operated
with a calendar year-end, but adopted the September 30 year-end of MarineMax on
or before the completion of its acquisition. The September 30 year-end more
closely conforms to the natural business cycle of our company. The following
discussion compares the fiscal year ended September 30, 1999 to the fiscal year
ended September 30, 1998, the nine months ended September 30, 1997 to the nine
months ended September 30, 1996, and calendar 1996 to calendar 1995 and should
be read in conjunction with our consolidated financial statements, including the
related notes thereto, appearing elsewhere in this Report.
We derive our revenue from (1) selling new and used recreational boats and
related marine products; (2) arranging financing, insurance, and extended
warranty products; (3) providing boat repair and maintenance services; and (4)
offering boat brokerage services. Revenue from boat or related marine product
sales, boat repair and maintenance services, and boat brokerage services is
recognized at the time the product is delivered to the customer or the service
is completed. Revenue earned by us for arranging financing, insurance, and
extended warranty products is recognized at the later of customer acceptance of
the service contract terms as evidenced by contract execution, or when the
related boat sale is recognized.
Cost of sales generally includes the cost of the recreational boat or other
marine product, plus any additional parts or consumables used in providing
maintenance, repair, and rigging services.
The Pooled Companies operated historically as independent, privately owned
entities, and their results of operations reflect varying tax structures,
including both S and C corporations, which have influenced the historical level
of employee-stockholder compensation. The selling, general, and administrative
expenses of the Pooled Companies include compensation to employee-stockholders
totaling $4.8 million for the fiscal year ended September 30, 1998, $4.7 million
and $4.4 million for the nine months ended September 30, 1997 and 1996,
32
<PAGE> 35
respectively, and $9.8 million and $7.3 million for the years ended December 31,
1996 and 1995, respectively. As a result of the varying practices regarding
compensation to employee-stockholders among the Pooled Companies, the comparison
of operating margins from period to period is not meaningful. Certain
employee-stockholders have entered into employment agreements , reflecting
reduced compensation when compared to historical levels.
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
revenue for the periods indicated:
<TABLE>
<CAPTION>
CALENDAR YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
1995 1996 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue ............. $168,111 100.0% $197,609 100.0% $156,611 100.0% $200,414 100.0%
Cost of sales ....... 128,823 76.6% 149,948 75.9% 117,514 75.0% 150,479 75.1%
-------- -------- -------- --------
Gross profit ........ 39,288 23.4% 47,661 24.1% 39,097 25.0% 49,935 24.9%
Selling, general, and
administrative
expenses ........ 31,071 18.2% 38,650 19.6% 25,378 16.2% 30,388 15.2%
Non-recurring
settlement ....... -- 0.0% -- 0.0% -- 0.0% -- 0.0%
-------- -------- -------- --------
Income from
operations ....... 8,217 4.9% 9,011 4.6% 13,719 8.8% 19,547 9.8%
Interest expense, net 1,414 0.8% 1,823 0.9% 1,453 0.9% 1,806 0.9%
-------- -------- -------- --------
Income before tax
provision ........ $ 6,803 4.0% $ 7,188 3.6% $ 12,266 7.8% $ 17,741 8.9%
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999
---- ----
<S> <C> <C> <C> <C>
Revenue ............. $291,182 100.0% $450,058 100.0%
Cost of sales ....... 220,364 75.7% 338,403 75.2%
-------- --------
Gross profit ........ 70,818 24.3% 111,655 24.8%
Selling, general, and
administrative
expenses ........ 52,479 18.0% 79,484 17.7%
Non-recurring
settlement ....... 15,000 5.2% -- 0.0%
-------- --------
Income from
operations ....... 3,339 1.1% 32,171 7.2%
Interest expense, net 2,212 0.8% 2,040 0.5%
-------- --------
Income before tax
provision ........ $ 1,127 0.4% $ 30,131 6.7%
======== ========
</TABLE>
Fiscal Year Ended September 30, 1999 Compared to Fiscal Year Ended September 30,
1998
Revenue. Revenue increased $158.9 million, or 54.6%, to $450.1 million for
the fiscal year ended September 30, 1999 from $291.2 million for the fiscal year
ended September 30, 1998. Of this increase, $45.1 million was attributable to
18% growth in comparable stores sales in 1999 and $113.8 million was
attributable to stores not eligible for inclusion in the comparable store base.
The increase in comparable store sales in fiscal 1999 resulted primarily from
the continued training of employees through MarineMax University ("MMU"). MMU
teaches our core retailing values, which focus on customer service. We believe
increased awareness and focus has resulted in an increased closing rate on sales
and a more effective utilization of the prospective customer tracking feature of
the integrated computer system. In addition, we have experienced an increase in
larger boat sales, such as sport yacht and yachts, including Hatteras.
Gross Profit. Gross profit increased $40.8 million, or 57.7%, to $111.7
million for the fiscal year ended September 30, 1999 from $70.8 million for the
fiscal year ended September 30, 1998. Gross profit margin as a percentage of
revenue increased from 24.3% to 24.8% from fiscal 1998 to 1999. The increase was
due to an increased focus on customer service, which generally results in
improved overall gross profit margins and increased sales of products, such as
finance and insurance contracts, that historically result in higher gross
profits.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased approximately $27.0 million, or 51.5%, to
$79.5 million for the fiscal year ended September 30, 1999 from $52.5 million
for the fiscal year ended September 30, 1998. Selling, general, and
administrative expenses as a percentage of revenue decreased to 17.7% in fiscal
1999 from 18.0% in fiscal 1998. This reduction was primarily due to
proportionally lower stockholder-employee compensation, which was partially
offset by an increase in expenses associated with being a public company, our
investment in infrastructure such as MarineMax University, and the increased
operating expense structure of certain recently acquired companies. The lower
stockholder-employee compensation has resulted from contractually lowered
compensation plans, which differ from those plans followed by the Pooled
Companies prior to March 1, 1998.
Non-Recurring Settlement. The Non-Recurring Settlement for the fiscal year
ended September 30, 1998 was attributable to a $15.0 million settlement under
the Settlement Agreement the Company entered into with Brunswick.
33
<PAGE> 36
Interest Expense, Net. Interest expense, net decreased approximately
$172,000, or 7.8%, to $2.0 million for the fiscal year ended September 30, 1999
from $2.2 million for the fiscal year ended September 30, 1998. Interest
expense, net as a percentage of revenue decreased to 0.5% in 1999 from 0.8% in
1998. The reduction in total interest charges was a result of the overall
reduced debt levels following our June 3, 1998 initial public offering, reduced
interest rates associated with our inventory financing facilities, and a
generally more favorable rate environment in fiscal 1999 versus fiscal 1998.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996
Revenue. Revenue increased $43.8 million, or 27.9%, to $200.4 million for
the nine-month period ended September 30, 1997 from $156.6 million for the
nine-month period ended September 30, 1996. Of this increase, $39.0 million was
attributable to 25.9% growth in comparable stores sales in the nine-month period
ended September 30, 1997 and $4.8 million was attributable to stores not
eligible for inclusion in the comparable store base. The increase in comparable
store sales in 1997 resulted primarily from more effective utilization of the
prospective customer tracking feature of the integrated computer system, a
greater emphasis on used boat sales, the addition of the Boston Whaler product
line at 12 locations, the introduction of core retailing values at seven retail
locations, which focus on customer service and which we believe has resulted in
an increased closing rate on sales, and participation in additional boat shows.
Gross Profit. Gross profit increased $10.8 million, or 27.7%, to $49.9
million for the nine-month period ended September 30, 1997 from $39.1 million
for the nine-month period ended September 30, 1996. Gross profit margin as a
percentage of revenue remained relatively constant at 24.9% during the
nine-month periods ended September 30, 1997 and 1996.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased approximately $5.0 million, or 19.7%, to $30.4
million for the nine-month period ended September 30, 1997 from $25.4 million
for the nine-month period ended September 30, 1996. Selling, general, and
administrative expenses as a percentage of revenue decreased to 15.2% in 1997
from 16.2% in 1996. This reduction was primarily due to proportionally lower
stockholder-employee compensation.
Interest Expense, Net. Interest expense, net increased approximately
$352,000, or 24.2%, to $1.8 million for the nine-month period ended September
30, 1997 from $1.5 million for the nine-month period ended September 30, 1996.
Interest expense, net as a percentage of revenue, remained relatively constant
at 0.9% during the nine-month periods ended September 30, 1997 and 1996. Total
interest charges increased as a result of increased debt associated with the
redemption of common stock and higher levels of outstanding borrowings related
to the increased level of inventories required to support the increase in
revenue.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenue. Revenue increased $29.5 million, or 17.5%, to $197.6 million in
1996 from $168.1 million in 1995. Of this increase, $22.9 million was
attributable to 14.2% growth in comparable stores sales and $6.6 million was
attributable to stores not eligible for inclusion in the comparable store base.
The increase in comparable store sales in 1996 was due primarily to increased
use of the prospective customer tracking feature of the integrated computer
system, a stronger emphasis on used boat sales and parts and service sales, the
addition of product lines, such as Baja, Challenger, Sea Hunt, and Sea Pro, in
selected locations, and participation in additional boat shows.
Gross Profit. Gross profit increased $8.4 million, or 21.1%, to $47.7
million in 1996 from $39.3 million in 1995. Gross profit as a percentage of
revenue increased to 24.1% in 1996 from 23.4% in 1995. The gross profit increase
was primarily due to more effective utilization of the integrated computer
system, which allowed for more timely monitoring and emphasis on daily and
monthly gross profit margins, and increased sales of products, such as finance
and insurance contracts, that historically result in higher gross profits..
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased approximately $7.6 million, or 24.4%, to $38.7
million in 1996 from $31.1 million in 1995. Selling, general, and administrative
expenses as a percentage of revenue increased to 19.6% in 1996 from 18.5% in
1995. The increase in selling, general, and administrative expenses as a
percentage of revenue was primarily due to an additional $1.2
34
<PAGE> 37
million of stockholder-employee compensation and $800,000 in additional
advertising expense in excess of their proportion to the increase in revenue.
The increase in advertising expense was primarily associated with the addition
of new product lines as noted above.
Interest Expense, Net. Interest expense, net increased approximately
$409,000, or 29.0%, to $1.8 million in 1996 from $1.4 million in 1995. Interest
expense, net as a percentage of revenue, increased to 0.9% in 1996 from 0.8% in
1995. The increase in interest charges was a result of increased debt associated
with the redemption of common stock and higher levels of outstanding borrowings
related to the increased level of inventories required to support the increase
in revenue.
QUARTERLY DATA AND SEASONALITY
The following table sets forth certain unaudited quarterly financial data
for each of our last eight quarters. The information has been derived from
unaudited financial statements that, in the opinion of management, reflect all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair presentation of such quarterly financial information.
Through March 1, 1998, the Pooled Companies operated historically as
independent, privately owned entities, and their results of operations reflect
varying tax structures, including both S and C corporations, which have
influenced the historical level of employee-stockholder compensation. As a
result of the varying practices regarding compensation to employee-stockholders
among the Pooled Companies, the comparison of operating margins from period to
period is not meaningful. Certain employee-stockholders have entered into
employment agreements, reflecting reduced compensation when compared to
historical levels. The fiscal year ended September 30, 1999 was the first period
in which these private company expenses were eliminated.
Additionally, due to the issuance of common stock in connection with the
acquisition of property and equipment and the initial public offering of
4,780,569 shares (3,515,824 by us and 1,264,745 by selling stockholders) the
comparisons of earnings per share is also difficult and less meaningful on a
historical basis.
The operating results for any quarter are not necessarily indicative of the
results to be expected for any future period.
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1997 1998 1998 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue .......................... $ 46,401 $ 62,382 $ 105,250 $ 77,149
Cost of sales .................... 36,662 47,861 80,337 55,505
------------ ------------ ------------ ------------
Gross profit ..................... 9,739 14,521 24,913 21,645
Selling, general, and
administrative
expenses ....................... 14,227 11,747 13,495 13,010
Non-recurring
settlement ..................... -- 15,000 -- --
------------ ------------ ------------ ------------
Income (loss) from
operations ..................... (4,488) (12,226) 11,419 8,635
Interest expense
(income), net .................. 350 742 1,468 (349)
------------ ------------ ------------ ------------
Income (loss) before
tax provision .................. (4,839) (12,968) 9,950 8,984
Tax provision
(benefit) ...................... (341) (4,844) 3,468 3,422
------------ ------------ ------------ ------------
Net income (loss) ................ $ (4,498) $ (8,124) $ 6,482 $ 5,562
============ ============ ============ ============
Net income (loss) per
share: Diluted ................. $ (0.51) $ (0.87) $ 0.56 $ 0.39
============ ============ ============ ============
Weighted average number of shares:
Diluted ........................ 8,901,818 9,365,970 11,629,478 14,334,967
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1998 1999 1999 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue .......................... $ 69,264 $ 93,482 $ 161,629 $ 125,683
Cost of sales .................... 52,678 70,940 123,692 91,093
------------ ------------ ------------ ------------
Gross profit ..................... 16,586 22,542 37,937 34,590
Selling, general, and
administrative
expenses ....................... 15,596 18,081 23,316 22,492
Non-recurring
settlement ..................... -- -- -- --
------------ ------------ ------------ ------------
Income (loss) from
operations ..................... 990 4,461 14,621 12,098
Interest expense
(income), net .................. 468 299 598 675
------------ ------------ ------------ ------------
Income (loss) before
tax provision .................. 522 4,162 14,023 11,423
Tax provision
(benefit) ...................... 241 1,694 5,529 4,513
------------ ------------ ------------ ------------
Net income (loss) ................ $ 281 $ 2,468 $ 8,494 $ 6,910
============ ============ ============ ============
Net income (loss) per
share: Diluted ................. $ 0.02 $ 0.17 $ 0.56 $ 0.45
============ ============ ============ ============
Weighted average number of shares:
Diluted ........................ 14,601,634 14,781,986 15,238,110 15,242,996
============ ============ ============ ============
</TABLE>
In order to maintain consistency and comparability between periods, certain
amounts have been reclassified from the previously reported financial statements
to conform with the financial statements of the current period.
LIQUIDITY AND CAPITAL RESOURCES
Our cash needs are primarily for working capital to support operations,
including new and used boat and related parts inventories, off-season liquidity,
and growth through acquisitions and new store openings. These cash needs have
historically been financed with cash from operations and borrowings under credit
facilities. We depend upon
35
<PAGE> 38
dividends and other payments from our operating subsidiaries to fund our
obligations and meet our cash needs. Currently, no agreements exist that
restrict this flow of funds.
For the fiscal year ended September 30, 1999 and the nine-month periods
ended September 30, 1997 and 1996, we generated cash flows from operating
activities of approximately $15.1 million, $8.5 million, and $1.0 million,
respectively. For the fiscal year ended September 30, 1998, cash flows used by
operating activities were $5.5 million. In addition to net income, cash provided
by operating activities was due primarily to inventory management, including
floor plan management. Employee-stockholder compensation levels prior to the
March 1, 1998 mergers significantly impacted net income and therefore cash flows
provided by and used in operations, which causes variations in operating cash
flows.
For the fiscal years ended September 30, 1999 and 1998, and the nine-month
periods ended September 30, 1997 and 1996, cash flows used in investing
activities was approximately $14.4 million, $10.8 million, $1.3 million and $1.2
million, respectively. For the nine-month periods ended September 30, 1997 and
1996, the cash flows used in investing activities was primarily attributable to
purchases of property and equipment associated with opening new or improving
existing retail facilities. Cash used in investing activities for the fiscal
years ended September 30, 1999 and 1998 was primarily attributable to cash used
in business acquisitions, in addition to, purchases of property and equipment
associated with opening new or improving existing retail facilities.
For the fiscal year ended September 30, 1999, cash flows used in financing
activities approximated $200,000. For the fiscal year ended September 30, 1998
and the nine-month periods ended September 30, 1997 and 1996, cash flows
provided by in financing activities approximated $12.6 million, $1.6 million and
$4.5 million, respectively. For the fiscal year ended September 30, 1999, and
the nine-month periods ended September 30, 1997 and 1996 cash provided by and
used in financing activities was primarily attributable to borrowings and
repayments on long-term and stockholder debt. For the fiscal year ended
September 30, 1998, cash flows provided by financing activities reflect the
proceeds from our June 3, 1999 initial public offering, which was partially
offset by the repayment of long-term and stockholder debt and distributions made
to employee-stockholders for tax and other purposes, which have historically
been made in the quarter ended December 31.
At September 30, 1999, our indebtedness totaled approximately $105.7
million, of which approximately $7.5 million was associated with our real estate
holdings and $98.2 million was associated with financing our inventory and
working capital needs.
As of December 27, 1999, we had executed agreements for working capital
borrowing facilities (the "Facilities") with four separate financial
institutions providing for combined borrowing availability of $235 million at a
weighed average interest rate of LIBOR plus 149 basis points. Borrowings under
the Facilities are pursuant to a borrowing base formula and are used primarily
for working capital and financing our inventory. The Facilities have similar
terms and mature on various dates ranging from March 2001 through December 2002.
Since March 1, 1998, we have acquired nine additional boat dealers, two
brokerage operations and companies owning real estate used in the operations of
certain of our subsidiaries. In connection with these acquisitions, we issued an
aggregate of 2,764,578 shares of common stock and paid an aggregate of
approximately $17.4 million in cash, resulting in the recognition of an
aggregate of $33.1 million in goodwill, which represents the excess of the
purchase price over the estimated fair value of the net assets acquired. See
"Business -- Development of the Company; Acquisitions."
In June 1998, we completed our initial public offering (the "IPO") of
4,780,569 shares of common stock (3,515,824 shares by us and 1,264,745 shares by
certain selling stockholders). The IPO generated net cash proceeds to us of
approximately $38.3 million, net of underwriting discounts and offering costs of
approximately $2.5 million. Subsequent to the IPO, we used approximately $1.5
million to enhance our management information systems, $7.2 million in the
acquisition of businesses, and the remaining $29.6 million to pay down debt.
36
<PAGE> 39
Except as specified in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and in the attached consolidated
financial statements, we have no material commitments for capital for the next
12 months. We believe that our existing capital resources will be sufficient to
finance our operations for at least the next 12 months, except for possible
significant acquisitions.
YEAR 2000 COMPLIANCE
We currently are addressing a universal situation commonly referred to as
the "Year 2000 Problem." Year 2000 Problems result from the inability of
computer programs or computerized equipment to accurately calculate, store or
use a date subsequent to December 31, 1999. The erroneous date can be
interpreted in a number of different ways; typically the year 2000 is
represented as the year 1900. This could result in a system failure or
miscalculations causing disruptions of operations including, among other things,
a temporary inability to process transactions, send invoices or engage in
similar normal business activities. We have developed a plan to devote the
necessary resources to identify and modify internal systems impacted by the Year
2000 Problem or to implement new year 2000 compliant systems in a timely manner.
We depend upon the dealerships' transactional computer systems for daily
operations. All of our dealerships use an identical dealer management system
supported by a major computer system provider for the marine industry. We have
contacted the provider and received written assurance that our systems are, or
will be, year 2000 ready. In addition to assurances from the system provider, we
have performed internal testing of the dealer management systems, which appear
to be year 2000 compliant based on the test results. We depend upon this
provider, as do most other dealerships using the provider's system, to address
the year 2000 issues. The worst case scenario, should the dealerships'
transactional computer systems fail, is we would be required to maintain a
manual transactional system until a compliant system could be identified and
implemented.
We depend upon manufacturers for the production and delivery of new boats
and parts. We have contacted the manufacturers and have received written
assurances from them that their systems are, or will be, year 2000 ready. The
worst case scenario should the manufacturers fail to adequately address the year
2000 issue and do not correct the problems in a timely manner, is we may
experience temporary shortages in new boat and parts inventories. We depend upon
the manufacturers, as do all other dealerships worldwide that sell their
products, to address the year 2000 issues.
Our year 2000 plan includes conducting an inventory of all significant
hardware and software that may be subject to the Year 2000 Problem, surveying
third-party suppliers of all of the mission critical dealership systems,
performing internal testing to ensure the dealer management systems are year
2000 compliant. As of September 30, 1999, we have received a written response
from 92% of our mission critical vendors. As of September 30, 1999, we have
completed our internal testing and based on these tests found the mission
critical systems to be year 2000 compliant. In addition, we are implementing an
action plan to correct or eliminate insignificant non-compliant systems before
the end of calendar 1999.
In addition, we have formulated a contingency plan under which alternative
third-party service providers and vendors could be utilized and a manual
dealership management system could be implemented, which would enable us to
continue its retail operations, until compliant systems could be implemented.
While we have developed contingency plans, failure by us, our manufacturers or
third-party service providers and vendors to adequately address the year 2000
issue could have an adverse effect on us.
37
<PAGE> 40
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the financial statements, the notes thereto, and the
report thereon, commencing on page F-1 of this Report, which financial
statement, notes, and report are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
38
<PAGE> 41
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item relating to our directors is
incorporated herein by reference to the definitive Proxy Statement to be filed
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") for our Annual Meeting of Stockholders. The information
required by this Item relating to our executive officers included in "Business -
Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference to the definitive Proxy Statement to be filed pursuant to Regulation
14A of the Exchange Act for our 2000 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by
reference to the definitive Proxy Statement to be filed pursuant to Regulation
14A of the Exchange Act for our 2000 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference to the definitive Proxy Statement to be filed pursuant to Regulation
14A of the Exchange Act for our 2000 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
(1) Financial Statements are listed in the Index to Consolidated
Financial Statements on page F-1 of this Report.
(2) No Financial Statement Schedules are included because such
schedules are not applicable, are not required, or because
required information is included in the Consolidated Financial
Statements or Notes thereto.
(b) REPORTS ON FORM 8-K
None
(c) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C>
3.1 Restated Certificate of Incorporation of the Registrant(1)
3.2 Bylaws of the Registrant(1)
4 Specimen of Stock Certificate(1)
10.1(a) Merger Agreement between Registrant and its acquisition subsidiary
and Bassett Boat Company of Florida and Richard Bassett(1)
10.1(b) Merger Agreement between Registrant and its acquisition subsidiary
and 11502 Dumas, Inc. d/b/a Louis DelHomme Marine and its
stockholders(1)
10.1(c) Merger Agreement between Registrant and its acquisition subsidiary
and Gulfwind USA, Inc. and its stockholders(1)
10.1(d) Merger Agreement between Registrant and its acquisition subsidiary
and Gulfwind South, Inc. and its stockholders(1)
10.1(e) Merger Agreement between Registrant and its acquisition subsidiary
and Harrison's Boat Center, Inc. and its stockholders(1)
</TABLE>
39
<PAGE> 42
<TABLE>
<S> <C>
10.1(f) Merger Agreement between Registrant and its acquisition subsidiary
and Harrison's Marine Centers of Arizona, Inc. and its stockholders
(1)
10.1(g) Merger Agreement between Registrant and its acquisition subsidiary
and Stovall Marine, Inc. and its stockholders(1)
10.1(h) Agreement of Merger and Plan of Reorganization dated as of the 7th
day of July, 1998 by and among MarineMax, Inc., C & N Acquisition
Corp. (a subsidiary of MarineMax, Inc.), C & N Marine Corporation
and the Stockholders named therein(2)
10.1(i) Agreement of Merger and Plan of Reorganization dated as of the 7th
day of July, 1998 by and among MarineMax, Inc., Cochrans
Acquisition Corp. (a subsidiary of MarineMax, Inc.), Cochrans
Marine, Inc. and the Stockholders named therein(2)
10.1(j) Asset Purchase Agreement between Registrant and Treasure Cove
Marina, Inc.(3)
10.2(a) Contribution Agreement between Registrant and Bassett Boat Company
and its owner(1)
10.2(b) Contribution Agreement between Registrant and Bassett Realty,
L.L.C. and its owner(1)
10.2(c) Contribution Agreement between Registrant and Gulfwind South
Realty, L.L.C. and its owners(1)
10.2(d) Contribution Agreement between Registrant and Harrison's Realty,
L.L.C. and its owners(1)
10.2(e) Contribution Agreement between Registrant and Harrison's Realty
California, L.L.C. and its owners(1)
10.3(a) Employment Agreement between Registrant and William H. McGill
Jr.(1)
10.3(b) Employment Agreement between Registrant and Michael H. McLamb(1)
10.3(c) Employment Agreement between Registrant and Richard R. Bassett(1)
10.3(d) Employment Agreement between Registrant and Paul Graham Stovall(1)
10.3(e) Employment Agreement between Registrant and David L. Cochran(4)
10.3(f) Employment Agreement between Registrant and David H. Pretasky(4)
10.4 1998 Incentive Stock Plan(1)
10.5 1998 Employee Stock Purchase Plan(1)
10.6 Settlement Agreement between Brunswick Corporation and Registrant(1)
10.7 Letter of Intent between Registrant and Stovall(1)
10.8 Restated Agreement Relating to the Purchase of MarineMax Common
Stock between Registrant and Brunswick Corporation, dated as of
April 28, 1998(1)
10.9 Stockholders' Agreement among Registrant, Brunswick Corporation,
and Senior Founders of Registrant, dated April 28, 1998(1)
10.10 Governance Agreement between Registrant and Brunswick Corporation,
dated April 28, 1998(1)
10.11 Agreement Relating to Acquisitions between Registrant and Brunswick
Corporation, dated April 28, 1998(1)
10.12 Form of Sea Ray Sales and Service Agreement(1)
10.13 Loan and Security Agreement between Registrant and NationsCredit
Distribution Finance, Inc.(1)
10.14 Guaranty and Security Agreement of NationsCredit Distribution
Finance, Inc.(1)
10.15 Guaranty and Security Agreement of NationsCredit Distribution
Finance, Inc. by Stovall Marine, Inc.(1)
10.16 Credit Facility and Security Agreement, Accounts and Inventory
between the Registrant and Key Bank National Association
21 List of Subsidiaries
23.1 Consent of Arthur Andersen LLP
27 Financial Data Schedule
</TABLE>
- -------------------
(1) Incorporated by reference to Registration Statement on the Registrant's
Form S-1 (Registration 333-47873)
(2) Incorporated by reference to Registrant's Current Report on Form 8-K dated
July 7, 1998, as filed on July 20, 1998
(3) Incorporated by reference to Registrant's Form 8-K Report dated September
30, 1998, as filed on October 20, 1998
(4) Incorporated by reference to Registrant's Form 10-K for the year ended
September 30, 1998, as filed on December 29, 1998.
40
<PAGE> 43
SIGNATURES
In accordance with Section 13 or 15(d) 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.
MARINEMAX, INC.
/s/ William H. McGill Jr.
---------------------------------------------
William H. McGill Jr., Chairman of the Board,
President, and Chief Executive Officer
Date: December 27, 1999
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ William H. McGill Jr. Chairman of the Board, President, December 27, 1999
- ---------------------------------- and Chief Executive Officer (Principal
William H. McGill Jr. Executive Officer)
/s/ Michael H. McLamb Vice President, Chief Financial December 27, 1999
- ---------------------------------- Officer, Treasurer, and Secretary
Michael H. McLamb (Principal Accounting and
Financial Officer)
/s/ Richard R. Bassett
- ---------------------------------- Executive Vice President December 27, 1999
Richard R. Bassett and Director
/s/ Paul Graham Stovall Senior Vice President and Director December 27, 1999
- ----------------------------------
Paul Graham Stovall
/s/ Robert S. Kant Director December 27, 1999
- ----------------------------------
Robert S. Kant
/s/ R. David Thomas Director December 27, 1999
- ----------------------------------
R. David Thomas
/s/ Stewart Turley Director December 27, 1999
- ----------------------------------
Stewart Turley
/s/ Dean S. Woodman Director December 27, 1999
- ----------------------------------
Dean S. Woodman
</TABLE>
41
<PAGE> 44
MARINEMAX, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION> Page
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants....................... F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-4
Consolidated Statements of Stockholders' Equity.......................... F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 45
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of MarineMax, Inc.:
We have audited the accompanying consolidated balance sheets of MarineMax,
Inc. (a Delaware corporation) and subsidiaries as of September 30, 1998 and
1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for the nine-month period ended September 30, 1997, and
the years ended September 30, 1998 and 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
MarineMax, Inc. and subsidiaries as of September 30, 1998 and 1999, and the
results of their operations and their cash flows for the nine-month period ended
September 30, 1997, and the years ended September 30, 1998 and 1999, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Tampa, Florida,
October 21, 1999
F-2
<PAGE> 46
MARINEMAX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1999
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................ $ 7,860,866 $ 8,297,086
Accounts receivable, net......................................... 11,039,878 14,841,966
Inventories...................................................... 88,228,342 137,785,691
Prepaids and other current assets................................ 2,824,345 2,705,005
Deferred tax assets.............................................. -- 234,259
------------- --------------
Total current assets.......................................... 109,953,431 163,864,007
Property and equipment, net........................................ 24,776,439 37,780,158
Deferred tax asset................................................. 103,426 --
Goodwill and other assets.......................................... 15,624,996 34,107,131
------------- -------------
Total assets.................................................. $ 150,458,292 $ 235,751,296
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................. $ 8,591,679 $ 14,802,459
Customer deposits................................................ 4,815,979 10,573,822
Accrued expenses................................................. 6,044,506 10,774,826
Short-term borrowings............................................ 45,813,419 98,150,266
Current maturities of long-term debt............................. 442,519 1,210,150
Settlement payable............................................... 15,000,000 --
Deferred taxes................................................... 165,511 --
------------- --------------
Total current liabilities..................................... 80,873,613 135,511,523
------------- --------------
Other liabilities.................................................. -- 2,096,209
Deferred tax liabilities........................................... -- 1,600,168
Long-term debt, net of current maturities.......................... 3,249,494 6,310,024
------------- --------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 5,000,000 shares authorized,
none issued or outstanding....................................... -- --
Common stock, $.001 par value; 40,000,000 shares authorized,
14,600,428 and 15,136,966 shares issued and outstanding at
September 30, 1998 and 1999, respectively........................ 14,601 15,137
Additional paid-in capital......................................... 57,113,708 62,858,755
Retained earnings.................................................. 9,206,876 27,359,480
------------- --------------
Total stockholders' equity.................................... 66,335,185 90,233,372
------------- --------------
Total liabilities and stockholders' equity.................... $ 150,458,292 $ 235,751,296
============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 47
MARINEMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE-
MONTH PERIOD FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Revenue ..................................... $ 200,413,762 $ 291,182,186 $ 450,058,386
Cost of sales ............................... 150,478,921 220,364,383 338,403,200
------------- ------------- -------------
Gross profit .............................. 49,934,841 70,817,803 111,655,186
Selling, general and administrative
expenses .................................. 30,387,637 52,478,624 79,484,482
Non-recurring settlement .................... -- 15,000,000 --
------------- ------------- -------------
Income from operations .................... 19,547,204 3,339,179 32,170,704
Interest expense, net ....................... 1,805,716 2,211,858 2,039,945
------------- ------------- -------------
Income before income taxes .................. 17,741,488 1,127,321 30,130,759
Income tax provision ........................ 595,823 1,704,783 11,978,155
------------- ------------- -------------
Net income (loss) ........................... $ 17,145,665 $ (577,462) $ 18,152,604
============= ============= =============
Basic and diluted net income (loss) per
common share: ............................. $ 1.93 $ (0.05) $ 1.21
============= ============= =============
Unaudited pro forma income tax provision
(benefit) ................................. 6,404,639 (1,188,928) --
------------- ------------- -------------
Unaudited pro forma net income .............. $ 10,741,026 $ 611,466 $ 18,152,604
============= ============= =============
Unaudited pro forma basic and diluted net
income per common share ................... $ 1.21 $ 0.06 $ 1.21
============= ============= -------------
Weighted average number of common shares used
in computing net income (loss) per common
share and unaudited pro forma net income
per common share:
Basic ............................... 8,901,818 11,025,410 14,958,725
============= ============= =============
Diluted ............................. 8,901,818 11,027,949 14,964,727
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 48
MARINEMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997,
AND THE YEARS ENDED SEPTEMBER 30, 1998 AND 1999
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 ......... 9,676,931 $ 9,677 $ 611,261 $ 12,263,690 $ 12,884,628
Net income ......................... -- -- -- 17,145,665 17,145,665
Redemption of common stock ......... (775,113) (775) (612,261) (5,486,964) (6,100,000)
Capital contribution ............... -- -- 1,000 -- 1,000
Distributions to stockholders ...... -- -- -- (633,455) (633,455)
------------ ------------ ------------ ------------ ------------
BALANCE, September 30, 1997 ........ 8,901,818 8,902 -- 23,288,936 23,297,838
Net loss ........................... -- -- -- (577,462) (577,462)
Issuance of common stock ........... 3,515,824 3,516 38,296,811 -- 38,300,327
Redemption of common stock ......... (86,198) (86) (149,914) -- (150,000)
Issuance of common stock in exchange
for property, equipment and
businesses acquired .............. 2,268,984 2,269 14,928,397 -- 14,930,666
Contribution of former S Corporation
Retained earnings ................ -- -- 4,038,414 (4,038,414) --
Distributions to stockholders ...... -- -- -- (9,466,184) (9,466,184)
------------ ------------ ------------ ------------ ------------
BALANCE, September 30, 1998 ........ 14,600,428 14,601 57,113,708 9,206,876 66,335,185
Net income ......................... -- -- -- 18,152,604 18,152,604
Issuance of common stock ........... 38,430 38 291,900 -- 291,938
Issuance of common stock in exchange
for businesses acquired .......... 498,108 498 5,184,502 -- 5,185,000
Issuance of stock warrants in
exchange for businesses
acquired ......................... -- -- 268,645 -- 268,645
------------ ------------ ------------ ------------ ------------
BALANCE, September 30, 1999 ........ 15,136,966 $ 15,137 $ 62,858,755 $ 27,359,480 $ 90,233,372
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 49
MARINEMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE- FOR THE YEAR
MONTH PERIOD FOR THE YEAR ENDED
ENDED ENDED SEPTEMBER
SEPTEMBER 30, SEPTEMBER 30, 30,
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ....................................... $ 17,145,665 $ (577,462) $ 18,152,604
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization ......................... 726,657 1,685,058 2,585,365
Deferred income tax (benefit) provision ............... 137,369 591,297 1,303,824
Loss on sale of property and equipment ................ 993 60,616 97,886
Stock compensation .................................... -- -- 94,597
(Increase) decrease in - ................................
Accounts receivable, net .............................. (2,785,080) (1,759,684) 4,686,455
Due from related parties .............................. (69,520) 640,632 --
Inventories ........................................... 5,035,675 1,962,118 (37,234,433)
Prepaids and other assets ............................. (191,410) (1,882,655) (4,913,042)
Increase (decrease) in - ................................
Accounts payable ...................................... 1,899,839 100,069 5,729,477
Customer deposits ..................................... 1,196,761 1,022,563 715,530
Accrued expenses and other liabilities ................ 1,354,173 (275,404) 5,984,158
Short-term borrowings ................................. (15,911,114) (22,057,729) 32,857,601
Settlement payable .................................... -- 15,000,000 (15,000,000)
------------ ------------ ------------
Net cash provided by (used in) operating activities . 8,540,008 (5,490,581) 15,060,022
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used in business acquisitions, net of cash acquired -- (4,633,174) (4,317,740)
Purchases of property and equipment ..................... (1,325,001) (6,250,422) (10,122,033)
Proceeds from sale of property and equipment ............ 30,988 84,000 40,469
------------ ------------ ------------
Net cash used in investing activities ............... (1,294,013) (10,799,596) (14,399,304)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net of registration costs ..... 1,000 38,300,327 197,341
Redemption of common stock .............................. -- (150,000) --
Net borrowings (repayments) on notes payable to related
parties ............................................... 2,187,544 (5,785,729) --
Borrowings on long-term debt ............................ 1,917,381 -- --
Repayments on long-term debt ............................ (2,041,090) (10,122,305) (421,839)
Distributions to stockholders ........................... (470,455) (9,629,184) --
------------ ------------ ------------
Net cash provided by (used in) financing activities ... 1,594,380 12,613,109 (224,498)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: ..... 8,840,375 (3,677,068) 436,220
CASH AND CASH EQUIVALENTS, beginning of period ............ 2,697,559 11,537,934 7,860,866
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period .................. $ 11,537,934 $ 7,860,866 $ 8,297,086
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of common stock and stock warrants in exchange
for property and equipment and businesses acquired..... -- $ 48,781,253 $ 25,432,891
Assumption of debt (primarily inventory financing) in
conjunction with the purchase of property and equipment
and businesses acquired................................ -- $ 33,850,587 $ 23,729,246
Distributions declared but not yet paid.................... $ 163,000 -- --
Long-term debt issued for redemption of common stock..... $ 6,100,000 -- --
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 50
MARINEMAX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY BACKGROUND AND BASIS OF PRESENTATION:
MarineMax, Inc. (a Delaware corporation) was incorporated in January 1998.
MarineMax, Inc. and subsidiaries (MarineMax or the Company) engage primarily in
the retail sale and service of new and used boats, motors, trailers, marine
parts and accessories. The Company currently operates through 51 retail
locations in 13 states, consisting of Arizona, California, Delaware, Florida,
Georgia, Minnesota, Nevada, New Jersey, North Carolina, Ohio, Pennsylvania,
South Carolina and Texas.
The Company is the nation's largest retailer of Sea Ray, Boston Whaler, and
other boats manufactured by Brunswick Corporation ("Brunswick"), which is the
world's largest manufacturer of recreational boats. Sales of new Brunswick boats
accounted for 91% of the Company's new boat sales in fiscal 1999, which the
Company believes represented approximately 30% of all new Sea Ray boat sales and
approximately 9% of all Brunswick marine product sales during that period. Each
of the Company's applicable Operating Subsidiaries is a party to a 10-year
dealer agreement with Brunswick covering Sea Ray products and is the exclusive
dealer of Sea Ray boats in its geographic market.
The company is party to dealer agreements with other manufacturers which
gives the company the rights to sell various makes and models of boats within a
given geographic region. In October 1998, the Company formed a new subsidiary,
MarineMax Motor Yachts, Inc. (Motor Yachts), and entered in to a Dealership
Agreement with Hatteras Yachts, a division of Genmar Industries, Inc. The
Agreement gives the Company the rights to sell Hatteras Yachts throughout the
state of Florida (excluding the Florida Panhandle) and the U.S. distribution
rights for Hatteras products over 74 feet.
In order to maintain consistency and comparability between periods
presented, certain amounts have been reclassified from the previously reported
financial statements to conform with the financial statement presentation of the
current period. The consolidated financial statements include the accounts of
the Company and its subsidiaries, all of which are wholly owned. All significant
intercompany transactions and accounts have been eliminated.
2. ACQUISITIONS:
The Company has consummated a series of business combinations. On March 1,
1998, the Company acquired, in separate merger transactions, all of the issued
and outstanding common stock of Bassett Boat Company of Florida, Gulfwind South,
Inc., Gulfwind U.S.A., Inc., 11502 Dumas, Inc. and subsidiaries d/b/a Louis
DelHomme Marine, Harrison's Boat Center, Inc., and Harrison's Marine Centers of
Arizona, Inc. (collectively, the Original Merged Companies) in exchange for
7,799,844 shares of the Company's common stock.
On July 7, 1998, the Company acquired, in separate merger transactions, all
of the issued and outstanding common stock of Cochran's Marine, Inc. and C & N
Marine Corporation (together Cochran's Marine) in exchange for 603,386 shares of
its common stock.
On July 30, 1998, the Company acquired, in a merger transaction, all of the
issued and outstanding common stock of Sea Ray of Wilmington, Inc. (f.k.a.
Skipper Bud's of North Carolina) in exchange for 412,390 shares of its common
stock.
These business combinations (collectively, the Pooled Companies) have been
accounted for under the pooling-of-interests method of accounting. Accordingly,
the financial statements of the Company have been restated to reflect the
operations as if the Pooled Companies had operated as one entity since
inception.
On March 1, 1998, MarineMax effected business combinations in which it
acquired, in separate merger transactions, the beneficial interests in Bassett
Boat Company, Bassett Realty, L.L.C., Gulfwind South Realty, L.L.C., Harrison's
Realty, L.L.C. and Harrison's Realty California, L.L.C. (collectively, the
Original Property Acquisitions) in exchange for 1,392,026 shares of the
Company's common stock. Additionally, on July 7, 1998, MarineMax acquired, in
separate merger transactions, the beneficial interests in C & N Realty L.L.C.,
Walker Marina Realty, L.L.C., Marina Drive Realty I, L.L.C., and Marina Drive
Realty II, L.L.C. (collectively, Cochran's L.L.C.s) in exchange for 120,000
shares of the Company's common stock. These acquisitions have been accounted for
under the purchase method of accounting.
F-7
<PAGE> 51
On April 30, 1998, the Company acquired, in a merger transaction, all
of the issued and outstanding common stock of Stovall Marine, Inc. (Stovall) in
exchange for 492,306 shares of the Company's common stock, valued at
approximately $5.3 million. The acquisition has been accounted for under the
purchase method of accounting, which resulted in the recognition of
approximately $5.3 million in goodwill.
On September 3, 1998, the Company acquired the net assets of Brevard Boat
Sales, Inc. (Brevard) in exchange for approximately $1.3 million of cash,
including acquisition costs, and 14,652 shares of the Company's common stock,
valued at approximately $125,000. The acquisition has been accounted for under
the purchase method of accounting, which resulted in the recognition of
approximately $1.1 million in goodwill.
On September 15, 1998, the Company acquired the net assets, including the
retail location of Sea Ray of Las Vegas (Vegas) in exchange for approximately
$3.7 million of cash, including acquisition costs. The acquisition has been
accounted for under the purchase method of accounting, which resulted in the
recognition of approximately $1.1 million in goodwill.
On September 30, 1998, the Company acquired the net assets of Treasure Cove
Marina, Inc. (Treasure Cove) in exchange for approximately $7.8 million of cash,
including acquisition costs, and 250,000 shares of the Company's common stock,
valued at approximately $2.3 million. The acquisition has been accounted for
under the purchase method of accounting. The initial purchase price allocation
resulted in the recognition of approximately $12.6 million in goodwill. The
asset purchase agreement contained a claw-back provision which allowed the
Company to reevaluate the net assets acquired and adjust the purchase price
accordingly. In September 1999 the Company and the principals of Treasure Cove
concluded on the value of the net assets acquired and the final purchase price.
As a result of the agreement, 101,496 shares, valued at $950,000, were returned
to the Company and retired. The retirement of the shares combined with the
changes in the net assets acquired resulted in a $1.4 million reduction in
goodwill. The final purchase price allocation resulted in the recognition of
approximately $11.2 million in goodwill.
On October 28, 1998, the Company acquired the net assets of Woods & Oviatt,
Inc. (Woods & Oviatt), a prominent yacht brokerage operation, in exchange for
approximately $1.7 million of cash, including acquisition costs. The acquisition
has been accounted for under the purchase method of accounting, which resulted
in the recognition of approximately $1.7 million in goodwill.
On February 11, 1999, the Company acquired the net assets of Boating World
(Boating World) in exchange for approximately $523,000 of cash, including
acquisition costs and warrants valued at approximately $269,000. The warrants
provide the holder the right to buy 40,000 shares of MarineMax common stock at
$15.00 per share and were valued using a Black-Scholes model assuming a 10 year
term, a 5.25% risk free rate of return, a volatility factor of 44.7% and an
expected dividend yield of 0%. The acquisition has been accounted for under the
purchase method of accounting, which resulted in the recognition of
approximately $700,000 in goodwill.
On March 9, 1999, the Company acquired the net assets of Merit Marine
(Merit) in exchange for approximately $1.2 million of cash, including
acquisition costs, 476,000 shares of the Company's common stock, valued at
approximately $4.8 million, a $3 million promissory note, with interest payable
at LIBOR plus 125 basis points, and the assumption of certain liabilities. The
assumed liabilities include the outstanding floor plan obligations related to
boat inventories, which primarily finance Merit Marine's Sea Ray products. The
acquisition has been accounted for under the purchase method of accounting,
which resulted in the recognition of approximately $9.2 million in goodwill.
On April 5, 1999, the Company acquired the net assets of Suburban Boatworks,
Inc. (Suburban) in exchange for $965,000 of cash, including acquisition costs,
121,090 shares of the Company's common stock, valued at approximately $1.4
million, a $500,000 promissory note, with interest payable at LIBOR plus 125
basis points, and the assumption of certain liabilities. The assumed liabilities
include the outstanding floor plan obligations related to boat inventories,
which primarily finance Suburban's Sea Ray products. The acquisition has been
accounted for under the purchase method of accounting, which resulted in the
recognition of approximately $3.7 million in goodwill.
On July 27, 1999, the Company acquired the net assets of Hansen Marine, Inc.
(Hansen) in exchange for approximately $181,000 of cash, including acquisition
costs. The acquisition has been accounted for under the purchase method of
accounting, which resulted in the recognition of approximately $170,000 in
goodwill.
The Original Property Acquisitions, Stovall, Cochran's L.L.C.s, Brevard,
Vegas, Treasure Cove, Woods & Oviatt, Boating World, Merit, Suburban and Hansen
(collectively, the Purchased Companies) have been reflected in the Company's
financial statements
F-8
<PAGE> 52
subsequent to their respective acquisition dates. For purchase price allocation
purposes, the Company's common stock issued in conjunction with the acquisition
of each of the Purchased Companies has been valued at approximately the current
market price on each of their respective acquisition dates. The goodwill
associated with the acquisition of the Purchased Companies represents the excess
of the purchase price over the estimated fair value of the net assets acquired
and is being amortized over forty years on a straight-line basis.
The Company's unaudited pro forma consolidated results of operations
assuming all significant acquisitions accounted for under the purchase method of
accounting had occurred at the beginning of each period presented are as follows
for the years ended September 30:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Revenue............................ $ 346,729,581 $ 465,223,996
Net income....................... 2,605,230 17,881,459
Diluted earnings per share......... $ 0.18 $ 1.17
</TABLE>
The unaudited pro forma results of operations are presented for
informational purposes only. The unaudited pro forma results of operations
include an adjustment to record income taxes as if the significant acquisitions
were taxed as C corporations from the beginning of the period presented until
their respective acquisition dates. The unaudited pro forma results of
operations do not include adjustments to remove certain private company expenses
which will not be incurred in future periods. Therefore, the unaudited pro forma
results of operations may not necessarily reflect the future results of
operations of the Company or what the results of operations would have been had
the Company owned and operated these businesses as of the beginning of each
period presented.
3. SIGNIFICANT ACCOUNTING POLICIES:
FISCAL YEAR
Effective September 30, 1997, the Company changed its fiscal year-end from
December 31 to September 30 to coincide more closely with its natural business
cycle. As a result, the accompanying financial statements present the nine-month
transition period, which began January 1, 1997 and ended September 30, 1997.
Results of operations (unaudited) for the nine-month period ended September 30,
1996 were as follows:
<TABLE>
<CAPTION>
FOR THE
NINE-MONTH
PERIOD ENDED
SEPTEMBER 30,
1996
---------------
<S> <C>
Revenue............................................. $ 156,610,835
Cost of sales....................................... 117,513,908
-----------
Gross profit................................... 39,096,927
Selling, general, and administrative expenses....... 25,377,507
----------
Income from operations......................... 13,719,420
Interest expense, net............................... 1,453,444
---------
Income before income tax provision.................. 12,265,976
Income tax provision................................ 660,930
-------
Net income..................................... $ 11,605,046
================
</TABLE>
STATEMENTS OF CASH FLOWS
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with an original maturity of three
months or less to be cash equivalents.
The Company made interest payments of approximately $2,763,000, $3,229,000
and $2,653,000 for the nine-month period ended September 30, 1997 and the years
ended September 30, 1998 and 1999, respectively, including interest on new boat
inventory and interest on the Company's real estate holdings. The Company made
income tax payments of approximately $36,000, $4,681,000, and $8,331,000 for the
nine-month period ended September 30, 1997 and the years ended September 30,
1998 and 1999, respectively.
F-9
<PAGE> 53
INVENTORIES
New and used boat inventories are stated at the lower of cost, determined on
a specific-identification basis, or market. Parts and accessories are stated at
the lower of cost, determined on the first-in, first-out basis, or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method. Useful lives for purposes
of computing depreciation are as follows:
<TABLE>
YEARS
<S> <C>
Buildings and improvements 5-40
Machinery and equipment.. 5-10
Furniture and fixtures... 5-10
Vehicles................. 5
</TABLE>
The cost of property and equipment sold or retired and the related
accumulated depreciation are removed from the accounts at the time of
disposition, and any resulting gain or loss is included in the consolidated
statements of income. Maintenance, repairs and minor replacements are charged to
operations as incurred; major replacements and improvements are capitalized and
amortized over their useful lives.
GOODWILL AND OTHER ASSETS
Goodwill and other assets consist primarily of the cost of acquired
businesses in excess of the fair value of net assets acquired and other
intangible assets. The cost in excess of the fair value of net assets is
amortized over forty years on a straight-line basis. Accumulated amortization of
goodwill was approximately $680,000 at September 30, 1999.
CUSTOMER DEPOSITS
Customer deposits primarily include amounts received from customers toward
the purchase of boats. These deposits are recognized as revenue when the related
boats are delivered to customers.
LONG-LIVED ASSETS
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-lived Assets and Long-lived Assets to be Disposed
Of"(SFAS 121), requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the asset in question may not be recoverable. The Company groups long-lived
assets by store location for purposes of assessing the recoverability of
carrying value and measuring potential impairment. SFAS 121 was adopted in 1996
and did not have a material effect on the Company's consolidated results of
operations, cash flows or financial position.
REVENUE RECOGNITION
Revenue from boat, motor and trailer sales and parts and service operations
is recognized at the time the boat, motor, trailer or part is delivered to or
accepted by the customer or service is completed. Revenue earned by the Company
for notes placed with financial institutions in connection with customer boat
financing is recognized when the related boat sale is recognized. Commissions
earned on credit life, accident and disability insurance sold on behalf of
third-party insurance companies are also recognized when the related boat sale
is recognized. Pursuant to negotiated agreements with financial institutions,
the Company is charged back for a portion of these fees should the customer
terminate the finance contract before it is outstanding for stipulated minimal
periods of time. The chargeback reserve, which was not material to the
consolidated financial statements taken as a whole as of September 30, 1998 or
1999, is based on the Company's experience for repayments or defaults on the
finance contracts.
F-10
<PAGE> 54
Commissions earned on extended warranty service contracts sold on behalf of
unrelated third-party insurance companies are recognized at the later of
customer acceptance of the service contract terms as evidenced by contract
execution, or when the related boat sale is recognized. The Company is charged
back for a portion of these commissions should the customer terminate the
service contract prior to its scheduled maturity. The chargeback reserve, which
was not material to the consolidated financial statements taken as a whole as of
September 30, 1998 or 1999, is based upon the Company's experience for
repayments or defaults on the service contracts.
ADVERTISING AND PROMOTIONAL COSTS
Advertising and promotional costs are expensed as incurred and are included
in selling, general and administrative expenses in the accompanying consolidated
statements of operations. Total advertising and promotional expenses
approximated $2,662,000, $3,443,000 and $5,296,000 for the nine-month period
ended September 30, 1997 and the years ended September 30, 1998 and 1999,
respectively.
INCOME TAXES AND UNAUDITED PRO FORMA INCOME TAX PROVISION
Certain subsidiaries of the Company elected S corporation status under the
provisions of the Internal Revenue Code prior to the business combinations
accounted for under the pooling-of-interests method of accounting. Accordingly,
income of these subsidiaries was passed through to the stockholders and these
subsidiaries historically recorded no provision for income taxes. The
accompanying consolidated statement of operations includes an unaudited pro
forma income tax provision assuming the subsidiaries had been taxed as C
corporations during that period. The pro forma income tax benefit disclosed for
the year ended September 30, 1998 is also the result of a deferred tax liability
recorded on the conversion from S corporation to C corporation tax status of
certain subsidiaries of the Company (See Note 10).
The other subsidiaries have been taxed as C corporations and have followed
the liability method of accounting for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes" (SFAS 109). Under SFAS 109, deferred income
taxes are recorded based upon differences between the financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the underlying assets are received or
liabilities are settled.
SUPPLIER AND CUSTOMER CONCENTRATION
Dealership Agreements
The Company has entered into dealership agreements with the Sea Ray division
of Brunswick Corporation, Boston Whaler, Inc., Mercury Marine and Baja Marine
Corporation (all subsidiaries or divisions of Brunswick Corporation)
(collectively, Brunswick). Approximately 91 percent of the Company's new boat
revenue during fiscal 1999 were derived from products acquired from Brunswick.
These agreements allow the Company to purchase, stock, sell and service boats
and products of Brunswick. These agreements also allow the Company to use
Brunswick's names, trade symbols and intellectual properties.
Although there are a limited number of manufacturers of the type of boats
and products that the Company sells, the Company believes that other suppliers
could provide similar boats and products on comparable terms. A change in
suppliers, however, could cause a potential loss of revenue, which would affect
operating results adversely. The Company's existing dealership agreements with
Brunswick and various other manufacturers are renewable subject to certain terms
and conditions in the agreements and expire in 2000 through 2008.
Concentrations of Credit Risks
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and cash equivalents
and accounts receivable. Concentrations of credit risk with respect to cash and
cash equivalents are limited primarily to financial institutions. Concentrations
of credit risk arising from receivables are limited primarily to manufacturers
and financial institutions.
F-11
<PAGE> 55
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable and debt. The carrying amount of these financial instruments
approximates fair value due either to length of maturity or existence of
interest rates that approximate prevailing market rates unless otherwise
disclosed in these financial statements.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
During June 1996 and June 1997, the Financial Accounting Standards Board
issued SFAS No. 130, "Reporting Comprehensive Income" (SFAS 130), and SFAS No.
131, "Disclosures About Segments of An Enterprise and Related Information" (SFAS
131), respectively. The major provisions of these statements and their impact on
the Company are discussed below.
SFAS 130, effective for fiscal years beginning after December 15, 1997,
requires the presentation of comprehensive income in an entity's financial
statements. Comprehensive income represents all changes in equity of an entity
during the reporting period, including net income and charges directly to equity
which are excluded from net income. During the year the Company adopted SFAS 130
which did not have any impact on the Company as the Company currently does not
enter into any transactions that result in charges (or credits) directly to
equity (such as additional minimum pension liability changes, currency
translation adjustments, unrealized gains and losses on available-for-sale
securities, etc.).
SFAS 131, effective for fiscal years beginning after December 15, 1997,
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to stockholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. During the year ended September 30, 1999, the Company adopted SFAS
131 and while the sale of products such as finance and insurance contracts
generate revenue and income for the Company these products do not meet the
quantitative thresholds for segment reporting as defined in SFAS 131.
4. ACCOUNTS RECEIVABLE:
Trade receivables consist of receivables from financial institutions, which
provide funding for customer boat financing and amounts due from financial
institutions earned from arranging financing with the Company's customers. These
receivables are normally collected within 30 days of the sale. Trade receivables
also include amounts due from customers on the sale of boats and parts and
service. Amounts due from manufacturers represent receivables for various
manufacturer programs and parts and service work performed pursuant to the
manufacturers' warranties. The accounts receivable balances consisted of the
following as of September 30, 1998 and 1999:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1999
---- ----
<S> <C> <C>
Trade receivables............................ $ 7,991,846 $ 10,548,072
Amounts due from manufacturers............... 2,798,715 3,855,108
Other receivables........................... 249,317 438,786
----------- -------------
$11,039,878 $14,841,966
=========== =============
</TABLE>
F-12
<PAGE> 56
5. INVENTORIES:
Inventories consisted of the following as of September 30, 1998 and 1999:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1999
---- ----
<S> <C> <C>
New boats, motors and trailers $ 72,934,656 $115,781,929
Used boats, motors and trailers 10,080,991 16,249,998
Parts, accessories and other .. 5,212,695 5,753,764
------------ ------------
$ 88,228,342 $137,785,691
============ ============
</TABLE>
6. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following as of September 30, 1998
and 1999:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1999
--------- ----------
<S> <C> <C>
Land ............................... $ 7,774,418 $ 12,065,811
Buildings and improvements ......... 13,577,625 20,617,087
Machinery and equipment ............ 5,966,441 7,781,175
Furniture and fixtures ............. 2,614,183 4,393,402
Vehicles ........................... 1,687,979 2,228,602
------------ ------------
31,620,646 47,086,077
Less -- Accumulated depreciation and
amortization .................... (6,844,207) (9,305,919)
------------ ------------
$ 24,776,439 $ 37,780,158
============ ============
</TABLE>
7. SHORT-TERM BORROWINGS:
During the year, the Company executed agreements for working capital
borrowing facilities (the Facilities) with three separate financial institutions
providing for combined borrowing availability of $185 million at a weighted
average interest rate of LIBOR plus 144 basis points. Borrowings under the
Facilities are pursuant to a borrowing base formula and are used primarily for
working capital and financing the Company's inventory. The Facilities have
similar terms and mature on various dates ranging from March 2001 through July
2002.
Short-term borrowings as of September 30, 1998, and 1999 were approximately
$45,813,000 and $98,150,000, respectively. The maximum available borrowings
under the facilities at September 30, 1998 and 1999 were approximately $54.6
million and $55.9 million, respectively. At September 30, 1999 the weighted
average interest rate on the outstanding borrowings was 7.33%. Generally, the
Company's short-term borrowings are collateralized by certain accounts
receivable and inventories.
The Company receives interest assistance directly from boat manufacturers,
including Brunswick. The interest assistance varies by manufacturer and may
include periods of free financing or reduced interest rate programs. The
interest assistance may be paid directly to the Company or the Company's lender
depending on the arrangements the manufacturer has established. Discontinuance
of these programs could result in an increase in interest expense.
F-13
<PAGE> 57
8. LONG-TERM DEBT:
Long-term debt consisted of the following as of September 30, 1998 and 1999:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1999
------------- -------------
<S> <C> <C>
Various mortgage notes payable, due in monthly
installments ranging from $1,988 to $15,609,
bearing interest at rates ranging from 8.75%
to 9.25%, maturing May 2000 through May
2003, collateralized by property and
equipment ............................................................... $ 3,157,003 $ 6,646,478
Various notes payable, due in monthly
installments ranging from $390 to $3,900,
bearing interest at rates ranging from 4.9%
to 10.25%, maturing April 1999 through May
2017, collateralized by certain company
vehicles and property and equipment ..................................... 535,010 873,696
----------- -----------
3,692,013 7,520,174
Less -- Current maturities ................................................. (442,519) (1,210,150)
----------- -----------
$ 3,249,494 $ 6,310,024
=========== ===========
</TABLE>
The aggregate maturities of long-term debt were as follows at September 30,
1999:
<TABLE>
<CAPTION>
PERIOD ENDING
SEPTEMBER 30, AMOUNT
- -------------- ------
<S> <C>
2000 ......................................................... $1,210,150
2001 ......................................................... 551,027
2002 ......................................................... 2,042,015
2003 ......................................................... 419,578
2004 ......................................................... 360,457
Thereafter 2,936,947
----------
$7,520,174
==========
</TABLE>
9. SETTLEMENT PAYABLE:
The Company and Brunswick Corporation disputed the applicability of the
change in control provisions in the dealership agreements of the Original Merged
Companies. In order to avoid a long, costly and disruptive dispute, the Company
and Brunswick Corporation entered into a settlement agreement on March 12, 1998,
under which Brunswick Corporation agreed not to challenge the change in control
provisions of the dealership agreements, and the Company agreed to pay Brunswick
Corporation $15 million. The Settlement payable to Brunswick required interest
to be paid quarterly at the 30-day LIBOR rate plus 125 basis points. The $15
million Settlement payable was paid in full to Brunswick in December 1998.
10. INCOME TAXES:
Federal income taxes for those subsidiaries taxed as C corporations were as
follows for the nine-month period ended September 30, 1997 and the years ended
September 30, 1998 and 1999:
<TABLE>
<CAPTION>
FOR THE NINE-
MONTH PERIOD FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999
-------------- ------------- -------------
<S> <C> <C> <C>
Current ............................ $ 458,454 $ 988,142 $10,674,331
Deferred ........................... 137,369 716,641 1,303,824
----------- ----------- -----------
$ 595,823 $ 1,704,783 $11,978,155
=========== =========== ===========
</TABLE>
F-14
<PAGE> 58
Below is a reconciliation of the statutory federal income tax rate to the
Company's effective tax rate for the nine-month period ended September 30, 1997,
and for the years ended September 30, 1998 and 1999:
<TABLE>
<CAPTION>
FOR THE
NINE-MONTH
PERIOD FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Federal tax provision .................................. 35% 34 % 35%
State tax provision, net of
federal benefit ..................................... 6% 6% 4.4%
Net deferred tax liability
recorded on the conversion
from S corporation to C
corporation tax status .............................. -- 111% --
S corporation income not
subject to federal and
state income taxes .................................. (44)% (6)% --
Other .................................................. 6% 6% 0.4%
---- ---- ----
Effective tax rate ................................... 3% 151% 39.8%
==== ==== ====
</TABLE>
Deferred income taxes reflect the impact of temporary differences
between the amount of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for income tax purposes. The components of
deferred taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1999
------------- ------------
<S> <C> <C>
Current deferred tax assets (liability):
Inventories .......................................................... $ 236,000 $ 357,301
Accrued expenses ..................................................... 330,056 268,556
Net operating loss (NOL) carryforwards ............................... 196,000 --
Conversion from LIFO to FIFO ......................................... (934,208) (430,108)
Other ................................................................ 6,641 38,510
----------- -----------
Net current deferred tax asset (liability) ........................ $ (165,511) $ 234,259
=========== ===========
Long-term deferred tax asset (liability):
Depreciation and amortization ........................................ $ 103,426 $(1,654,790)
Other ................................................................ -- 54,622
----------- -----------
Net long-term deferred tax asset (liability) ...................... $ 103,426 $(1,600,168)
=========== ===========
</TABLE>
As of September 30, 1998, the Company had NOL carryforwards of approximately
$490,000. The NOL carryforwards have been used to offset taxable income during
the year ended September 30, 1999.
During the year ended September 30, 1998, concurrent with the business
combinations of the Pooled Companies, (discussed in Note 2) the Company recorded
a deferred tax liability of approximately $1,250,000 for income taxes that are
payable by the Company upon conversion of certain of the subsidiaries from S
corporation to C corporation income tax status.
As of September 30, 1999, the Company estimated that it is more likely than
not that it will recognize the benefit of its deferred tax assets and,
accordingly, no valuation allowance has been recorded.
11. STOCK SPLIT:
On April 5, 1998, the Board of Directors approved a stock split whereby each
outstanding share of Company's common stock was converted into approximately
1.082 shares of common stock. This stock split has been retroactively reflected
in the accompanying consolidated financial statements.
F-15
<PAGE> 59
12. STOCK AND OPTION PLANS:
On April 5, 1998 and April 30, 1998, respectively the Board of Directors
adopted and the stockholders approved the following stock option plans:
1998 Incentive Stock Plan (the Incentive Stock Plan) -- The Incentive Stock
Plan provides for the grant of incentive and non-qualified stock options to
acquire common stock of the Company, the direct grant of common stock, the grant
of stock appreciation rights and the grant of other cash awards to key
personnel, directors, consultants, independent contractors and others providing
valuable services to the Company. A maximum of the lesser of 4,000,000 shares or
15% of the then outstanding shares of common stock of the Company may be issued
under the Incentive Stock Plan. The Incentive Stock Plan terminates in April
2008, and options may be granted at any time during the life of the Incentive
Stock Plan. The date on which options vest and the exercise prices of options
are determined by the Board of Directors or the Plan Administrator.
The Incentive Stock Plan also includes an Automatic Grant Program providing
for the automatic grant of options (Automatic Options) to non-employee directors
of the Company. Under the Automatic Grant Program, each non-employee whose
election to the Board of Directors was proposed as of the date of the Company's
initial public offering received an Automatic Option to acquire 10,000 shares of
common stock on that date (an Initial Grant). Each subsequent newly elected
non-employee member of the Board of Directors will receive as an Initial Grant
an Automatic Option to acquire 5,000 shares of common stock on the date of his
or her first appointment or election to the Board of Directors. In addition, an
Automatic Option to acquire 2,500 shares of common stock will be granted to each
non-employee director at the meeting of the Board of Directors held immediately
after each annual meeting of stockholders (an Annual Grant). Each Initial Grant
will vest and become exercisable in a series of three equal and successive
installments with the first installment vested on the date of grant (or the date
of election to the Board of Directors, if later) and the next two installments
12 months and 24 months after the date of grant. Each Annual Grant will vest and
become exercisable 12 months after the date of grant. Each Automatic Option will
vest and become exercisable only if the optionholder has not ceased serving as a
director as of such vesting date. The exercise price per share of common stock
subject to an Initial Grant on the date of the Company's initial public offering
was equal to the initial public offering price per share and the exercise price
per share of common stock subject to other Automatic Options will be equal to
100% of the fair market value (as defined in the Incentive Stock Plan) of the
Company's common stock on the date such option is granted. Each Automatic Option
will expire on the tenth anniversary of the date on which such Automatic Option
was granted.
Employee Stock Purchase Plan (the Stock Purchase Plan) -- The Stock Purchase
Plan provides for up to 500,000 shares of common stock to be issued, and is
available to all regular employees of the Company who have completed at least
one year of continuous service.
The Stock Purchase Plan provides for implementation of up to 10 annual
offerings beginning on the first day of October in the years 1998 through 2007,
with each offering terminating on September 30 of the following year. Each
annual offering may be divided into two six-month offerings. For each offering,
the purchase price per share will be the lower of (i) 85% of the closing price
of the common stock on the first day of the offering or (ii) 85% of the closing
price of the common stock on the last day of the offering. The purchase price is
paid through periodic payroll deductions not to exceed 10% of the participant's
earnings during each offering period. However, no participant may purchase more
than $25,000 worth of common stock annually.
The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25 ("APB 25"), under which no compensation cost has
been recognized. In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), which was effective for fiscal years
beginning after December 15, 1995. SFAS 123 allows companies to continue
following the accounting guidance of APB 25, but requires pro forma disclosure
of net income and earnings per share for the effects on compensation expense had
the accounting guidance of SFAS 123 been adopted. The Company adopted SFAS 123
for disclosure purposes during the year ended September 30, 1998. For SFAS 123
purposes, the fair value of each option grant has been estimated as of the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions: risk-free interest rate of 5.96 percent, expected
life of 10 years, dividend rate of zero percent, and expected volatility of 45.6
percent. Using these assumptions, the fair value of the stock options granted is
approximately $5.6 million, which would be amortized as compensation expense
over the vesting period of the options. Had compensation cost been determined
consistent with SFAS 123, utilizing the assumptions detailed above, the
Company's net income (loss) and net income (loss) per share, as reported would
have been the following pro forma amounts:
F-16
<PAGE> 60
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1999
--------------- --------------
<S> <C> <C>
NET INCOME (LOSS):
As reported ............................................ $ (577,462) $ 18,152,604
=============== ==============
Pro forma .............................................. $ (1,683,258) $ 17,363,635
=============== ==============
DILUTED EARNINGS PER SHARE:
As reported ............................................ $ (0.05) $ 1.21
=============== ==============
Pro forma .............................................. $ (0.15) $ 1.16
=============== ==============
</TABLE>
A summary of the status of the Company's stock option plans for the nine
months ended September 30, 1997 and the fiscal years ended September 30, 1998
and 1999, is presented in the table below:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------------- ------------------------------ ----------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding
beginning of year ........ -- $-- -- $ -- 1,556,016 $12.45
Granted ...................... -- $-- 1,556,016 $12.45 217,030 $12.36
Forfeited .................... -- $-- -- $ -- 193,102 $12.34
------- --------- ---------
Outstanding
end of year .............. -- $-- 1,556,016 $12.45 1,579,944 $12.45
======= --------- =========
</TABLE>
The following table summarizes information about outstanding and exercisable
stock options at September 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- ------------------------------
WEIGHTED-
AVERAGE
REMAINING WEIGHTED- WEIGHTED-
RANGE OF EXERCISE CONTRACTUAL LIFE IN AVERAGE EXERCISE AVERAGE EXERCISE
PRICES OPTIONS YEARS PRICE OPTIONS PRICE
- ------------------ ----------- ------------------- ----------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
$10.00 70,000 8.7 $ 10.00 14,000 $10.00
$12.25-12.50 1,429,944 8.8 $ 12.49 48,106 $12.50
$13.75 80,000 8.7 $ 13.75 16,000 $13.75
--------- ------
1,579,944 8.8 $ 12.45 78,106 $12.31
========= ======
</TABLE>
Generally, the options granted have a term of ten years from the grant date
and vest 20 percent per annum beginning at the end of year three. No options
were granted during the nine-month period ended September 30, 1997.
13. NET INCOME (LOSS) PER SHARE:
The Company adopted SFAS 128, "Earnings per Share" during the year ended
September 30, 1998. Accordingly, basic and diluted earnings per share ("EPS")
are shown on the face of the accompanying consolidated statements of operations.
The following is a reconciliation of the numerator and denominator used in the
basic and diluted EPS calculations:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
--------------------------------------- ----------------------------------------
LOSS SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to common
stockholders .......................... $ (577,462) 11,025,410 $(0.05) $18,152,604 14,958,725 $1.21
Effect of dilutive securities:
Options ............................. -- 2,539 -- -- 6,002 --
----------- ----------- ----- ----------- ----------- -----
Diluted EPS:
Income available to common
stockholders .......................... $ (577,462) 11,027,949 $(0.05) $18,152,604 14,964,727 $1.21
=========== ========== ====== =========== ========== =====
</TABLE>
There were no dilutive securities granted or outstanding during the
nine-months ended September 30, 1997.
F-17
<PAGE> 61
Options to purchase 1,486,016 and 1,509,944 shares of common stock at prices
ranging from $10.75 to $13.75 per share were outstanding as of September 30,
1998 and 1999, respectively, but were not included in the computation of diluted
EPS because the options' exercise prices were greater than the average market
price of the Company's common stock.
14. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Company leases certain land, buildings, machinery, equipment and
vehicles related to its dealerships under non-cancelable third party operating
leases. Rental payments, including month-to-month rentals, were approximately
$1,387,000, $2,653,000 and $4,800,000 for the nine-month period ended September
30, 1997 and the years ended September 30, 1998 and 1999, respectively. Rental
payments to related parties under both cancelable and non-cancelable operating
leases approximated $1,085,000, $226,000 and $1,367,000 for the nine-month
period ended September 30, 1997, and for the years ended September 30, 1998 and
1999, respectively.
Future minimum lease payments under non-cancelable operating leases at
September 30, 1999, were as follows:
<TABLE>
<CAPTION>
PERIOD ENDING
SEPTEMBER 30, AMOUNT
------------------ -------------
<S> <C>
2000.................... $ 4,741,844
2001.................... 4,128,120
2002.................... 3,953,449
2003.................... 2,885,790
2004.................... 1,413,332
Thereafter.............. 1,629,642
-------------
Total.............. $ 18,752,177
-------------
</TABLE>
OTHER COMMITMENTS
The Company is party to various legal actions arising in the ordinary course
of business. The ultimate liability, if any, associated with these matters was
not determinable at September 30, 1999. While it is not feasible to determine
the outcome of these actions at this time, the Company does not believe that
these matters will have a material adverse effect on the Company's consolidated
financial condition, results of operations or cash flows.
The Company is subject to federal and state environmental regulations,
including rules relating to air and water pollution and the storage and disposal
of gasoline, oil, other chemicals and waste. The Company believes that it is in
compliance with such regulations.
15. EMPLOYEE 401(K) PROFIT SHARING PLANS:
Effective October 1, 1998, the Company adopted the MarineMax Inc. 401k
Profit Sharing Plan (the New Plan). Under the New Plan all employees as of
September 1, 1998 are eligible to participate. Employees hired subsequent to
September 1, 1998 must complete one year of service before they are eligible to
participate. Under the New Plan, the Company matches participants'
contributions, subject to a maximum of 2% of each participant's compensation.
The Company and its subsidiaries contributed, under the New Plan, or pursuant to
previous similar plans, amounts ranging from approximately $200,000 to
approximately $400,000 for the nine-month period ended September 30, 1997 and
the fiscal years ended September 30, 1998 and 1999, respectively.
F-18
<PAGE> 62
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3.1 Restated Certificate of Incorporation of the Registrant(1)
3.2 Bylaws of the Registrant(1)
4 Specimen of Stock Certificate(1)
10.1(a) Merger Agreement between Registrant and its acquisition subsidiary and Bassett Boat Company of
Florida and Richard Bassett(1)
10.1(b) Merger Agreement between Registrant and its acquisition subsidiary and 11502 Dumas, Inc. d/b/a Louis
DelHomme Marine and its stockholders(1)
10.1(c) Merger Agreement between Registrant and its acquisition subsidiary and Gulfwind USA, Inc. and its
stockholders(1)
10.1(d) Merger Agreement between Registrant and its acquisition subsidiary and Gulfwind South, Inc. and its
stockholders(1)
10.1(e) Merger Agreement between Registrant and its acquisition subsidiary and Harrison's Boat Center, Inc.
and its stockholders(1)
10.1(f) Merger Agreement between Registrant and its acquisition subsidiary and Harrison's Marine Centers of
Arizona, Inc. and its stockholders(1)
10.1(g) Merger Agreement between Registrant and its acquisition subsidiary and Stovall Marine, Inc. and its
stockholders(1)
10.1(h) Agreement of Merger and Plan of Reorganization dated as of the 7th day of July, 1998 by and among
MarineMax, Inc., C & N Acquisition Corp. (a subsidiary of MarineMax, Inc.), C & N Marine Corporation
and the Stockholders named therein(2)
10.1(i) Agreement of Merger and Plan of Reorganization dated as of the 7th day of July, 1998 by and among
MarineMax, Inc., Cochrans Acquisition Corp. (a subsidiary of MarineMax, Inc.), Cochrans Marine, Inc.
and the Stockholders named therein(2)
10.1(j) Asset Purchase Agreement between Registrant and Treasure Cove Marina, Inc.(3)
10.2(a) Contribution Agreement between Registrant and Bassett Boat Company and its owner(1)
10.2(b) Contribution Agreement between Registrant and Bassett Realty, L.L.C. and its owner(1)
10.2(c) Contribution Agreement between Registrant and Gulfwind South Realty, L.L.C. and its owners(1)
10.2(d) Contribution Agreement between Registrant and Harrison's Realty, L.L.C. and its owners(1)
10.2(e) Contribution Agreement between Registrant and Harrison's Realty California, L.L.C. and its owners(1)
10.3(a) Employment Agreement between Registrant and William H. McGill Jr.(1)
10.3(b) Employment Agreement between Registrant and Michael H. McLamb(1)
10.3(c) Employment Agreement between Registrant and Richard R. Bassett(1)
10.3(d) Employment Agreement between Registrant and Paul Graham Stovall(1)
10.3(e) Employment Agreement between Registrant and David L. Cochran(4)
10.3(f) Employment Agreement between Registrant and David H. Pretasky(4)
10.4 1998 Incentive Stock Plan(1)
10.5 1998 Employee Stock Purchase Plan(1)
10.6 Settlement Agreement between Brunswick Corporation and Registrant(1)
10.7 Letter of Intent between Registrant and Stovall(1)
10.8 Restated Agreement Relating to the Purchase of MarineMax Common Stock between Registrant and Brunswick
Corporation, dated as of April 28, 1998(1)
10.9 Stockholders' Agreement among Registrant, Brunswick Corporation, and Senior Founders of Registrant,
dated April 28, 1998(1)
10.10 Governance Agreement between Registrant and Brunswick Corporation, dated April 28, 1998(1)
10.11 Agreement Relating to Acquisitions between Registrant and Brunswick Corporation, dated April 28, 1998(1)
10.12 Form of Sea Ray Sales and Service Agreement(1)
10.13 Loan and Security Agreement between Registrant and NationsCredit Distribution Finance, Inc.(1)
10.14 Guaranty and Security Agreement of NationsCredit Distribution Finance, Inc.(1)
10.15 Guaranty and Security Agreement of NationsCredit Distribution Finance, Inc. by Stovall Marine, Inc.(1)
10.16 Credit Facility and Security Agreement, Accounts and Inventory between the Registrant and Key Bank
National Association
21 List of Subsidiaries
23.1 Consent of Arthur Andersen LLP
27 Financial Data Schedule
</TABLE>
- -------------------
(1) Incorporated by reference to Registration Statement on the Registrant's
Form S-1 (Registration 333-47873)
(2) Incorporated by reference to Registrant's Current Report on Form 8-K
dated July 7, 1998, as filed on July 20, 1998
(3) Incorporated by reference to Registrant's Form 8-K Report dated
September 30, 1998, as filed on October 20, 1998
(4) Incorporated by reference to Registrant's Form 10-K for the year ended
September 30, 1998, as filed on December 29, 1998.
<PAGE> 1
Exhibit 10.16
CREDIT FACILITY AND SECURITY AGREEMENT
ACCOUNTS AND INVENTORY
As of the 12th day of July, 1999, Borrowers and Bank (as hereinafter
defined), in consideration of the premises, and the covenants and agreements
contained herein, hereby mutually agree as follows:
1. DEFINITIONS
Any accounting term used but not specifically defined herein shall be
construed in accordance with GAAP. The definition of each agreement, document,
and instrument set forth in Section 1 hereof shall be deemed to mean and include
such agreement, document, or instrument as amended, restated, or modified from
time to time.
As used in this Agreement:
"ACCOUNT" means accounts, receivables, chattel paper and any other right to
payment for Goods sold or leased or for services rendered, whether or not it has
been earned by performance, including all amounts payable by and rights and
claims against, any manufacturer or vendor of Inventory, such as volume purchase
discounts, advertising rebates, price protection, warranty work, incentives and
credits .
"ACCOUNT DEBTOR" means the Person who is obligated on an Account.
"AFFILIATE" means any company that controls, is controlled by, or is under
common control with another Person.
"AGREEMENT" means this Credit Facility and Security Agreement by and among
Borrowers and Bank, and includes any partial or total amendment, renewal,
restatement, extension, or substitution of or for such Agreement.
"BANK" means KEYBANK NATIONAL ASSOCIATION, a national banking association whose
principal office is located at 127 Public Square, Cleveland, Ohio 44114-1306.
"BORROWER" means individually each of the following entities (collectively to be
known as "Borrowers"): MARINEMAX, INC., a corporation incorporated under the
laws of the State of Delaware (also sometimes hereinafter referred to herein as
"MarineMax"), and MARINEMAX MOTOR YACHTS, INC., a corporation incorporated under
the laws of the State of Delaware (also sometimes referred to herein as "Motor
Yachts").
<PAGE> 2
"BORROWERS' CERTIFICATE" OR "BORROWERS' CERTIFICATES" means a certificate or
certificates, substantially in the forms of attached Exhibit A and Exhibit A-1.
"BORROWERS' LOCATION" means the location of:
(a) Each Borrower's place of business, if there is only
one such place of business; or
(b) if there is more than one place of business, the
place (1) from which each Borrower manages the main
part of its business operations, and (2) where
persons dealing with each Borrower would normally
look for credit information.
"BORROWING BASE" means an amount not in excess of the sum of the following:
(a) One hundred percent (100%) of the cost, including
freight charges, of new vessels held less than three
hundred sixty-six (366) days from date of delivery to
Motor Yachts or any Subsidiary of MarineMax, plus
(b) Ninety percent (90%) of the cost, including freight
charges, of new vessels held more than three hundred
sixty-five (365) days but less than seven hundred
thirty-one (731) days from date of delivery to Motor
Yachts or any Subsidiary of MarineMax, plus
(c) Eighty percent (80%) of (i) NADA or BUC Value of used
vessels held less than one hundred eighty-one (181)
days, and (ii) the cost, including freight charges,
of new vessels held more than seven hundred thirty
(730) days but less than nine hundred twelve (912)
days from date of delivery to Motor Yachts or any
Subsidiary of MarineMax, plus
(d) Seventy-two percent (72%) of (i) NADA or BUC Value of
used vessels held more than one hundred eighty (180)
days but less than three hundred sixty-six (366)
days, and (ii) the cost, including freight charges,
of new vessels held more than nine hundred eleven
(911) days but less than one thousand ninety-eight
(1,098) days from date of delivery to Motor Yachts or
any Subsidiary of MarineMax, plus
(e) Seventy-five percent (75%) of cost or market value
(whichever is lower), excluding freight, of parts,
plus
(f) Eighty percent (80%) of the amount due and owing on
Qualified Accounts, plus
(g) One hundred percent (100%) of Vessel Deposits, less
any deposit made by such customer with Motor Yachts
for that vessel;
provided, however, that notwithstanding anything to the contrary contained
herein: (i) the Borrowing Base shall be the lesser of (l) the aggregate of
amounts calculated in items (a) through (g) above; or (2) the line of credit
approved for Borrowers, which currently is
<PAGE> 3
Thirty Million Dollars ($30,000,000.00); (ii) all inventory utilized in the
Borrowing Base calculation shall be Qualified Inventory; (iii) in the event of a
conflict in the terms and conditions of this Agreement and the terms and
conditions set forth in the Borrowers' Certificates, the terms and conditions of
the Borrowers' Certificates shall control; and (iv) Borrowers' Certificates
shall be delivered to the Bank once per month or as may be reasonably requested
by Bank in accordance with Section 5 hereinbelow.
"CASH COLLATERAL ACCOUNT" means a commercial Deposit Account designated "cash
collateral account" and maintained by Motor Yachts with Bank, without liability
by Bank to pay interest thereon, from which account Bank shall have the
exclusive right to withdraw funds until all Obligations are paid, performed,
satisfied, enforced, and observed in full.
"CASH SECURITY" means all cash, Instruments, Deposit Accounts, and other cash
equivalents, whether matured or unmatured, whether collected or in the process
of collection, upon which Motor Yachts presently has or may hereafter have any
claim, that are presently or may hereafter be existing or maintained with,
issued by, drawn upon, or in the possession of Bank.
"COLLATERAL" means:
(a) all of Motor Yachts' Accounts, whether now owned or
hereafter acquired or received by Motor Yachts;
(b) all of Motor Yachts' Inventory, whether now owned or
hereafter acquired by Motor Yachts;
(c) all funds on deposit in the Cash Collateral Account;
(d) all of Motor Yachts' Contract Rights;
(e) all of Motor Yachts' Cash Security; and
(f) all of the Proceeds of Motor Yachts' Accounts,
Inventory, Cash Security, Contract Rights and Cash
Collateral Account.
"CONTRACT RIGHT" means (a) all rights under a contract between Motor Yachts and
a Motor Yachts customer for the sale or construction and sale of a vessel, and
(b) all rights under contracts between Motor Yachts and Hatteras for the
construction of vessels.
"DEPOSIT ACCOUNT" means (a) any deposit account, and (b) any demand, time,
savings, passbook, or a similar account maintained with a bank, savings and loan
association, credit union, or similar organization, other than an account
evidenced by a certificate of deposit.
"DOCUMENT" means (a) any document, (b) any document of title, including a bill
of lading, dock warrant, dock receipt, warehouse receipt or order for the
delivery of Goods, and any other document which in the regular course of
business or financing is treated as adequately evidencing that the Person in
possession of it is entitled to receive, hold, and dispose of the document and
the Goods it covers, and (c) any receipt covering Goods
<PAGE> 4
stored under a statute requiring a bond against withdrawal or a license for the
issuance of receipts in the nature of warehouse receipts even though issued by a
Person who is the owner of the Goods and is not a warehouseman.
"ENVIRONMENTAL LAW" means any federal, state, or local statute, law, ordinance,
code, rule, regulation, order or decree regulating, relating to, or imposing
liability upon a Person in connection with the use, release or disposal of any
hazardous, toxic or dangerous substance, waste or material.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended
from time to time.
"ERISA AFFILIATE" means each Person (whether or not incorporated) which together
with Borrowers or any Affiliate of theirs would be treated as a single employer
under ERISA.
"EVENT OF DEFAULT" means the occurrence of any of the events set forth in
Section 9 of this Agreement.
"FINANCIAL IMPAIRMENT" means the distressed economic condition of a Person
manifested by any one or more of the following events:
(a) adjudicated bankruptcy or insolvency or death or
discontinuation of the business of the Person;
(b) the Person ceases, is unable, or admits in writing
its inability, to make timely payment upon the
Person's debts, obligations, or liabilities as they
mature or come due;
(c) assignment by the Person for the benefit of
creditors;
(d) voluntary institution by the Person or consent
granted by the Person to the involuntary institution
whether by petition, complaint, application, default,
answer (including, without limitation, an answer or
any other permissible or required responsive pleading
admitting (1) the jurisdiction of the forum or (2)
any material allegations of the petition, complaint,
application, or other writing to which such answer
serves as a responsive pleading thereto), or
otherwise of any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt,
dissolution, liquidation, receivership, trusteeship,
or similar proceeding pursuant to or purporting to be
pursuant to any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt,
dissolution, liquidation, receivership, trusteeship,
or similar law of any jurisdiction;
(e) voluntary application by the Person for or consent
granted by the Person to the involuntary appointment
of any receiver, trustee, or similar officer (1) for
the Person or (2) of or for all or any substantial
part of the Person's property;
<PAGE> 5
(f) entry, without the Person's application, approval, or
consent, of any order that is not dismissed, stayed,
or discharged within sixty (60) days from its entry,
which is pursuant to or purporting to be pursuant to
any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution,
liquidation, receivership, trusteeship or similar law
of any jurisdiction (1) approving an involuntary
petition seeking an arrangement of the Person's
creditors, (2) approving an involuntary petition
seeking reorganization of the Person, or (3)
appointing any receiver, trustee, or similar officer
(i) for the Person, or (ii) of or for all or any
substantial part of the Person's property;
(g) any judgment, writ, warrant of attachment, execution,
or similar process is issued or levied against all or
any substantial part of the Person's property and
such judgment, writ, warrant of attachment,
execution, or similar process is not released,
vacated, or fully bonded within forty (40) days after
its issue or levy.
"FOREIGN ACCOUNT" means any Account which arises out of contracts with or orders
from an Account Debtor which is not a resident of the United States.
"GAAP" shall mean generally acceptable accounting principles as in effect, which
shall include the official interpretation thereof by the Financing Accounting
Standards Board, consistently applied.
"GENERAL INTANGIBLE" means (a) any general intangible, and (b) any personal
property (including things in action) other than Goods, Accounts, Contract
Rights, Chattel Paper, Documents, Instruments, and money.
"GOODS" means (a) any goods, and (b) all things which are movable at the time
the security interest granted Bank under this Agreement attaches or which are
fixtures but does not include money, Instruments, Documents, Accounts, Chattel
Paper, General Intangibles, and Contract Rights.
"GOVERNMENT ACCOUNT" means any Account which arises out of contracts with or
orders from the United States or any of its departments agencies, or
instrumentalities.
"HATTERAS" means Hatteras Yachts, a division of Genmar Industries, Inc.
"INSTRUMENT" means:
(a) any instrument;
(b) any negotiable or nonnegotiable instrument
(including, without limitation, drafts, checks,
acceptances, certificates of deposit, and notes);
(c) any security; and
<PAGE> 6
(d) any other writing which:
(l) evidences a right to the payment of money,
(2) is not itself a security agreement or lease,
and
(3) is of a type which in the ordinary course of
business is transferred by delivery with any
necessary endorsement or assignment.
"INVENTORY" means:
(a) any inventory;
(b) all Goods that are raw materials;
(c) all Goods that are work in process or production;
(d) all Goods that are materials used or consumed in
the ordinary course of a Person's business;
(e) all Goods that are, in the ordinary course of a
Person's business, held for sale or lease or
furnished or to be furnished under contracts of
service; and
(f) all substitutes and replacements for, and parts,
accessories, additions, attachments, or
accessions to (a) to (e) above.
"LIBOR RATE" means the 90-day London Interbank Offered Rate published in the
Eastern Edition of the Wall Street Journal on the last business day of Bank's
accounting month, effective for the next accounting month.
"LOAN ACCOUNT" means an account maintained by Bank on its books, which will
evidence all Advances, accrued interest thereon, other amounts due Bank with
respect to such Advances, and all payments thereof by Borrowers.
"MULTIEMPLOYER PLAN" means a plan described in ERISA which covers employees of
the Borrowers, any Affiliate, or any ERISA Affiliate.
"NADA OR BUC VALUE" means the wholesale value published in the most recent NADA
Small Boat Appraisal Guide, but if no wholesale value is available for the boat
in such Guide, then it shall be the wholesale value published in the most recent
BUC Used Boat Price Guide.
"OBLIGATIONS" means any of the following obligations, whether direct or
indirect, absolute or contingent, secured or unsecured, matured or unmatured,
which were originally contracted with Bank or another Person and now owing to or
hereafter acquired in any manner partially or totally by Bank or in which Bank
may have acquired a participation, contracted by Borrowers alone or jointly or
severally with another Person, excluding, however, recourse, dealer paper and
retail obligations of Borrowers (or any one of them), whether or not owed to or
incurred with Bank or any other Person:
<PAGE> 7
(a) any and all indebtedness, obligations, liabilities,
contracts, indentures, agreements, warranties,
covenants, guaranties, representations, provisions,
terms, and conditions of whatever kind, now existing
or hereafter arising, and however evidenced, that are
now or hereafter owed, incurred, or executed by
Borrowers to, in favor of, or with Bank (including,
without limitation, those as are set forth or
contained in, referred to, evidenced by, or executed
with reference to this Agreement, the Loan Account,
any promissory notes, letter of credit agreements,
advance agreements, indemnity agreements, guaranties,
lines of credit, mortgage deeds, security agreements,
assignments, pledge agreements, hypothecation
agreements, Instruments, and acceptance financing
agreements), and including any partial or total
extension, restatement, renewal, amendment, and
substitution thereof or therefor;
(b) any and all claims of whatever kind of Bank against
Borrowers, now existing or hereafter arising
including, without limitation, any arising out of or
in any way connected with warranties made by
Borrowers to Bank in connection with any Instrument
deposited with or purchased by Bank;
(c) any and all of Bank's Related Expenses incurred after
the occurrence of an Event of Default.
"ORGANIZATION" means a corporation, government or government subdivision or
agency, business trust, estate, trust, limited liability company, partnership,
association, two or more Persons having a joint or common interest, and any
other legal or commercial entity.
"PBGC" means the Pension Benefit Guaranty Corporation established pursuant to
Title IV of ERISA.
"PERMITTED LIENS" means those liens described on Schedule 4(e) hereto.
"PERSON" means an individual or an Organization.
"PLAN" means any plan (other than a Multiemployer Plan) defined in ERISA in
which the Borrowers or any Affiliate is, or has been at any time during the
preceding two (2) years, an "employer" or a "substantial employer" as such terms
are defined in ERISA.
"PROCEEDS" means (a) any proceeds, and (b) whatever is received upon the sale,
exchange, collection, or other disposition of Collateral or Proceeds, whether
cash or non-cash. Cash Proceeds includes, without limitation, moneys, checks,
and Deposit Accounts. Proceeds includes, without limitation, any Account arising
when the right to payment is earned under a Contract Right, any insurance
payable by reason of loss or damage to the Collateral, and any return or
unearned premium upon any cancellation of
<PAGE> 8
insurance. Except as expressly authorized in this Agreement, Bank's right to
Proceeds specifically set forth herein or indicated in any financing statement
shall never constitute an express or implied authorization on the part of Bank
to Borrowers' sale, exchange, collection, or other disposition of any or all of
the Collateral, except in the ordinary course of Borrowers' business and except
the sale of chattel paper.
"PROHIBITED TRANSACTION" means any prohibited transaction as that term is
defined for purposes of ERISA.
"QUALIFIED ACCOUNT" means an Account of Motor Yachts which, at all times until
it is collected in full, continuously meets the following requirements:
(a) is not subject to any claim for credit, allowance, or
adjustment by the Account Debtor or any set off or
counter claim;
(b) either (i) arose in the ordinary course of Motor
Yachts' business from the performance (fully
completed) of services or bona fide sale of Goods
which have been shipped to the Account Debtor, and
not more than ninety (90) days have elapsed since the
performance (fully completed) of services or the sale
of Goods for or to the Account Debtor or (ii) is
otherwise due and payable to Motor Yachts from a
manufacturer or vendor;
(c) no notice of the Financial Impairment of the Account
Debtor has been received by Borrowers;
(d) is not subject to an assignment, pledge, claim,
mortgage, lien, or security interest of any type
except that granted to or in favor of Bank;
(e) Account Debtor has not rejected, returned, revoked
acceptance of, or refused to accept any of the Goods
or services or claims which are the subject of the
Account,
(f) Motor Yachts has not received any Instrument or
Chattel Paper with respect to or in payment of the
Account;
(g) Bank has not determined in the exercise of its
reasonable discretion that the Account is
unsatisfactory in any material respect;
(h) is not a Government Account, unless Bank's security
interest in such Government Account is perfected
according to the Federal Assignment of Claims Act;
(i) is not an Account due from any Affiliate, shareholder
or employee of Motor Yachts;
(j) is not a Foreign Account; and
(k) is not evidenced by a promissory note or any other
negotiable instrument;
(l) is not an Account owed to Motor Yachts by an Account
Debtor which has failed to pay more than 25% of its
currently outstanding Accounts within 90 days of the
claim, service or sale of goods, unless Bank
otherwise approves the inclusion of such Account.
<PAGE> 9
"QUALIFIED INVENTORY" means all Vessel Deposits and all Inventory EXCEPT
Inventory which is:
(a) located outside the United States;
(b) in the possession of a bailee or a third party;
(c) work in process;
(d) damaged, defective, or, as mutually agreed, obsolete;
(e) held by Motor Yachts or a third party on consignment; or
(f) Bank has reasonably determined that the Inventory is
unsatisfactory in any material respect.
"RELATED EXPENSES" means any and all reasonable costs, liabilities, and expenses
(including, without limitation, losses, damages, penalties, claims, actions,
reasonable attorney's fees, legal expenses, judgments, suits, and disbursements)
incurred by, imposed upon, or asserted against, Bank, after the occurrence or in
connection with the occurrence and during the continuation of an Event of
Default, in any attempt by Bank:
(a) to obtain, preserve, perfect, or enforce any security
interest evidenced by (i) this Agreement, or (ii) any
other pledge agreement, mortgage deed, hypothecation
agreement, guaranty, security agreement, assignment, or
security instrument executed or given by Borrowers to or
in favor of Bank;
(b) to obtain payment, performance, and observance of any and
all of the Obligations;
(c) to maintain, insure, audit, collect, preserve, repossess,
and dispose of any of the Collateral, including, without
limitation, costs and expenses for appraisals,
assessments, and audits of Borrowers or the Collateral; or
(d) incidental or related to (a) through (c) above, including,
without limitation, interest thereupon from the date
incurred, imposed, or asserted until paid at the rate
payable as set forth in Section 2 of this Agreement, but
in no event greater than the highest rate permitted by
law.
"REPORTABLE EVENT" means any reportable event as that term is defined for
purposes of ERISA.
"REVOLVER ADVANCE OR ADVANCE(S)" means any advance made by Bank to the
Borrowers, subject to the provisions, terms and conditions of Section 2(a)
hereof, which Revolver Advance shall be payable in accordance with the terms of
this Credit Facility.
"SUBORDINATED DEBT" means Indebtedness of a Person which is subordinated, in a
manner satisfactory to the Bank, to all indebtedness owing to the Bank.
<PAGE> 10
"SUBSIDIARY" means any Person of which more than fifty percent (50%) of (i) the
voting rights entitling the holders thereof to elect a majority of the Board of
Directors, manager, or trustees thereof, or (ii) the interest in the capital or
profits of such Person, which at the time is owned or controlled, directly or
indirectly, by the Borrowers or one or more other Affiliates.
"TANGIBLE NET WORTH" means the total assets of MarineMax on a consolidated basis
less the sum of MarineMax's (i) total liabilities excluding Subordinated Debt
plus (ii) the aggregate amount of all intangible assets, and Accounts due from
any Affiliate, shareholder or employee of MarineMax, excluding, however,
Accounts due from Brunswick Corporation or its subsidiaries.
"TERMINATION DATE" means July 12, 2002, or such earlier date on which the
commitment of the Bank to make Advances pursuant to Section 2(a) hereof shall
have been terminated pursuant to Section 9 of this Agreement.
"VESSEL DEPOSITS" means deposits made by Motor Yachts to Hatteras or any other
manufacturer approved by Bank for new vessels constructed by Hatteras or such
manufacturers for delivery to either (i) a Motor Yachts customer who has
contracted with Motor Yachts to have such vessel constructed or (ii) Motor
Yachts as stock for inventory, which stock Bank has approved in writing on at
least a semi-annual basis.
The foregoing definitions shall be applicable to the singulars and plurals of
the foregoing defined terms.
2. STATEMENT OF TERMS
(a) (i) Revolving Credit. Bank will, subject to the terms and conditions
of this Agreement, up to and including the Termination Date, make
Revolver Advances to or for the account of Borrowers up to but not
exceeding an aggregate unpaid principal amount outstanding at any one
time on Revolver Advances equal to the lesser of (a) the line of
credit approved for Borrowers, which is currently Thirty Million
Dollars ($30,000,000.00), or (b) the Borrowing Base. The Borrowers may
borrow, repay and reborrow such maximum amount of credit. The Bank
shall debit to the Loan Account the amount of each Revolver Advance
made under this Agreement and all interest, other compensation, or
other fees payable on all Revolver Advances and shall credit to the
Loan Account each payment of (a) principal and interest accrued on all
outstanding Revolver Advances and (b) other amounts payable under this
Agreement by the appropriate entries. Payments made on or before 2:00
p.m. (Cleveland time) shall be credited the same day as when made. The
Loan Account shall constitute prima facie evidence of all Revolver
Advances made by Bank pursuant to this Agreement. In the event of any
discrepancy between the records of Bank and Borrowers with regard to
the Loan Account, the records of Bank shall be presumed to be correct
unless the Borrowers
<PAGE> 11
notify Bank of an error within thirty (30) business days after having
discovered any such error or unless Borrowers and Bank mutually agree
with regard to an appropriate change in such records. Borrowers shall
execute and deliver to Bank a master promissory note, substantially in
the form of attached Exhibit B, to evidence all Revolver Advances
under this Agreement.
(ii) Interest Rates and Payment of Interest. As compensation for the
Revolver Advances made by Bank, Borrowers undertake and agree to pay
to Bank on the fifteenth day of each calendar month interest upon the
actual daily balance in Borrowers' Loan Account during the preceding
month at an annual rate equal to a rate per annum of the Libor Rate
plus one hundred sixty (160) basis points.
(iii) Borrowers shall repay to the Bank on the Termination Date the
net balance in the Borrowers' Loan Account.
(b)(i) Advances. Advances shall be made pursuant to Borrowers' telephonic
request therefor (a "Request for a Advance"), given by Borrowers to
Bank stating the date of the proposed borrowing, the amount of Bank's
Advance, and the total amount to be borrowed. Bank shall promptly
thereafter confirm each request for an Advance in writing delivered
pursuant to Section 12(c) hereof but without the required copy
(provided that failure to confirm the same shall not in any manner
affect Borrowers' liability therefor). Each Advance shall not be in an
amount less than Five Hundred Thousand Dollars ($500,000). Lender may
condition any Advance upon Lender's receipt, in form and substance
acceptable to it, of such other information as it may deem necessary
or appropriate.
(ii) Computation of Interest. Interest under this Agreement shall be
calculated on the basis of a year of 360 days, for the actual number
of days (including the first day but excluding the last day) elapsed.
(iii) Default Interest Rate. After maturity (whether by acceleration
or otherwise), the unpaid principal and accrued interest on any
Advance shall bear interest at a rate per annum equal to three percent
(3%) in excess of the interest rate prior to default. Notwithstanding
the Bank's remedies as set forth in Section 10 hereof, prior to
maturity hereof, upon the occurrence of any Event of Default under
this Agreement and until such Event of Default is cured by Borrowers,
at Bank's option and upon written notice to Borrowers, the unpaid
principal and accrued interest on any Advance shall bear interest at a
rate per annum equal to three percent (3%) in excess of the interest
rate prior to default.
(c) Borrowers agree that, upon notice from Bank after the occurrence of an
Event of Default, Borrowers shall pay Bank a collateral monitoring fee
of $1,000 per
<PAGE> 12
month, payable on each interest payment date determined in accordance
with Section 2(a) hereof.
3. SECURITY INTEREST IN COLLATERAL
In consideration of and as security for the full and complete payment,
performance, and observance of all Obligations, Motor Yachts does hereby (a)
grant to Bank a security interest in the Collateral, whether now owned or
hereafter acquired or received by Motor Yachts, and (b) assign to Bank all of
its right, title, and interest (including, without limitation, all rights to
payment) arising under or with respect to all of Motor Yachts' Accounts and
Contract Rights, whether now owned or hereafter acquired or received by Motor
Yachts, but not including any duty, obligation, or liability of Motor Yachts
with respect thereto.
4. WARRANTIES
Borrowers represent and warrant to Bank (which representations and warranties
shall survive the execution of this Agreement and all Advances) that:
(a) MarineMax and Motor Yachts are duly organized and existing
corporations under the laws of the state of their incorporation
and are duly qualified and in good standing in every state in
which they are doing business where failure to so qualify would
have a material adverse effect on Borrowers;
(b) The execution, delivery, and performance hereof are within
MarineMax's corporate powers, have been duly authorized, and are
not in contravention of law or the terms of MarineMax's charter,
by-laws, or regulations, as the case may be, or of any indenture,
agreement, or undertaking to which MarineMax is a party or by
which it is bound, a violation of which could have a material
adverse effect on MarineMax or the enforceability of Bank's
rights hereunder;
(c) The execution, delivery, and performance hereof are within Motor
Yachts' corporate powers, have been duly authorized, and are not
in contravention of law or the terms of Motor Yachts' charter,
by-laws, or regulations, as the case may be, or of any indenture,
agreement, or undertaking to which Motor Yachts is a party or by
which it is bound;
(d) This Agreement and the other documents executed pursuant hereto
have been duly executed and are valid and binding obligations of
Borrowers, fully enforceable in accordance with their respective
terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to the rights of
creditors generally and subject to the availability of equitable
remedies and the application of equitable principles;
<PAGE> 13
(e) Except for any security interest granted to or in favor of Bank,
Permitted Liens, and any potential claims of a customer who has
made a deposit for a particular vessel, Motor Yachts is, and as
to Collateral to be acquired after the date hereof will be, the
owner of the Collateral free from any claim, lien, encumbrance,
or security interest of any type, and Borrowers agree that they
will defend the Collateral against all claims and demands of all
Persons at any time claiming the same or any interest therein;
(f) The offices where Motor Yachts keeps all of its records
pertaining to its Accounts and Contract Rights are located at:
700 South Federal Highway, Pompano, Florida 33062;
(g) Subject to any limitation stated herein or in connection
herewith, all information furnished to Bank concerning Borrowers
or the Collateral is, or will be at the time such information is
furnished, accurate and correct in all material respects and
complete insofar as is necessary to give Bank true and accurate
knowledge of the subject matter;
(h) Motor Yachts is the lawful owner of and has full and unqualified
right to transfer a security interest in all of the Collateral to
Bank. Except as otherwise permitted in writing by the Bank, such
Collateral is not and will not, so long as Motor Yachts has any
Obligations to Bank or Bank has any obligation to lend money to
Borrowers under this Agreement, be subject to any adverse
financing statement, encumbrance, claim, lien, or security
interest of any type except any granted to or in favor of Bank,
Permitted Liens and any potential claims of a customer who has
made a deposit for a particular vessel;
(i) Each Qualified Account included with the aggregate amount of
Qualified Accounts set forth on each Borrowers' Certificate now
or hereafter furnished to Bank shall meet, as of the date stated
thereon, all eligibility requirements specified in the Section l
definition of Qualified Account;
(j) There is no pending or threatened action, suit or proceeding
affecting MarineMax or its Subsidiaries before any court or other
governmental authority or any arbitrator which if adversely
determined may materially adversely affect the condition or
operations, financial or otherwise, of MarineMax and its
Subsidiaries taken as a whole or the ability of Borrowers to
perform their respective obligations under this Agreement, except
as set forth in Schedule 4(j);
(k) MarineMax and its Subsidiaries are in material compliance with
all Environmental Laws and all applicable federal, state, and
local health and safety and other laws, regulations, ordinances
or rules, except to the extent that any non-compliance will not,
in the aggregate, have a materially adverse
<PAGE> 14
effect on MarineMax and its Subsidiaries taken as a whole or the
ability of the Borrowers to fulfill their respective obligations
under this Agreement or any of the notes delivered pursuant
hereto;
(l) The consolidated financial statements of MarineMax dated
September 30, 1998 and quarterly financial statements dated
December 31, 1998, copies of which have been delivered to Bank,
fairly present the financial condition of such Persons as at the
respective dates thereof and their results of operations for the
fiscal periods ended on the respective dates thereof, all in
accordance with GAAP consistently applied, subject, in the case
of unaudited financial statements, to normal recurring year-end
adjustments, and since the respective dates of such financial
statements, there has been no material adverse change in
MarineMax's condition or operations;
(m) Borrowers have filed, or caused to be filed, all federal, state,
local and foreign tax returns required to be filed by them, and
have paid, or caused to be paid, all taxes as are shown on such
returns, or on any assessment received by them, to the extent
that such taxes have become due, except as otherwise contested in
good faith. Borrowers have set aside proper amounts on their
books, determined in accordance with GAAP, for the payment of all
taxes for the years that have not been audited by the respective
tax authorities and for taxes being contested by any of the
entities;
(n) Borrowers have received consideration which is the reasonable
equivalent value of the obligations and liabilities that the
Borrowers have incurred to Bank. The Borrowers are not insolvent
as defined in any applicable state or federal statute, nor will
the Borrowers be rendered insolvent by the execution and delivery
of this Agreement or the notes delivered to Bank pursuant hereto.
The Borrowers are not engaged or about to engage in any business
or transaction for which the assets retained by them shall be an
unreasonably small capital, taking into consideration the
obligations to Bank incurred hereunder. The Borrowers do not
intend to, nor do they believe that they will, incur debts beyond
their ability to pay them as they mature;
(o) Neither MarineMax nor any of its Subsidiaries is in material
default in the performance, observance, or fulfillment of any of
the obligations, covenants, or conditions contained in any
agreement or instrument to which they are a party, which default
materially adversely affects the business, properties, assets, or
financial condition of MarineMax and its Subsidiaries taken as a
whole;
(p) Motor Yachts is not in default in the performance, observance, or
fulfillment of any of the obligations, covenants, or conditions
contained in any agreement or instrument to which it is a party,
which default materially
<PAGE> 15
adversely affects the business, properties, assets, or financial
condition of Motor Yachts;
(q) No Reportable Event or Prohibited Transaction has occurred and
is continuing with respect to any Plan, and the Borrowers have
incurred no "accumulated funding deficiency" (as that term is
defined by ERISA) since the effective date of ERISA;
(r) Motor Yachts has places of business or maintains its Inventory
at the locations set forth on Schedule 4(r);
(s) Each Borrower's Location is set forth on Schedule 4(s);
(t) Borrowers are not a party to any agreement or other instrument
or subject to any other restriction which materially and
adversely affects or could reasonably be expected to materially
and adversely affect their respective businesses, properties,
assets, operations or condition, financial or otherwise, and
MarineMax and its Subsidiaries, taken as a whole, are not in
default in the performance, observance or fulfillment of any of
the obligations, covenants or conditions contained in any
agreement or instrument to which they are a party, which default
could adversely affect the respective businesses, properties,
assets or financial condition of MarineMax and its Subsidiaries
taken as a whole;
(u) Schedule 4(u) lists MarineMax's Subsidiaries as of the date of
this Agreement; and
(v) Borrowers have not operated under, or used or done business
under, any trade or fictitious name other than their respective
corporate names.
5. COVENANTS
Borrowers undertake, covenant, and agree that, until the full and complete
payment, performance, and observance of all Obligations:
(a) MarineMax shall deliver to Bank within twenty (20) days after
the close of each month, a statement of condition of MarineMax
on a consolidated basis for such period, certified as complete
and correct by a duly authorized officer of MarineMax, as well
as a certificate showing MarineMax's compliance with all
financial covenants herein;
(b) MarineMax shall deliver to Bank within forty-five (45) days
after the close of each calendar quarter, a statement of cash
flows of MarineMax on a
<PAGE> 16
consolidated basis for such period, certified as complete and
correct by a duly authorized officer of MarineMax;
(c) MarineMax shall deliver to Bank, not later than one hundred
twenty (120) days after the end of each fiscal year of
MarineMax, consolidated financial statements of MarineMax
covering such fiscal year and containing an unqualified audit
opinion by a certified public accountant acceptable to Bank;
(d) MarineMax shall deliver to Bank within sixty (60) days prior
to the close of each fiscal year of MarineMax, an annual
projection of MarineMax's financial statements on a
consolidated basis for the next fiscal year;
(e) MarineMax shall deliver to Bank within forty-five (45) days
after each filing period, corporate 10-Q's of MarineMax,
certified by MarineMax's Chief Financial Officer;
(f) Borrowers shall provide Bank with at least forty-five (45)
days prior written notification of:
(1) any change in any location where Motor Yachts'
Inventory is maintained, and any new locations where
Motor Yachts' Inventory is to be maintained,
(2) any change in the location of the office where Motor
Yachts' records pertaining to its Accounts and
Contract Rights are kept,
(3) the location of any new places of business of Motor
Yachts and the changing or closing of any of Motor
Yachts' existing places of business,
(4) any change in Borrowers' names, and
(5) any change in Borrowers' Location;
(g) MarineMax shall promptly notify the Bank in writing of (a) any
future event which, if it had existed on the date of this
Agreement, would have required material qualification of the
representations and warranties set forth in Article 4 hereof
and (b) any material adverse change in the condition,
business, or prospects, financial or otherwise, of MarineMax
and its subsidiaries taken as a whole;
(h) Borrowers shall promptly and in any event within ten (10)
business days after the occurrence of a Reportable Event with
respect to a Plan, provide to Bank a copy of any materials
required to be filed with the PBGC with respect to such
Reportable Event or those that would have been required to be
filed if the thirty (30) day notice requirement to the PBGC
had not been waived;
<PAGE> 17
(i) MarineMax shall promptly upon receipt, and in no event more
than ten (10) business days after receipt, of a notice by
MarineMax or any of its Subsidiaries, ERISA Affiliate, or any
administrator of any Plan or Multiemployer Plan that the PBGC
has instituted proceedings to terminate such Plan or to
appoint a trustee to administer such Plan, provide to Bank a
copy of such notice;
(j) Borrowers shall not permit its aggregate Obligations to Bank
pursuant to Paragraph 2(a) hereof at any time to exceed the
lesser of (1) the Borrowing Base or (2) Borrowers' currently
approved line of credit;
(k) Borrowers shall, if requested, deliver to Bank within twenty
(20) days after the close of each month, in form and substance
acceptable to Bank (1) aging reports for Accounts and payables
for Motor Yachts, each substantiated by detailed supporting
schedules, (2) a schedule of Motor Yachts' Inventory showing
the cost or market value thereof, whichever is lower, and (3)
such other reports as Bank may reasonably request;
(l) Borrowers shall, within twenty (20) days after the close of
each month, and at any other times reasonably required by
Bank, deliver to Bank a Borrowers' Certificate fully completed
as to all figures and information called for therein and
certified as materially complete and correct by duly
authorized officers of Borrowers;
(m) Borrowers shall promptly pay and discharge when due, all
taxes, assessments, and governmental charges of every kind and
nature that have been lawfully levied, assessed, or imposed
upon Borrowers or their respective properties, including the
use thereof, or any of the Obligations, which, if unpaid,
would become liens against their respective assets including,
without limitation, all sums due and owing to any taxing
authority for income and other taxes withheld from the wages
and salaries of its employees, except to the extent Borrowers
are reasonably contesting in good faith any such tax,
assessment, or charge with an adequate reserve provided
therefor;
(n) Borrowers shall at all reasonable times and upon at least two
(2) business days prior notice (which may be verbal notice)
allow Bank by or through any of its officers, agents,
employees, attorneys, or accountants to (1) examine, inspect,
and make extracts from Borrowers' books and other records,
including, without limitation, the tax returns of Borrowers
and any of Borrowers' Subsidiaries, (2) arrange for
verification of Motor Yachts' Accounts, under reasonable
procedures, including directly with Account Debtors after the
occurrence of an Event of Default or by other methods, and (3)
examine and inspect Borrowers' Inventory wherever located;
<PAGE> 18
(o) Borrowers shall promptly furnish to Bank upon request (1)
additional statements and information with respect to the
Collateral, and all writings and information relating to or
evidencing any of Motor Yachts' Accounts (including, without
limitation, computer printouts or typewritten reports listing
the mailing addresses of all present Account Debtors), and (2)
any other writings and information as Bank may reasonably
request;
(p) Borrowers shall upon request of Bank promptly take such action
and promptly make, execute, and deliver all such additional
and further items, assurances, and instruments as Bank may
reasonably require, including, without limitation, financing
statements, so as to completely vest in and ensure to Bank its
rights hereunder and in or to the Collateral. If certificates
of title are issued or outstanding with respect to any of
Motor Yachts' Inventory, Borrowers will cause the interest of
Bank to be properly noted thereon at Borrowers' expense to the
extent required by applicable law to perfect a security
interest in such Inventory;
(q) Borrowers hereby authorize Bank or Bank's designated agent
(but without obligation by Bank to do so) to incur Related
Expenses, upon or during the continuance of any Event of
Default, and Borrowers shall promptly repay, reimburse, and
indemnify Bank for any and all Related Expenses. Bank may, at
its option, debit Related Expenses directly to the Loan
Account;
(r) Motor Yachts shall, if any of Motor Yachts' Accounts arise out
of contracts with or orders from the United States or any of
its departments, agencies, or instrumentalities, immediately
notify Bank in writing of same and shall execute any writing
or take any action required by Bank with reference to the
Federal Assignment of Claims Act;
(s) Motor Yachts shall not, without the prior written consent of
Bank (which consent shall not be unreasonably withheld),
borrow any money or, directly or indirectly, create, incur,
assume, guarantee, or otherwise become or remain liable with
respect to any indebtedness for borrowed money or advances
other than (1) Motor Yachts' Obligations, (2) any indebtedness
of Motor Yachts existing on the date hereof and not required
by Bank to be prepaid as a condition to execution of this
Agreement, (3) Subordinated Debt, and (4) any indebtedness of
Motor Yachts to MarineMax;
(t) Motor Yachts shall not, without the prior written consent of
Bank (which consent shall not be unreasonably withheld), loan
any money to or guarantee or assume any obligation of any
other Person, or purchase (1) any evidence of indebtedness or
securities (including stock) other than direct obligations of
the United States of America or any agency thereof,
<PAGE> 19
banker's acceptances, and certificates of deposit issued by
any commercial bank in the United States of America, or (2)
the business or substantially all of the property of any other
Person other than Subsidiaries of MarineMax, or hereafter make
prepayments or advances to others, provided Motor Yachts may
endorse checks, drafts, and similar instruments for deposit or
collection in the ordinary course of business;
(u) MarineMax shall not, without the prior written consent of Bank
(which consent shall not be unreasonably withheld), purchase
or retire any of its stock or the stock of any Subsidiary or
pay or declare in any fiscal year dividends (other than stock
dividends) in excess of Ten Million Dollars ($10,000,000.00)
upon all of its stock;
(v) Borrowers shall not, without the prior written consent of Bank
(which consent shall not be unreasonably withheld), enter into
any sale and leaseback transaction or arrangement with any
other Person with respect to any of the assets of Borrowers
(however, this shall not limit performance under any lease
contract existing on the date hereof and disclosed in writing
by Borrowers to Bank);
(w) MarineMax shall not, without the prior written consent of Bank
(which consent shall not be unreasonably withheld), mortgage,
pledge, grant a security interest, or otherwise voluntarily
place or permit to be placed any lien upon any assets of
MarineMax;
(x) Motor Yachts shall not, without the prior written consent of
Bank (which consent shall not be unreasonably withheld),
mortgage, pledge, grant a security interest, or otherwise
voluntarily place or permit to be placed any lien upon any
assets of Motor Yachts except any security interest granted to
or in favor of Bank;
(y) Motor Yachts shall not, without the prior written consent of
Bank (which consent shall not be unreasonably withheld),
engage in any transaction with any Subsidiary of MarineMax,
unless:
(i) such transaction is at arms length and on terms that
are at least as favorable to Motor Yachts as those
prevailing at the time for comparable transactions
with nonaffiliated Persons, and
(ii) Motor Yachts will receive no less than fair market
value for any assets transferred;
(z) Motor Yachts shall not, without the prior written consent of
Bank (which consent shall not be unreasonably withheld), make
any change in any location where a material part of Motor
Yachts' Inventory is maintained or
<PAGE> 20
any change in the location of the offices where Motor Yachts'
records pertaining to their respective Accounts and Contract
Rights are kept;
(aa) Motor Yachts shall not use any Collateral in material
violation of any applicable statute, ordinance, or regulation;
(bb) MarineMax shall not permit MarineMax's ratio of its current
assets to current liabilities, on a consolidated basis and
calculated on a monthly basis, to be at any time less than (i)
1.10 to 1.00 for the period of October 1 through June 30 of
each year, and (ii) 1.20 to 1.00 for the period of July 1
through September 30 of each year;
(cc) MarineMax shall not permit MarineMax's ratio of its total
liabilities less Subordinated Debt to the sum of its Tangible
Net Worth plus total Subordinated Debt, on a consolidated
basis and calculated on a monthly basis, to be at any time
more than (i) 5.50 to 1.00 at the end of each calendar month
for the period from January 1 through June 30 of each year,
and (ii) 2.75 to 1.00 at the end of each calendar month for
the period from July through December of each year;
(dd) MarineMax shall not permit MarineMax's ratio of its earnings
before interest, taxes, depreciation and amortization, divided
by interest expense, on a consolidated basis and calculated on
a trailing four quarters basis, to be at any time less than
1.75 to 1.00;
(ee) MarineMax shall not permit MarineMax's Tangible Net Worth to
be less than Thirty Million Dollars ($30,000,000.00),
calculated annually in accordance with MarineMax's current
methods of accounting (as of the date hereof), plus fifty
percent (50%) of retained earnings for each year commencing
with earnings from fiscal year ending September 30, 1999, it
being expressly agreed by Borrowers that MarineMax shall not
change its current method of accounting without the express
written consent of the Bank (which consent shall not be
unreasonably withheld);
(ff) Borrowers shall not make any payment upon their outstanding
Subordinated Debt, except in such manner and amounts as may be
expressly authorized in any subordination agreement presently
or hereafter held by the Bank;
(gg) all of Borrowers' computer hardware and software shall
materially provide the following functions:
(l) consistently handle date information before, during
and after January 1, 2000, including, but not limited
to, accepting date input,
<PAGE> 21
providing date output and performing calculations on
dates or portions of dates;
(2) function accurately in accordance with the
specifications of such computer hardware or software
and without interruption before, during and after
January 1, 2000, without any change in operations
associated with the advent of the new century;
(3) respond to two-digit date input in a way that
resolves any ambiguity as to century in a disclosed,
defined and predetermined manner; and
(4) store and provide output of date information in ways
that are unambiguous as to century.
6. COLLECTIONS AND RECEIPT OF PROCEEDS BY BORROWERS
If an Event of Default shall occur and during the continuance thereof, both (1)
the lawful collection and enforcement of all of Motor Yachts' Accounts, and (2)
the lawful receipt and retention by Motor Yachts of all Proceeds of all of Motor
Yachts' Accounts, Contract Rights and Inventory shall be remitted daily by Motor
Yachts to Bank in the form in which they are received by Motor Yachts, either by
mailing or by delivering such collections and Proceeds to Bank, appropriately
endorsed for deposit in the Cash Collateral Account. Motor Yachts will not
commingle such collections or Proceeds with any of Motor Yachts' other funds or
property, but will hold such collections and Proceeds separate and apart
therefrom upon an express trust for Bank. Unless otherwise agreed to by Bank and
Borrower, Bank shall apply all of the account balance in the Cash Collateral
Account (allowing two (2) days for collection and clearance of remittances,
however, in the event Bank applies any proceeds from the Cash Collateral Account
as a credit to any obligations due Bank and such payment includes uncollected
funds, the Borrowers will incur a charge for those uncollected funds at the
floating rate payable on Advances) as a credit against the Loan Account,
including the outstanding principal or interest of any Advance and any other
costs and expenses agreed to be paid by Borrowers pursuant to and in connection
with this Agreement. If any remittance shall be dishonored, or if, upon final
payment, any claim with respect thereto shall be made against Bank on its
warranties of collection, Bank may charge the amount of such item against the
Cash Collateral Account or any other Deposit Account maintained by Motor Yachts
with Bank, and, in any event, retain same and Motor Yachts interest therein as
additional security for the Obligations. The Bank may, in its sole discretion,
at any time and from time to time, release funds from the Cash Collateral
Account to Motor Yachts for use in Motor Yachts' businesses. The balance in the
Cash Collateral Account may be withdrawn by Motor Yachts upon termination of
this Agreement in accordance with Subsection 12(e) of this Agreement. If an
Event of Default shall occur and during the continuance thereof, at Bank's
request, Motor Yachts will cause all remittances representing collections and
Proceeds of Collateral to be mailed to a lock box in Cleveland, Ohio, to which
Bank shall
<PAGE> 22
have access for the processing of such items in accordance with the provisions,
terms, and conditions of Bank's customary lock box agreement.
7. COLLECTIONS AND RECEIPT OF PROCEEDS BY BANK
Motor Yachts hereby constitutes and appoints Bank, or Bank's designated agent,
effective upon the occurrence and during the continuance of an Event of Default,
as Motor Yachts' attorney-in-fact to exercise, at any time, all or any of the
following powers which, being coupled with an interest, shall be irrevocable
until the complete and full payment, performance, and observance of all
Obligations:
(a) to receive, retain, acquire, take, endorse, assign, deliver,
accept, and deposit, in the Bank's name or Motor Yachts' name,
any and all of Motor Yachts' cash, Instruments, Proceeds of
Motor Yachts' Accounts, Proceeds of Motor Yachts' Inventory,
collection of Motor Yachts' Accounts, and any other writings
relating to any of the Collateral;
(b) to transmit to Account Debtors, on any or all of Motor Yachts'
Accounts, notice of assignment to Bank thereof and Bank's
security interest therein and to request from such Persons at
any time, in the Bank's name or in the name of Motor Yachts ,
information concerning Motor Yachts' Accounts and the amounts
owing thereon;
(c) to transmit to purchasers of any or all of Motor Yachts'
Inventory, notice of Bank's security interest therein, and to
request from such Persons at any time, in Bank's name or in
Motor Yachts' name, information concerning Motor Yachts'
Inventory and the amounts owing thereon by such purchasers;
(d) to notify and require Account Debtors on Motor Yachts'
Accounts and purchasers of Motor Yachts' Inventory to make
payment of their indebtedness directly to Bank;
(e) to take or bring, in Bank's name or Motor Yachts' name, all
steps, actions, suits, or proceedings reasonably deemed by
Bank necessary or desirable to effect the receipt,
enforcement, and collection of the Collateral;
(f) to accept all collections in any form relating to the
Collateral, including remittances which may reflect
deductions, and to deposit the same, into Motor Yachts' Cash
Collateral Account or, at the option of Bank, to apply them as
a payment against the Loan Account.
<PAGE> 23
8. INSURANCE AND USE OF INVENTORY
(a) Except upon the occurrence and during the continuance of any
Event of Default:
(1) Motor Yachts may retain possession of and use its
Inventory in any lawful manner not inconsistent with
this Agreement or with the terms, conditions, or
provisions of any policy of insurance thereon.
(2) Motor Yachts may sell or lease its Inventory in the
ordinary course of business; provided, however, that
a sale or lease in the ordinary course of business
does not include a transfer in partial or total
satisfaction of a debt, except for transfers in
satisfaction of partial or total purchase money
prepayments by a buyer in the ordinary course of
Motor Yachts' business. Except upon the occurrence
and during the continuance of any Event of Default,
Motor Yachts may also use and consume any raw
materials or supplies, the use and consumption of
which are necessary in order to carry on Motor
Yachts' business.
(b) Motor Yachts shall obtain, and at all times maintain,
insurance upon its Inventory in such form, written by such
companies, in such amounts, for such period, and against such
risks as may be reasonably acceptable to Bank, with provisions
satisfactory to Bank for payment of all losses thereunder to
Bank and Motor Yachts as their interests may appear (loss
payable endorsement in favor of Bank). Any such policies of
insurance shall provide for no less than ten (10) days prior
written cancellation notice to Bank. Any sums received by Bank
in payment of insurance losses under the policies may, at the
option of Bank, be applied upon the Loan Account, whether or
not the same is then due and payable, or may be delivered to
Motor Yachts for the purpose of replacing, repairing, or
restoring its Inventory. Bank or Bank's designated agent is
hereby constituted and appointed Motor Yachts'
attorney-in-fact effective upon the occurrence and during the
continuance of an Event of Default to (either in the name of
Motor Yachts or in the name of the Bank), make adjustments of
all insurance losses covering Collateral, sign all
applications, receipts, releases, and other papers necessary
for the collection of any such loss, execute proof of loss,
make settlements, and endorse and collect all Instruments
payable or issued to Motor Yachts in connection therewith.
Notwithstanding any action by Bank hereunder, any and all risk
of loss or damage to Motor Yachts' Inventory to the extent of
any and all deficiencies in the effective insurance coverage
thereof is hereby expressly assumed by Borrowers.
<PAGE> 24
(c) Bank acknowledges that Motor Yachts may transfer Inventory to,
and accept Inventory from, Affiliates, provided that any such
transfer to an Affiliate will not cause the total amount of
Advances to exceed the Borrowing Base.
9. EVENTS OF DEFAULT
The occurrence of any one or more of the following shall constitute an Event of
Default under this Agreement:
(a) Failure of Borrowers to promptly pay any payment Obligation
within fifteen (15) days after written notice from Bank that
the same is due, or, perform, or observe any non-payment
Obligation within thirty (30) days after written notice from
Bank that the same has not been performed or observed, whether
upon demand, at maturity, by acceleration, or otherwise, but
(i) if the failure is subject to cure but (ii) the cure is not
able to be completed with such period, then so long as the
cure commenced within a reasonable time and the cure is being
diligently pursued by appropriate means at the end of such
thirty (30) days, the Borrowers shall have an additional
thirty (30) days to complete the cure;
(b) Failure of Borrowers to promptly pay, perform, or observe when
due, whether upon demand, at maturity, by acceleration, or
otherwise, or any event which results in the acceleration of
the maturity of, any or all of the indebtedness, obligations,
liabilities, contracts, indentures, and agreements (including,
without limitation, any and all warranties, covenants,
guaranties, provisions, terms, and conditions set forth or
contained therein) of whatever kind and however evidenced,
owed, incurred, or executed by Borrowers, to, in favor of, or
with any and all other Persons, and including any partial or
total extension, renewal, amendment, restatement, and
substitution thereof or therefor, which failure could have a
material impact on MarineMax and its Subsidiaries taken as a
whole;
(c) Any warranty, representation, or statement made or furnished
to Bank in connection with this Agreement or any other writing
evidencing or given as security for any of the Obligations by
or on behalf of the Borrowers proves to have been false in any
material respect when made, furnished, or at any time
thereafter;
(d) Bank shall reasonably deem itself insecure in good faith
believing that the prospect of payment, performance, or
observance of any of the Obligations herein secured is
materially impaired;
<PAGE> 25
(e) Uninsured loss, damage, theft, destruction, levy, seizure, or
attachment to, of, or upon any material portion of the
Collateral, including any attempt to accomplish the foregoing;
(f) Sale, lease, transfer, assignment, encumbrance, or other
disposition of any of the Collateral (other than in the
ordinary course of business or as expressly permitted under
this Agreement), without Bank's prior written authorization
therefor (which authorization shall not be unreasonably
withheld), including any attempt to accomplish the foregoing;
(g) Any tax lien in excess of One Million Dollars ($1,000,000.00)
shall have been filed against Borrowers or any of their
property by any federal, state, or municipal authority;
(h) If any of the following events occur: (a) any Plan incurs any
"accumulated funding deficiency" (as such term is defined in
ERISA) whether waived or not, (b) the Borrowers or any
Affiliate engages in any Prohibited Transaction, (c) any Plan
is terminated (other than terminations permitted by ERISA),
(d) a trustee is appointed by an appropriate United States
district court to administer any Plan, or (e) the PBGC
institutes proceedings to terminate any Plan or to appoint a
trustee to administer any Plan;
(i) Financial Impairment of Borrowers or of any other Subsidiary
of MarineMax which, in the aggregate, have a materially
adverse effect on MarineMax and its Subsidiaries taken as a
whole.
If there shall occur any Event of Default set forth in (a) through (h) above,
Bank, by written notice to Borrowers, may (1) declare the unpaid principal of
and accrued interest on all Obligations to be immediately due and payable and
(2) immediately terminate Bank's commitment to make further Advances under this
Agreement, whereupon Obligations shall become and be forthwith due and payable,
and such commitment shall be terminated, without any further notice,
presentment, or demand of any kind, all of which are hereby expressly waived by
Borrowers. If there shall occur any Event of Default set forth in (i) above, all
Obligations shall automatically become and be immediately due and payable, and
Bank's commitment to make further Advances shall automatically be terminated,
without notice, presentment, or demand of any kind, all of which are hereby
expressly waived by Borrowers.
<PAGE> 26
10. RIGHTS AND REMEDIES UPON EVENT OF DEFAULT
Upon the occurrence of any such Event of Default and during the continuance of
such Event of Default, Bank shall have the rights and remedies of a secured
party under the Ohio Uniform Commercial Code in addition to the rights and
remedies of a secured party provided elsewhere within this Agreement or in any
other writing executed by Borrowers. Bank may require Borrowers to assemble the
Collateral and make it available to Bank at a reasonably convenient place to be
designated by Bank. Unless the Collateral is perishable, threatens to decline
speedily in value, or is of a type customarily sold on a recognized market, Bank
will give Borrowers reasonable notice of the time and place of any public sale
of the Collateral or of the time after which any private sale or other intended
disposition thereof is to be made. The requirement of reasonable notice shall be
met if such notice is mailed (deposited for delivery, postage prepaid, by U.S.
mail) to Borrowers' Location set forth in Subsection 12(c) of this Agreement (as
modified by any change therein which Borrowers have supplied in writing to
Bank), or at least ten (10) days before the time of the public sale or the time
after which any private sale or other intended disposition thereof is to be
made. At any such public or private sale, Bank may purchase the Collateral to
the extent permitted by law. After deduction for Bank's Related Expenses, the
residue of any such sale or other disposition shall be applied in satisfaction
of the Obligations in such order of preference as Bank may reasonably determine.
Any excess, to the extent permitted by law, shall be paid to Borrowers, and
Borrowers shall remain liable for any deficiency.
In addition, upon the occurrence of any such Event of Default and during the
continuance of such Event of Default, Bank shall have the right to obtain new
appraisals of the Collateral, the cost of which shall be paid by Borrowers.
11. CONDITIONS PRECEDENT TO FUTURE ADVANCES
The obligation of Bank to make any Advance to Borrowers after the date of this
Agreement shall be subject to the conditions precedent that on or before the
date of such Advance:
(a) The representations and warranties contained in Section 4 of
this Agreement and in each document, instrument, agreement,
and certificate delivered to Bank by Borrowers pursuant to
this Agreement shall be materially true and correct on and as
of such date as if made on and as of such date; no Event of
Default or event or condition that, with the serving of notice
or the lapse of time or both, would constitute an Event of
Default shall have occurred and be continuing or would result
from the making of such Advance; and Bank shall have received,
if requested by Bank, a certificate of the chief executive
officer or the chief financial officer of Borrowers, dated as
of the date of such Advance, to such effect (in the absence of
Bank's request for such a certificate, Borrowers' borrowing of
the Advance shall itself constitute a representation to Bank
to such effect);
<PAGE> 27
(b) The making of such Advance shall not contravene any material
law, rule or regulation applicable to Bank;
(c) Not later than 2:00 p.m., Cleveland time, on such date, Bank
shall have received, by telephone to be promptly confirmed by
Bank in writing, a request by Borrowers to Bank for an Advance
in the requested amount;
(d) Prior to the first Advance Borrowers shall have delivered to
Bank an opinion of counsel substantially in the form attached
hereto as Exhibit C;
(e) Bank shall have received such other approvals, opinions,
appraisals, or documents as it may reasonably request.
12. GENERAL
(a) If any provision, term, or portion, of this Agreement,
(including, without limitation, (1) any indebtedness,
obligation, liability, contract, agreement, indenture,
warranty, covenant, guaranty, representation, or condition of
this Agreement made, assumed, or entered into, (2) any act of
action taken under this Agreement, or (3) any application of
this Agreement) is for any reason held to be illegal or
invalid, such illegality or invalidity shall not affect any
other such provision, term, or portion of this Agreement, each
of which shall be construed and enforced as if such illegal or
invalid provision, term, or portion were not contained in this
Agreement. Any illegality or invalidity of any application of
this Agreement shall not affect any legal and valid
application of this Agreement, and each provision, term, and
portion of this Agreement shall be deemed to be effective,
operative, made, entered into, or taken in the manner and to
the full extent permitted by law.
(b) Bank shall not be deemed to have waived any of Bank's rights
of this Agreement or under any other agreement, instrument, or
document executed by Borrowers, unless such waiver be in
writing and signed by Bank. No delay or omission on part of
Bank in exercising any right shall operate as a waiver of such
right or any other right. A waiver on any one occasion shall
not be construed as a bar to or waiver of any right or remedy
on any future occasion. All of Bank's rights and remedies,
whether evidenced by this Agreement or by any other agreement,
instrument, or document shall be cumulative and may be
exercised singularly or concurrently. Any written demands,
written requests, or written notices to Borrowers that Bank
may elect to give shall be effective (1) upon delivery when
sent by confirmed facsimile or (2) the next business day after
deposited with a recognized overnight courier for next day
delivery or (3) three (3) business days after deposited for
delivery, postage prepaid, by
<PAGE> 28
U.S. mail, and addressed to Borrowers' Location set forth in
Subsection 12(c) of this Agreement (as modified by any change
therein which Borrowers have supplied in writing to Bank). If
at any time or times, by assignment or otherwise, Bank
transfers any of the Obligations or any part of the Collateral
to another Person, such transfer shall carry with it Bank's
powers and rights under this Agreement with respect to the
Obligation or Collateral so transferred and the transferee
shall have said powers and rights, whether or not they are
specifically referred to in the transfer. To the extent that
Bank retains any other of the Obligations or any part of the
Collateral, Bank will continue to have the rights and powers
with respect to the Obligations and the Collateral as set
forth in this Agreement.
(c) All written notices, requests, or other communications herein
provided for must be addressed:
to Borrowers as follows:
c/o MarineMax, Inc.
18167 U.S. Highway, 19 North
Clearwater, Florida 33764
Attn: Mr. Michael H. McLamb, CFO
with a copy to:
O'Connor, Cavanagh, Anderson, Killingsworth
& Beshears
One East Camelback Road, Suite 1100
Phoenix, Arizona 85012
Attention: Robert S. Kant, Esq.
to the Bank as follows:
KeyBank National Association
127 Public Square
Cleveland, Ohio 44114-1306
Attn: Mr. Ken Landon, Senior Vice President
or at such other address as either party may designate to the other in writing.
Such communication will be effective as set forth in Section 12(b) above.
(d) The laws of the State of Ohio shall govern the construction of
this Agreement (including, without limitation, any terms not
specifically defined in this Agreement that may be so
specifically defined pursuant to Article 9 of the UCC as
adopted in Ohio, and including any amendments thereof or any
substitution therefor) and the rights and duties of Borrowers
and Bank. This Agreement shall be binding upon and inure to
the benefit
<PAGE> 29
of Borrowers and Bank and their respective successors and
assigns. The rights and powers given in this Agreement to the
Bank are in addition to those otherwise created or existing in
the same Collateral by virtue of other agreements or writings.
(e) Borrowers may terminate this Agreement by giving Bank not less
than ten (10) days prior written notice of termination and by
paying, performing, and observing in full all Obligations.
Notwithstanding the termination of the line of credit
hereunder, this Agreement and the security interest in the
Collateral shall continue in full force and effect after such
termination until all Obligations of Borrowers to Bank have
been paid, performed, and observed in full.
(f) In this Agreement unless the context otherwise requires, words
in the singular number include the plural, and in the plural
number include the singular.
(g) Borrowers hereby release Bank from and agrees to indemnify and
hold harmless Bank, and its officers, agents, and employees
for any and all claims of Borrowers or any other Person for
damage or loss caused by any act or acts under this Agreement
or in furtherance of this Agreement whether by omission or
commission, and whether based upon any error of judgment or
mistake of law or fact (except gross negligence, willful
misconduct or other negligence) on the part of Bank, or its
officers, agents, and employees.
(h) Bank is hereby authorized to fill in all blank spaces in this
Agreement, to correct patent errors in this Agreement, to
complete or correct the description of the Collateral, and to
date this Agreement.
(i) This Agreement is assignable by Bank upon notice to Borrowers
and shall be binding on Bank's respective successors, assigns,
and nominees.
(j) This Agreement and any promissory notes or other writing
executed and delivered by Borrowers to Bank in connection
herewith integrate all the terms and conditions mentioned
herein or incidental hereto and supersede all oral
representations and negotiations and prior writings with
respect to the subject matter hereof.
(k) Wherever this Agreement provides that an action may be taken
only with the consent or approval of Bank, such consent or
approval shall not be unreasonably withheld.
13. JURY TRIAL WAIVER
<PAGE> 30
BORROWERS AND BANK EACH WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING
ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, BETWEEN BANK AND
BORROWERS ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO ANY
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR THE
NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.
[THE BALANCE OF THIS PAGE LEFT INTENTIONALLY BLANK.]
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
Witnessed by: BORROWERS:
/s/ Scott R. Ward MARINEMAX, INC.
- ------------------------------------
Scott R. Ward
Sr. Vice President /s/ Michael H. McLamb
Print Name/Title-------------------- By: -------------------------------
Michael H. McLamb,
Vice President &
Chief Financial Officer
/s/ William R. Thompson
- ------------------------------------
William R. Thompson
Natn'l Mfg. Mgr.
Print Name/Title--------------------
/s/ Scott R. Ward MARINEMAX MOTOR YACHTS, INC.
- ------------------------------------
Scott R. Ward
Sr. Vice President /s/ Michael H. McLamb
Print Name/Title-------------------- By: -------------------------------
Michael H. McLamb,
Vice President & Secretary
/s/ William R. Thompson
- ------------------------------------
William R. Thompson
Natn'l Mfg. Mgr.
Print Name/Title--------------------
BANK:
KEYBANK NATIONAL ASSOCIATION
/s/ Scott R. Ward
- ------------------------------------
Scott R. Ward
Sr. Vice President /s/ Ken Landon
Print Name/Title-------------------- By: -------------------------------
Ken Landon
Title: Senior Vice President
/s/ William R. Thompson
- ------------------------------------
William R. Thompson
Natn'l Mfg. Mgr.
Print Name/Title--------------------
<PAGE> 32
EXHIBIT B
MASTER PROMISSORY NOTE
$30,000,000.00 Executed ____________
July 12, 1999
As of July 12, 1999, the undersigned (herein called "Borrowers") promise to pay
to the order of KEYBANK NATIONAL ASSOCIATION, Cleveland, Ohio (herein called
"Bank"), the sum of Thirty Million Dollars ($30,000,000.00) or such lesser
amount of Advances as shall have actually been borrowed by Borrowers from Bank
and not previously repaid, pursuant to the terms of a certain "Credit Facility
and Security Agreement (Accounts and Inventory)" by and among Borrowers and Bank
dated July 12, 1999, including any partial or total extension, restatement,
renewal, amendment, and substitution thereof or therefor (herein called
"Agreement") with interest payable monthly on the fifteenth day of each month,
starting on the fifteenth day of the month following the month in which this
Note is signed, according to the provisions set forth in Section 2(a) of the
Agreement.
Borrowers have assigned to Bank all of MARINEMAX MOTOR YACHTS, INC. (also
referred to as "Motor Yachts") "Accounts" and has granted to Bank a security
interest in all of Motor Yachts' "Accounts", "Inventory", "Cash Security",
"Contract Rights", funds on deposit in the "Cash Collateral Account", certain
other assets, and all "Proceeds" thereof, as security for the payment of this
Note and all other "Obligations", as those terms are defined in Section 1 of the
Agreement (all herein called "Obligations").
Upon the occurrence of any one or more "Events of Default", any and all
Obligations shall, at the option of Bank, immediately become due and payable
without demand, presentment, protest, or notice of any kind, all as provided in
the Agreement.
Borrowers expressly waive presentment, demand, notice, protest, and all other
demands and notices in connection with the delivery, acceptance, performance,
default or enforcement of this Note (except for notices expressly provided for
in the Agreement), assent to any extension or postponement of the time of
payment or any other indulgence, to any substitution, exchange or release of
collateral, and to the addition or release of any other person primarily or
secondarily liable. Borrowers understand and agrees that this Note is subject to
and shall be construed according to the laws of the State of Ohio.
<PAGE> 33
Reference is made to the Agreement for certain provisions concerning prepayment
of this Note, rights of Bank and its successors and assigns with respect to this
Note, and related matters. This Note is the "Master Promissory Note" referred to
in the Agreement.
Witnessed by:
MARINEMAX, INC.
____________________________________
Print Name/Title____________________ By: _______________________________
Michael H. McLamb,
Vice President & Chief
Financial Officer
____________________________________
Print Name/Title____________________
MARINEMAX MOTOR YACHTS, INC.
____________________________________
Print Name/Title____________________ By: _______________________________
Michael H. McLamb,
Vice President & Secretary
____________________________________
Print Name/Title____________________
<PAGE> 34
STATE OF _________________ )
)SS
COUNTY OF________________ )
Before me, a Notary Public in and for said County and State, personally appeared
the above-named Michael H. McLamb, the Vice President & Secretary of MARINEMAX
MOTOR YACHTS, INC., who acknowledged that he did sign the foregoing instrument
as an Officer of MARINEMAX MOTOR YACHTS, INC., and that the same is free act and
deed and the free act and deed of such corporation.
In Testimony Whereof, I have hereunto set my hand and official seal, at
_____________, this ______ day of July, 1999.
____________________________________
NOTARY PUBLIC
STATE OF _________________ )
)SS
COUNTY OF________________ )
Before me, a Notary Public in and for said County and State, personally appeared
the above-named Michael H. McLamb, the Vice President & Chief Financial Officer
of MARINEMAX, INC., who acknowledged that he did sign the foregoing instrument
as an Officer of MARINEMAX, INC., and that the same is free act and deed and the
free act and deed of such corporation.
In Testimony Whereof, I have hereunto set my hand and official seal, at
_____________, this ______ day of July, 1999.
____________________________________
NOTARY PUBLIC
<PAGE> 35
EXHIBIT C
DRAFT LEGAL OPINION
July 12, 1999
KeyBank National Association
1800 Midland Building
101 Prospect Avenue, West
Cleveland, Ohio 44115-1027
Re: Credit Facility to MarineMax, Inc. and MarineMax Motor Yachts, Inc.
Ladies and Gentlemen:
This firm has acted as legal counsel to MarineMax, Inc., a Delaware
corporation ("MarineMax") and MarineMax Motor Yachts, Inc., a Delaware
corporation (the "Dealer" and MarineMax and Dealer, collectively, the
"Borrowers"), in connection with the Credit Facility in the maximum principal
amount of $30,000,000 (the "Facility") from KeyBank National Association, a
national banking association corporation ("Lender") pursuant to that Credit
Facility and Security Agreement dated as of July 12, 1999, between Borrowers and
Lender (the "Credit Agreement"). Capitalized terms used and not otherwise
defined in this Opinion shall have the meanings ascribed to them in the Credit
Agreement.
In our capacity as such counsel and for purposes of this Opinion, we
have examined such questions of law and fact as we have deemed necessary or
appropriate and have examined, and relied as to matters of fact upon, originals,
certified copies or copies otherwise identified as being true copies of the
following documents:
1. The Credit Agreement.
2. Financing Statement on Form UCC-1, executed by Dealer, as debtor, in
favor of Lender, as secured party, to be filed in the Office of the Secretary of
State of the State of Florida (the "Financing Statement").
3. Certificates of officers of MarineMax and Dealer, dated as of the
date hereof (collectively, the "Certificates").
4. The respective Certificate of Incorporation and the Bylaws of
Borrowers.
5. Resolutions of the respective Board of Directors of Borrowers
authorizing the transactions contemplated by the Credit Agreement, each
certified as true and correct as of the date hereof by the applicable corporate
secretary or assistant secretary.
6. Each of the Certificates of Good Standing set forth on Schedule A
(collectively, the "Official Certificates").
The documents described in items 1 and 2 above are collectively
referred to as the "Loan Documents". In addition, we have examined such
certificates of public officials, corporate documents and records and other
certificates, documents and instruments and have made such other inquiries as we
have deemed appropriate in connection with the opinions set forth herein. As to
various questions material to our opinions, we have relied upon, and assumed the
truth and accuracy of, the representations and warranties of Borrowers contained
in the Credit Agreement and in the Certificates.
<PAGE> 36
In reaching the opinions set forth below, with your permission, we have
made the following assumptions without investigation. However, we have no
knowledge of any facts inconsistent with the following assumptions.
A. The genuineness of the signatures not witnessed, the authenticity of
documents submitted as originals, and the conformity to originals of documents
submitted as copies.
B. The legal capacity of all natural persons executing the Loan Documents and
the Certificates.
C. The Loan Documents accurately describes and contains the mutual understanding
of the parties, and there are no oral or written statements or agreements that
modify, amend, or vary, or purport to modify, amend, or vary, any of the terms
of the Loan Documents.
D. Borrowers own all of the property, assets, and rights purported to be owned
by each of them.
E. Lender will receive no interest, charges, fees or other benefits or
compensation in the nature of interest in connection with the Facility other
than those that Borrowers have agreed in writing in the Credit Agreement to pay.
F. Lender is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization and has the requisite power and
authority to enter into and consummate the Facility. The execution, delivery
and/or acceptance of the Credit Agreement has been duly authorized by all
action, corporate or otherwise, by Lender. The Facility does not violate any
laws or regulations governing the activities of Lender. Lender has obtained all
necessary consents, authorizations, approvals, permits or certificates
(governmental and otherwise) that are required as a condition to the execution
and delivery of the Credit Agreement by it and to the consummation by Lender of
the transactions contemplated by the Credit Agreement. The Credit Agreement,
when executed and delivered by Lender, shall constitute the legal, valid and
binding obligations of Lender and shall be enforceable against Lender in
accordance with its terms.
G. Lender will act in a commercially reasonable manner in enforcing its rights
under the Credit Agreement.
Based upon the foregoing assumptions, and subject to the further limitations and
qualifications set forth below, we are of the opinion that:
(i) MarineMax and Dealer are each duly organized, validly existing and in good
standing under the laws of the State of Delaware and are qualified to do
business as a foreign corporation and in good standing under the laws of each
other jurisdiction in which the conduct of its affairs or the ownership of its
assets requires such qualification, unless the failure to so qualify in such
jurisdiction would have no material and adverse effect on the business or
financial condition of Borrowers taken as a whole.
(ii) The execution, delivery, and performance of the Loan Documents by Borrowers
have been duly authorized by all requisite action on the part of Borrowers and
the Loan Documents have been duly executed and delivered by Borrowers.
(iii) Each of the Borrowers has the requisite corporate power and authority (a)
to own and operate its properties and assets, (b) to carry out its business as
currently being conducted, and (c) to carry out the terms and conditions
applicable to it under the Credit Agreement.
(iv) The execution and delivery of the Credit Agreement and consummation of the
Facility by Borrowers will not conflict with or result in a violation of any of
Borrowers respective Certificates of Incorporation or Bylaws.
<PAGE> 37
(v) Based solely upon our knowledge and the Certificates, except as disclosed on
Schedule 4(j) to the Credit Agreement, there are no pending litigation or other
legal proceedings against Borrowers that if adversely determined, would have a
material adverse effect on the business or financial condition of Borrowers
taken as a whole, or would have a material adverse effect on the ability of
Borrowers to perform their obligations under the Credit Agreement.
(vi) The execution and delivery of the Loan Documents and consummation of the
Facility by the Borrowers will not materially conflict with or result in a
material violation of any applicable law or rule affecting either of the
Borrowers.
(vii) Based solely upon our knowledge and the Certificates, the execution and
delivery of the Loan Documents and consummation of the Facility by Borrowers
will not materially conflict with or result in a material violation of any
judgment, order, or decree of any court or governmental agency to which either
of the Borrowers is a party.
(viii) Based solely upon our knowledge and the Certificates, the execution and
delivery of the Loan Documents, and consummation of the Facility by Borrowers
(a) will not conflict with or result in a material violation of any contract,
indenture, instrument or other agreement to which MarineMax or Dealer is a party
or by which it is bound, and (b) will not result in or require the creation or
imposition of any material lien or security interest upon or with respect to any
of the properties or assets of MarineMax or Dealer (other than liens and
security interests created pursuant to the transactions contemplated by the
Credit Agreement).
(ix) No material consent, approval, authorization, or other action by, or filing
with, any federal, state, or local governmental authority is required in
connection with the execution and delivery by Borrowers of the Loan Documents
and the consummation of the Facility, or, if any of the foregoing is required,
it has been obtained.
(x) You have requested that we advise you whether an Arizona court would give
effect to the choice of law provisions in the Credit Agreement in favor of the
law of the State of Ohio. The Supreme Court of Arizona has consistently ruled
that where it is not bound by a previous decision or by legislative enactment,
it will follow the rules of the Restatement of the Law, including, without
limitation, the Restatements of Conflict of Laws. Smith v. Normart, 51 Ariz.
134, 75 P.2d 38 (1938); Western Coal & Min. Co. v. Hilvert, 63 Ariz. 171, 160
P.2d 331 (1945); Burr v. Renewal Guaranty Corp., 105 Ariz. 549, 468 P.2d 576
(1970); Cardon v. Cotton Lane Holdings, Inc., 173 Ariz. 203, 841 P.2d 198
(1992); Taylor v. Security National Bank, 20 Ariz. App. 504, 514 P.2d 257
(1973); and In re Levine, 145 Ariz. 185, 700 P.2d 883 (Ariz. App. 1985). Section
187 of the Restatement (Second) Conflict of Laws provides that the parties to a
contract may stipulate their choice of law to govern a contract and that the
laws of the state chosen will be applied unless (a) the particular issue is one
that the parties could not have resolved by an explicit provision in their
agreement directed to that issue and (b) either:
(a) The chosen state has no substantial relationship to the parties or
the transaction and there is no other reasonable basis for the parties' choice;
or
(b) Application of the law of the chosen state would be contrary to a
fundamental policy of a state that has a materially greater interest than the
chosen state in the determination of the particular issue and that, under the
rule of Section 188 of the Restatement (Second) Conflict of Laws, would be a
state of applicable law in the absence of an effective choice of law by the
parties.
Based on the facts concerning the negotiation of the Credit Agreement
and the terms thereof and considering such other matters as we have deemed
relevant, we believe that an Arizona court would give effect to the choice of
law provisions in the Credit Agreement in favor of the law of the State of Ohio.
(xi) The Credit Agreement constitutes the legal, valid, and binding obligations
of Borrowers enforceable against each of them in accordance with their
respective terms.
<PAGE> 38
The opinions set forth above are subject to the following qualifications and
limitations:
a. The enforceability of the Credit Agreement may be subject to or limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, arrangement,
moratorium, or other similar laws relating to or affecting the rights of
creditors generally.
b. The enforceability of the Credit Agreement is subject to general principles
of equity and unconscionability.
c. The enforceability of the Credit Agreement is further subject to the
qualification that certain waivers, procedures, remedies, and other provisions
of the Credit Agreement may be unenforceable under, or limited by the law of,
the State of Arizona; however, such law does not, in our opinion, substantially
prevent the practical realization of the benefits intended by the Credit
Agreement, except that the application of principles of guaranty and suretyship
may prevent the practical realization of the benefits intended by the Credit
Agreement.
d. We express no opinion as to the title to any property described in, or the
priority of any lien or security interest created by, the Loan Documents.
e. The Credit Agreement states it is to be governed by the laws of the State of
Ohio. We are not familiar with those laws and render no opinion about them. For
purposes of our opinion, we have assumed, with your permission, that the Credit
Agreement will be governed by the laws of the State of Arizona, notwithstanding
its express terms.
f. The opinions expressed in paragraph (i) above are based solely on our review
of the Official Certificates.
g. We assume that the Financing Statement will be properly filed or recorded in
the appropriate governmental offices.
For purposes of this Opinion, the phrase "knowledge" shall mean the conscious
awareness of information by any Primary Lawyer (as defined below), without
undertaking any other investigation within this Firm. The term "Primary Lawyer"
means each lawyer in this Firm who has given substantive legal attention to
representation of Borrowers.
We are qualified to practice law in the State of Arizona, and we do not express
any opinion as to any law other than the law of the State of Arizona, the
Delaware General Corporation Law, and applicable federal law.
The opinions expressed in this letter are based upon the law in effect on the
date hereof, and we assume no obligation to revise or supplement this opinion
should such law be changed by legislative action, judicial decision, or
otherwise. Except as expressly stated in this opinion, no opinions are offered
or implied as to any matter, and no inference may be drawn beyond the strict
scope of this opinion.
This opinion is being furnished to you solely for your benefit and only with
respect to the transactions contemplated by the Credit Agreement. Accordingly,
it may not be relied upon by, or quoted, to any person or entity, other than
you, without, in each instance, our prior written consent; provided, however,
that you are permitted to provide copies of this opinion to any regulatory
authority holding jurisdiction over you.
Very truly yours,
<PAGE> 39
SCHEDULE A
Official Certificates
Certificate of Good Standing for MarineMax, Inc., issued January 29, 1999, by
the Secretary of State of the State of Delaware.
Certificate of Good Standing of MarineMax, Inc., issued February 4, 1999, by the
Secretary of State of the State of Florida.
Certificate of Good Standing for MarineMax Motor Yachts, Inc., issued February
17, 1999, by the Secretary of State of the State of Delaware.
Certificate of Good Standing for MarineMax Motor Yachts, Inc., issued February
17, 1999, by the Secretary of State of the State of Florida.
<PAGE> 40
SCHEDULE 4(e)
PERMITTED LIENS
(i) Liens to secure payment of taxes which are not yet due and
payable or which are being contested in good faith.
(ii) Deposits under workmen's compensation, unemployment insurance,
social security and other similar laws, or to secure statutory
or performance bonds in the ordinary course of business.
<PAGE> 41
SCHEDULE 4(j)
PENDING OR THREATENED ACTIONS, SUITS OR PROCEEDINGS
None.
<PAGE> 42
SCHEDULE 4(r)
PLACES OF BUSINESS AND MAINTENANCE OF INVENTORY
<TABLE>
<CAPTION>
Address City State Zip Code
- ------- ---- ----- --------
<S> <C> <C> <C>
700 South Federal Highway Pompano Beach FL 33062
700 N.E. 79th Street Miami FL 33138
350 S.W. Monterey Road Stuart FL 34994
139 Shore Court North Palm Beach FL 33408
275 S.W. Monterey Road Stuart FL 34994
2301 S.E. 17th Street Ft. Lauderdale FL 33316
300 Alton Road Miami Beach FL 33138
18025 U.S. 19 North Clearwater FL 33764
14070 McGregor Boulevard Ft. Myers FL 33919
1146 6th Avenue South Naples FL 33940
</TABLE>
<PAGE> 43
SCHEDULE 4(s)
LOCATION
MarineMax, Inc.
18167 U.S. Highway 19 North
Clearwater, Florida 33764
MarineMax Motor Yachts, Inc.
700 South Federal Highway
Pompano, Florida 33062
<PAGE> 44
SCHEDULE 4(u)
MARINEMAX SUBSIDIARIES
<TABLE>
<CAPTION>
LOCATION OF TYPE & PERCENTAGE
NAME & ADDRESS TYPE OF ORGANIZATION ACTIVITIES OF OWNERSHIP
- -------------- -------------------- ---------- ------------------
<S> <C> <C> <C>
Bassett Boat Company of Florida, Inc.
700 South Federal Highway
Pompano Beach, FL 33062 Florida corporation Florida 100% of the capital stock
owned by Company
Gulfwind South, Inc.
14070 McGregor Blvd.
Ft. Myers, FL 33919 Florida corporation Florida 100% of the capital stock
owned by Company
Gulfwind USA, Inc.
18025 U.S. 19th North
Clearwater, FL 33764 Florida corporation Florida 100% of the capital stock
owned by Company
MarineMax of Brevard County, Inc.
1410 King Street
Cocoa, FL 32922 Delaware corporation Florida 100% of the capital stock
owned by Company
Cochrans Marine, Inc.
N. Hwy. 371
P.O. Box 518
Walker, MN 56484 Minnesota corporation Minnesota 100% of the capital stock
owned by Company
C&N Marine Corporation
20300 County Road 81
P.O. Box 250
Rogers, MN 55374 Minnesota corporation Minnesota 100% of the capital stock
owned by Company
Stovall Marine, Inc.
5840 I-75 South
Forest Park, GA 30297 Georgia corporation Georgia 100% of the capital stock
owned by Company
</TABLE>
<PAGE> 45
<TABLE>
<CAPTION>
LOCATION OF TYPE & PERCENTAGE
NAME & ADDRESS TYPE OF ORGANIZATION ACTIVITIES OF OWNERSHIP
- -------------- -------------------- ---------- ------------------
<S> <C> <C> <C>
MarineMax of Treasure Cove, Inc.
2555 N.E. Catawba Road
Port Clinton, OH 43452 Delaware corporation Ohio 100% of the capital stock
owned by Company
MarineMax of North Carolina, Inc.
130 Short Street
Wrightsville Beach, NC 28480 North Carolina corporation North Carolina 100% of the capital stock
owned by Company
MarineMax Motor Yachts, Inc.
2301 S.E. 17th Street
Ft. Lauderdale, FL 33316 Delaware corporation Florida 100% of the capital stock
owned by Company
MarineMax of New Jersey, Inc.
18167 U.S. 19 N.
Suite 499
Clearwater, FL 33764 Delaware corporation New Jersey 100% of the capital stock
owned by Company
MarineMax of New Jersey II, Inc.
18167 U.S. 19 N.
Suite 499
Clearwater, FL 33764 Delaware corporation New Jersey & 100% of the capital stock
Pennsylvania owned by Company
Harrison's Boat Center, Inc.
1928 Twin View Blvd.
Redding, CA 96003 California corporation California 100% of the capital stock
owned by Company
Harrison's Marine Centers of Arizona, Inc.
1840 East Broadway Road
Tempe, AZ 85282 Arizona corporation Arizona 100% of the capital stock
owned by Company
MarineMax of Las Vegas, Inc.
3800 Boulder Highway
Las Vegas, NV 89121 Delaware corporation Nevada 100% of the capital stock
owned by Company
</TABLE>
<PAGE> 46
<TABLE>
<CAPTION>
LOCATION OF TYPE & PERCENTAGE
NAME & ADDRESS TYPE OF ORGANIZATION ACTIVITIES OF OWNERSHIP
- -------------- -------------------- ---------- ------------------
<S> <C> <C> <C>
11502 Dumas, Inc.
2551 S. Shore Harbour Blvd., Suite C
League City, TX 77573 Nevada corporation Texas 100% of the capital stock
owned by Company
Dumas GP, L.L.C.
2551 S. Shore Harbour Blvd., Suite C
League City, TX 77573 Delaware limited liability company Texas 100% of the membership
interests owned by
11502 Dumas, Inc.
MarineMax TX, L.P.
2551 S. Shore Harbour Blvd., Suite C
League City, TX 77573 Texas limited partnership Texas 99% of the partnership
units owned by 11502
Dumas, Inc. and 1% of the
partnership units owned
by Dumas GP, L.L.C.
Bassett Boat Company
275 S.W. Monterey Road
Stuart, FL 34994 Florida corporation Florida 100% of the capital stock
owned by Company
Dumas GP, Inc.
18167 U.S. Highway 19 N.
Suite 499
Clearwater, FL 33764 Nevada corporation 100% of the capital stock
owned by Company
MarineMax of Jacksonville, Inc.
18167 U.S. Highway 19 N.
Suite 499
Clearwater, FL 33764 Delaware corporation 100% of the capital stock
owned by Company
MarineMax USA, Inc.
18167 U.S. Highway 19 N.
Suite 499
Clearwater, FL 33764 Nevada corporation 100% of the capital stock
owned by Company
Bassett Realty, L.L.C.
700 South Federal Highway
Pompano Beach, FL 33062 Delaware limited liability company Florida 100% of the membership
interests owned by Company
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
LOCATION OF TYPE & PERCENTAGE
NAME & ADDRESS TYPE OF ORGANIZATION ACTIVITIES OF OWNERSHIP
- -------------- -------------------- ---------- ------------------
<S> <C> <C> <C>
C & N Marine Realty, L.L.C.
20300 County Road 81
P.O. Box 250
Rogers, MN 55374 Delaware limited liability company Minnesota 100% of the membership
interests owned by
Company
Gulfwind South Realty, L.L.C.
1146 6th Avenue South
Naples, FL 33940 Delaware limited liability company Florida 100% of the membership
interests owned by
Company
Harrison's Realty California, L.L.C.
1928 Twin View Blvd.
Redding, CA 96003 Delaware limited liability company California 100% of the membership
interests owned by
Company
Harrison's Realty, L.L.C.
1840 East Broadway Road
Tempe, AZ 85085 Delaware limited liability company Arizona 100% of the membership
interests owned by
Company
Marina Drive Realty I, L.L.C.
N. Hwy. 371
P.O. Box 518
Walker, MN 56484 Delaware limited liability company Minnesota 100% of the membership
interests owned by
Company
Marina Drive Realty II, L.L.C.
N. Hwy. 371
P.O. Box 518
Walker, MN 56484 Delaware limited liability company Minnesota 100% of the membership
interests owned by
Company
Walker Marina Realty, L.L.C.
#1 Marina Drive
Walker, MN 56484 Delaware limited liability company Minnesota 100% of the membership
interests owned by
Company
</TABLE>
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF
MARINEMAX, INC.
<TABLE>
<CAPTION>
STATE OF INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
- -------------- --------------------
<S> <C>
Bassett Boat Company of Florida, Inc. Florida
Gulfwind South, Inc. Florida
Gulfwind USA, Inc. Florida
MarineMax of Brevard County, Inc. Delaware
Cochrans Marine, Inc. Minnesota
C&N Marine Corporation Minnesota
Stovall Marine, Inc. Georgia
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATE OF INCORPORATION OR ORGANIZATION
- ------------------ --------------------------------------
<S> <C>
MarineMax of Treasure Cove, Inc. Delaware
MarineMax of North Carolina, Inc. North Carolina
MarineMax Motor Yachts, Inc. Delaware
MarineMax of New Jersey, Inc. Delaware
MarineMax of New Jersey II, Inc. Delaware
Harrison's Boat Center, Inc. California
Harrison's Marine Centers of Arizona, Inc. Arizona
MarineMax of Las Vegas, Inc. Delaware
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
STATE OF INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
- ------------------ --------------------
<S> <C>
11502 Dumas, Inc.
Nevada
Dumas GP, L.L.C.
Delaware
MarineMax TX, L.P.
Texas
Bassett Boat Company
Florida
Dumas GP, Inc.
Nevada
MarineMax of Jacksonville, Inc.
Delaware
MarineMax USA, Inc.
Nevada
Bassett Realty, L.L.C.
Delaware
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATE OF INCORPORATION OR ORGANIZATION
- ------------------ --------------------------------------
<S> <C>
C & N Marine Realty, L.L.C. Delaware
Gulfwind South Realty, L.L.C. Delaware
Harrison's Realty California, L.L.C. Delaware
Harrison's Realty, L.L.C. Delaware
Marina Drive Realty I, L.L.C. Delaware
Marina Drive Realty II, L.L.C. Delaware
Walker Marina Realty, L.L.C. Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.1
[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Registration Statement File Nos. 333-63307 and 333-85835.
/s/ Arthur Andersen LLP
Tampa, Florida,
December 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This exhibit contains summary financial information extracted from the
Registrant's financial statements for the period ended September 30, 1999 and is
qualified in its entirety by reference to such financial statements. This
exhibit shall not be deemed filed for purposes of Section 11 of the Securities
and Exchange Act of 1933 and Section 18 of the Securities and Exchange Act of
1934, or otherwise subject to the liability of such Sections, nor shall it be
deemed a part of any other filing which incorporates this report by reference,
unless such other filing expressly incorporates this Exhibit by reference.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 8,297,086
<SECURITIES> 0
<RECEIVABLES> 14,841,966
<ALLOWANCES> 0
<INVENTORY> 137,785,691
<CURRENT-ASSETS> 163,864,007
<PP&E> 47,086,077
<DEPRECIATION> 9,305,919
<TOTAL-ASSETS> 235,751,296
<CURRENT-LIABILITIES> 135,511,523
<BONDS> 7,520,174
0
0
<COMMON> 62,873,892
<OTHER-SE> 27,359,480
<TOTAL-LIABILITY-AND-EQUITY> 235,751,296
<SALES> 450,058,386
<TOTAL-REVENUES> 450,058,386
<CGS> 338,403,200
<TOTAL-COSTS> 338,403,200
<OTHER-EXPENSES> 79,484,482
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,039,945
<INCOME-PRETAX> 30,130,759
<INCOME-TAX> 11,978,155
<INCOME-CONTINUING> 18,152,604
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,152,604
<EPS-BASIC> 1.21
<EPS-DILUTED> 1.21
</TABLE>
