<PAGE> 1
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, 2000
COMMISSION FILE NUMBER 1-14173
-------------------
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 (8,175,137 shares) based on the closing price of the registrant's
Common Stock as reported on the New York Stock Exchange on December 20, 2000,
was $39,853,793. 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 20, 2000, there were outstanding 15,264,038 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 2001 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
Report.
<PAGE> 2
MARINEMAX, INC.
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
PAGE
<S> <C>
ITEM 1. BUSINESS .............................................................................. 1
ITEM 2. PROPERTIES ............................................................................ 26
ITEM 3. LEGAL PROCEEDINGS ..................................................................... 28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ................................... 28
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ............. 29
ITEM 6. SELECTED FINANCIAL DATA ............................................................... 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS, AND RESULTS OF OPERATIONS 31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ............................ 35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ........................................... 35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE .. 35
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT .................................... 36
ITEM 11. EXECUTIVE COMPENSATION ................................................................ 36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ........................ 36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ........................................ 36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ...................... 36
SIGNATURES ..................................................................................... 38
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ..................................................... F-1
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
INTRODUCTION
THE COMPANY
We are the largest recreational boat dealer in the United States.
Through 52 retail locations in Arizona, California, Delaware, Florida, Georgia,
Minnesota, Nevada, New Jersey, North Carolina, Ohio, South Carolina, Texas, and
Utah, 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 and yacht brokerage services.
We are the nation's largest retailer of Sea Ray, Boston Whaler, and
Hatteras Yachts. Brunswick Corporation is the world's largest manufacturer of
recreational boats, including Sea Ray and Boston Whaler. Sales of new Brunswick
boats accounted for 82% of our new boat sales in fiscal 2000, which we believe
represented approximately 30% of all new Sea Ray boat sales and approximately 8%
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.
In October 1998, we formed a new subsidiary, MarineMax Motor Yachts,
Inc. (Motor Yachts), and entered into a Dealership Agreement with Hatteras
Yachts, a division of Genmar Industries, Inc. The agreement gives us the right
to sell Hatteras Yachts throughout the state of Florida (excluding the Florida
Panhandle) and the U.S. distribution rights for Hatteras products over 82 feet.
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 11 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 $14 million in annual sales in fiscal
2000. As a result of our emphasis on premium brand boats, our average selling
price for a new boat in fiscal 2000 was approximately $73,000 compared to the
estimated industry average selling price of approximately $21,000. For the
fiscal year ended September 30, 2000, we had revenue of approximately $550
million, operating income of approximately $39.1 million, and net income of
approximately $21.4 million. Our same-store sales increased by approximately 20%
in fiscal 2000 and have increased an average of 19% 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 on many models,
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 $23.0 billion
in retail sales in calendar 1999, 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, and trailers, and accessories accounted for
approximately $10.3 billion of these sales in 1999. 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.
1
<PAGE> 4
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 11 recreational boat dealers and two brokerage operations acquired
to date (the "operating subsidiaries" or the "acquired dealers").
STRATEGY
Our goal is to enhance our position as the nation's leading retailer of
recreational boats. Key elements of our operating and growth strategies include
the following:
- emphasizing customer satisfaction and loyalty by creating an
overall enjoyable boating experience beginning with the
negotiation-free purchase process, two years of free
maintenance on many models, 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;
- expanding our Internet retail operations and marketing;
- promoting national brand name recognition and our North-South
connection;
- operating with a decentralized approach to the operational
management of our dealerships; and
- utilizing technology throughout operations.
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
10 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>
<CAPTION>
ACQUIRED DEALERS ACQUISITION DATE BUSINESS
---------------- ----------------- --------
<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 seven retail locations in Lewisville
(Dallas), League City, and Houston, Texas
Gulfwind USA, Inc. March 1998 Operates two retail locations in Clearwater and
Tampa, Florida
Gulfwind South, Inc. March 1998 Operates two retail locations in Fort Myers and
Naples, Florida
</TABLE>
2
<PAGE> 5
<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, Santa
Marine Centers of Arizona, Inc. 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 six retail locations in Rogers, Walker,
Corporation Oakdale, and Woodbury, Minnesota
Sea Ray of North Carolina, 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 yacht 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 two retail locations in Bear, Delaware
and Brick, New Jersey
Hansen Marine, Inc. August 1999 Operates one combined yacht brokerage and retail
sales operation headquartered in Jacksonville,
Florida
Duce Marine, Inc. December 1999 Operates one retail location in Salt Lake City,
Utah
Clark's Landing, Inc. (selected New April 2000 Operates four retail locations in Delran,
Jersey locations/operations) Greenbrook, Jersey City, and Lake Hopatcong, New
Jersey
</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 82 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.
3
<PAGE> 6
BUSINESS
GENERAL
We are the largest recreational boat dealer in the United States.
Through 52 retail locations in Arizona, California, Delaware, Florida, Georgia,
Minnesota, Nevada, New Jersey, North Carolina, Ohio, South Carolina, Texas, and
Utah, 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 and yacht financing, insurance, and extended service contracts;
provide repair and maintenance services; and offer boat and yacht 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 82% of our new
boat sales in fiscal 2000, which we believe represented approximately 30% of all
new Sea Ray boat sales and approximately 8% 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 $23.0
billion in revenue in calendar 1999, 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 $10.3 billion of such
sales in 1999. 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 and wealth 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 of our consumers are in the 35 to 54 age group. Although this age
group accounts 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 offer the customer a thorough
in-water orientation of boat operation, where available, 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
4
<PAGE> 7
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. As an
example, we have implemented the MarineMax Value-Price sales approach at each 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 our 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. By centralizing these types of
activities, our store managers have more time to focus on the customer and the
development of their teams.
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, leadership, and human resources.
Opening New Facilities. We intend to continue 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 14 new retail facilities 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. We
continually monitor the performance of our retail locations and close retail
locations that do not meet our expectations or that were opened for a specific
purpose that is no longer relevant. Since March 1998, we have closed 8 retail
locations.
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; Hattaras, Supra, and Azimut product
lines in fiscal 1999; and Sport-Craft product lines in fiscal 2000. In addition,
we plan to increase our used boat sales and yacht brokerage services through an
increased emphasis on these activities, cooperative efforts among our
dealerships, and the use of the Internet. 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,
5
<PAGE> 8
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."
Utilization of the Internet. Our web initiative, MarineMax.com,
provides customers with the ability to learn more about our company and our
products. It has led to the direct sales of multiple new and used boats,
yielding revenue exceeding $15.0 million, since its initial date of promotion in
April 1999. We are enhancing our web presence and related marketing. We have a
one-year agreement with Bid.com, a leading internet based auction provider, to
facilitate the auction of used boats on our website. This initiative is the
first known auction format to focus on boats in the marine industry. We also
plan to expand our ability to offer financing and insurance products on our
website and enhance the marketing of our website.
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, our signage
emphasizes the MarineMax name at each of our locations, and we have increased
our national advertising in various print and other media.
Operating with Decentralized Management. We maintain a generally
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 and
the customers.
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 nine 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, 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. In fiscal 2000, we
deployed a web-based tool that allows our managers to access essentially all
financial and operational data from anywhere at anytime. This tool has increased
the efficiency of our managers and we expect it to lead to greater operating
improvements.
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
6
<PAGE> 9
arrange related boat financing, insurance, and extended service contracts;
provide boat maintenance and repair services; and offer boat brokerage services.
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 2000, approximately 82% 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 8% 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 2000, new boat sales accounted for approximately
73% 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 2000 average new boat sales price of approximately $73,000 compared
to our estimated industry average selling price of approximately $21,000. 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 is illustrative of the range of new boats that we
offer but is not all inclusive:
<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 63' 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.................................. 7 51' to 68' 950,000 to 3,100,000
Sea Ray Sport Yachts............................ 9 38' to 48' 360,000 to 950,000
Sea Ray Sport Cruisers.......................... 9 26' to 34' 65,000 to 230,000
Sea Ray Sport Boats............................. 15 18' to 26' 18,000 to 81,500
FISHING BOATS
Boston Whaler................................... 17 12' to 34' 5,000 to 360,000
Sea Pro......................................... 24 17' to 26' 11,000 to 67,500
Sea Hunt........................................ 10 17' to 21' 14,000 to 23,000
HIGH-PERFORMANCE BOATS
Baja Marine..................................... 19 18' to 44' 22,000 to 280,000
</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 63 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
instrumentation that may include an electronics package; various hull,
7
<PAGE> 10
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. Most Sea Ray
pleasure boats feature Mercury or MerCruiser engines.
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.
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 58% of the used boats we sold in fiscal 2000 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 Woods &
Oviatt and Hansen Marine yacht 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. We recently entered into an
agreement with Bid.com International Inc. under which we will sell used boats on
our website using Bid.com's top-bid auction-format technology. Under the
arrangement, we plan to conduct regularly scheduled on-line auction events.
In 1998, we introduced at our retail locations the Sea Ray Legacy(TM)
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 for up to three years. 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. 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 manufacturers or dealer's logo.
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
8
<PAGE> 11
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 on many models. 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 2000, F&I products accounted for approximately 2.4% 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 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.
9
<PAGE> 12
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 and paid for by the third party contract holder.
Brokerage Services
Through employees or subsidiaries that are licensed boat or yacht
brokers, we offer boat or yacht brokerage services at most of our retail
locations. For a commission, we offer for sale brokered boats or yachts, 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 or yacht 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 or yachts is more extensive
than is typical among brokers. In addition to generating revenue from brokerage
commissions, our brokerage services also enable us to offer a broad array of
used boats or yachts without increasing related inventory costs.
Our brokerage customers generally 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 repair services, including mobile service, also is generally
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 brokerage business.
RETAIL LOCATIONS
We sell our recreational boats and other marine products and offer our
related boat services through 52 retail locations in Arizona, California,
Delaware, Florida, Georgia, Minnesota, Nevada, New Jersey, North Carolina, Ohio,
South Carolina, Texas, and Utah. 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 maintenance and repair
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, the Delaware River, the Hudson River, Lake Hopatcong, 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 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
one mall store and three floating retail facilities. See "Properties."
10
<PAGE> 13
OPERATIONS
Dealership Operations and Management
We have adopted a generally 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 maintain a formal training
program, called MarineMax University or "MMU," which provides 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.
Each retail location offers the 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, including two years of
free maintenance on many models. 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
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
11
<PAGE> 14
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, and Sport-Craft 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 2000
fiscal year. In fiscal 2000, approximately 82% of our new boat sales were from
Brunswick and approximately 12% of our new boat sales were from Hatteras Yachts.
No other manufacturer accounted for a significant portion of our net purchases
in fiscal 2000. 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 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, 2000, we owed an aggregate of approximately $72.1 million
under our revolving lines of credit. As of September 30, 2000, the lines of
credit provided us with a maximum borrowing capacity of $235 million. Advances
on the lines accrued interest at a weighted average rate of 8% as of September
30, 2000. The lines of credit mature in April 2001 through December 2002.
12
<PAGE> 15
The availability of loan advances from time to time is based upon the value of
new and used boat inventories, parts, and accounts receivable of our direct and
indirect subsidiaries. Advances may be used for acquisition of inventories,
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 nine 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 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 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.
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 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
13
<PAGE> 16
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 specified 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, 2000, we had 998 employees, 965 of whom were in
store-level operations and 33 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.
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, 2000, the
average net sales for the quarters ended December 31, March 31, June 30, and
September 30 represented 17%, 23%, 34%, and 26%, 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 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.
14
<PAGE> 17
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 has various 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.
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.
15
<PAGE> 18
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 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. ........... 56 Chairman of the Board, Chief Executive Officer, and
Director
Richard R. Bassett............... 47 President and Director
David L. Cochran................. 54 Senior Vice President, Chief Operating Officer
Michael H. McLamb................ 35 Vice President, Chief Financial Officer, Secretary, and Treasurer
Paul Graham Stovall.............. 62 Senior Vice President and Director
David H. Pretasky................ 51 Senior Vice President
</TABLE>
William H. McGill Jr. has served as the 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 served as the President
of our company from January 1988 until September 8, 2000. Mr. McGill was the
principal owner and president of Gulfwind USA, Inc., one of the operating
subsidiaries, from 1973 until its merger with us.
Richard R. Bassett has served as President of our company since
September 8, 2000 and a director of our company since March 6, 1998. Mr. Bassett
served as Executive Vice President of our company from October 1, 1998 until
September 8, 2000 and 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.
16
<PAGE> 19
David L. Cochran has served as a Senior Vice President of our company
since October 1, 1998 and as Chief Operating Officer of our company since
September 8, 2000. 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.
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.
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 H. Pretasky has served as Senior Vice President 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.
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 11 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 82% of our new boat
revenue in fiscal 2000 resulted from sales of products manufactured by
Brunswick, including 79% from Brunswick's Sea Ray division. Approximately 12% of
our new boat revenue in fiscal 2000 resulted from sales of products manufactured
by Hatteras Yachts. The remainder of our fiscal 2000 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
17
<PAGE> 20
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. Each dealer agreement 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
- 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 annual 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, and
stock market performance 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.
18
<PAGE> 21
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 and 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 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
19
<PAGE> 22
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.
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 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.
Our current credit facilities provide for borrowings of up to
approximately $235 million, subject to a borrowing base formula. We believe
these credit facilities will be sufficient for our currently anticipated needs
and reflect competitive terms
20
<PAGE> 23
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.
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 our 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
existing dealers; 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, and 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, 2000, the average net sales for
the quarterly periods ended December 31, March 31, June 30, and September 30
represented 17%, 23%, 34%, and 26%, 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.
21
<PAGE> 24
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 highly
fragmented, resulting in intense competition for customers, product distribution
rights, 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 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 2000, F&I products accounted for
approximately 2.4% 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 an 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
22
<PAGE> 25
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 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 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
23
<PAGE> 26
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,
2000, our acquisitions that have been accounted for as purchases have resulted
in goodwill of approximately $40.2 million, which we are amortizing over a
period of 40 years. An impairment in the goodwill or regulatory action that
limits the life of goodwill may materially and adversely affect the financial
position of our company.
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. During fiscal 2000, we purchased from Mr. Bassett, a director and
executive officer of our company, land for the purpose of constructing a retail
sales operation. We paid Mr. Bassett $3.0 million for the property, which was
equal to the appraised fair market value of the property. 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 39.6% of the issued and outstanding
shares of our common stock, exclusive of options to acquire 519,665 additional
shares of our common stock. As a result of this ownership, these persons 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,
24
<PAGE> 27
- the level and success of our acquisition program and new store
openings,
- 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, 2000, there were outstanding 15,221,780 shares of
our common stock. Of these shares, 3,042,613 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 12,221,425 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, 2000, we had issued options to purchase
approximately 2,273,539 shares of common stock under our 1998 incentive stock
plan and 109,639 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.
25
<PAGE> 28
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, Inc. 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.
ITEM 2. PROPERTIES
We lease our corporate offices in Clearwater, Florida and additional
administrative, and warehouse facilities in Texas. We also lease 37 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 15
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)
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
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
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
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
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
Forest Park (Atlanta).. Affiliate 47,300 Retail and service 1973 --
lease
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
Brainerd (mall store).. Third-party 8,500 Retail only 2000 --
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
Brick.................. Company owned 20,000 Retail and service; 225 1977 Manasquan River
wet slips
Brant Beach............ Third-party 3,800 Retail and service; 36 wet 1965 Barnegat Bay
lease slips
Delran................. Third-party 5,100 Retail, service, and 1990 Delaware River
lease storage; 335 slips
Greenbrook............. Third-party 18,500 Retail and service 1995 --
lease
Jersey City............ Third-party 500 Retail only; 6 wet slips 2000 Hudson River
lease
Lake Hopatcong......... Third-party 4,600 Retail and service; 80 wet 1998 Lake Hopatcong
lease slips
Ship Bottom............ Third-party 19,300 Retail and service 1972 --
lease
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
SOUTH CAROLINA
Myrtle Beach........... Third-party 500 Retail only 1999
lease Coquina Harbor
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
UTAH
Salt Lake City......... Third-party 21,200 Retail and service 1975 --
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.
27
<PAGE> 30
(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.
28
<PAGE> 31
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
</TABLE>
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1999
FIRST QUARTER..................................................... $12.75 $ 8.00
SECOND QUARTER.................................................... $12.13 $ 10.63
THIRD QUARTER..................................................... $12.00 $ 9.38
FOURTH QUARTER.................................................... $ 9.81 $ 8.50
</TABLE>
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
2000
FIRST QUARTER..................................................... $11.00 $9.25
SECOND QUARTER.................................................... $ 9.94 $7.00
THIRD QUARTER..................................................... $ 8.13 $6.75
FOURTH QUARTER (THROUGH DECEMBER 20, 2000)........................ $ 6.75 $4.88
</TABLE>
On December 20, 2000, the closing sale price of our common stock was
$4.88 per share. On December 20, 2000, there were approximately 90 record
holders and approximately 2,600 beneficial owners of our common stock.
(1) Approximate market value at acquisition date used for determining purchase
price allocation.
29
<PAGE> 32
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, 1999, and 2000 and the Statements of
Operations Data for the fiscal year ended December 31, 1996, the nine months
ended September 30, 1997, and the fiscal years ended September 30, 1998, 1999,
and 2000 were derived from the Consolidated Financial Statements and notes
thereto that have been audited by Arthur Andersen LLP, independent certified
public accountants. The Statement of Operations Data for the nine months ended
September 30, 1996 has been derived from the unaudited financial statements of
our company, which we believe have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting of normal
recurring adjustments, which we consider 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>
YEAR ENDED NINE MONTHS ENDED FISCAL YEAR ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
------------ ---------------------- --------------------------------------
1996 1996 1997 1998 1999 2000
------------ --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(In thousands, except share
and per share data)
STATEMENT OF OPERATIONS DATA:
Revenue...................................... $ 197,609 $ 156,611 $ 200,414 $ 291,182 $ 450,058 $ 550,654
Cost of sales................................ 149,948 117,514 150,479 220,364 338,403 419,080
--------- --------- --------- ----------- ----------- -----------
Gross profit................................. 47,661 39,097 49,935 70,818 111,655 131,574
Selling, general, and administrative
expenses..................................... 38,650 25,378 30,388 52,479 79,484 92,520
Non-recurring settlement(1).................. -- -- -- 15,000 -- --
--------- --------- --------- ----------- ----------- -----------
Income from operations....................... 9,011 13,719 19,547 3,339 32,171 39,054
Interest expense, net........................ 1,823 1,453 1,806 2,212 2,040 4,127
--------- --------- --------- ----------- ----------- -----------
Income before tax provision (benefit)........ 7,188 12,266 17,741 1,127 30,131 34,927
Tax provision (benefit)...................... 42 661 596 1,705 11,978 13,534
--------- --------- --------- ----------- ----------- -----------
Net income (loss)............................ $ 7,146 $ 11,605 $ 17,146 $ (577) $ 18,153 $ 21,393
========= ========= ========= =========== =========== ===========
Net income (loss) per share: Diluted (2)..... $ (0.05) $ 1.21 $ 1.41
=========== =========== ===========
Weighted average number of shares: Diluted (2)............................................. 11,027,949 14,964,727 15,204,182
=========== =========== ===========
OTHER DATA:
Number of stores(3).................... 23 23 24 40 51 52
Sales per store(4)..................... $ 7,124 $ 7,027 $ 8,722 $ 11,269 $ 12,938 $ 14,056
Same-store sales growth(5)............. 14% 8% 28% 18% 18% 20%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30,
----------- --------------------------------------------------
1996 1997 1998 1999 2000
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital .................................. $ 8,560 $ 23,556 $ 29,080 $ 28,353 $ 40,853
Total assets ..................................... 82,312 89,591 150,458 235,751 231,330
Long-term debt (including current portion) ....... 1,438 7,414 3,692 7,520 6,280
Total stockholders' equity ....................... 12,885 23,298 66,335 90,234 112,340
</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, 1998, 1999 and 2000 only, as the per share
data for the other periods is not meaningful 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.
30
<PAGE> 33
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 2000 revenue exceeding $550 million. Through 52 retail locations in 13
states, we sell new and used recreational boats and related marine products,
including engines, trailers, parts, and accessories. We also arrange related
boat financing, insurance, and extended warranty contracts; provide boat repair
and maintenance services; and offer yacht or 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 9 additional boat
retailers, two yacht 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 $22.2
million in cash, resulting in an aggregate of $40.2 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, 2000 to the
fiscal year ended September 30, 1999 and the fiscal year ended September 30,
1999 to the fiscal year ended September 30, 1998 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 and yacht brokerage services. Revenue from boat or related marine
product sales, boat repair and maintenance services, and boat or yacht 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 labor, 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
31
<PAGE> 34
September 30, 1998, 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>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
-------------------- -------------------- ---------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 2000
-------------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue........................ $291,182 100.0% $450,058 100.0% $550,654 100.0%
Cost of sales.................. 220,364 75.7% 338,403 75.2% 419,080 76.1%
-------- -------- --------
Gross profit................... 70,818 24.3% 111,655 24.8% 131,574 23.9%
Selling, general, and
administrative expenses........ 52,479 18.0% 79,484 17.7% 92,520 16.8%
Non-recurring settlement....... 15,000 5.2% -- 0.0% -- 0.0%
-------- -------- --------
Income from operations......... 3,339 1.1% 32,171 7.2% 39,054 7.1%
Interest expense, net.......... 2,212 0.8% 2,040 0.5% 4,127 0.8%
-------- -------- --------
Income before tax provision.... $ 1,127 0.4% $ 30,131 6.7% $ 34,927 6.3%
======== ======== ========
</TABLE>
Fiscal Year Ended September 30, 2000 Compared to Fiscal Year Ended September 30,
1999
Revenue. Revenue increased $100.6 million, or 22.4%, to $550.7 million
for the fiscal year ended September 30, 2000 from $450.1 million for the fiscal
year ended September 30, 1999. Of this increase, $84.0 million was attributable
to 20% growth in comparable store sales in 2000 and $16.6 million was
attributable to stores not eligible for inclusion in the comparable store base.
The increase in comparable store sales in fiscal 2000 resulted primarily from
the continued training of employees through MarineMax University or MMU. MMU
teaches our core retailing values, which focus among other things on customer
service. We believe our training 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.
Gross Profit. Gross profit increased $19.9 million, or 17.8%, to $131.6
million for the fiscal year ended September 30, 2000 from $111.7 million for the
fiscal year ended September 30, 1999. Gross profit margin as a percentage of
revenue decreased from 24.8% to 23.9% from fiscal 1999 to 2000. The decrease was
due to an increase in our larger boat sales which historically result in lower
gross profits. Excluding our larger boat sales, gross profit was up modestly.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased approximately $13.0 million, or 16.4%, to
$92.5 million for the fiscal year ended September 30, 2000 from $79.5 million
for the fiscal year ended September 30, 1999. Selling, general, and
administrative expenses as a percentage of revenue decreased to 16.8% in fiscal
2000 from 17.7% in fiscal 1999. The decrease in selling, general and
administrative expenses as a percentage of revenue is attributable to our
ability to better leverage our infrastructure, including leverage associated
with an increase in our larger boat business.
Interest Expense, Net. Interest expense, net increased approximately
$2.1 million, or 102.3%, to $4.1 million for the fiscal year ended September 30,
2000 from $2.0 million for the fiscal year ended September 30, 1999. Interest
expense, net as a percentage of revenue increased to 0.8% in fiscal 2000 from
0.5% in fiscal 1999. The increase in total interest charges was the result of
increased interest rates associated with our inventory financing facilities.
32
<PAGE> 35
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 MMU. MMU teaches our core retailing
values, which focus among other things on customer service. We believe our
training 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.
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.
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 fiscal 1999 from
0.8% in fiscal 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.
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 we believe reflect all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of such quarterly financial information.
The operating results for any quarter are not necessarily indicative of
the results to be expected for any future period.
33
<PAGE> 36
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1998 1999 1999 1999 1999 2000 2000 2000
------------ ----------- ----------- ------------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue .............. $ 69,264 $ 93,482 $ 161,629 $ 125,683 $ 93,517 $ 155,240 $ 174,546 $ 127,350
Cost of sales ........ 52,678 70,940 123,692 91,093 72,775 122,461 131,924 91,920
------------ ----------- ----------- ------------- ------------ ----------- ----------- -------------
Gross profit ......... 16,586 22,542 37,937 34,590 20,742 32,779 42,622 35,430
Selling, general,
and administrative
expenses ........... 15,596 18,081 23,316 22,492 18,734 25,412 24,946 23,427
Income (loss) from
operations ......... 990 4,461 14,621 12,098 2,008 7,367 17,676 12,003
Interest expense
(income), net ...... 468 299 598 675 1,180 1,378 1,019 550
------------ ----------- ----------- ------------- ------------ ----------- ----------- -------------
Income (loss) before
tax provision ...... 522 4,162 14,023 11,423 828 5,989 16,657 11,453
Tax provision
(benefit) .......... 241 1,694 5,529 4,513 351 2,367 6,350 4,466
------------ ----------- ----------- ------------- ------------ ----------- ----------- -------------
Net income (loss) .... $ 281 $ 2,468 $ 8,494 $ 6,910 $ 477 $ 3,622 $ 10,307 $ 6,987
============ =========== =========== ============= ============ =========== =========== =============
Net income (loss)
per share:
Diluted ..... $ 0.02 $ 0.17 $ 0.56 $ 0.45 $ 0.03 $ 0.24 $ 0.68 $ 0.46
============ =========== =========== ============= ============ =========== =========== =============
Weighted average
number of shares:
Diluted ............ 14,601,634 14,781,986 15,238,110 15,242,996 15,180,211 15,192,732 15,218,620 15,221,780
============ =========== =========== ============= ============ =========== =========== =============
</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 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 years ended September 30, 1999 and 2000, we generated
cash flows from operating activities of approximately $15.1 million and $15.8
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, 1998, 1999, and 2000, cash
flows used in investing activities was approximately $10.8, $14.4 million and
$10.9, respectively. Cash used in investing activities 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 years ended September 30, 1999 and 2000, cash flows used
in financing activities approximated $0.2 million and $0.6 million,
respectively. For the fiscal year ended September 30, 1998 cash flows provided
by financing activities approximated $12.6 million. For the fiscal years ended
September 30, 1999 and 2000 cash used in financing activities was primarily
attributable to repayments on long-term debt. For the fiscal year ended
September 30, 1998, cash flows provided by financing activities reflect the
proceeds from our June 3, 1998 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, 2000, our indebtedness totaled approximately $78.4
million, of which approximately $6.3 million was associated with our real estate
holdings and $72.1 million was associated with financing our inventory and
working capital needs.
We maintain 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 143 basis points. Borrowings under the
Facilities are pursuant to a borrowing base
34
<PAGE> 37
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 July 2002.
Since March 1, 1998, we have acquired 11 additional boat dealers, two
yacht 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 $22.2 million in cash, resulting in an
aggregate of $40.2 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.
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
The year 2000 issue results from computer programs and hardware being
written with two digits rather than four digits to define the applicable year.
As a result, there is a risk that date sensitive software may recognize a date
using "00" as the year 1900, rather than the year 2000. This potentially could
result in system failure or miscalculations causing disruptions of operations,
including a temporary inability to process transactions or engage in normal
business activities.
The Company has experienced no year 2000 adverse effects on its
internal systems and is not aware of any involved in its supply chain, including
purchasing, distribution, sales, and accounting. Also, no errors were found
related to date processing before or after January 1, 2000.
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.
35
<PAGE> 38
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 2001 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 2001 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 2001 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>
36
<PAGE> 39
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
<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(5)
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
37
<PAGE> 40
(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 9, 1998.
(5) Incorporated by reference to Registrant's Form 10-K for the year ended
September 30, 1999, as filed on December 29, 1999.
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.
Date: December 26, 2000 MARINEMAX, INC.
/s/ William H. McGill Jr.
________________________________________________
William H. McGill Jr., Chairman of the Board
and Chief Executive Officer
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, and Chief December 26, 2000
_________________________ Executive Officer (Principal
William H. McGill Jr. Executive Officer)
/s/ Michael H. McLamb Vice President, Chief Financial December 26, 2000
_________________________ Officer, Treasurer, and Secretary
Michael H. McLamb (Principal Accounting and
Financial Officer)
/s/ Richard R. Bassett President and Director December 26, 2000
_________________________
Richard R. Bassett
/s/ Paul Graham Stovall Senior Vice President and Director December 26, 2000
_________________________
Paul Graham Stovall
/s/ Gerald Benstock Director December 26, 2000
_________________________
Gerald Benstock
/s/ Robert S. Kant Director December 26, 2000
_________________________
Robert S. Kant
/s/ R. David Thomas Director December 26, 2000
_________________________
R. David Thomas
</TABLE>
38
<PAGE> 41
<TABLE>
<S> <C> <C>
/s/ Stewart Turley Director December 26, 2000
_________________________
Stewart Turley
/s/ Dean S. Woodman Director December 26, 2000
_________________________
Dean S. Woodman
</TABLE>
39
<PAGE> 42
MARINEMAX, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
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
F-1
<PAGE> 43
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, 1999 and
2000, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended September
30, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of MarineMax, Inc. and
subsidiaries as of September 30, 1999 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2000, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Tampa, Florida,
October 18, 2000
F-2
<PAGE> 44
MARINEMAX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share and per share data)
<TABLE>
<CAPTION>
September 30, SEPTEMBER 30,
1999 2000
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .......................................... $ 8,297 $ 12,583
Accounts receivable, net ........................................... 14,842 18,845
Inventories ........................................................ 137,786 115,036
Prepaids and other current assets .................................. 2,705 2,464
Deferred tax assets ................................................ 234 --
------------ ------------
Total current assets ............................................ 163,864 148,928
Property and equipment, net .......................................... 37,780 42,207
Goodwill and other assets ............................................ 34,107 40,195
------------ ------------
Total assets .................................................... $ 235,751 $ 231,330
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................... $ 14,802 $ 5,717
Customer deposits .................................................. 10,574 15,918
Accrued expenses ................................................... 10,775 13,568
Short-term borrowings .............................................. 98,150 72,100
Current maturities of long-term debt ............................... 1,210 521
Current deferred tax liability ..................................... -- 251
------------ ------------
Total current liabilities ....................................... 135,511 108,075
------------ ------------
Other liabilities .................................................... 2,096 3,798
Deferred tax liabilities ............................................. 1,600 1,358
Long-term debt, net of current maturities ............................ 6,310 5,759
------------ ------------
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,
15,136,966 and 15,221,780 shares issued and outstanding at
September 30, 1999 and 2000, respectively .......................... 15 15
Additional paid-in capital ........................................... 62,859 63,572
Retained earnings .................................................... 27,360 48,753
------------ ------------
Total stockholders' equity ...................................... 90,234 112,340
------------ ------------
Total liabilities and stockholders' equity ...................... $ 235,751 $ 231,330
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-3
<PAGE> 45
MARINEMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except share and per share data)
<TABLE>
<CAPTION>
For the Year For the Year FOR THE YEAR
Ended Ended ENDED
September 30, September 30, SEPTEMBER 30,
1998 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
Revenue .................................................... $ 291,182 $ 450,058 $ 550,654
Cost of sales .............................................. 220,364 338,403 419,080
------------ ------------ ------------
Gross profit ............................................. 70,818 111,655 131,574
Selling, general and administrative
expenses ................................................. 52,479 79,484 92,520
Non-recurring settlement (Note 9) .......................... 15,000 -- --
------------ ------------ ------------
Income from operations ................................... 3,339 32,171 39,054
Interest expense, net ...................................... 2,212 2,040 4,127
------------ ------------ ------------
Income before income taxes ................................. 1,127 30,131 34,927
Income tax provision ....................................... 1,705 11,978 13,534
------------ ------------ ------------
Net income (loss) .......................................... $ (578) $ 18,153 $ 21,393
============ ============ ============
Basic and diluted net income (loss) per
common share: ............................................ $ (0.05) $ 1.21 $ 1.41
============ ============ ============
Unaudited pro forma income tax benefit ..................... (1,189)
------------
Unaudited pro forma net income ............................. $ 611
============
Unaudited pro forma basic and diluted net
income per common share .................................. $ 0.06
============
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 .............................................. 11,025,410 14,958,725 15,201,052
============ ============ ============
Diluted ............................................ 11,027,949 14,964,727 15,204,182
============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
F-4
<PAGE> 46
MARINEMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1999 AND 2000
(amounts in thousands except share and per share data)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, September 30, 1997 ............ 8,901,818 $ 9 $ -- $ 23,289 $ 23,298
Net loss ............................... -- -- -- (578) (578)
Issuance of common stock ............... 3,515,824 4 38,297 -- 38,301
Redemption of common stock ............. (86,198) (1) (149) -- (150)
Issuance of common stock in exchange
for property, equipment and
businesses acquired .................... 2,268,984 2 14,928 -- 14,930
Contribution of former S Corporation
retained earnings .................... -- -- 4,038 (4,038) --
Distributions to stockholders .......... -- -- -- (9,466) (9,466)
----------- ----------- ----------- ----------- -----------
BALANCE, September 30, 1998 ............ 14,600,428 14 57,114 9,207 66,335
Net income ............................. -- -- -- 18,153 18,153
Issuance of common stock ............... 38,430 -- 292 -- 292
Issuance of common stock in exchange
for businesses acquired .............. 498,108 1 5,184 -- 5,185
Issuance of stock warrants in
exchange for businesses acquired ..... -- -- 269 -- 269
----------- ----------- ----------- ----------- -----------
BALANCE, September 30, 1999 ............ 15,136,966 15 62,859 27,360 90,234
----------- ----------- ----------- ----------- -----------
Net income ............................. -- -- -- 21,393 21,393
Issuance of common stock ............... 84,814 -- 713 -- 713
BALANCE, September 30, 2000 ............ 15,221,780 $ 15 $ 63,572 $ 48,753 $ 112,340
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-5
<PAGE> 47
MARINEMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands except share and per share data)
<TABLE>
<CAPTION>
For the Year For the Year FOR THE YEAR
Ended Ended ENDED
September 30, September 30, SEPTEMBER 30,
1998 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................................ $ (578) $ 18,153 $ 21,393
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization .............................................. 1,685 2,585 3,043
Deferred income tax provision .............................................. 591 1,304 243
(Gain) loss on sale of property and equipment .............................. 61 98 (31)
Other Stock compensation ................................................... -- 95 65
(Increase) decrease in --
Accounts receivable, net ................................................... (1,760) 4,686 (4,003)
Due from related parties ................................................... 641 -- --
Inventories ................................................................ 1,962 (37,234) 30,132
Prepaids and other assets .................................................. (1,883) (4,913) (1,436)
Increase (decrease) in --
Accounts payable ........................................................... 100 5,729 (9,100)
Customer deposits .......................................................... 1,023 715 5,046
Accrued expenses and other liabilities ..................................... (275) 5,984 3,793
Short-term borrowings ...................................................... (22,058) 32,858 (33,341)
Settlement payable ......................................................... 15,000 (15,000) --
------------ ------------ ------------
Net cash provided by (used in) operating activities ...................... (5,491) 15,060 15,804
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used in business acquisitions, net of cash acquired ..................... (4,633) (4,318) (4,544)
Purchases of property and equipment .......................................... (6,250) (10,122) (7,003)
Proceeds from sale of property and equipment ................................. 84 41 628
------------ ------------ ------------
Net cash used in investing activities .................................... (10,799) (14,399) (10,919)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net of registration costs .......................... 38,300 197 648
Redemption of common stock ................................................... (150) -- --
Net borrowings (repayments) on notes payable to related parties .............. (5,786) -- --
Repayments on long-term debt ................................................. (10,122) (422) (1,247)
Distributions to stockholders ................................................ (9,629) -- --
------------ ------------ ------------
Net cash provided by (used in) financing activities ........................ 12,613 (225) (599)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: .......................... (3,677) 436 4,286
CASH AND CASH EQUIVALENTS, beginning of period ................................. 11,538 7,861 8,297
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period ....................................... $ 7,861 $ 8,297 $ 12,583
============ ============ ============
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 $ 25,433 --
Assumption of debt (primarily inventory financing) in conjunction with
the purchase of property and equipment and businesses acquired ............. $ 33,851 $ 23,729 $ 7,297
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-6
<PAGE> 48
MARINEMAX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
1. COMPANY BACKGROUND AND BASIS OF PRESENTATION:
MarineMax, Inc. (a Delaware corporation) was incorporated in January 1998
and is the largest boat retailer. MarineMax, Inc. and subsidiaries (MarineMax or
the Company) engage primarily in the retail sale, brokerage and service of new
and used boats, motors, trailers, marine parts and accessories. The Company
currently operates through 52 retail locations in 13 states, consisting of
Arizona, California, Delaware, Florida, Georgia, Minnesota, Nevada, New Jersey,
North Carolina, Ohio, South Carolina, Texas and Utah.
MarineMax is the nation's largest retailer of Sea Ray, Boston Whaler, and
Hatteras Yachts. Brunswick Corporation (Brunswick) is the world's largest
manufacturer of recreational boats, including Sea Ray and Boston Whaler. Sales
of new Brunswick boats accounted for 82% of the Company's new boat revenue in
fiscal 2000. The Company represents approximately 8% of all Brunswick marine
product sales during the same 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.
In October 1998, the Company formed a new subsidiary, MarineMax Motor
Yachts, Inc. (Motor Yachts), and entered into a Dealership Agreement with
Hatteras Yachts, a division of Genmar Industries, Inc. The agreement gives the
Company the right to sell Hatteras Yachts throughout the state of Florida
(excluding the Florida Panhandle) and the U.S. distribution rights for Hatteras
products over 82 feet.
The Company is party to dealer agreements with other manufacturers, each of
which gives the Company the right to sell various makes and models of boats
within a given geographic region.
In order to maintain consistency and comparability between periods
presented, certain amounts have been reclassified from the previously reported
consolidated 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 consolidated 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,
F-7
<PAGE> 49
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.
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 $0.1 million. 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 re-evaluate 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 $0.9 million, 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 $0.5 million of cash, including
acquisition costs and warrants valued at approximately $0.3 million. The
warrants provide the holder the right to buy 40,000 shares of the Company's
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 $0.7 million 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 primarily
related to financing 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.
F-8
<PAGE> 50
On April 5, 1999, the Company acquired the net assets of Suburban Boatworks,
Inc. (Suburban) in exchange for approximately $1.0 million of cash, including
acquisition costs, 121,090 shares of the Company's common stock, valued at
approximately $1.4 million, a $0.5 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 primarily related to financing 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 $0.2 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 $0.2
million in goodwill.
On December 31, 1999, the Company acquired the net assets of Duce Marine,
Inc. (Duce) for approximately $1.2 million of cash, including acquisition costs.
The Company assumed certain liabilities, including the outstanding floor plan
obligations related to new boat inventories. The acquisition has been accounted
for under the purchase method of accounting, which resulted in the recognition
of approximately $1.0 million in goodwill.
On April 18, 2000, the Company acquired the net assets of Clark's Landing at
Greenbrook, Inc., Clark's Landing at Lake Hopatcong, Inc., and Clark's Landing
at Dredge Harbor, Inc. (Clark's) for approximately $3.6 million of cash,
including acquisition costs. The Company assumed or retired certain liabilities,
including the outstanding floor plan obligations related to new boat
inventories. The acquisition has been accounted for under the purchase method of
accounting, which resulted in the recognition of approximately $4.4 million in
goodwill.
The Original Property Acquisitions, Stovall, Cochran's L.L.C.s, Brevard,
Vegas, Treasure Cove, Woods & Oviatt, Boating World, Merit, Suburban, Hansen,
Duce, and Clark's (collectively, the Purchased Companies) have been reflected in
the Company's consolidated financial statements 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......................... $ 346,730 $ 465,224
Net income...................... 2,605 17,881
Diluted earnings per share...... $ 0.18 $ 1.17
</TABLE>
The fiscal 2000 acquisitions were not significant to the Company's
consolidated results of operations. Accordingly, pro forma results of
operations, assuming the acquisitions had occurred at the beginning of the
period, have been omitted.
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.
F-9
<PAGE> 51
3. SIGNIFICANT ACCOUNTING POLICIES:
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 $3.2 million, $2.7
million, and $4.6 million, for the years ended September 30, 1998, 1999 and
2000, respectively, including interest on debt which finances new boat inventory
and the Company's real estate holdings. The Company made income tax payments of
approximately $4.7 million, $8.3 million, and $13.1 million, for the years ended
September 30, 1998, 1999 and 2000, respectively.
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>
<CAPTION>
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 operations. 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 40 years on a straight-line basis. Accumulated amortization of
goodwill was approximately $0.7 million and $1.6 million at September 30, 1999
and 2000, respectively.
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.
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. Marketing fees
earned on credit life, accident and disability insurance products sold by
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 related finance or insurance 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, 1999 or 2000, is based on the Company's experience for repayments
or defaults on the related finance or insurance contracts.
F-10
<PAGE> 52
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, 1999 or 2000, 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, net of
related co-op assistance, approximated $3.4 million, $5.3 million and $4.3
million, for the years ended September 30, 1998, 1999 and 2000, respectively.
INCOME TAXES AND UNAUDITED PRO FORMA INCOME TAX BENEFIT
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 statements of operations include an unaudited pro
forma income tax benefit 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 and with Boston Whaler, Inc., Mercury Marine and Baja
Marine Corporation, all subsidiaries or divisions of Brunswick Corporation
(collectively, Brunswick). Approximately 82 percent of the Company's new boat
revenue during fiscal 2000 was 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.
The Company has entered into a dealership agreement with the Hatteras Yachts
(Hatteras), a wholly owned subsidiary of Genmar Industries, Inc. Approximately
12 percent of the Company's new boat revenue during fiscal 2000 was derived from
products acquired from Hatteras. The agreement allows the Company to purchase,
stock, sell and service boats and products of Hatteras. This agreement also
allows the Company to use the Hatteras name, 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, Hatteras, and various other manufacturers are renewable subject to
certain terms and conditions in the agreements and expire in 2001 through 2008.
F-11
<PAGE> 53
Concentrations of Credit Risk
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.
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 the Company 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 consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting periods. Actual results could differ from those estimates.
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, 1999 and 2000:
<TABLE>
<CAPTION>
September 30, SEPTEMBER 30,
1999 2000
------------ ------------
<S> <C> <C>
Trade receivables ......................... $ 10,548 $ 10,417
Amounts due from manufacturers ............ 3,855 7,956
Other receivables ......................... 439 472
------------ ------------
$ 14,842 $ 18,845
============ ============
</TABLE>
5. INVENTORIES:
Inventories consisted of the following as of September 30, 1999 and 2000:
<TABLE>
<CAPTION>
September 30, SEPTEMBER 30,
1999 2000
------------ ------------
<S> <C> <C>
New boats, motors and trailers ............. $ 115,782 $ 96,079
Used boats, motors and trailers ............ 16,250 13,556
Parts, accessories and other ............... 5,754 5,401
------------ ------------
$ 137,786 $ 115,036
============ ============
</TABLE>
F-12
<PAGE> 54
6. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following as of September 30, 1999
and 2000:
<TABLE>
<CAPTION>
September 30, SEPTEMBER 30,
1999 2000
------------ ------------
<S> <C> <C>
Land ......................................... $ 12,066 $ 14,957
Buildings and improvements ................... 20,616 21,649
Machinery and equipment ...................... 6,789 7,951
Furniture and fixtures ....................... 5,386 5,978
Vehicles ..................................... 2,229 2,528
------------ ------------
47,086 53,063
Less -- Accumulated depreciation and
amortization .............................. (9,306) (10,856)
------------ ------------
$ 37,780 $ 42,207
============ ============
</TABLE>
During the year ended September 30, 2000, the Company entered into a
contract to acquire undeveloped land, for $3.0 million, from a principal Officer
and Director of the Company. It is the Company's intention to develop the
property in order to expand its retail sales operations. The Company believes
the terms of the transaction are consistent with those the Company could obtain
from unrelated third parties.
7. SHORT-TERM BORROWINGS:
The Company has agreements for working capital borrowing facilities (the
Facilities) with four separate financial institutions providing for combined
borrowing availability of $235 million at a weighted average interest rate of
LIBOR plus 143 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 inventories. The Facilities require the Company to maintain
certain financial covenants, including a tangible net worth ratio, among other
restrictions. As of September 30, 2000, the Company was in compliance with all
of its financial covenants. The Facilities have similar terms and mature on
various dates ranging from March 2001 through July 2002.
Short-term borrowings as of September 30, 1999, and 2000 were approximately
$98.2 million and $72.1 million, respectively. The available borrowings under
the Facilities at September 30, 2000 were approximately $47.1 million. At
September 30, 2000, the weighted average interest rate on the outstanding
borrowings was 8%. 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 programs vary by manufacturer and
generally includes 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 a material increase in interest
expense.
F-13
<PAGE> 55
8. LONG-TERM DEBT:
Long-term debt consisted of the following as of September 30, 1999 and 2000:
<TABLE>
<CAPTION>
September 30, SEPTEMBER 30,
1999 2000
------------ ------------
<S> <C> <C>
Various mortgage notes payable, due in
monthly installments ranging from $3.3 to
$42.3, bearing interest at rates ranging from
5.96% to 10.50%, maturing April 2002 through
September 2010, collateralized by machinery
and equipment.................................. $ 6,646 $ 5,954
Various notes payable, due in monthly
installments ranging from $1.0 to $2.2, bearing
interest at rates ranging from 7.90% to 8.05%,
maturing July 2007 through March 2010,
collateralized by certain vehicles and
machinery and equipment........................ 874 326
------------ ------------
7,520 6,280
Less -- Current maturities........................ (1,210) (521)
------------ ------------
$ 6,310 $ 5,759
============ ============
</TABLE>
The aggregate maturities of long-term debt were as follows at September 30,
2000:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30, AMOUNT
--------------- ----------
<S> <C>
2001............................................................ $ 521
2002............................................................ 2,114
2003............................................................ 395
2004............................................................ 360
2005............................................................ 388
Thereafter...................................................... 2,502
----------
$ 6,280
==========
</TABLE>
9. NON-RECURRING SETTLEMENT:
The Company and Brunswick 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 entered into a settlement agreement on March 12, 1998, under which
Brunswick agreed not to challenge the change in control provisions of the
dealership agreements, and the Company agreed to pay Brunswick $15.0 million.
The settlement payable to Brunswick required interest to be paid quarterly at
the 30-day LIBOR rate plus 125 basis points. The $15.0 million settlement
payable was paid in full to Brunswick in December 1998.
F-14
<PAGE> 56
10. INCOME TAXES:
Income taxes for those subsidiaries taxed as C corporations were as follows
for the years ended September 30, 1998, 1999 and 2000:
<TABLE>
<CAPTION>
For the Year For the Year FOR THE YEAR
Ended Ended ENDED
September 30, September 30, SEPTEMBER 30,
1998 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
Current Provision
Federal ................... $ 1,084 $ 8,884 $ 11,728
State ..................... 30 1,790 1,563
------------ ------------ ------------
Total current provision ....... 1,114 10,674 13,291
------------ ------------ ------------
Deferred provision
Federal ................... 544 1,147 219
State ..................... 47 157 24
------------ ------------ ------------
Total deferred provision ...... 591 1,304 243
------------ ------------ ------------
Total income tax provision .... $ 1,705 $ 11,978 $ 13,534
============ ============ ============
</TABLE>
Below is a reconciliation of the statutory federal income tax rate to the
Company's effective tax rate for the years ended September 30, 1998, 1999 and
2000:
<TABLE>
<CAPTION>
For the Year For the Year FOR THE YEAR
Ended Ended ENDED
September 30, September 30, SEPTEMBER 30,
1998 1999 2000
------------ ------------ -------------
<S> <C> <C> <C>
Federal tax provision .......... 34% 35.0% 35.0%
State tax provision, net of
federal benefit ............. 6% 4.4% 3.4%
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 .......... (6)% -- --
Other .......................... 6% 0.4% 0.4%
------------ ------------ ------------
Effective tax rate ........... 151% 39.8% 38.8%
============ ============ ============
</TABLE>
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 $1.3 million 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.
F-15
<PAGE> 57
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,
1999 2000
------------ ------------
<S> <C> <C>
Current deferred tax assets (liabilities):
Inventories ................................. $ 357 $ (428)
Accrued expenses ............................ 269 134
Conversion from LIFO to FIFO ................ (430) --
Other ....................................... 38 43
------------ ------------
Net current deferred tax assets
(liabilities) ........................... $ 234 $ (251)
============ ============
Long-term deferred tax assets (liabilities):
Depreciation and amortization ............... $ (1,655) $ (1,465)
Other ....................................... 55 107
------------ ------------
Net long-term deferred tax assets
(liabilities) ........................... $ (1,600) $ (1,358)
============ ============
</TABLE>
As of September 30, 2000, 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 AND REPURCHASE:
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.
The Board of Directors has approved a stock repurchase program authorizing
the Company to buy back up to 300,000 shares of its common stock. Under the
plan, the Company may purchase common stock from time to time in the open market
or in privately negotiated block purchase transactions. The amount and timing of
any purchases will depend upon a number of factors, including the price and
availability of the Company's shares and general market conditions. Shares
repurchased may be reserved for later reissue in connection with employee
benefit plans and other general corporate purposes.
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
F-16
<PAGE> 58
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 $0.025 million 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:
<TABLE>
<CAPTION>
September 30, September 30, SEPTEMBER 30,
1998 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
Risk-free interest rate...... 5.7% 6.0% 6.3%
Dividend yield............... 0.0% 0.0% 0.0%
Expected life................ 10 years 8.9 years 8.4 YEARS
Volatility................... 34.0% 44.9% 41.6%
</TABLE>
Using these assumptions, the fair value of the stock options granted is
approximately $6.3 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:
<TABLE>
<CAPTION>
September 30, September 30, SEPTEMBER 30,
1998 1999 2000
------------- ------------ ------------
<S> <C> <C> <C>
NET INCOME (LOSS):
As reported................. $ (578) $ 18,153 $ 21,393
============= ============ ============
Pro forma................... $ (1,683) $ 17,364 $ 20,474
============= ============ ============
DILUTED EARNINGS PER SHARE:
As reported................. $ (0.05) $ 1.21 $ 1.41
============= ============ ============
Pro forma................... $ (0.15) $ 1.16 $ 1.35
============= ============ ============
</TABLE>
F-17
<PAGE> 59
A summary of the status of the Company's stock option plans for the years
ended September 30, 1998, 1999 and 2000:
<TABLE>
<CAPTION>
1998 1999 2000
--------------------------- --------------------------- ----------------------------
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 1,579,944 $ 12.45
Granted.................... 1,556,016 $ 12.45 217,030 $ 12.36 1,178,070 $ 9.65
Forfeited.................. -- $ -- (193,012) $ 12.34 (484,475) $ 12.21
--------- --------- ---------
Outstanding
end of year ........... 1,556,016 $ 12.45 1,579,944 $ 12.45 2,273,539 $ 11.04
========= ========= =========
</TABLE>
The following table summarizes information about outstanding and exercisable
stock options at September 30, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- -------------------------------
WEIGHTED-
AVERAGE
REMAINING WEIGHTED- WEIGHTED-
RANGE OF EXERCISE CONTRACTUAL LIFE AVERAGE EXERCISE AVERAGE EXERCISE
PRICES OPTIONS IN YEARS PRICE OPTIONS PRICE
----------------- ---------- ---------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$ 7.00 - 9.00 420,217 9.9 $ 7.82 1,667 $ 8.75
$ 9.01 - 11.00 529,263 8.8 $ 9.84 31,333 $ 9.99
$ 11.01 - 13.00 1,244,059 7.8 $12.49 105,605 $12.46
$ 13.01 - 15.00 80,000 7.7 $13.75 32,000 $13.75
---------- ----------
2,273,539 8.4 $11.04 170,605 $12.21
========== ==========
</TABLE>
Generally, the options granted have a term of 10 years from the grant date
and vest 20% per annum beginning at the end of year three.
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 denominator used in the basic and diluted
EPS calculations for the years ended September 30, 1998, 1999 and 2000:
<TABLE>
<CAPTION>
Shares Shares SHARES
(Denominator) (Denominator) (DENOMINATOR)
------------- ------------- -------------
<S> <C> <C> <C>
Basic EPS:
Income available to common
stockholders......................... 11,025,410 14,958,725 15,201,052
Effect of dilutive securities:
Options............................ 2,539 6,002 3,130
---------- ---------- -----------
Diluted EPS:
Income available to common
stockholders......................... 11,027,949 14,964,727 15,204,182
========== ========== ==========
</TABLE>
Options to purchase 1,486,016, 1,509,944, and 1,803,320 shares of common
stock at prices ranging from $7.75 to $13.75 per share were outstanding as of
September 30, 1998, 1999 and 2000, 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.
F-18
<PAGE> 60
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
$2.7 million, $4.8 million and $5.9 million for the years ended September 30,
1998, 1999 and 2000, respectively. Rental payments to related parties under both
cancelable and non-cancelable operating leases approximated $0.2 million, $1.4
million, and $1.1 million for the years ended September 30, 1998, 1999 and 2000,
respectively.
Future minimum lease payments under non-cancelable operating leases at
September 30, 2000, were as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30, AMOUNT
------------------ -------------
<S> <C>
2001.............................. $ 4,838
2002.............................. 4,489
2003.............................. 3,549
2004.............................. 1,550
2005.............................. 429
Thereafter........................ 301
-------------
Total.......................... $ 15,156
=============
</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, 2000. 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 Plan). Employees must complete one year of service
before they are eligible to participate. Under the Plan, the Company matches 50%
of participants' contributions, subject to a maximum of 4% of each participant's
compensation. The Company and its subsidiaries contributed, under the Plan, or
pursuant to previous similar plans, amounts ranging from approximately $0.3
million to approximately $0.6 million for the years ended September 30, 1998,
1999 and 2000.
F-19
<PAGE> 61
EXHIBIT INDEX
<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)
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(5)
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 9, 1998.
(5) Incorporated by reference to Registrant's Form 10-K for the year ended
September 30, 1999, as filed on December 29, 1999.
