GENMAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. Introduction -
The condensed consolidated financial statements have been prepared
by Genmar Holdings, Inc. (the "Company"), without audit, pursuant to the
Rules and Regulations of the Securities and Exchange Commission. The
information furnished in the condensed consolidated financial statements
includes normal recurring adjustments and reflects all adjustments which are,
in the opinion of management, necessary for a fair presentation of such
financial statements. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. Although the Company believes that the
disclosures are adequate to make the information presented not misleading, it
is suggested that these condensed consolidated financial statements be read
in conjunction with the audited financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
Revenues and operating results for the three months ended March 31,
1996 are not necessarily indicative of the results to be expected for the
full year.
2. Inventories -
Inventories, which are valued at the lower of first-in first-out
(FIFO) costs or market, consisted of the following (in thousands):
March 31, December 31,
1996 1995
------------ ------------
Raw materials $ 38,924 $ 40,006
Work in process 53,547 49,215
Finished goods 37,969 39,837
------------ ------------
$ 130,440 $ 129,058
============ ============
GENMAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
3. Subsidiary Guarantees -
The Company's payment obligations with respect to its 13.5% Series A
Senior Subordinated Notes Due 2001 (the "Notes") and its borrowings under its
bank credit facility (the "Credit Facility") are secured by substantially all
of the assets of the Company and its subsidiaries and are guaranteed by
substantially all of the Company's subsidiaries ("Subsidiary Guarantors").
At March 31, 1996, the aggregate combined net assets, net revenues,
earnings and equity of the Subsidiary Guarantors were substantially equivalent
to the net assets, net revenues, earnings and equity of the Company, except
for certain obligations and operating, interest and other expenses pertaining
to non-guarantor entities. Each of the Subsidiary Guarantors is a wholly-
owned subsidiary of the Company. Management believes that separate financial
statements of the Subsidiary Guarantors are inconsequential to investors and
such financial statements are not included herein.
4. Contingencies -
Dealer Inventory Floor Plan Financing:
The Company and its subsidiaries are parties to dealer inventory
floor plan financing arrangements with certain financial institutions pursuant
to which each may be required, in the event of default by a financed dealer,
to repurchase products previously sold to such dealer. The Company repurchased
$0.8 million of such dealer inventory in the three months ended March 31,
1996. As of March 31, 1996, the Company and certain subsidiaries were
contingently liable under such arrangements to repurchase inventory in the
aggregate maximum amount of $21.3 million.
During 1995, the Company entered into agreements with financial
institutions to transfer limited floor plan financing for certain dealers and
to provide floor plan financing for certain other dealers. Pursuant to the
agreements, the Company is contingently liable for repurchase of inventory
and has recourse liability in the event of dealer default. As of March 31,
1996, the Company was contingently liable under these agreements for
repurchase and recourse in the aggregate maximum amounts of $24.2 million and
$22.2 million, respectively. The Company did not incur any repurchase or
recourse losses under these agreements during the three months ended
March 31, 1996.
GENMAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
4. Contingencies (Continued) -
The Company generally has not provided reserves, other than
immaterial reserves at certain subsidiaries, for losses and costs which may
result should the Company be required to repurchase product from a defaulting
dealer. Although the ultimate loss which might be incurred as a result of
such contractual obligation is uncertain, the Company believes that any such
losses that may be incurred would not have a material effect on its
consolidated operating results or financial position.
Legal and Environmental:
The Company and its subsidiaries are defendants in legal proceedings
arising in the ordinary course of business. Although the outcome of these
matters cannot be determined, in the opinion of management and outside counsel,
disposition of these proceedings will not have a material effect on the
Company's consolidated financial position or results of operations. Where
appropriate, the Company has established reserves in response to these matters.
Divested Businesses:
In connection with certain previously divested businesses, the
Company retained certain obligations and remains contingently liable under
limited indemnities related to such matters as taxes, insurance, litigation
and postretirement medical benefits. Cash expenditures for such obligations
are expected to be payable over an extended period of time. Where
appropriate, the Company has established reserves in response to these matters.
The Company also incurs costs from time to time for environmental
claims relating to its previously divested operations. The Company anticipates
total environmental-related costs associated with its divested operations to
range from approximately $6 million to $10 million, which include Comprehensive
Environmental Response Compensation and Liability Act, as amended ("CERCLA")
type liabilities, and which costs are likely to be incurred over the next
8 to 12 years. With respect to these potential liabilities, the Company has
been identified as a potential responsible party at approximately 10 sites.
Based on currently available information, the Company believes adequate
reserves have been provided to cover such potential costs as of March 31, 1996.
GENMAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
4. Contingencies (Continued) -
Letters of Credit:
The Company and its subsidiaries have insurance for workers'
compensation, health, general and auto liability losses in excess of
predetermined loss limits. Provision has been made in the consolidated
financial statements for estimated losses resulting from claims incurred
prior to the balance sheet date, which were below the amounts of the
predetermined loss limits. At March 31, 1996, the Company had outstanding
letters of credit aggregating approximately $28.9 million. Approximately
$20.5 million of such letters of credit secure insurance programs; the
remainder principally relate to dealer floor plan financing arrangements with
certain financial institutions and to liabilities retained by the Company in
connection with divested operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES
Results of Operations
- ----------------------
The following table reflects the relationship between certain
income and expense items and net revenues by presenting such items as a
percentage of net revenues for the three months ended March 31, 1996 and 1995
and shows the percentage changes in these income and expense items for the
current fiscal period from the comparable period of the prior fiscal year:
Percentage
Percentage of Change
Net Revenues Between Periods
---------------------------- -------------------
Three Months Three Months
Ended Ended
March 31, March 31,
---------------------------- -------------------
1996 1995
------------ ------------
Net Revenues 100.0% 100.0% 16.2%
Cost of Products
and Services 86.9 86.0 17.5%
------------ ------------
Gross Profit 13.1 14.0 8.6%
Selling and
Administrative Expenses 10.7 12.7 (2.1%)
------------ ------------
Operating Profit 2.4 1.4 107.2%
Interest Expense (3.7) (4.9) (11.1%)
Investment and
Other Income, net 0.1 1.6 (93.6%)
------------ ------------
Loss Before
Income Taxes (1.2) (1.9) (24.9%)
Provision For
Income Taxes (0.1) (0.5) (71.0%)
------------ ------------
Net Loss (1.3%) (2.3%) (33.9%)
============= =============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES
(Continued)
Consolidated net revenues for the three months ended March 31, 1996 were
$151.0 million, an increase of 16.2% as compared to net revenues for the three
months ended March 31, 1995. This increase in net revenues reflected the
strong wholesale demand for the Company's motor yacht and fiberglass
recreational powerboat products. At the retail level overall demand for the
Company's products, measured in units, for the three months ended March 31,
1996 approximated the unit volume demand seen during the same period during
1995. The Company's backlog of orders at March 31, 1996 was down approximately
8% from backlog as of March 31, 1995. Backlog for the Company's smaller
motor yachts, runabouts and smaller fishing boats continued to show strong
improvement over prior year levels, but was offset by decreased backlog for
certain other products, particularly the larger motor yachts and custom yachts.
Gross profit for the three months ended March 31, 1996 was $19.8 million
(13.1% of net revenues) as compared to $18.2 million (14.0% of net revenues)
for the same period during 1995. This overall decrease in gross profit as a
percentage of net revenues was attributable to a less favorable product mix,
offset by certain cost reductions attributable to improved manufacturing
efficiencies and decreased spending in the areas of new model design and
tooling.
Selling and administrative expenses for the three months ended March 31,
1996 totaled $16.1 million (10.7% of net revenues) as compared to $16.4
million (12.7% of net revenues) for the same period during 1995. The decrease
in spending as a percentage of net revenues was a reflection of various cost
reduction initiatives implemented throughout the Company, focusing primarily
on administrative and selling costs.
The Company's operating profit for the three months ended March 31, 1996
was $3.7 million (2.4% of net revenues) as compared to operating profit of
$1.8 million (1.4% of net revenues) for the same period during 1995. The
increase in operating profit was attributable to the factors discussed above.
Interest expense for the three months ended March 31, 1996 totaled $5.6
million as compared to $6.4 million for the same period during 1995. The
reduction in interest expense resulted from a decrease in bank and other
borrowings outstanding between the two periods.
Investment and other income for the three months ended March 31, 1996
totaled $0.1 million as compared to $2.1 million for the same period
during 1995. Investment and other income for 1996 consisted principally of
interest earned on short-term investments, notes and other receivables.
Investment and other income for 1995 consisted principally of dividend
income earned on the Company's investment in Amway Japan Limited, and interest
earned on short-term investments, notes and other receivables.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES
(Continued)
Liquidity and Capital Resources
- --------------------------------
At March 31, 1996, the bank credit facility ("Credit Facility"), as
amended and restated, consisted of a $29.2 million revolving credit facility
and a $30.8 million letter of credit facility. At March 31, 1996, the Company
had $57.2 million outstanding under the Credit Facility, with $1.0 million of
additional availability under the revolving credit facility.
The Credit Facility, as amended and restated, and the indenture
(the "Indenture") governing the Company's 13-1/2% Series A Senior Subordinated
Notes Due 2001 (the "Notes") contain restrictive covenants which, among other
matters, limit the ability of the Company to incur other indebtedness, engage
in transactions with affiliates, incur liens, make certain restricted payments,
and enter into certain business combination and asset sale transactions. The
Credit Facility also requires the Company to satisfy certain financial tests
and ratios and restricts capital expenditures. In addition, the Credit
Facility contains provisions which may require accelerated repayment of the
Credit Facility and/or limit the Company's access to the facility upon the
incurrence of specific obligations or significant changes in the financial
condition, business, properties, prospects or operations of the Company. As
of March 31, 1996, the Company was in compliance with all the financial
covenants under the Indenture and the Credit Facility, as amended and restated.
At March 31, 1996, the Company had $78.0 million of working capital,
an increase of $2.8 million from December 31, 1995. Cash used in operating
activities for the three months ended March 31, 1996 totaled $8.0 million, as
compared to a cash use of $4.7 million for the same period during 1995. This
net cash use consisted primarily of changes in working capital items,
including increased receivables and payables as a result of increased
revenues and production, and payment of $6.8 million of interest on the Notes.
Capital expenditures of the Company for the three months ended
March 31, 1996 totaled $0.8 million. Proceeds from sales of property and
equipment for the same period during 1996 totaled $4.2 million. Included in
this total were proceeds of approximately $3.8 million from the sale of
certain land, buildings and equipment formerly used to operate the Company's
retail marine dealership located near Minneapolis, Minnesota. No gain or loss
was recognized in connection with this sale.
The Company will require substantial cash flow to meet its interest
and principal obligations under the Indenture and the Credit Facility, and in
meeting the working capital and capital expenditure requirements of its
operations. The Company believes that current cash balances, borrowings
under the Credit Facility, cash flow generated from operations and proceeds
from the sales of certain assets will provide sufficient liquidity to fund
its cash operating expenses and capital expenditures and meet its interest and
principal obligations until the Credit Facility and Notes become due.
However, the Company's ability to meet its debt service and other obligations
depends on its future performance, which, in turn, is subject to general
economic conditions and to financial performance, business and other factors,
including factors beyond the Company's control. If the Company is unable to
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES
(Continued)
generate sufficient cash flows from operations or otherwise to comply with
the terms of the Credit Facility or the Indenture, it may be required to
refinance all or a portion of its existing debt or obtain additional
financing, although there can be no assurance that the Company will be able
to obtain such refinancing or additional financing.
The Company is in the process of evaluating and pursuing, as
appropriate, various strategic alternatives relative to strengthening the
Company's financial position, including the potential sales of non-operating
assets and possible joint venture considerations. The Company continuously
evaluates its existing operations and investigates possible acquisitions to
expand its business in order to maximize profits and increase its share of
the motorized pleasure boat market. Accordingly, while the Company does not
have any material arrangement, commitment or understanding with respect
thereto, further acquisitions, investments and changes in operations are
possible.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
GENMAR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(In Thousands)
<CAPTION>
For The Three Months Ended
March 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net revenues $151,024 $129,932
Cost of products and services 131,240 111,711
------------ ------------
Gross profit 19,784 18,221
Selling and administrative expenses 16,106 16,446
------------ ------------
Operating profit 3,678 1,775
Interest expense (5,644) (6,352)
Investment and other income, net 137 2,140
------------ ------------
Loss before income taxes (1,829) (2,437)
Provision for income taxes (170) (586)
------------ ------------
Net loss $ (1,999) $ (3,023)
============ ============
See accompanying notes to condensed consolidated financial statements
1
</TABLE>
<PAGE>
<TABLE>
GENMAR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except per Share Data)
<CAPTION>
March 31, 1996 December 31,
(Unaudited) 1995
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 13,335 $ 18,091
Accounts receivable, net 52,421 42,356
Inventories 130,440 129,058
Prepaid expenses 3,980 4,958
------------ ------------
Total current assets 200,176 194,463
Property and Equipment, net 58,622 63,333
Other Assets, principally
deferred financing costs 7,181 7,415
Goodwill 48,173 48,669
------------ ------------
Total assets $ 314,152 $ 313,880
============ ============
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts payable $ 53,191 $ 45,882
Accrued liabilities 54,570 59,000
Customer deposits 13,405 12,633
Accrued income taxes 183 788
Current maturities of long-term debt 782 893
------------ ------------
Total current liabilities 122,131 119,196
Long-Term Debt 151,681 151,445
Other Noncurrent Liabilities 35,709 36,621
------------ ------------
Commitments and Contingencies
(Notes 3 and 4)
Stockholders' Equity:
Common stock, $.01 par value per
share, 2,000 shares authorized,
1,779 shares issued and outstanding 18 18
Paid-in capital 126,229 126,229
Accumulated deficit (111,385) (109,386)
Cumulative translation adjustment (235) (247)
Treasury stock, 42 shares (9,996) (9,996)
------------ ------------
Total stockholders' equity 4,631 6,618
------------ ------------
Total liabilities and
stockholders' equity $ 314,152 $ 313,880
============ ============
See accompanying notes to condensed consolidated financial statements
</TABLE>
2
<PAGE>
<TABLE>
GENMAR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE THREE MONTHS ENDED MARCH 31,
(In Thousands)
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,999) $ (3,023)
Adjustments to reconcile net loss in net
cash used in operating activities:
Depreciation and amortization 2,921 2,840
Changes in operating assets and
liabilities, net (7,880) (3,796)
Other, net (133) (320)
Payments of noncurrent liabilities (912) (390)
------------ ------------
Net cash used in operating activities (8,003) (4,689)
------------ ------------
INVESTING ACTIVITIES:
Property and equipment additions, net (761) (6,555)
Proceeds from sales of property 4,187 --
Proceeds from sales of marketable securities -- 4,682
------------ ------------
Net cash provided by (used in)
investing activities 3,426 (1,873)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from revolving credit facility -- 9,000
Repayment of revolving credit facility -- (6,682)
Repayment of other long-term debt (179) (221)
------------ ------------
Net cash (used in) provided by
financing activities (179) 2,097
------------ ------------
Net decrease in cash and cash
equivalents (4,756) (4,465)
CASH AND CASH EQUIVALENTS:
Balance, beginning of period 18,091 4,699
------------ ------------
Balance, end of period $ 13,335 $ 234
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the period $ 9,151 $ 9,596
Income taxes paid during the period 703 423
============ ============
See accompanying notes to condensed consolidated financial statements
3
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
GENMAR HOLDINGS, INC. AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -- No exhibits have been filed with this
Form 10-Q.
(b) No Form 8-K's were filed during the quarter ended
March 31, 1996.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENMAR HOLDINGS, INC.
Date: May 13, 1996
/s/ ROGER R. CLOUTIER, II
----------------------------
Roger R. Cloutier, II
Executive Vice President
and Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 13,335
<SECURITIES> 0
<RECEIVABLES> 52,421
<ALLOWANCES> 0
<INVENTORY> 130,440
<CURRENT-ASSETS> 200,176
<PP&E> 58,622
<DEPRECIATION> 0
<TOTAL-ASSETS> 314,152
<CURRENT-LIABILITIES> 122,131
<BONDS> 152,463
0
0
<COMMON> 18
<OTHER-SE> 4,613
<TOTAL-LIABILITY-AND-EQUITY> 314,152
<SALES> 151,024
<TOTAL-REVENUES> 151,024
<CGS> 131,240
<TOTAL-COSTS> 131,240
<OTHER-EXPENSES> 16,106
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (5,644)
<INCOME-PRETAX> (1,829)
<INCOME-TAX> (170)
<INCOME-CONTINUING> (1,999)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,999)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
