e10vk
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For fiscal year ended
September 30, 2006
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Commission File Number 1-14173
MarineMax, Inc.
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
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59-3496957
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(State of
Incorporation)
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(I.R.S. Employer
Identification No.)
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18167 U.S. Highway 19 North
Suite 300
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:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value
$.001 per share
Rights to Purchase Series A Junior Participating
Preferred Stock
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Exchange Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Securities
Act. Yes o No þ
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 þ No o
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 registrants 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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filed, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12B-2
of the Exchange Act.
Large accelerated
filer o Accelerated
Filer þ Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of common stock held by nonaffiliates
of the registrant (16,925,391 shares) based on the closing
price of the registrants common stock as reported on the
New York Stock Exchange on March 31, 2006, which was the
last business day of the registrants most recently
completed second fiscal quarter, was $567,339,106. 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 November 30, 2006, there were outstanding
18,610,001 shares of registrants common stock, par
value $.001 per share.
Documents Incorporated by Reference
Portions of the registrants definitive proxy statement for
the 2007 Annual Meeting of Stockholders are incorporated by
reference into Part III of this report.
MARINEMAX,
INC.
ANNUAL
REPORT ON
FORM 10-K
Fiscal
Year Ended September 30, 2006
TABLE OF CONTENTS
Statements
Regarding Forward-Looking Statements
The statements contained in this report on
Form 10-K
that are not purely historical are forward-looking statements
within the meaning of applicable securities laws.
Forward-looking statements include statements regarding our
expectations, anticipation,
intentions, beliefs, or
strategies regarding the future. Forward-looking
statements relating to our future economic performance, plans
and objectives for future operations, and projections of revenue
and other financial items that are based on our beliefs as well
as assumptions made by and information currently available to
us. Actual results could differ materially from those currently
anticipated as a result of a number of factors, including those
discussed in Item 1A. Risk Factors.
PART I
Introduction
Our
Company
We are the largest recreational boat dealer in the United
States. Through 88 retail locations in Alabama, Arizona,
California, Colorado, Connecticut, Delaware, Florida, Georgia,
Maryland, Minnesota, Missouri, Nevada, New Jersey, New York,
North Carolina, Ohio, Oklahoma, Rhode Island, South Carolina,
Tennessee, Texas, and Utah, we sell new and used recreational
boats, including pleasure, 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; offer boat and yacht brokerage services; and, where
available, offer slip and storage accommodations.
We are the nations largest retailer of Sea Ray, Boston
Whaler, Meridian, and Hatteras recreational boats and yachts,
all of which are manufactured by Brunswick Corporation. Sales of
new Brunswick boats accounted for approximately 59% of our
revenue in fiscal 2006. Brunswick is the worlds largest
manufacturer of marine products and marine engines. We believe
our sales represented in excess of 13% of all Brunswick marine
sales, including approximately 40% of its Sea Ray boat sales,
during our 2006 fiscal year. Through operating subsidiaries, we
are a party to dealer agreements with Brunswick covering these
products and we are the exclusive dealer of each in our
geographic markets.
We are the exclusive dealer for Italy-based Ferretti Group for
Ferretti Yachts, Pershing, Riva, Apreamare, and Mochi Craft
mega-yachts, yachts, and other recreational boats for the United
States, Canada, the Bahamas, and Mexico. We also are the
exclusive dealer for Bertram in the United States (excluding the
Florida peninsula and certain portions of New England), Canada,
and the Bahamas.
We commenced operations as a result of the March 1, 1998
acquisition of five previously independent recreational boat
dealers. Since that time, we have acquired 20 additional
previously independent recreational boat dealers, two boat
brokerage operations, and two full-service yacht repair
operations. We capitalize on the experience and success of the
acquired companies in order to establish a new national standard
of customer service and responsiveness in the highly fragmented
retail boating industry. As a result of our emphasis on premium
brand boats, our average selling price for a new boat in fiscal
2006 was approximately $116,000, an increase of 12% from fiscal
2005, compared with the industry average calendar 2005 selling
price of approximately $31,000 based on industry data published
by the National Marine Manufacturers Association. Our stores,
which operated at least 12 months, averaged approximately
$17.1 million in annual sales in fiscal 2006. We consider a
store to be one or more retail locations that are adjacent or
operate as one entity. For the fiscal year ended
September 30, 2006, we had revenue of $1.2 billion,
operating income of $84.0 million, and net income of
$39.4 million. Our same-store sales increased approximately
7% in fiscal 2006 and has averaged approximately 12% for the
last five years.
We adopt the best practices developed by us and our acquired
companies 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, no-haggle sales approach, prime
retail locations, premium product offerings, extensive
facilities, strong management and team members, 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 U.S. recreational boating industry generated
approximately $37.3 billion in retail sales in calendar
2005, 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 and used boats, engines,
trailers, and accessories accounted for approximately
$28.9 billion of these sales in 2005 based on industry data
from the National Marine Manufacturers Association. The highly
fragmented retail boating industry generally consists of small
dealers that operate in a single market and provide varying
degrees of merchandising, professional management, and customer
service. We believe that many small dealers are finding it
increasingly difficult to make
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the managerial and capital commitments necessary to achieve
higher customer service levels and upgrade systems and
facilities as required by boat manufacturers and demanded by
customers. We also believe that many dealers lack an exit
strategy for their owners. We believe these factors contribute
to our opportunity.
Strategy
Our goal is to enhance our position as the nations leading
recreational boat dealer. Key elements of our operating and
growth strategy include the following:
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emphasizing customer satisfaction and loyalty by creating an
overall enjoyable boating experience, beginning with a
negotiation-free purchase process, superior customer service,
and premier facilities;
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achieving efficiencies and synergies among our operations to
enhance internal growth and profitability;
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emphasizing employee training and development;
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offering additional products and services, including those
involving higher profit margins;
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pursuing strategic acquisitions to capitalize upon the
consolidation opportunities in the highly fragmented
recreational boat dealer industry by acquiring additional
dealers and related operations and improving their performance
and profitability through the implementation of our operating
strategies;
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opening additional retail facilities in our existing and new
territories;
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promoting national brand name recognition and the MarineMax
connection;
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expanding our Internet retail operations and marketing;
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emphasizing the best practices developed by us and
our acquired dealers as appropriate throughout our dealerships;
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operating with a decentralized approach to the operational
management of our dealerships; and
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utilizing technology throughout operations, which facilitates
the interchange of information and enhances cross-selling
opportunities throughout our company.
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Development
of the Company; Expansion of Business
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, and
we completed our initial public offering in June 1998. Since the
initial acquisitions in March 1998, we have acquired 20
additional recreational boat dealers, two boat brokerage
operations, and two full-service yacht repair operations. Each
of our acquired dealers is continuing its operations under the
MarineMax name as a wholly owned operating subsidiary of our
company.
We continually attempt to expand our business by providing a
full range of services, offering extensive and high-quality
product lines, maintaining prime retail locations, pursuing the
MarineMax Value Price sales approach, and emphasizing the
highest level of customer service and customer satisfaction.
We also evaluate opportunities to expand our operations by
acquiring recreational boat dealers to expand our geographic
scope; expanding our product lines; opening new retail locations
within our existing territories; and providing new products and
services for our customers.
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Acquisitions of additional recreational boat dealers represent
an important strategy in our goal to enhance our position as the
nations leading retailer of recreational boats. The
following table sets forth information regarding the businesses
that we have acquired and their geographic regions.
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Acquired Companies
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Acquisition Date
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Geographic Region
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Bassett Boat Company of Florida
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March 1998
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Southeast Florida
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Louis DelHomme Marine
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March 1998
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Dallas and Houston, Texas
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Gulfwind USA, Inc.
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March 1998
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West Central, Florida
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Gulfwind South, Inc.
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March 1998
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Southwest Florida
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Harrisons Boat Center, Inc.
and Harrisons Marine Centers of Arizona, Inc.
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March 1998
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Northern California and Arizona
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Stovall Marine, Inc.
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April 1998
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Georgia
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Cochrans Marine, Inc. and
C & N Marine Corporation
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July 1998
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Minnesota
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Sea Ray of North Carolina,
Inc.
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July 1998
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North and South Carolina
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Brevard Boat Company
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September 1998
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East Central Florida
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Sea Ray of Las Vegas
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September 1998
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Nevada
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Treasure Cove Marina, Inc.
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September 1998
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Northern Ohio
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Woods & Oviatt, Inc.
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October 1998
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Southeast Florida
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Boating World
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February 1999
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Dallas, Texas
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Merit Marine, Inc.
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March 1999
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Southern New Jersey
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Suburban Boatworks, Inc.
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April 1999
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Central New Jersey
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Hansen Marine, Inc.
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August 1999
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Northeast Florida
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Duce Marine, Inc.
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December 1999
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Utah
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Clarks Landing, Inc.
(selected New Jersey locations and operations)
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April 2000
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Northern New Jersey
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Associated Marine Technologies,
Inc.
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January 2001
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Southeast Florida
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Gulfwind Marine Partners,
Inc.
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April 2002
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West Florida
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Seaside Marine, Inc.
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July 2002
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Southern California
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Sundance Marine, Inc.
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June 2003
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Colorado
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Killinger Marine Center, Inc. and
Killinger Marine Center of Alabama, Inc.
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September 2003
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Northwest Florida and Alabama
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Emarine International, Inc. and
Steven Myers, Inc.
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October 2003
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Southeast Florida
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Imperial Marine
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June 2004
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Baltimore, Maryland
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Port Jacksonville Marine
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June 2004
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Northeast Florida
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Port Arrowhead Marina, Inc.
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January 2006
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Missouri, Oklahoma
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Great American Marina(1)
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February 2006
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West Florida
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Surfside 3 Marina,
Inc.
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March 2006
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Connecticut, Maryland, New York,
Rhode Island
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Apart from acquisitions, we have opened 20 new retail locations
in existing territories, excluding those opened on a temporary
basis for a specific purpose. We also monitor the performance of
our retail locations and close retail locations that do not meet
our expectations. Based on these factors, we have closed nine
retail locations since March 1998, excluding those opened on a
temporary basis for a specific purpose.
3
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.
In addition to acquiring recreational boat dealers and opening
new retail locations, we also add new product lines to expand
our operations. The following table sets forth various product
lines that we have added to our existing locations:
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Product Line
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Fiscal Year
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Geographic Regions
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Boston Whaler
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1997
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West Central Florida; Stuart,
Florida; Dallas, Texas
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Hatteras Yachts
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1999
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Florida (excluding the Florida
panhandle) and distribution rights for products over
82 feet for North and South America, the Caribbean, and the
Bahamas
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Boston Whaler
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1999
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Ohio
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Boston Whaler
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2000
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North Palm Beach, Florida
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Baja
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2001
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Houston, Texas and Las Vegas,
Nevada
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Meridian Yachts
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2002
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Florida, Georgia, North and South
Carolina, New Jersey, Ohio, Minnesota, Texas, and Delaware
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Grady White
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2002
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Houston, Texas
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Hatteras Yachts
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2002
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Texas
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Boston Whaler
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2004
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North and South Carolina
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Century
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2004
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North and South Carolina
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Ferretti Yachts, Pershing, Riva,
Apreamare, and Mochi Craft
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2004
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United States, Canada, the
Bahamas, and Mexico
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Bertram
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2004
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United States (excluding the
Florida peninsula and portions of New England), Canada, and the
Bahamas.
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Princecraft
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2004
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California, Delaware, Georgia,
Maryland, Minnesota, New Jersey, Ohio, and Texas
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Baja
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2005
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Tempe, Arizona, Colorado, Dallas,
Texas, and Utah
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Boston Whaler
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2005
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Houston and Dallas, Texas
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Tracker Marine
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2005
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Las Vegas, Nevada
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Azimut
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2006
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Northeast United States from
Maryland to Maine
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Atlantis
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2006
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Northeast United States from
Maryland to Maine
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Cabo
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2006
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Cape Haze, Clearwater, Destin, and
Naples, Florida
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Laguna
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2006
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Florida, New Jersey, New York
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As we add a brand, we believe we are offering a migration for
our existing customer base or filling a gap in our product
offerings. As a result, we do not believe that new product
offerings will compete with or cannibalize the business
generated from our other prominent brands.
We plan to continue to expand our business through acquisitions
in new geographical territories, new store openings in existing
territories, and new product lines. In addition, we plan to
continue to expand other services, including conducting used
boat sales; offering yacht and boat brokerage services; offering
our customers the ability
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to finance new or used boats; offering extended service
contracts; arranging insurance coverage, including boat
property, credit-life, accident, disability, and casualty
coverage; selling related marine products, including engines,
trailers, parts, and accessories; providing maintenance and
repair services at our retail locations and at stand-alone
service facilities; and expanding our ability to provide slip
and storage accommodations.
We maintain our executive offices at 18167 U.S. Highway 19
North, Suite 300, 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,
our company, we, us, and
our mean, as a combined company, MarineMax, Inc. and
the 20 recreational boat dealers, two boat brokerage operations,
and two full-service yacht repair operations acquired to date
(the acquired dealers, and together with the
brokerage and repair operations, operating
subsidiaries or the acquired companies).
Our website is located at
www.MarineMax.com. Through our website, we
make available free of charge our annual report on
Form 10-K,
our quarterly reports on
Form 10-Q,
our current reports on
Form 8-K,
our proxy statements, and any amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934. These reports are available as
soon as reasonably practicable after we electronically file
those reports with the Securities and Exchange Commission. We
also post on our website the charters of our Audit,
Compensation, and Nominating/Corporate Governance Committees;
our Corporate Governance Guidelines, Code of Business Conduct
and Ethics, and Code of Ethics for the CEO and Senior Financial
Officers, and any amendments or waivers thereto; and any other
corporate governance materials contemplated by SEC or NYSE
regulations. These documents are also available in print to any
stockholder requesting a copy from our corporate secretary at
our principal executive offices.
5
BUSINESS
General
We are the largest recreational boat dealer in the United
States. Through 88 retail locations in Alabama, Arizona,
California, Colorado, Connecticut, Delaware, Florida, Georgia,
Maryland, Minnesota, Missouri, Nevada, New Jersey, New York,
North Carolina, Ohio, Oklahoma, Rhode Island, South Carolina,
Tennessee, 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; offer boat and yacht brokerage
services; and, where available, slip and storage accommodations.
We are the nations largest retailer of Sea Ray, Boston
Whaler, Meridian, and Hatteras recreational boats and yachts.
Sales of new Sea Ray, Boston Whaler, Meridian, and Hatteras
recreational boats and yachts, each of which is manufactured by
Brunswick Corporation, accounted for approximately 59% of our
revenue in fiscal 2006. Brunswick is the worlds largest
manufacturer of marine products and marine engines. We believe
our sales represented in excess of 13% of all Brunswick marine
sales during our 2006 fiscal year. Our principal operating
subsidiaries are a party to dealer agreements with Brunswick
covering these products and are the exclusive dealer of such
boats in its geographic market. We also have the right to sell
Hatteras Yachts throughout the state of Florida (excluding the
Florida panhandle) and the state of Texas, as well as the
distribution rights for Hatteras products over 82 feet for
North and South America, the Caribbean, and the Bahamas. We have
distribution rights for Meridian Yachts in most of our
geographic markets, excluding Arizona, California, Colorado,
Nevada, and Utah. We are the exclusive dealer for Italy-based
Ferretti Group for Ferretti Yachts, Pershing, Riva, Apreamare,
and Mochi Craft mega-yachts, yachts, and other recreational
boats for the United States, Canada, the Bahamas, and Mexico. We
also are the exclusive dealer for Bertram in the United States
(excluding the Florida peninsula and certain portions of New
England), Canada, and the Bahamas. We are also the exclusive
dealer for Cabo Yachts throughout the state of Florida. We are
the exclusive dealer for Italy-based Azimut-Benetti Group for
Azimut and Atlantis mega-yachts, yachts, and other recreational
boats for the Northeast United States from Maryland to Maine.
U.S. Recreational
Boating Industry
The total U.S. recreational boating industry generated
approximately $37.3 billion in retail sales in calendar
2005, 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. Retail sales of new
boats, engines, trailers, and accessories accounted for
approximately $28.9 billion of such sales in 2005. Retail
recreational boating sales were $17.9 billion in the late
1980s, but declined to a low of $10.3 billion in 1992 based
on industry data published by the National Marine Manufacturers
Association. We believe this decline was 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,
with the exception of 1998 and 2003, retail recreational boating
sales have increased every year since.
The recreational boat retail market remains highly fragmented
with little consolidation having occurred to date and consists
of numerous boat retailers, most of which are small companies
owned by individuals that operate in a single market and provide
varying degrees of merchandising, professional management, and
customer service. We believe that many boat 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 nations leading
recreational boat dealer. Key elements of our strategy 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
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beginning with a negotiation-free purchase process. We further
enhance and simplify the purchase process by helping to arrange
financing and insurance at our retail locations with competitive
terms and streamlined turnaround. We offer the customer a
thorough in-water orientation of boat operations where
available, as well as ongoing boat safety, maintenance, and use
seminars and demonstrations for the customers entire
family. We also continue our customer service after the sale by
leading and sponsoring MarineMax Getaways! group boating
trips to various destinations, rendezvous gatherings, and
on-the-water
organized events to provide our customers with pre-arranged
opportunities to enjoy the pleasures of the boating lifestyle.
We also endeavor to provide superior maintenance and repair
services, often through mobile service at the customers
wet slip and with extended service department hours and
emergency service availability, that minimize the hassles of
boat maintenance.
Emphasizing Best Practices. We emphasize the
best practices developed by us and our acquired
dealers as appropriate throughout our locations. As an example,
we follow a no-haggle 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
manufacturers suggested retail price, thereby eliminating
the anxieties of price negotiations that occur in most boat
purchases. In addition, we adopt, where beneficial, the best
practices developed by us and our acquired dealers in terms of
location, design, 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 various aspects of 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 sources; and volume purchase discounts and rebates
for certain marine products, supplies, and advertising. The
ability of our retail locations to offer the complementary
services of our other retail locations, such as offering
customer excursion opportunities, providing maintenance and
repair services at the customers 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 and
Development. 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. Through our MarineMax University, or MMU,
we teach our retail philosophies to existing and new employees
at various locations and online, through MMU-online. 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.
Offering Additional Products and Services, Including Those
Involving Higher Profit Margins. We plan to
continue to offer additional product lines and services
throughout our dealerships or, when appropriate, in selected
dealerships. We are offering throughout our 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. We have increased 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 continue to grow our
financing and insurance, parts and accessories, service and boat
storage businesses to better serve our customers and thereby
increase revenue and improve profitability of these higher
margin businesses.
Pursuing Strategic Acquisitions. We capitalize
upon the significant consolidation opportunities available in
the highly fragmented recreational boat dealer industry by
acquiring independent dealers and
7
improving their performance and profitability through the
implementation of our operating strategies. The primary
acquisition focus is on well-established, high-end recreational
boat dealers in geographic markets not currently served by us,
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, service
offerings, and market penetration by acquiring companies that
distribute recreational boat product lines or boating-related
services different from those we currently offer. As a result of
our considerable industry experience and relationships, 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) the 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. We have entered into an
agreement regarding acquisitions with the Sea Ray Division of
Brunswick. Under the agreement, acquisitions of Sea Ray dealers
will be mutually agreed upon by us and Sea Ray with reasonable
efforts to be made to include a balance of Sea Ray dealers that
have been successful and those that have not been. The agreement
provides that Sea Ray will not unreasonably withhold its consent
to any proposed acquisition of a Sea Ray dealer by us, subject
to the conditions set forth in the agreement, as further
described in Business Brunswick Agreement
Relating to Acquisitions.
Opening New Facilities. We intend to continue
to establish additional retail facilities in our existing and
new markets. We believe that the demographics of our existing
geographic territories support the opening of additional
facilities, and we have opened 20 new retail facilities,
excluding those opened on a temporary basis for a specific
purpose, since our formation in January 1998. We also plan to
reach new customers through various innovative retail formats
developed by us, 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 nine retail locations, excluding those
opened on a temporary basis for a specific purpose.
Promoting Brand Name Recognition and the MarineMax
Connection. We are promoting our brand name
recognition to take advantage of our status as the nations
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. We refer to this strategy as the
MarineMax Connection. As a result, our signage
emphasizes the MarineMax name at each of our locations, and we
conduct national advertising in various print and other media.
Utilization of the Internet. Our web
initiative, www.MarineMax.com, provides customers with
the ability to learn more about our company and our products.
Our website generates direct sales and provides our stores with
leads to potential customers for new and used boats and
brokerage services. We also plan to expand our ability to offer
financing and parts and accessories on our website.
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
8
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 a number of 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 boats company-wide, locates boats needed to satisfy
particular customer requests, 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. Our managers use a web-based
tool to access essentially all financial and operational data
from anywhere at any time.
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 assist in arranging
related boat financing, insurance, and extended service
contracts; provide boat maintenance and repair services; provide
boat brokerage services; and offer slip and storage
accommodations.
New
Boat Sales
We primarily sell recreational boats, including pleasure boats
and fishing boats. The principal products we offer are
manufactured by Brunswick, the leading worldwide manufacturer of
recreational boats, including Sea Ray pleasure boats; Boston
Whaler and Laguna fishing boats; Meridian Yachts; Cabo Yachts;
and Hatteras Yachts. In fiscal 2006, we derived approximately
59% of our revenue from the sale of new boats manufactured by
Brunswick. We believe that we represented in excess of 13% of
all of Brunswicks marine product sales during that period.
We also sell mega-yachts, yachts, and other recreational boats
manufactured by Bertram and the Italy-based Ferretti Group,
including Ferretti Yachts, Pershing, Riva, Apreamare, and Mochi
Craft. Certain of our dealerships also sell luxury yachts,
fishing boats, and pontoon boats provided by other
manufacturers, including Italy-based Azimut. During fiscal 2006,
new boat sales accounted for approximately 70.9% 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 2006 average new boat sales price of
approximately $116,000, an increase of 12% from fiscal 2005,
compared with an estimated industry average calendar 2005
selling price of approximately $31,000 based on industry data
published by the National Marine Manufacturers Association.
Given our locations in some of the more affluent, offshore
boating areas in the United States and emphasis on high levels
of customer service, we sell a relatively higher percentage of
large recreational boats, such as mega-yachts, yachts, and sport
cruisers. We believe that the product lines we offer are among
the highest quality within their respective market segments,
with well-established trade-name recognition and reputations for
quality, performance, and styling.
9
The following table is illustrative of the range and approximate
manufacturer suggested retail price range of new boats that we
offer, but is not all inclusive:
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|
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Manufacturer Suggested
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Product Line and Trade Name
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Overall Length
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|
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Retail Price Range
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Motor Yachts
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|
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Hatteras Motor Yachts
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|
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64 to 100
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|
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$
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3,000,000 to $10,000,000
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+
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Ferretti
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|
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46 to 88
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|
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1,100,000 to 7,500,000
|
+
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Azimut
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|
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43 to 116
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|
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790,000 to 10,600,000
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+
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Convertibles
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|
|
|
|
|
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|
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Hatteras Convertibles
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|
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50 to 90
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2,300,000 to 7,000,000
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+
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Bertram
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36 to 67
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|
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500,000 to 3,500,000
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+
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Cabo
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|
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32 to 52
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450,000 to 1,700,000
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+
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Pleasure Boats
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|
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Sea Ray
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17 to 60
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21,000 to 2,500,000
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|
Meridian
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35 to 59
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300,000 to 1,600,000
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Fishing Boats
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Boston Whaler
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11 to 32
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8,000 to 210,000
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Laguna
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18 to 24
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25,000 to 55,000
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Specialty Boats &
Yachts
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Pershing
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50 to 115
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1,600,000 to 13,000,000
|
+
|
Riva
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|
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33 to 115
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|
|
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600,000 to 9,000,000
|
+
|
Apreamare
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25 to 53
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350,000 to 2,000,000
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+
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Mochi Craft.
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44 to 74
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1,200,000 to 4,600,000
|
+
|
Motor Yachts. Hatteras Yachts, Ferretti Group,
and Azimut are three of the worlds premier yacht builders.
The motor yacht product lines typically include
state-of-the-art
designs with live-aboard luxuries. The Hatteras series 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 multiple
staterooms for accommodations. Ferretti is known for its
European styling, speed, performance, and offers luxurious
salon/galley arrangements and multiple staterooms with private
heads. Azimut yachts are known for their Americanized open
layout with Italian design, powerful performance, and accuracy.
The luxurious interiors are accented by windows and multiple
accommodations that have been cleverly designed for comfort.
Convertibles. Hatteras Yachts, Bertram Yachts,
and Cabo Yachts are three of the worlds premier
convertible yacht builders and offer
state-of-the-art
designs with live-aboard luxuries. Convertibles are primarily
fishing vessels, which are well equipped to meet the needs of
even the most serious tournament-class competitor. The Hatteras
series features interiors that offer luxurious salon/galley
arrangements, multiple staterooms with private heads, and a
cockpit that includes a bait and tackle center, fishbox, and
freezer. The Bertram series feature interiors that offer
spacious living room and salon/galley arrangements, multiple
staterooms with private heads, and a cockpit that includes
storage for big catches, ample prep area, open sink area,
live-bait storage, and
stand-up rod
storage. The Cabo series are known for spacious cockpits and
accessibility to essentials, such as bait chests, livewells,
bait prep centers, and tackle lockers. Cabo interiors offer
elegance, highlighted by teak woodwork, halogen lighting, and
ample storage areas.
Pleasure Boats. Sea Ray and Meridian pleasure
boats target both the luxury and the family recreational boating
markets and come in a variety of configurations to suit each
customers particular recreational boating style. 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
multiple staterooms. Sea Ray sport yachts and yachts are
available in cabin, bridge cockpit, and cruiser models. 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 Rays sport
yacht and yacht models. Meridian sport yachts and yachts are
known for their
10
solid performance and thoughtful use of space with
360-degree
views and spacious salon, galley, and stateroom accommodations.
Meridian sport yachts and yachts are available in sedan,
motoryacht, and pilothouse models. All Sea Ray and Meridian
pleasure boats feature custom instrumentation that may include
an electronics package; various hull, deck, and cockpit designs
that can include a swim platform, bow pulpit, and raised bridge;
and various amenities, such as swivel bucket helm seats, lounge
seats, sun pads, wet bars, built-in ice chests, and refreshment
centers. Most Sea Ray and Meridian pleasure boats feature
Mercury or MerCruiser engines.
Fishing Boats. The fishing boats we offer,
such as Boston Whaler and Laguna, 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, rodholders, rigging stations,
cockpit coaming pads, and fresh and saltwater washdowns.
Specialty Boats. Pershing, Riva, Apreamare,
and Mochi Craft specialty boats and yachts are known for
exceptional quality, design, and innovation and are considered
premium products in their respective segments. The Pershing
series is considered a perfect blend of high performance,
luxury, and the comfort of perfectly blended interior space. The
Riva series is considered by those who want the best, expect the
best, and live the best as the luxury boat of choice. The
Apreamare series is considered one of the most exciting and most
desirable express cruisers on the market with an unparalleled
European design. The Mochi Craft series is an old-style
revolution that rediscovers the natural lines of the 1950s.
Used
Boat Sales
We sell 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. During fiscal 2006, used boat
sales accounted for approximately 17.0% of our revenue, and
approximately 75% of the used boats we sold 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 continue to increase our used boat business as a
result of the increased availability of quality used boats
generated from our expanding sales efforts, the increasing
number of used boats that are well-maintained through our
service initiatives, our ability to market used boats throughout
our combined dealership network to match used boat demand, and
the experience of our yacht brokerage operations. Additionally,
substantially all of our used boat inventory is posted on our
web site, www.MarineMax.com, which expands the awareness
and availability of our products to a large audience of boating
enthusiasts.
At most of our retail locations, we offer the Sea Ray Legacy
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, enhances 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, Related Marine Equipment, and Boating
Accessories
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. Mercury Marine has introduced various new engine
models that reduce engine emissions to comply with current
Environmental Protection Agency requirements. 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. Many of our operating
subsidiaries have been recognized by Mercury Marine as
Premier Service Dealers. This designation is
generally awarded based on meeting certain standards and
qualifications.
11
We also sell related marine parts and accessories, including
oils, lubricants, steering and control systems, corrosion
control products, engine care, maintenance, and service products
(primarily Mercury Marines Quicksilver line);
high-performance accessories (such as propellers) and
instruments; and a complete line of boating accessories,
including life jackets, inflatables, and water sports equipment.
We also offer novelty items, such as shirts, caps, and license
plates bearing the manufacturers or dealers logo.
The sale of marine engines, related marine equipment, and
boating accessories accounted for approximately 2.9% of our
fiscal 2006 revenue.
Maintenance,
Repair, and Storage Services
Providing customers with professional, prompt maintenance and
repair services is critical to our sales efforts and contributes
to our profitability. We provide maintenance and repair services
at most of our retail locations, with extended service hours at
certain of our locations. In addition, in many of our markets,
we provide mobile maintenance and repair services at the
location of the customers 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. To further this commitment, in
certain of our markets, we have opened stand-alone maintenance
and repair facilities in locations that are more convenient for
our customers and that increase the availability of such
services. 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.
We perform both warranty and non-warranty repair services, with
the cost of warranty work reimbursed by the manufacturer in
accordance with the manufacturers warranty reimbursement
program. For warranty work, Brunswick reimburses a percentage of
the dealers posted service labor rates, with the
percentage varying depending on the dealers 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.
The third-party extended warranty contracts we offer 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 manufacturer suggested
prices and market conditions for different parts.
At many of our locations, we offer boat storage services,
including in-water slip storage and inside and outside land
storage. These storage services are offered at competitive
market rates and include in-season and winter storage.
Maintenance, repair, and storage services accounted for
approximately 4.9% of our revenue during fiscal 2006. This
includes warranty and non-warranty services.
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 arrange insurance coverage,
including boat property, credit life, and accident, disability,
and casualty insurance coverage (collectively,
F&I).
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 lenders then current minimum required
annual percentage rate charged to the buyer on the contract.
This
12
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 offer third-party 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 to the customer above a
deductible. While we sell all new boats with the boat
manufacturers 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 manufacturers 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 manufacturers warranty. Generally,
we receive a fee for arranging an extended service contract.
Most required services under the contracts are provided by us
and paid for by the third-party contract holder.
We also are able to assist our customers with the opportunity to
purchase credit life insurance, accident and disability
insurance, and property and casualty insurance. 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. 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.
During fiscal 2006, fee income generated from F&I products
accounted for approximately 3.2% 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.
Brokerage
Services
Through employees or subcontractors 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. During fiscal 2006, brokerage services
accounted for approximately 1.1% of our revenue.
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 are 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 88 retail locations in
Alabama, Arizona, California, Colorado, Connecticut, Delaware,
Florida, Georgia, Maryland, Minnesota, Missouri, Nevada, New
Jersey, New York, North Carolina, Ohio, Oklahoma, Rhode Island,
South Carolina, Tennessee, Texas, and Utah. Each retail location
generally includes an indoor showroom (including some
13
of the industrys 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 nations most popular boating locations, including
the Delta Basin, Newport Harbor, and Mission Bay in California;
Norwalk Harbor in Connecticut; multiple locations on the
Intracoastal Waterway, the Atlantic Ocean, Biscayne Bay, Boca
Ciega Bay, Naples Bay (next to the Gulf of Mexico), Tampa Bay,
and the Caloosahatchee River in Florida; Lake Lanier and Lake
Altoona in Georgia; Chesapeake Bay in Maryland; Leech Lake and
the St. Croix River in Minnesota; Lake of the Ozarks, Table Rock
Lake, and the Mississippi River in Missouri; Barnegat Bay, the
Delaware River, the Hudson River, Lake Hopatcong, Little Egg
Harbor, and the Manasquan River in New Jersey; Great Sound Bay,
the Hudson River, and Huntington Harbor in New York; the
Intracoastal Waterway in North Carolina; Lake Erie in Ohio;
Grand Lake in Oklahoma; Myrtle Beach in South Carolina; and
Clear Lake, Lake Conroe, 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 customers 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. 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.
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. Training
sessions are held at our various regional locations covering a
variety of topics. MMU-online offers various modules over the
Internet. 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. Each store manager is a salaried employee with
incentive bonuses based on the performance of the managed
dealership. Maintenance and repair service managers receive
compensation on a salary basis with bonuses based on the
performance of their departments. Our management information
system provides each store and department manager with daily
financial and operational 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.
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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, our
no-hassle sales approach, highly trained sales representatives,
high level of customer service, emphasis on educating the
customer and the customers 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 manufacturers suggested
retail price. Our sales approach focuses on customer service by
minimizing customer anxiety associated with price negotiation.
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.
The boat shows also generate a significant amount of interest in
our products resulting in boat sales after the show.
We emphasize customer education through
one-on-one
education by our sales representatives and, at some locations,
our delivery captains, before and after a sale, and through
in-house seminars for the entire family on boat safety, the use
and operation of boats, and product demonstrations. Typically,
one of our delivery captains or the sales representative
delivers the customers 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 promote
actively 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
representatives 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
customers 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-related products from
Brunswick, which is the worlds largest manufacturer of
marine products, including Sea Ray, Boston Whaler, Baja, Cabo,
Hatteras, Princecraft, and Meridian. We also purchase new boats
and other marine related products from other manufacturers,
including Azimut, Bertram, Century, the Ferretti Group, Grady
White, Sea Pro, and Tracker Marine. In fiscal 2006, sales of new
Brunswick boats accounted for approximately 59% of our revenue.
No other manufacturer accounted for more than 10% of our revenue
in fiscal 2006. We believe our Sea Ray boat purchases
represented approximately 40% of Sea Rays new boat sales
and in excess of 13% of all Brunswick marine product sales
during fiscal 2006.
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Through operating subsidiaries, we have entered into agreements
with Brunswick covering Sea Ray products. 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. The
terms of the dealer agreement appoints a designated geographical
territory for the dealer, which is exclusive to the dealer as
long as the dealer is not in breach of the material obligations
and performance standards under the agreement and Sea Rays
then current material policies and programs following notice and
the expiration of any applicable cure periods without cure.
The dealer agreement with Ferretti Group and Bertram does not
restrict our right to sell any Ferretti Group and Bertram
product lines but has certain restrictions relating to competing
products. The dealer agreement appoints us as the exclusive
dealer for the retail sale, display, and servicing of designated
Ferretti Group and Bertram products and repair parts currently
or in the future sold by Ferretti Group and Bertram in the
designated geographic areas.
Upon the completion of the Surfside-3 acquisition, we became the
exclusive dealer for Azimut-Benetti Groups (Azimut)
product line of Azimut. The Azimut dealer agreement provides a
geographic territory to promote the product line and to network
with the appropriate clientele through various independent
locations designated for Azimut retail sales.
Arrangements with certain other manufacturers may restrict our
right to offer some product lines in certain markets.
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.
We transfer individual boats among our retail locations to fill
customer orders that otherwise might take substantially longer
to fill 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
levels appropriate to meet current anticipated market demands.
We are not bound by contractual agreements governing the amount
of inventory that we must purchase in any year from any
manufacturer, but the failure to purchase at agreed upon levels
may result in the loss of certain manufacturer incentives. 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.
In March 2003, the Emerging Issues Task Force (EITF) of the
Financial Accounting Standards Board (FASB) revised certain
provisions of its previously reached conclusions on EITF
02-16,
Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor (EITF
02-16), and
provided additional transitional guidance. We determined that
EITF 02-16
impacts the way we account for interest assistance received from
vendors beginning after July 1, 2003 with the renewal of
and amendments to our dealer agreements with the manufacturers
of our products. EITF
02-16 most
significantly requires us to classify interest assistance
received from manufacturers as a reduction of inventory cost and
related cost of sales as opposed to netting the assistance
against our interest expense incurred with our lenders.
Our revolving credit facility currently provides us with a line
of credit with asset-based borrowing availability of up to
$500 million for working capital and inventory financing
and an additional $20 million for traditional floorplan
borrowings, all of which are determined pursuant to a borrowing
base formula. The credit facility requires
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us to satisfy certain covenants, including maintaining a
tangible net worth ratio. The credit facility currently matures
in May 2011, with two one-year renewal options remaining. The
credit facility was last amended in June 2006 to extend the
terms and increase the borrowing availability.
As of September 30, 2006, we owed an aggregate of
$321.5 million under our revolving credit facility. As of
September 30, 2006, our revolving credit facility provided
us with an additional available borrowing capacity of
approximately $130.0 million. Advances on the facility
accrued interest at a rate of 6.8% as of September 30,
2006. We were in compliance with all covenants in the facility
as of September 30, 2006.
Management
Information System
We believe that our management information system, which
currently is being utilized by each of our operating
subsidiaries and was developed over a number of years through
cooperative efforts with the 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 dealerships 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. In October 2002, Brunswick
acquired the vendor of our management information system.
Brunswick
Agreement Relating to Acquisitions
We and the Sea Ray Division of Brunswick are parties to an
agreement extending through December 2015 that provides a
process for our continued growth through the acquisition of
additional Sea Ray boat dealers that desire to be acquired by
us. Under the agreement, acquisitions of Sea Ray dealers will be
mutually agreed upon by us and Sea Ray with reasonable efforts
to be made to include a balance of Sea Ray dealers that have
been successful and those that have not been. The agreement
provides that Sea Ray will not unreasonably withhold its consent
to any proposed acquisition of a Sea Ray dealer by us, subject
to the conditions set forth in the agreement. Among other
things, the agreement provides for us to provide Sea Ray with a
business plan for each proposed acquisition, including
historical financial and five-year projected financial
information regarding the acquisition candidate; marketing and
advertising plans; service capabilities and managerial and staff
personnel; information regarding the ability of the candidate to
achieve performance standards within designated periods; and
information regarding the success of our previous acquisitions
of Sea Ray dealers. The agreement also contemplates Sea Ray
reaching a good faith determination whether the acquisition
would be in its best interest based on our dedication and focus
of resources on the Sea Ray brand and Sea Rays
consideration of any adverse effects that the approval would
have on the resulting territory configuration and adjacent or
other dealers sales and the absence of any violation of
applicable laws or rights granted by Sea Ray to others.
Dealer
Agreements with Brunswick
Brunswick, through its Sea Ray division, and we, through our
principal operating subsidiaries, are parties to Sales and
Service Agreements relating to Sea Ray products extending
through December 2015. Each of these dealer agreements appoints
one of our operating subsidiaries as a dealer for the retail
sale, display, and servicing of designated Sea Ray products,
parts, and accessories currently or in the future sold by Sea
Ray. Each dealer agreement designates a designated geographical
territory for the dealer, which is exclusive to the dealer as
long as the dealer is not in breach of the material obligations
and performance standards under the agreement and Sea Rays
then current material policies and programs following notice and
the expiration of any applicable cure periods without cure. 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. Each dealer agreement also
restricts the dealer from selling, advertising (other than in
recognized and established
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marine publications), soliciting for sale, or offering for
resale any Sea Ray products outside its territory 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. In addition, each dealer agreement provides
for the lowest product prices charged by Sea Ray from time to
time to other domestic Sea Ray dealers, subject to the dealer
meeting all the requirements and conditions of Sea Rays
applicable programs and the right of Sea Ray 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.
Among other things, each dealer agreement requires the dealer to
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devote its best efforts to promote, display, advertise, and sell
Sea Ray products at each of its retail locations in accordance
with the agreement and applicable laws;
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display and utilize at each of its retail locations signs,
graphics, and image elements with Sea Rays identification
that positively reflect the Sea Ray image and promote the retail
sale of Sea Ray products;
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purchase and maintain at all times sufficient inventory of
current Sea Ray products to meet the reasonable demand of
customers at each of its locations and to meet Sea Rays
applicable minimum inventory requirements;
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maintain at each retail location, or at another acceptable
location, a service department that is properly staffed and
equipped to service Sea Ray products promptly and professionally
and to maintain parts and supplies to service Sea Ray products
properly on a timely basis;
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perform all necessary product rigging, installation, and
inspection services prior to delivery to purchasers in
accordance with Sea Rays standards and perform post-sale
services of all Sea Ray products sold by the dealer and brought
to the dealer for service;
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provide or arrange for warranty and service work for Sea Ray
products regardless of the selling dealer or condition of sale;
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exercise reasonable efforts to address circumstances in which
another dealer has made a sale to an original retail purchases
who permanently resides within the dealers territory where
such sale is contrary to the selling dealers Sales and
Service Agreement;
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provide appropriate instructions to purchasers on how to obtain
warranty and service work from the dealer;
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furnish product purchasers with Sea Rays limited warranty
on new products and with information and training as to the safe
and proper operation and maintenance of the products;
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assist Sea Ray in performing any product defect and recall
campaigns;
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achieve sales performance in accordance with fair and reasonable
standards and sales levels established by Sea Ray in
consultation with the dealer based on factors such as
population, sales potential, market share percentage of Sea Ray
products sold in the territory compared with competitive
products sold in the territory, local economic conditions,
competition, past sales history, number of retail locations, and
other special circumstances that may affect the sale of Sea Ray
products or the dealer, in each case consistent with standards
established for all domestic Sea Ray dealers selling comparable
products;
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provide designated financial information that are truthful and
accurate;
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conduct its business in a manner that preserves and enhances the
reputation and goodwill of both Sea Ray and the dealer for
providing quality products and services;
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maintain the financial ability to purchase and maintain on hand
and display Sea Rays current product models;
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maintain customer service ratings in compliance with Sea
Rays criteria;
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comply with those dealers obligations that may be imposed
or established by Sea Ray applicable to all domestic Sea Ray
dealers;
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maintain a financial condition that is adequate to satisfy and
perform its obligations under the agreement;
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achieve within designated time periods or maintain motor dealer
status (which is Sea Rays highest performance status) or
other applicable certification requirements as established from
time to time by Sea Ray applicable to all domestic Sea Ray
dealers;
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notify Sea Ray of the addition or deletion of any retail
locations;
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sell Sea Ray products only on the basis of Sea Rays
published applicable limited warranty and make no other warranty
or representations concerning the limited warranty, expressed or
implied, either verbally or in writing;
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provide timely warranty service on all Sea Ray products
presented to the dealer by purchasers in accordance with Sea
Rays then current warranty program applicable to all
domestic Sea Ray dealers selling comparable Sea Ray
products; and
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provide Sea Ray with access to the dealers books and
records and such other information as Sea Ray may reasonably
request to verify the accuracy of the warranty claims submitted
to Sea Ray by the dealer with regard to such warranty claims;
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Sea Ray has agreed to indemnify each of our dealers against any
losses to third parties resulting from Sea Rays negligent
acts or omissions involving the design or manufacture of any of
its products or any breach by it of the agreement. Each of our
dealers has agreed to indemnify Sea Ray against any losses to
third parties resulting from the dealers negligent acts or
omissions involving the dealers application, use, or
repair of Sea Ray products, statements or representation not
specifically authorized by Sea Ray, the installation of any
after market components or any other modification or alteration
of Sea Ray products, and any breach by the dealer of the
agreement.
Each dealer agreement may be terminated
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by Sea Ray, upon 60 days prior written notice, if the
dealer fails or refuses to place a minimum stocking order of the
next model years 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
dealers lenders;
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by Sea Ray or the dealer, upon 60 days written notice to
the other, in the event of a breach or default by the other with
any of the of the material obligations, performance standards,
covenants, representations, warranties, or duties imposed by the
agreement or the Sea Ray manual that has not been cured within
60 days of the notice of the claimed deficiency or within a
reasonable period when the cure cannot be completed within a
60-day
period, or at the end of the
60-day
period without the opportunity to cure when the cause
constitutes bad faith;
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by Sea Ray or the dealer if the other makes a fraudulent
misrepresentation that is material to the agreement or the other
engages in an incurable act of bad faith;
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by Sea Ray or the dealer in the event of the insolvency,
bankruptcy, or receivership of the other;
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by Sea Ray in the event of the assignment of the agreement by
the dealer without the prior written consent of Sea Ray;
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by Sea Ray upon at least 15 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; and
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upon the mutual consent of Sea Ray and the dealer.
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Employees
As of September 30, 2006, we had 2,182 employees, 2,090 of
whom were in store-level operations and 92 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.
19
Trademarks
and Service Marks
We have registered trade names and trademarks with the
U.S. Patent and Trademark Office for various names,
including MarineMax, MarineMax
Getaways!, MarineMax Care, Delivering
the Dream, MarineMax Delivering the Boating
Dream, Newcoast Financial Services,
MarineMax Boating Gear Center, and Women on
Water. We have registered the name MarineMax
in the European Community. We have a trademark application
pending with the U.S. Patent and Trademark Office for
Value Price. We have trade name and trademark
applications pending in Canada for various names, including
MarineMax, MarineMax Value-Price,
Value-Price, Delivering the Dream,
Selling and Delivering the Dream, Selling the
Dream, and The Water Gene. 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, with seasonality varying in
different geographic markets. Over the three-year period ended
September 30, 2006, the average revenue for the quarters
ended December 31, March 31, June 30, and
September 30 represented approximately 18%, 25%, 32%, and
25%, respectively, of our average annual revenues. With the
exception of Florida, we generally realize significantly lower
sales and higher levels of inventories and related short-term
borrowings, in the quarterly periods ending December 31 and
March 31. The onset of the public boat and recreation shows
in January stimulates boat sales and allows us to reduce our
inventory levels and related short-term borrowings throughout
the remainder of the fiscal year.
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, as was the case during fiscal 2005
and 2006 when Florida and other markets were affected by
numerous hurricanes. Although our geographic diversity is likely
to reduce the overall impact to us of adverse weather conditions
in any one market area, these conditions will continue to
represent potential, material adverse risks to us and our future
financial performance.
Environmental
and Other Regulatory Issues
Our operations are subject to extensive regulation, supervision,
and licensing under various federal, state, and local statutes,
ordinances, and regulations. While we believe that we maintain
all requisite licenses and permits and are in compliance with
all applicable federal, state, and local regulations, there can
be no assurance that we will be able to maintain all requisite
licenses and permits. The failure to satisfy those and other
regulatory requirements could have a material adverse effect on
our business, financial condition, and results of operations.
The adoption of additional laws, rules, and regulations could
also have a material adverse effect on our business. Various
federal, state, and local regulatory agencies, including the
Occupational Safety and Health Administration, or OSHA, the
United States Environmental Protection Agency, or 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 more strict 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. The majority of the
outboard marine engines we sell are manufactured by Mercury
Marine. Mercury Marines product line of low-emission
engines, including the OptiMax, Verado and other four-stroke
outboards, have already achieved the EPAs mandated 2006
emission levels. Any increased costs of producing engines
resulting from EPA standards or the inability of our
manufacturers to comply with EPA requirements, could have a
material adverse effect on our business.
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 local laws
and regulations that require testing and upgrading of USTs and
remediation of contaminated soils and groundwater resulting from
leaking
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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 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, two of
our properties are within the boundaries of a
Superfund site, although neither property has been
nor is expected to be identified as a contributor to the
contamination in the area. We, however, do not believe that
these environmental issues will result in any material
liabilities to us.
Additionally, certain states have required or are considering
requiring a license in order to operate a recreational boat.
While such licensing requirements are not expected to be unduly
restrictive, regulations may discourage potential first-time
buyers, thereby limiting future sales, which could adversely
affect our business, financial condition, and results of
operations.
Product
Liability
The products we sell or service may expose us to potential
liabilities for personal injury or property damage claims
relating to the use of those products. Historically, the
resolution of product liability claims has not materially
affected our business. Our manufacturers generally maintain
product liability insurance, and we maintain third-party product
liability insurance, which we believe to be adequate. However,
we may experience legal claims in excess of our insurance
coverage, and those claims may not 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. Excessive insurance
claims also could result in increased insurance premiums.
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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:
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Name
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Age
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Position
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William H. McGill Jr.
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63
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Chairman of the Board, President,
Chief Executive Officer, and Director
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Michael H. McLamb
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41
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Executive Vice President, Chief
Financial Officer, Secretary, and Director
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Kurt M. Frahn
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38
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Vice President of Finance and
Treasurer
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Jack P. Ezzell
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36
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Vice President, Chief Accounting
Officer, and Controller
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Edward A. Russell
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46
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Vice President of Operations
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Michael J. Aiello
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50
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Vice President
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Anthony M. Aisquith
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39
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Vice President
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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 23, 1988 until September 8,
2000 and re-assumed the position on July 1, 2002.
Mr. McGill was the principal owner and president of
Gulfwind USA, Inc., one of our operating subsidiaries, from 1973
until its merger with us.
Michael H. McLamb has served as Executive Vice President
of our company since October 2002, as Chief Financial
Officer since January 23, 1998, as Secretary since
April 5, 1998, and as a director of our company since
November 1, 2003. Mr. McLamb served as Vice President
and Treasurer of our company from January 23, 1998 until
October 22, 2002. 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.
Kurt M. Frahn has served as Vice President of Finance and
Treasurer of our company since October 22, 2002.
Mr. Frahn served as Director of Taxes and Acquisitions of
our company from May 15, 1998 until October 22, 2002.
Mr. Frahn was employed by Arthur Andersen LLP from
September 3, 1991 until May 15, 1998, serving most
recently as a tax consulting manager.
Jack P. Ezzell has served as Vice President and Chief
Accounting Officer of our company since October 22, 2002
and as Corporate Controller of our company since June 1,
1999. Mr. Ezzell served as Assistant Controller from
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January 13, 1998 until June 1, 1999. Mr. Ezzell,
a certified public accountant, was employed by Arthur Andersen
LLP from August 1996 until January 1998, serving most recently
as a senior auditor.
Edward A. Russell has served as Vice President of
Operations since March 2006. Mr. Russell has been a Vice
President of our company since October 22, 2002.
Mr. Russell has served as the Regional Manager of our
Florida operations since August 1, 2002. Prior to that,
Mr. Russell served as the District President for our
Central and West Florida operations from March 1998 until
August 1, 2002. Mr. Russell was an owner and General
Sales Manager of Gulfwind USA Inc., one of our operating
subsidiaries, now called MarineMax of Central Florida, from 1984
until its merger with our company in March 1998.
Michael J. Aiello has served as Vice President of our
company since October 22, 2002. Mr. Aiello has served
as the Regional Manager of the state of New Jersey and
surrounding areas since 1999 and was a principal owner and
operator of Merit Marine Inc., one of our operating
subsidiaries, now called MarineMax of Mid-Atlantic, from 1985
until its merger with our company in March 1999.
Anthony M. Aisquith has served as Vice President of our
company since November 1, 2003. Mr. Aisquith has
served as the Regional Manager of our Georgia, Carolinas, Texas,
and California operations since August 1, 2000,
March 1, 2002, March 15, 2003, and March 1, 2004,
respectively. Mr. Aisquith previously served as the Store
Manager of our Tampa, Florida location from October 1, 1997
until August 1, 2000 and as a salesperson in our
Clearwater, Florida location from June 18, 1995 until
October 1, 1997. Mr. Aisquith joined our company on
June 18, 1995 after 10 years of experience in the auto
industry.
Our
success depends to a significant extent on the continued
popularity and reputation for quality of the boating products of
our manufacturers, particularly Brunswicks Sea Ray,
Meridian and Hatteras boat lines, Ferretti Groups Ferretti
Yachts, Riva, Pershing, and Bertram product lines and
Azimut-Benetti Groups Azimut and Atlantis
products.
Approximately 59% of our revenue in fiscal 2006 resulted from
sales of new boats manufactured by Brunswick, including
approximately 45% from Brunswicks Sea Ray division and
approximately 6% from Brunswicks Hatteras Yacht division.
The remainder of our fiscal 2006 revenue from new boat sales
resulted from sales of products from a limited number of other
manufacturers, none of which accounted for more than 10% of our
revenue. Any adverse change in the financial condition,
production efficiency, product development, management,
marketplace acceptance and marketing capabilities of our
manufacturers, particularly Brunswick given our reliance on Sea
Ray, Meridian, and Hatteras, would have a substantial adverse
impact on our business. Additionally, given the revenue
generated by each yacht and mega-yacht sale, any adverse change
in the financial condition, production efficiency, product
development, management, marketplace acceptance, and marketing
capabilities of Ferretti Group would have a substantial adverse
impact on our business.
To ensure adequate inventory levels to support our expansion, it
may be necessary for Brunswick and other manufacturers to
increase production levels or allocate a greater percentage of
their production to us. The interruption or discontinuance of
the operations of Brunswick or other manufacturers could cause
us to experience shortfalls, disruptions, or delays with respect
to needed inventory. Although we believe that adequate alternate
sources would be available that could replace any manufacturer
other than Brunswick as a product source, those alternate
sources may not be available at the time of any interruption,
and alternative products may not 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 multi-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
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the dealer meeting all the requirements and conditions of Sea
Rays applicable programs; and
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the right of Brunswick in good faith to charge lesser prices to
other dealers;
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to meet existing competitive circumstances;
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for unusual and non-ordinary business circumstances; or
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for limited duration promotional programs.
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Each dealer agreement designates a designated geographical
territory for the dealer, which is exclusive to the dealer as
long as the dealer is not in breach of the material obligations
and performance standards under the agreement and Sea Rays
then current material policies and programs following notice and
the expiration of any applicable cure periods without cure.
Through certain of our operating subsidiaries, we also maintain
dealer agreements with Hatteras covering Hatteras products. Each
agreement allows Hatteras to revise prices at any time, and such
new prices will supersede previous prices. Pursuant to the
agreement, we must bear any losses we incur as a result of such
price changes and may not recover from Hatteras for any losses.
In addition, certain of our operating subsidiaries may not
represent manufacturers or product lines that compete directly
with Hatteras without its prior written consent.
Upon the completion of the Surfside-3 acquisition, we became the
exclusive dealer for Azimut-Benetti Groups product line of
Azimut. The Azimut dealer agreement provides a geographic
territory to promote the product line and to network with the
appropriate clientele through various independent locations
designated for Azimut retail sales.
As is typical in the industry, we deal with 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 in the manufacturers
sole discretion. Any change or termination of these arrangements
for any reason could adversely affect product availability and
cost and our financial performance.
Our
operations depend upon a number of factors relating to or
affecting consumer spending for luxury goods, such as
recreational boats.
Unfavorable local, regional, national, or global 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 and
impact the profitability of our finance and insurance
activities. 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.
General
economic conditions and competitive factors that impact the
recreational boating industry could inhibit our growth and
negatively impact our profitability.
General economic conditions, consumer spending patterns, federal
tax policies, interest rate levels, and the cost and
availability of fuel can impact overall boat purchases. Economic
conditions in areas in which we operate dealerships,
particularly Florida in which we generated 53%, 55%, and 46% of
our revenue during fiscal years 2004, 2005 and 2006,
respectively, can have a major impact on our operations. We also
believe that the level of boat purchases has been adversely
affected by 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 expanded our operations during periods of
stagnant or
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declining industry trends, the cyclical nature of the
recreational boating industry or the lack of industry growth
could adversely affect our business, financial condition, or
results of operations in the future.
Our
success depends, in part, on our ability to continue to make
successful acquisitions and to integrate the operations of
acquired dealers and each dealer we acquire in the
future.
Since March 1, 1998, we have acquired 20 recreational boat
dealers, two boat brokerage operations, and two full-service
yacht repair facilities. Each acquired dealer operated
independently prior to its acquisition by us. Our success
depends, in part, on our ability to continue to make successful
acquisitions and to integrate the operations of acquired dealers
and each dealer 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. We 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 pursue our acquisition strategy, our
resulting growth will place significant additional demands on
our management and infrastructure. Our failure to pursue
successfully our acquisition strategies or operate effectively
the combined entity could have a material adverse effect on our
rate of growth and operating performance.
Unforeseen
expenses, difficulties, and delays frequently encountered in
connection with rapid expansion through acquisitions could
inhibit our growth and negatively impact our
profitability.
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 or increased asking prices by 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.
Acquisitions also may become more difficult in the future as we
acquire more of the most attractive dealers. 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:
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the availability of suitable acquisition candidates at
attractive purchase prices;
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the ability to compete effectively for available acquisition
opportunities;
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the availability of funds or common stock with a sufficient
market price to complete the acquisitions;
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the ability to obtain any requisite manufacturer or governmental
approvals; and
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the absence of one or more manufacturers attempting to impose
unsatisfactory restrictions on us in connection with their
approval of acquisitions.
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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
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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
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.
We and the Sea Ray Division of Brunswick have an agreement
extending through June 2015 that provides a process for our
continued growth through the acquisition of additional Sea Ray
boat dealers that desire to be acquired by us. Under the
agreement, acquisitions of Sea Ray dealers will be mutually
agreed upon by us and Sea Ray with reasonable efforts to be made
to include a balance of Sea Ray dealers that have been
successful and those that have not been. The agreement provides
that Sea Ray will not unreasonably withhold its consent to any
proposed acquisition of a Sea Ray dealer by us, subject to the
conditions set forth in the agreement. Among other things, the
agreement provides for us to provide Sea Ray with a business
plan for each proposed acquisition, including historical
financial and five-year projected financial information
regarding the acquisition candidate; marketing and advertising
plans; service capabilities and managerial and staff personnel;
information regarding the ability of candidate to achieve
performance standards within designated periods; and information
regarding the success of our previous acquisitions of Sea Ray
dealers. The agreement also contemplates Sea Ray reaching a good
faith determination whether the acquisition would be in its best
interest based on our dedication and focus of resources on the
Sea Ray brand and Sea Rays consideration of any adverse
effects that the approval would have on the resulting territory
configuration and adjacent or other dealers sales and the
absence of any violation of applicable laws or rights granted by
Sea Ray to others.
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 the growth and
profitability of our business.
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, among other things. 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:
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the termination of the dealer agreement;
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the imposition of additional conditions in subsequent dealer
agreements;
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limitations on boat inventory allocations;
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reductions in reimbursement rates for warranty work performed by
the dealer;
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loss of certain manufacturer to dealer incentives; or
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denial of approval of future acquisitions.
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Our dealer agreements with certain manufacturers, including
Brunswick, 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 our competitive position and financial performance.
The
failure to receive rebates and other dealer incentives on
inventory purchases could substantially reduce our
margins.
We rely on manufacturers programs that provide incentives
for dealers to purchase and sell particular boat makes and
models or for consumers to buy particular boat makes or models.
Any eliminations, reductions, limitations, or other changes
relating to rebate or incentive programs that have the effect of
reducing the benefits we receive could increase the effective
cost of our boat purchases, reduce our margins and competitive
position, and have a material adverse effect on our financial
performance.
Our
growth strategy may require us to secure significant additional
capital, the amount of which 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 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 revolving credit facility provides a line of credit
with asset-based borrowing availability of up to
$500 million and allows us $20 million in traditional
floorplan borrowings. We have pledged various of our assets,
including boat inventories, accounts receivable, equipment, and
fixtures, to secure borrowings under our credit facility. 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 of opening new
locations and offering new products 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:
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our ability to identify new markets in which we can obtain
distribution rights to sell our existing or additional product
lines;
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our ability to lease or construct suitable facilities at a
reasonable cost in existing or new markets;
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our ability to hire, train, and retain qualified personnel;
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the timely integration of new retail locations into existing
operations;
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our ability to achieve adequate market penetration at favorable
operating margins without the acquisition of existing
dealers; and
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our financial resources.
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Our dealer agreements with Brunswick require Brunswicks
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 to 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.
Our
business, as well as the entire recreational boating industry,
is highly seasonal, with seasonality varying in different
geographic markets. In addition, weather conditions may
adversely impact our business.
During the three-year period ended September 30, 2006, the
average revenue for the quarterly periods ended
December 31, March 31, June 30, and
September 30 represented 18%, 25%, 32%, and 25%,
respectively, of our average annual revenues. With the exception
of Florida, we generally realize significantly lower sales in
the quarterly periods ending December 31 and March 31.
The onset of the public boat and recreation shows in January
stimulates boat sales and allows us to reduce our inventory
levels and related short-term borrowings throughout the
remainder of the fiscal year. 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 as was the case during fiscal 2005
and 2006 when Florida and other markets were affected by
numerous hurricanes. Many of our dealerships sell boats to
customers for use on reservoirs, thereby subjecting our business
to the continued viability of these reservoirs for boating use.
Although our geographic diversity and our future geographic
expansion will reduce the overall impact on us of adverse
weather conditions in any one market area, weather conditions
will continue to represent potential material adverse risks to
us and our future operating performance. As a result of the
foregoing and other factors, our operating results in some
future quarters could be below the expectations of stock market
analysts and investors.
We
face intense competition.
We operate in a highly competitive environment. In addition to
facing competition generally from non-boating recreation
businesses seeking to attract discretionary spending dollars,
the recreational boat industry itself is highly fragmented and
involves intense competition for customers, product distribution
rights, and suitable retail locations, particularly on or near
waterways. Competition increases during periods of stagnant
industry growth.
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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.
Due to various matters, including environmental concerns,
permitting and zoning requirements and competition for
waterfront real estate, some markets in the United States have
experienced an increased waiting list for marina and storage
availability. In general, the markets in which we currently
operate are not experiencing any unusual difficulties. However,
marine retail activity could be adversely effected in markets
that do not have sufficient marine and storage availability to
satisfy demand.
The
availability of boat insurance is critical to our
success.
The ability of our customers to secure reasonably affordable
boat insurance that is satisfactory to lenders that finance our
customers purchase is critical to our success.
Historically, affordable boat insurance has been available. With
the hurricanes that have impacted the state of Florida and other
markets over the past several years, insurance rates have
escalated and insurance coverage has become more difficult to
obtain. Any difficulty of customers to obtain affordable boat
insurance could adversely affect our business.
We
depend on income from financing, insurance, and extended service
contracts.
A portion of our income results from referral fees derived from
the placement or marketing 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 2006,
F&I products accounted for approximately 3.2% 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 and the current rate environment. Lenders may
impose terms in their boat financing arrangements with us that
may be unfavorable to us or our customers, resulting in reduced
demand for our customer financing programs and lower
participation and other fees.
The reduction of profit margins on sales of F&I products or
the lack of demand for or the unavailability of these products
could have a material adverse effect on our operating margins.
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 certain of our executive officers, we
cannot assure that these or other executive personnel will
remain with us. Our expanding operations may require us to add
additional executive personnel in the future. 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 businesses 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.
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 subject us to damages, result in higher
insurance costs, and harm our business reputation with potential
customers.
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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
OSHA or the EPA, and similar federal and local agencies, have
jurisdiction over the operation of our dealerships, repair
facilities, and other operations, with respect to matters such
as consumer protection, workers safety, and laws regarding
protection of the environment, 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. The majority of the
outboard marine engines we sell are manufactured by Mercury
Marine. Mercury Marines product line of low-emission
engines, including the OptiMax, Verado and other four-stroke
outboards, have already achieved the EPAs mandated 2006
emission levels. Any increased costs of producing engines
resulting from EPA standards or the inability of our
manufacturers to comply with EPA requirements, could have a
material adverse effect on our business.
Certain of our facilities own and operate 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
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owners or operators of facilities at, from, or to which a
release of hazardous substances has occurred;
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parties who generated hazardous substances that were released at
such facilities; and
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parties who transported or arranged for the transportation of
hazardous substances to such facilities.
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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, more strict
30
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, two of
our properties are within the boundaries of a
Superfund site, although neither property has 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
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 evaluate goodwill and identifiable intangible assets for
impairment annually and we would recognize an impairment loss if
the carrying amount of goodwill or an identifiable intangible
asset exceeds its fair value.
Intangible assets and goodwill represent the excess of the
purchase price of businesses acquired over the fair value of the
net tangible assets acquired at the date of acquisition. We have
determined that our most significantly acquired specifically
identifiable intangible assets are dealer agreements, which are
indefinite-lived intangibles.
Goodwill and identifiable intangible assets are accounted for in
accordance with Statement of Financial Accounting Standards
No. 141, Business Combinations (SFAS 141),
and Statement of Financial Accounting Standards No. 142,
Goodwill and other Intangible Assets
(SFAS 142). SFAS 141 requires that all business
combinations initiated after June 30, 2001 be accounted for
using the purchase method of accounting and identifiable
intangible assets acquired in a business combination be
recognized as assets and reported separately from goodwill.
SFAS 142 requires that goodwill and indefinite-lived
intangible assets no longer be amortized, but instead tested for
impairment at least annually and whenever events or changes in
circumstances indicate that the carrying value may not be
recoverable. If the carrying amount of an identifiable
intangible asset or goodwill exceeds its fair value, we would
recognize an impairment loss. We measure any potential
impairment based on various business valuation methodologies,
including a projected discounted cash flow method. We completed
the annual impairment test during the fourth quarter of fiscal
2005, based on financial information as of the third quarter of
fiscal 2005, which resulted in no impairment of goodwill or
identifiable intangible assets. To date, we have not recognized
any impairment of goodwill or identifiable intangible assets.
Prior to the adoption of SFAS 142, all purchase price in
excess of the tangible assets acquired was recorded as goodwill
and no identifiable intangible assets were recognized.
Identifiable intangible assets and net goodwill amounted to
$94.1 million and $22.1 million, respectively, as of
September 30, 2006.
Impairment of the identifiable intangible assets or goodwill or
regulatory action that changes the impairment testing
methodology, requires amortization, or a write-off of
identifiable intangible assets or goodwill may materially and
adversely affect the financial position of our company. A
reduction in net income resulting from the impairment of
identifiable intangible assets or goodwill may have an adverse
impact upon the market price of our common stock.
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 of our common stock
include the following:
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variations in operating results;
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the thin trading volume and relatively small public float of our
common stock;
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the level and success of our acquisition program and new store
openings;
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variations in same-store sales;
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the success of dealership integration;
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relationships with manufacturers;
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changes in earnings estimates published by analysts;
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general economic, political, and market conditions;
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seasonality and weather conditions;
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governmental policies and regulations;
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the performance of the recreational boat industry in
general; and
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factors relating to suppliers and competitors.
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In addition, market demand for small-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.
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, 2006, there were outstanding
18,529,524 shares of our common stock. Substantially all of
these shares are 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, which generally include our
directors, officers, and certain principal stockholders, are
subject to the resale limitations of Rule 144 described
below. Outstanding shares of common stock issued in connection
with the acquisition of any acquired dealers are 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, 2006, we had issued options to purchase
approximately 2,364,538 shares of common stock under our
1998 incentive stock plan and we issued 446,684 of the
750,000 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. If issued pursuant to an effective
registration statement, 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 or membership interests of our
corporate or limited liability company subsidiaries, including
the operating subsidiaries. As a holding company without
independent means of generating operating revenue, we depend on
dividends and other
32
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.
We do
not pay cash dividends.
We have never paid cash dividends on our common stock. Moreover,
financial covenants under certain of our credit facilities
restrict our ability to pay dividends.
Our
stockholders rights plan may adversely affect existing
stockholders.
Our Stockholders Rights Plan may have the effect of
deterring, delaying, or preventing a change in control that
might otherwise be in the best interests of our stockholders.
Under the Rights Plan, we issued a dividend of one Preferred
Share Purchase Right for each share of our common stock held by
stockholders of record as of the close of business on
September 7, 2001.
In general, subject to certain limited exceptions, the stock
purchase rights become exercisable when a person or group
acquires 15% or more of our common stock or a tender offer or
exchange offer for 15% or more of our common stock is announced
or commenced. After any such event, our other stockholders may
purchase additional shares of our common stock at 50% of the
then-current market price. The rights will cause substantial
dilution to a person or group that attempts to acquire us on
terms not approved by our board of directors. The rights may be
redeemed by us at $0.01 per stock purchase right at any
time before any person or group acquires 15% or more of our
outstanding common stock. The rights should not interfere with
any merger or other business combination approved by our board
of directors. The rights expire on August 28, 2011.
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 certificate of incorporation and bylaws divide the board of
directors into three classes of directors elected for staggered
three-year terms. The 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
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.
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.
Our
sales of Ferretti Group and Azimut product may be adversely
affected by fluctuations in currency exchange rates between the
U.S. dollar and the Euro.
Products purchased from the Italy-based Ferretti Group and
Azimut are subject to fluctuations in the Euro to
U.S. dollar exchange rate, which ultimately may impact the
retail price at which we can sell such products. As a result,
fluctuations in the value of the Euro as compared with the
U.S. dollar may impact the price points at which we can
sell profitably Ferretti Group and Azimut products, and such
price points may not be competitive with other product lines in
the United States. Accordingly, such fluctuations in exchange
rates ultimately may impact the
33
amount of revenue, cost of goods sold, cash flows, and earnings
we recognize for the Ferretti Group and Azimut product lines.
The impact of these currency fluctuations could increase,
particularly as our revenue from the Ferretti Group and Azimut
products increase as a percentage of our total revenue. We also
could incur losses from hedging transactions designed to reduce
our risk to fluctuation in exchange rates. We cannot predict the
effects of exchange rate fluctuations or currency rate hedges on
our operating results. Therefore, in certain cases, we have
entered into foreign currency cash flow hedges to reduce the
variability of cash flows associated with firm commitments to
purchase boats and yachts from Ferretti Group.. We cannot assure
that our strategies will adequately protect our operating
results from the effects of exchange rate fluctuations.
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Item 1B.
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Unresolved
Staff Comments
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Not applicable.
We lease our corporate offices in Clearwater, Florida. We also
lease 52 of our retail locations under leases, many of which
contain multi-year renewal options and some of which grant us a
first right of refusal to purchase the property at fair value.
In most cases, we pay a fixed rent at negotiated 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 34 other retail
locations and operate 2 additional locations as noted below.
The following table reflects the status, approximate size, and
facilities of our various retail locations as of the date of
this report.
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Square
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Operated
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Location
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Location Type
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Footage(1)
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Facilities at Property
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Since(2)
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Waterfront
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Alabama
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Gulf Shores
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Company owned
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4,000
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Retail and service
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1998
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Arizona
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Tempe
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Company owned
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34,000
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Retail and service
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1992
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California
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Newport Beach
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Third-party lease
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1,900
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Retail only; 16 wet slips
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2005
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Newport Bay
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Oakland
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Third-party lease
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17,700
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Retail and service; 20 wet slips
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1985
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Alameda Estuary
(San Francisco Bay)
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Santa Rosa
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Company owned
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8,100
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Retail and service
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1990
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Sacramento
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Company owned
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24,800
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Retail and service
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1995
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San Diego
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Third-party lease
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9,500
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Retail and service
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2004
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San Diego (Shelter Island)
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Third-party lease
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930
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Retail and service; 20 wet slips
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2005
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Mission Bay
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Lodi
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Third-party lease
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2,400
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Retail only; 15 wet slips
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1999
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Sacramento River
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Colorado
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Denver
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Third-party lease
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16,400
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Retail, service, and storage
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2003
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Grand Junction
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Third-party lease
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9,300
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Retail, service, and storage
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1986
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Connecticut
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Norwalk
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Third-party lease
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7,000
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Retail and service
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1994
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Norwalk Harbor
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Delaware
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Bear
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Third-party lease
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5,000
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Retail and service; 15 wet slips
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1995
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Between Delaware Bay and
Chesapeake Bay
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34
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Square
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Operated
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Location
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Location Type
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Footage(1)
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Facilities at Property
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Since(2)
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Waterfront
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Florida
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Cape Haze
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Company owned
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18,000
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Retail, service, and storage; 8
wet slips
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1972
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Intracoastal Waterway
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Clearwater
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Company owned
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42,000
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Retail and service; 20 wet slips
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1973
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Tampa Bay
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Cocoa
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Company owned
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15,000
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Retail and service
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1968
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Coconut Grove
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Third-party lease
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2,000
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Retail only; 24 wet slips
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2002
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Biscayne Bay
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Dania
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Company owned
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32,000
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Repair and service; 16 wet slips
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1991
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Port Everglades
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Destin
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Third-party lease
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2,200
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Retail only; 8 wet slips
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2005
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Destin Harbor
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Ft Lauderdale (Pier 66)
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Third-party lease
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2,400
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Retail and service; 12 wet slips
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1977
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Intracoastal Waterway
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Fort Myers
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Third-party lease
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8,000
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Retail and service; 18 wet slips
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1983
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Caloosahatchee River
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Ft Walton Beach
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Third-party lease
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4,800
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Retail only
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2003
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Key Largo
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Third-party brokerage
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750
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Retail only
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2002
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Jacksonville
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Company owned
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15,000
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Retail and service
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2004
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Jacksonville
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Third-party lease
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1,000
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Retail only; 7 wet slips
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1995
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St Johns River
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Miami
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Company owned
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7,200
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Retail and service; l5 wet slips
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1980
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Little River
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Miami
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Company owned
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5,000
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Service only; l1 wet slips
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2005
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Little River
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Naples
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Company owned
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19,600
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Retail and service; 14 wet slips
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1997
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Naples Bay
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North Palm Beach
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Company owned
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22,800
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Retail and service; 8 wet slips
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1998
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Intracoastal Waterway
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Pensacola
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Third-party lease
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24,300
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Retail and service
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1974
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Pompano Beach
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Company owned
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23,000
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Retail and service; 16 wet slips
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1990
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Intracoastal Waterway
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Pompano Beach
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Company owned
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5,400
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Retail and service; 24 wet slips
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2005
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Intracoastal Waterway
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Sarasota
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Third-party lease
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26,500
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Retail, service, and storage; 15
wet slips
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1972
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Sarasota Bay
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St, Petersburg(3)
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Joint venture
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15,000
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Yacht service, 20 wet slips
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2006
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Boca Ciega Bay
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Stuart
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Company owned
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22,400
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Retail and service; 6 wet slips
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2002
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Intracoastal Waterway
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Stuart
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Company owned
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6,700
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Retail and service; 60 wet slips
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1994
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Intracoastal Waterway
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Tampa
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Company owned
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13,100
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Retail and service
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1995
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35
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Square
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Operated
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Location
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Location Type
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Footage(1)
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Facilities at Property
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Since(2)
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Waterfront
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Venice
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Company owned
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62,000
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Retail, service, and storage; 90
wet slips
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1972
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Intracoastal Waterway
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Georgia
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Allatoona
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Third-party lease
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8,800
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Retail and service; 4 wet slips
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2002
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Lake Allatoona
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Buford (Atlanta)
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Company owned
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13,500
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Retail and service
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2001
|
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Cumming (Atlanta)
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Third-party lease
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13,000
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Retail and service; 50 wet slips
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1981
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Lake Lanier
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Forest Park (Atlanta)
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Third-party lease
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47,300
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Retail, service, and storage
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1973
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Maryland
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|
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Baltimore
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Third-party lease
|
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8,000
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Retail and service; 17 wet slips
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2005
|
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Baltimore Inner Harbor
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White Marsh
|
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Company owned
|
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19,800
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Retail and service
|
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1958
|
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Joppa
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Company owned
|
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28,400
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Retail, service, and storage; 294
wet slips
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1966
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Gunpowder River
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Minnesota
|
|
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Bayport
|
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Third-party lease
|
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450
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Retail only; 10 wet slips
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1996
|
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St Croix River
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Oakdale
|
|
Third-party lease
|
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18,500
|
|
Retail and service
|
|
1997
|
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Rogers
|
|
Company owned
|
|
70,000
|
|
Retail, service, and storage
|
|
1991
|
|
|
Walker
|
|
Company owned
|
|
76,400
|
|
Retail, service, and storage
|
|
1989
|
|
|
Walker
|
|
Company owned
|
|
6,800
|
|
Retail and service; 93 wet slips
|
|
1977
|
|
Leech Lake
|
Missouri
|
|
|
|
|
|
|
|
|
|
|
Kimberling City
|
|
Third-party lease
|
|
500
|
|
Retail only; 7 wet slips
|
|
2000
|
|
Table Rock Lake
|
Lake Ozark
|
|
Company owned
|
|
60,300
|
|
Retail and service; 300 wet slips
|
|
1987
|
|
Lake of the Ozarks
|
Laurie
|
|
Company owned
|
|
700
|
|
Retail and service
|
|
2006
|
|
|
Springfield
|
|
Company owned
|
|
12,200
|
|
Retail and service
|
|
1997
|
|
|
Osage Beach
|
|
Company owned
|
|
2,000
|
|
Retail and service
|
|
1998
|
|
|
St. Louis
|
|
Third-party lease
|
|
12,000
|
|
Retail and service
|
|
2003
|
|
|
St. Louis
|
|
Third-party lease
|
|
500
|
|
Retail only; 6 wet slips
|
|
2004
|
|
Mississippi River
|
Nevada
|
|
|
|
|
|
|
|
|
|
|
Las Vegas
|
|
Company owned
|
|
21,600
|
|
Retail and service
|
|
1990
|
|
|
New Jersey
|
|
|
|
|
|
|
|
|
|
|
Brick
|
|
Company owned
|
|
20,000
|
|
Retail and service; 225 wet slips
|
|
1977
|
|
Manasquan River
|
Brant Beach
|
|
Third-party lease
|
|
3,800
|
|
Retail and service; 36 wet slips
|
|
1965
|
|
Barnegat Bay
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Square
|
|
|
|
Operated
|
|
|
Location
|
|
Location Type
|
|
Footage(1)
|
|
Facilities at Property
|
|
Since(2)
|
|
Waterfront
|
|
Greenbrook
|
|
Third-party lease
|
|
18,500
|
|
Retail and service
|
|
1995
|
|
|
Jersey City
|
|
Third-party lease
|
|
500
|
|
Retail only; 6 wet slips
|
|
2000
|
|
Hudson River
|
Lake Hopatcong
|
|
Third-party lease
|
|
4,600
|
|
Retail and service; 80 wet slips
|
|
1998
|
|
Lake Hopatcong
|
Ship Bottom
|
|
Third-party lease
|
|
19,300
|
|
Retail and service
|
|
1972
|
|
|
Somers Point
|
|
Affiliate lease
|
|
31,000
|
|
Retail and service; 33 wet slips
|
|
1987
|
|
Little Egg Harbor Bay
|
New York
|
|
|
|
|
|
|
|
|
|
|
Copiague
|
|
Third-party lease
|
|
15,000
|
|
Retail only
|
|
1993
|
|
|
Huntington
|
|
Third-party lease
|
|
1,200
|
|
Retail and service
|
|
1995
|
|
Huntington Harbor and Long Island
Sound
|
Manhattan
|
|
Third-party lease
|
|
1,200
|
|
Retail only; 75 wet slips
|
|
1996
|
|
Hudson River
|
Lindenhurst (Delivery Center)
|
|
Third-party lease
|
|
54,000
|
|
Retail, service, and dry storage
|
|
1968
|
|
Neguntatogue Creek to Great South
Bay
|
Lindenhurst (Highway Store)
|
|
Third-party lease
|
|
10,000
|
|
Retail and service
|
|
2004
|
|
|
Lindenhurst (Marina)
|
|
Third-party lease
|
|
14,600
|
|
Marina and service; 370 wet slips
|
|
1968
|
|
Neguntatogue Creek to Great South
Bay
|
North Carolina
|
|
|
|
|
|
|
|
|
|
|
Wilmington
|
|
Third-party lease
|
|
6,000
|
|
Retail and service
|
|
2006
|
|
|
Wrightsville Beach
|
|
Third-party lease
|
|
34,500
|
|
Retail, service, and storage
|
|
1996
|
|
Intracoastal Waterway
|
Ohio
|
|
|
|
|
|
|
|
|
|
|
Port Clinton
|
|
Third-party lease
|
|
63,700
|
|
Retail, service, and storage; 155
wet slips
|
|
1974
|
|
Lake Erie
|
Port Clinton
|
|
Third-party lease
|
|
93,300
|
|
Retail, service, and storage
|
|
1997
|
|
Lake Erie
|
Toledo
|
|
Third-party lease
|
|
12,200
|
|
Retail and service
|
|
1989
|
|
|
Oklahoma
|
|
|
|
|
|
|
|
|
|
|
Afton
|
|
Third-party lease
|
|
3,500
|
|
Retail and service; 23 wet slips
|
|
2003
|
|
Grand Lake
|
Rhode Island
|
|
|
|
|
|
|
|
|
|
|
Wakefield
|
|
Third-party lease
|
|
1,800
|
|
Retail only; 3 wet slips
|
|
2006
|
|
Narragansett Bay
|
South Carolina
|
|
|
|
|
|
|
|
|
|
|
Myrtle Beach
|
|
Third-party lease
|
|
3,500
|
|
Retail only
|
|
1999
|
|
Coquina Harbor
|
Tennessee
|
|
|
|
|
|
|
|
|
|
|
Chattanooga
|
|
Third-party lease
|
|
3,000
|
|
Retail only; 12 wet slips
|
|
2005
|
|
Tennessee River
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Square
|
|
|
|
Operated
|
|
|
Location
|
|
Location Type
|
|
Footage(1)
|
|
Facilities at Property
|
|
Since(2)
|
|
Waterfront
|
|
Texas
|
|
|
|
|
|
|
|
|
|
|
Arlington
|
|
Third-party lease
|
|
31,000
|
|
Retail and service
|
|
1999
|
|
|
Houston
|
|
Third-party lease
|
|
10,000
|
|
Retail only (4)
|
|
1987
|
|
|
Houston
|
|
Third-party lease
|
|
10,000
|
|
Retail and service
|
|
1981
|
|
|
League City (floating facility)(5)
|
|
Third-party lease
|
|
800
|
|
Retail and service; 20 wet slips
|
|
1988
|
|
Clear Lake
|
Lewisville (Dallas)
|
|
Company owned
|
|
22,000
|
|
Retail and service
|
|
2002
|
|
|
Lewisville (Dallas) (floating
facility)
|
|
Third-party lease
|
|
500
|
|
Retail only; 20 wet slips (6)
|
|
1994
|
|
Lake Lewisville
|
Seabrook
|
|
Company owned
|
|
32,000
|
|
Retail and service; 30 wet slips
|
|
2002
|
|
Clear Lake
|
Utah
|
|
|
|
|
|
|
|
|
|
|
Salt Lake City
|
|
Third-party lease
|
|
21,200
|
|
Retail and service
|
|
1975
|
|
|
|
|
|
(1) |
|
Square footage is approximate and does not include outside sales
space or dock or marina facilities. |
|
(2) |
|
Operated since date is the date the facility was opened by us or
opened prior to its acquisition by us. |
|
(3) |
|
Joint venture entered into to with Brunswick to acquire marina
and service facility. |
|
(4) |
|
Shares service facility located at the other Houston retail
locations. |
|
(5) |
|
We own the floating facility, however, the related dock and
marina space is leased by us from an unaffiliated third party. |
|
(6) |
|
Shares service facility located at the other Lewisville retail
location. |
|
|
Item 3.
|
Legal
Proceedings
|
We are party to various legal actions arising in the ordinary
course of business. With the exception of a single lawsuit award
that we are currently appealing, the ultimate liability, if any,
associated with the other matters was not material at
September 30, 2006. However, based on information available
at September 30, 2006 surrounding the single lawsuit award,
our litigation accrual approximated $2.0 million. While it
is not feasible to determine the actual outcome of these actions
as of September 30, 2006, we do not believe that these matters
will have a material adverse effect on our consolidated
financial condition, results of operations, or cash flows.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
Not applicable.
38
PART II
|
|
Item 5.
|
Market
for the Registrants Common Equity, Related Stockholder
Matters and Issuer Repurchases of Equity
Securities
|
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.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2004
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
28.33
|
|
|
$
|
18.10
|
|
Second quarter
|
|
$
|
32.04
|
|
|
$
|
23.56
|
|
Third quarter
|
|
$
|
28.59
|
|
|
$
|
18.05
|
|
Fourth quarter
|
|
$
|
30.55
|
|
|
$
|
21.50
|
|
2005
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
35.14
|
|
|
$
|
27.51
|
|
Second quarter
|
|
$
|
31.77
|
|
|
$
|
23.95
|
|
Third quarter
|
|
$
|
35.88
|
|
|
$
|
21.50
|
|
Fourth quarter
|
|
$
|
32.45
|
|
|
$
|
22.36
|
|
2006
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
34.24
|
|
|
$
|
27.22
|
|
Second quarter
|
|
$
|
36.72
|
|
|
$
|
25.39
|
|
Third quarter
|
|
$
|
26.65
|
|
|
$
|
19.24
|
|
Fourth quarter (through
November 30, 2006)
|
|
$
|
29.46
|
|
|
$
|
24.41
|
|
On November 30, 2006, the closing sale price of our common
stock was $26.86 per share. On November 30, 2006,
there were approximately 100 record holders and approximately
5,300 beneficial owners of our common stock.
In November 2005, our Board of Directors approved a share
repurchase plan allowing our company to repurchase up to
1,000,000 shares of our common stock. Under the plan, we
may buy back common stock from time to time in the open market
or in privately negotiated blocks, dependant upon various
factors, including price and availability of the shares, and
general market conditions. At September 30, 2006, we have
purchased an aggregate of 306,300 shares of common stock
under the plan for an aggregate purchase price of approximately
$6.9 million.
39
|
|
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 and statement of operations data
were derived from the consolidated financial statements and
notes thereto that have been audited by Ernst & Young
LLP, an independent registered certified public accounting firm.
The financial data shown below should be read in conjunction
with the consolidated financial statements and the related notes
thereto and Managements Discussion and Analysis of
Financial Condition and Results of Operations included
elsewhere in this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
Statement of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
540,716
|
|
|
$
|
607,501
|
|
|
$
|
762,009
|
|
|
$
|
947,347
|
|
|
$
|
1,213,541
|
|
Cost of sales
|
|
|
416,137
|
|
|
|
459,729
|
|
|
|
573,616
|
|
|
|
712,843
|
|
|
|
906,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
124,579
|
|
|
|
147,772
|
|
|
|
188,393
|
|
|
|
234,504
|
|
|
|
306,760
|
|
Selling, general, and
administrative expenses(1)
|
|
|
95,567
|
|
|
|
113,299
|
|
|
|
139,470
|
|
|
|
169,975
|
|
|
|
222,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
29,012
|
|
|
|
34,473
|
|
|
|
48,923
|
|
|
|
64,529
|
|
|
|
83,954
|
|
Interest expense, net
|
|
|
1,264
|
|
|
|
2,471
|
|
|
|
6,499
|
|
|
|
9,291
|
|
|
|
18,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
27,748
|
|
|
|
32,002
|
|
|
|
42,424
|
|
|
|
55,238
|
|
|
|
65,338
|
|
Income tax provision
|
|
|
10,683
|
|
|
|
12,321
|
|
|
|
16,126
|
|
|
|
21,412
|
|
|
|
25,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
17,065
|
|
|
$
|
19,681
|
|
|
$
|
26,298
|
|
|
$
|
33,826
|
|
|
$
|
39,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.10
|
|
|
$
|
1.26
|
|
|
$
|
1.58
|
|
|
$
|
1.88
|
|
|
$
|
2.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
15,540,973
|
|
|
|
15,671,470
|
|
|
|
16,666,107
|
|
|
|
18,032,533
|
|
|
|
18,928,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data: (as of
year-end)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of retail locations(2)
|
|
|
59
|
|
|
|
65
|
|
|
|
67
|
|
|
|
71
|
|
|
|
87
|
|
Sales per store(3)(5)
|
|
$
|
12,273
|
|
|
$
|
11,900
|
|
|
$
|
12,831
|
|
|
$
|
16,386
|
|
|
$
|
17,064
|
|
Same-store sales growth(4)(5)
|
|
|
3
|
%
|
|
|
6
|
%
|
|
|
21
|
%
|
|
|
23
|
%
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
55,426
|
|
|
$
|
67,003
|
|
|
$
|
88,013
|
|
|
$
|
163,431
|
|
|
$
|
151,097
|
|
Total assets
|
|
|
301,146
|
|
|
|
329,155
|
|
|
|
474,359
|
|
|
|
539,490
|
|
|
|
801,563
|
|
Long-term debt (including current
portion)(6)
|
|
|
21,765
|
|
|
|
22,343
|
|
|
|
26,237
|
|
|
|
30,085
|
|
|
|
37,186
|
|
Total stockholders equity
|
|
|
145,190
|
|
|
|
166,056
|
|
|
|
196,821
|
|
|
|
283,599
|
|
|
|
349,887
|
|
|
|
|
(1) |
|
As a result of our adoption of SFAS 123R, we recorded
compensation expense for stock options of approximately
$3.5 million before tax, or $0.15 per diluted share
after-tax in the fiscal year ended September 30, 2006. |
|
(2) |
|
Includes only those retail locations open at period end. |
|
(3) |
|
Includes only those stores open for the entire preceding
12-month
period. |
|
(4) |
|
New and acquired stores are included in the comparable base at
the end of the stores thirteenth month of operations. |
40
|
|
|
(5) |
|
A store is one or more retail locations that are adjacent or
operate as one entity. Sales per store and same-store sales
growth is intended only as supplemental information and is not a
substitute for Revenue or Net Income presented in accordance
with generally accepted accounting principles. |
|
(6) |
|
Amount excludes our short-term borrowings for working capital
and inventory financing. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
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The following should be read in conjunction with Part I,
including the matters set forth in the Risk Factors
section of this
Form 10-K,
and our Consolidated Financial Statements and notes thereto
included elsewhere in this
Form 10-K.
Overview
We are the largest recreational boat retailer in the United
States with fiscal 2006 revenue exceeding $1.2 billion.
Through our current 88 retail locations in 22 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 and boat brokerage services, and where
available, offer slip and storage accommodations.
MarineMax was incorporated in January 1998. We commenced
operations with the acquisition of five independent recreational
boat dealers on March 1, 1998. Since the initial
acquisitions in March 1998, we have significantly expanded our
operations through the acquisition of 20 recreational boat
dealers, two boat brokerage operations, and two full-service
yacht repair facilities. As a part of our acquisition strategy,
we frequently engage in discussions with various recreational
boat dealers regarding their potential acquisition 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. The following are the acquisitions we have
completed during the fiscal years ending September 30, 2006
and 2004. No significant acquisitions were completed during the
fiscal year ending September 30, 2005.
During the fiscal year ended September 30, 2006, we
completed the acquisition of two recreational boat dealers.
During March 2006, we acquired substantially all of the assets
and assumed certain liabilities of Surfside-3 Marina, Inc.
(Surfside), a privately held boat dealership with eight
locations in New York and Connecticut, for approximately
$24.8 million in cash and 665,024 shares of common
stock, plus $24.0 million in working capital adjustments
including acquisition costs. The shares were valued at
$33.71 per share, which was the average closing market
price of our common stock for the
five-day
period beginning two days prior to and ending two days
subsequent to the acquisition date. Based on the provisions of
the asset purchase agreement, 100,000 shares of common
stock are currently held in escrow, subject to the satisfaction
of working capital adjustments and other provisions in the
acquisition documents. We and Surfside are in current
discussions to resolve such matters. The acquisition expands our
ability to serve consumers in the Northeast boating community
and allows us to capitalize on Surfsides market position
and leverage our inventory management and inventory financing
resources over the acquired locations. Based on our preliminary
valuation, the purchase price, including acquisition costs, is
anticipated to result in the recognition of approximately
$37.0 million in tax deductible goodwill and approximately
$14.7 million in tax deductible indefinite-lived intangible
assets (dealer agreements). We are in the process of finalizing
the purchase price allocation and determining the fair value of
acquired intangible assets; accordingly, certain purchase price
allocations are subject to change. Surfside has been included in
our consolidated financial statements since the date of
acquisition.
During January 2006, we acquired substantially all of the
assets, including certain real estate, and assumed certain
liabilities of the Port Arrowhead Group (Port Arrowhead), a
privately held boat dealership with locations in Missouri and
Oklahoma, for approximately $27.5 million in cash, plus
$5.0 million in working capital adjustments including
acquisition costs. Port Arrowhead operates six retail locations,
including a large marina with more than 300 slips. The
acquisition expands our ability to serve consumers in the
Midwest boating community, including neighboring boating
destinations in Illinois, Kansas, and Arkansas. The acquisition
also allows us to capitalize on Port Arrowheads market
position and leverage our inventory management and inventory
financing resources over the acquired locations. Based on our
preliminary valuation, the purchase price, including acquisition
costs, is anticipated to result in the recognition of
approximately $6.1 million in tax deductible goodwill and
approximately
41
$2.0 million in tax deductible indefinite-lived intangible
assets (dealer agreements). We are in the process of finalizing
the purchase price allocation and determining the fair value of
acquired intangible assets; accordingly, certain purchase price
allocations are subject to change. Port Arrowhead has been
included in our consolidated financial statements since the date
of acquisition.
During the fiscal year ended September 30, 2004, we
completed the acquisition of three recreational boat dealers.
During June 2004, we acquired substantially all of the assets,
including real estate, and assumed certain liabilities of
Imperial Marine (Imperial), a privately held boat dealership
with locations in Baltimore and the northern Chesapeake area of
Maryland, for approximately $9.3 million in cash, including
acquisition costs. Imperial operates a highway location and a
marina on the Gunpowder River. The acquisition expands our
ability to serve consumers in the Mid-Atlantic United States
boating community. Additionally, the acquisition allows us to
capitalize on Imperials market position and leverage our
inventory management and inventory financing resources over the
acquired locations. The acquisition resulted in the recognition
of approximately $1.1 million in tax deductible goodwill,
including acquisition costs, and approximately $580,000 in tax
deductible indefinite-lived intangible assets (dealer
agreements). Imperial has been included in our consolidated
financial statements since the date of acquisition.
During June 2004, we purchased inventory and certain equipment
and assumed certain liabilities from the previous Jacksonville,
Florida-based Sea Ray dealer (Jacksonville) for the sport boat
and sport cruiser product lines for approximately $900,000 in
cash, including acquisition costs. The purchase enhanced our
ability to serve customers in the northeast Florida boating
community by adding the sport boat and sport cruiser product
lines to our existing Sea Ray product offerings. The acquisition
resulted in the recognition of approximately $240,000 in tax
deductible goodwill, including acquisition costs, and
approximately $450,000 in tax deductible indefinite-lived
intangible assets (dealer agreements). Jacksonville has been
included in our consolidated financial statements since the date
of acquisition.
During October 2003, we acquired substantially all of the assets
and assumed certain liabilities of Emarine International, Inc.
and Steven Myers, Inc. (Emarine), a privately held boat
dealership located in Fort Lauderdale, Florida, for
approximately $305,000 in cash. The acquisition resulted in the
recognition of approximately $300,000 in tax deductible
goodwill, including acquisition costs. The acquisition provides
us with an established retail location to sell the newly offered
Ferretti Group products in the southeast Florida boating
community. The assets purchase agreement contained an earn out
provision based on the future profits of the location, assuming
certain conditions and provisions were met. In August 2004, the
earn out provisions were modified withdrawing the requirements
for any future earn out payments. Emarine has been included in
our consolidated financial statements since the date of
acquisition.
Application
of Critical Accounting Policies
We have identified the policies below as critical to our
business operations and the understanding of our results of
operations. The impact and risks related to these policies on
our business operations is discussed throughout
Managements Discussion and Analysis of Financial Condition
and Results of Operations when such policies affect our reported
and expected financial results.
In the ordinary course of business, we make a number of
estimates and assumptions relating to the reporting of results
of operations and financial condition in the preparation of our
financial statements in conformity with accounting principles
generally accepted in the United States. We base our estimates
on historical experience and on various other assumptions that
we believe are reasonable under the circumstances. The results
form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results could differ significantly from those
estimates under different assumptions and conditions. We believe
that the following discussion addresses our most critical
accounting policies, which are those that are most important to
the portrayal of our financial condition and results of
operations and require our most difficult, subjective, and
complex judgments, often as a result of the need to make
estimates about the effect of matters that are inherently
uncertain.
Revenue
Recognition
We recognize revenue from boat, motor, and trailer sales, and
parts and service operations at the time the boat, motor,
trailer, or part is delivered to or accepted by the customer or
service is completed. We recognize commissions
42
earned from a brokerage sale at the time the related brokerage
transaction closes. We recognize revenue from slip and storage
services on a straight-line basis over the term of the slip or
storage agreement. We recognize commissions earned by us for
placing notes with financial institutions in connection with
customer boat financing when the related boat sales are
recognized. We also recognize marketing fees earned on credit
life, accident and disability, and hull insurance products sold
by third-party insurance companies at the later of customer
acceptance of the insurance product as evidenced by contract
execution, or when the related boat sale is recognized. We also
recognize commissions earned on extended warranty service
contracts sold on behalf of third-party insurance companies at
the later of customer acceptance of the service contract terms
as evidenced by contract execution, or recognition of the
related boat sale.
Certain finance and extended warranty commissions and marketing
fees on insurance products may be charged back if a customer
terminates or defaults on the underlying contract within a
specified period of time. Based upon our experience of
terminations and defaults, we maintain a chargeback allowance
that was not material to our financial statements taken as a
whole as of September 30, 2005 or 2006. Should results
differ materially from our historical experiences, we would need
to modify our estimate of future chargebacks, which could have a
material adverse effect on our operating margins.
Vendor
Consideration Received
We account for consideration received from our vendors in
accordance with Emerging Issues Task Force Issue
No. 02-16,
Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor (EITF
02-16). EITF
02-16
requires us to classify interest assistance received from
manufacturers as a reduction of inventory cost and related cost
of sales. Pursuant to EITF
02-16,
amounts received by us under our co-op assistance programs from
our manufacturers, are netted against related advertising
expenses.
Inventories
Inventory costs consist of the amount paid to acquire the
inventory, net of vendor consideration and purchase discounts,
the cost of equipment added, reconditioning costs, and
transportation costs relating to acquiring inventory for sale.
New and used boat, motor, and trailer 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. If the carrying amount of our
inventory exceeds its fair value, we reduce the carrying amount
to reflect fair value. We utilize our historical experience and
current sales trends as the basis for our lower of cost or
market analysis. If events occur and market conditions change,
causing the fair value to fall below carrying value, further
reductions may be required.
Valuation
of Goodwill and Other Intangible Assets
We account for goodwill and identifiable intangible assets in
accordance with Statement of Financial Accounting Standards
No. 141, Business Combinations (SFAS 141),
and Statement of Financial Accounting Standards No. 142,
Goodwill and other Intangible Assets
(SFAS 142). SFAS 141 requires that all business
combinations initiated after June 30, 2001 be accounted for
using the purchase method of accounting and identifiable
intangible assets acquired in a business combination be
recognized as assets and reported separately from goodwill. We
have determined that our most significant acquired identifiable
intangible assets are dealer agreements, which are
indefinite-lived intangible assets. SFAS 142 requires that
goodwill and indefinite-lived intangible assets no longer be
amortized, but instead tested for impairment at least annually
and whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. If the carrying
amount of goodwill or an identifiable intangible asset exceeds
its fair value, we would recognize an impairment loss. We
measure any potential impairment based on various business
valuation methodologies, including a projected discounted cash
flow method. We completed our last annual impairment test during
the fourth quarter of fiscal 2006, based on financial
information as of the third quarter of fiscal 2006, which
resulted in no impairment of goodwill or identifiable intangible
assets. To date, we have not recognized any impairment of
goodwill or identifiable intangible assets in the application of
SFAS 142. We will continue to test goodwill and
identifiable intangible assets for impairment at least annually
and whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. Prior to the adoption
of SFAS 142, all purchase price in excess of the net
tangible assets was recorded as goodwill and no identifiable
intangible assets were recognized. Net goodwill and identifiable
intangible assets amounted to $94.1 million and
$22.1 million, respectively, at September 30, 2006.
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The most significant estimates used in our goodwill valuation
model include estimates of the future growth in our cash flows
and future working capital needs to support our projected
growth. Should circumstances change causing these assumptions to
differ materially than expected, our goodwill may become
impaired, resulting in a material adverse effect on our
operating margins.
For a more comprehensive list of our accounting policies,
including those which involve varying degrees of judgment, see
Note 3 Significant Accounting
Policies of Notes to Consolidated Financial Statements.
Results
of Operations
The following table sets forth certain financial data as a
percentage of revenue for the periods indicated:
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Fiscal Year Ended September 30,
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2004
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2005
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2006
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(Amount in thousands)
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Revenue
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$
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762,009
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100.0
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%
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$
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947,347
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100.0
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%
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$
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1,213,541
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100.0
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%
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Cost of sales
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573,616
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75.3
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%
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712,843
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75.2
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%
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906,781
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74.7
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%
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Gross profit
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188,393
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24.7
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%
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234,504
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24.8
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%
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306,760
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25.3
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%
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Selling, general, and
administrative Expenses
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139,470
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18.3
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%
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169,975
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17.9
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%
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222,806
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18.4
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%
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Income from operations
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48,923
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6.4
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%
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64,529
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6.9
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%
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83,954
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6.9
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%
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Interest expense, net
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6,499
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0.9
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%
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9,291
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1.0
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%
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18,616
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1.5
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%
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Income before income tax provision
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42,424
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5.5
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%
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55,238
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5.9
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%
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65,338
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5.4
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%
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Income tax provision
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16,126
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2.0
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%
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21,412
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2.3
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%
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25,956
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2.2
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%
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Net income
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$
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26,298
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3.5
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%
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$
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33,826
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3.6
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%
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$
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39,382
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3.2
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%
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Fiscal
Year Ended September 30, 2006 Compared with Fiscal Year
Ended September 30, 2005
Revenue. Revenue increased
$266.2 million, or 28.1%, to $1.2 billion for the
fiscal year ended September 30, 2006 from
$947.3 million for the fiscal year ended September 30,
2005. Of this increase, $204.9 million was attributable to
stores opened or acquired that were not eligible for inclusion
in the comparable-store base and $61.3 million was
attributable to a 6.5% growth in comparable-store sales in
fiscal 2006. The increase in comparable-store sales in fiscal
2006 resulted primarily from an increase of approximately
$45.2 million in boat and yacht sales. This increase in
boat and yacht sales on a comparable-store basis helped generate
an increase in revenue from our parts, service, finance, and
insurance products of approximately $16.1 million.
Gross Profit. Gross profit increased
$72.3 million, or 30.8%, to $306.8 million for the
fiscal year ended September 30, 2006 from
$234.5 million for the fiscal year ended September 30,
2005. Gross profit as a percentage of revenue increased to 25.3%
in fiscal 2006 from 24.8% in fiscal 2005. This increase was
primarily attributable to an increase in service, finance,
insurance, parts, and brokerage revenue, which generally yield
higher gross margins than boat sales, and an increase in
manufacturer programs in place for the year ended
September 30, 2006. The increase in gross profit was
partially offset by a decrease in gross margins on boat sales,
coupled with an increase in yacht sales, which generally yield
lower gross margins than boat sales.
Selling, General, and Administrative
Expenses. Selling, general, and administrative
expenses increased $52.8 million, or 31.1%, to
$222.8 million for the fiscal year ended September 30,
2006 from $170.0 million for the fiscal year ended
September 30, 2005. Selling, general, and administrative
expenses as a percentage of revenue increased approximately
50 basis points to 18.4% for the year ended
September 30, 2006 from 17.9% for the year ended
September 30, 2005. In fiscal 2006, the increase as a
percentage of revenue was attributable to approximately
$3.5 million of stock option compensation expense resulting
from the adoption of SFAS 123R and approximately
$1.2 million of hurricane related expenses to move and
repair inventory (net of related insurance reimbursements) and
uninsured losses to our locations. Additionally, our selling,
general and administrative expenses as a percentage of revenue
increased due to increased marketing and commission expenses
associated with achieving our level of comparable-store sales
growth, increased facilities, and other costs associated with
new and acquired stores.
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Interest Expense. Interest expense increased
$9.3 million, or 100.4%, to $18.6 million for the
fiscal year ended September 30, 2006 from $9.3 million
for the fiscal year ended September 30, 2005. Interest
expense as a percentage of revenue increased to 1.5% for fiscal
2006 from 1.0% for fiscal 2005. The increase was primarily a
result of increased borrowings associated with our revolving
credit facility and mortgages, which accounted for an increase
in interest expense of approximately $5.7 million and a
less favorable interest rate environment, which accounted for an
increase of approximately $3.6 million in interest expense.
Income Tax Provision. Income taxes increased
$4.5 million, or 21.2%, to $26.0 million for the
fiscal year ended September 30, 2006 from
$21.4 million for the fiscal year ended September 30,
2005 as a result of increased earnings. Our effective tax rate
increased to 39.7% for the fiscal year ended September 30,
2006 from 38.8% for the fiscal year ended September 30,
2005 as a result of the adoption of SFAS 123R.
Fiscal
Year Ended September 30, 2005 Compared with Fiscal Year
Ended September 30, 2004
Revenue. Revenue increased
$185.3 million, or 24.3%, to $947.3 million for the
fiscal year ended September 30, 2005 from
$762.0 million for the fiscal year ended September 30,
2004. Of this increase, $11.9 million was attributable to
stores opened or acquired that were not eligible for inclusion
in the comparable-store base and $173.4 million was
attributable to a 22.8% growth in comparable-store sales in
fiscal 2005. The increase in comparable-store sales in fiscal
2005 resulted primarily from an increase of approximately
$160.2 million in boat and yacht sales. This increase in
boat and yacht sales on a comparable-store basis helped generate
an increase in revenue from our parts, service, finance, and
insurance products of approximately $13.2 million.
Gross Profit. Gross profit increased
$46.1 million, or 24.5%, to $234.5 million for the
fiscal year ended September 30, 2005 from
$188.4 million for the fiscal year ended September 30,
2004. Gross profit as a percentage of revenue increased to 24.8%
in fiscal 2005 from 24.7% in fiscal 2004. This increase was
primarily attributable to an increase in gross margins on boat
sales and improvements in service, finance, insurance, parts,
and brokerage revenues, which generally yield higher gross
margins than boat sales. The increase in gross profit was
partially offset by an increase in yacht sales, which generally
yield lower gross margins than boat sales.
Selling, General, and Administrative
Expenses. Selling, general, and administrative
expenses increased $30.5 million, or 21.9%, to
$170.0 million for the fiscal year ended September 30,
2005 from $139.5 million for the fiscal year ended
September 30, 2004. Selling, general, and administrative
expenses as a percentage of revenue decreased approximately
35 basis points to 17.9% for the year ended
September 30, 2005 from 18.3% for the year ended
September 30, 2004. The decrease as a percentage of revenue
was attributable to an approximate 60 basis point decrease
in our comparable-stores selling, general, and administrative
expenses. This decrease incurred by our comparable-store
locations resulted from the leveraging of our operating expense
structure, which resulted in decreases in personnel costs and
fixed expenses as a percentage of revenue. These decreases were
partially offset by an approximate $4.4 million increase in
marketing expenses associated with achieving our level of
comparable-store sales growth, the addition and expansion of
various product lines, increases in inventory maintenance costs
related to supporting our increase in comparable-store sales and
the addition and expansion of various product lines, and an
increase in our accrued litigation expense related to a single
lawsuit award that we are currently appealing. Additionally, the
reduction of the comparable-store expenses was partially offset
by an increase in expenses associated with stores opened or
acquired that were not eligible for inclusion in the
comparable-store base. These opened or acquired stores generally
operate at a higher expense structure than our other locations.
Interest Expense. Interest expense increased
$2.8 million, or 43.0%, to $9.3 million for the fiscal
year ended September 30, 2005 from $6.5 million for
the fiscal year ended September 30, 2004. Interest expense
as a percentage of revenue increased to 1.0% for fiscal 2005
from 0.9% for fiscal 2004. The increase was primarily a result
of a less favorable interest rate environment, which accounted
for approximately $2.2 million of the increase, coupled
with an increase in the average borrowings associated with our
revolving credit facility and mortgages, which accounted for
approximately $600,000.
Income Tax Provision. Income taxes increased
$5.3 million, or 32.8%, to $21.4 million for the
fiscal year ended September 30, 2005 from
$16.1 million for the fiscal year ended September 30,
2004 as a result of increased earnings. Our effective tax rate
increased to 38.8% for the fiscal year ended September 30,
2005 from 38.0% for the fiscal year ended September 30,
2004 as a result of a review of our effective tax rate
calculation for the jurisdictions in which we currently operate.
45
Quarterly
Data and Seasonality
Our business, as well as the entire recreational boating
industry, is highly seasonal, with seasonality varying in
different geographic markets. With the exception of Florida, we
generally realize significantly lower sales and higher levels of
inventories, and related short-term borrowings, in the quarterly
periods ending December 31 and March 31. The onset of
the public boat and recreation shows in January stimulates boat
sales and allows us to reduce our inventory levels and related
short-term borrowings throughout the remainder of the fiscal
year. Our business could become substantially more seasonal as
we acquire dealers that operate in colder regions of the United
States.
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, as was the case during fiscal 2005
and 2006 when Florida and other markets were affected by
numerous hurricanes. 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.
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.
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December 31,
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March 31,
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June 30,
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September 30,
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December 31,
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March 31,
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June 30,
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September 30,
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2004
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2005
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2005
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2005
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2005
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2006
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2006
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2006
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(Amounts in thousands except share and per share data)
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Revenue
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$
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184,188
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$
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228,384
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$
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306,141
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$
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228,634
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$
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181,184
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$
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287,387
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$
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421,348
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$
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323,622
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Cost of sales
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140,064
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|
|
|
173,368
|
|
|
|
235,475
|
|
|
|
163,936
|
|
|
|
136,836
|
|
|
|
218,812
|
|
|
|
321,089
|
|
|
|
230,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
44,124
|
|
|
|
55,016
|
|
|
|
70,666
|
|
|
|
64,698
|
|
|
|
44,348
|
|
|
|
68,575
|
|
|
|
100,259
|
|
|
|
93,578
|
|
Selling, general, and
administrative expenses
|
|
|
37,140
|
|
|
|
40,921
|
|
|
|
45,903
|
|
|
|
46,011
|
|
|
|
40,472
|
|
|
|
50,088
|
|
|
|
65,229
|
|
|
|
67,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
6,984
|
|
|
|
14,095
|
|
|
|
24,763
|
|
|
|
18,687
|
|
|
|
3,876
|
|
|
|
18,487
|
|
|
|
35,030
|
|
|
|
26,561
|
|
Interest expense
|
|
|
2,384
|
|
|
|
2,704
|
|
|
|
2,267
|
|
|
|
1,936
|
|
|
|
2,761
|
|
|
|
4,294
|
|
|
|
5,900
|
|
|
|
5,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
4,600
|
|
|
|
11,391
|
|
|
|
22,496
|
|
|
|
16,751
|
|
|
|
1,115
|
|
|
|
14,193
|
|
|
|
29,130
|
|
|
|
20,900
|
|
Income tax provision
|
|
|
1,771
|
|
|
|
4,385
|
|
|
|
8,661
|
|
|
|
6,595
|
|
|
|
451
|
|
|
|
5,605
|
|
|
|
11,607
|
|
|
|
8,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,829
|
|
|
$
|
7,006
|
|
|
$
|
13,835
|
|
|
$
|
10,156
|
|
|
$
|
664
|
|
|
$
|
8,588
|
|
|
$
|
17,523
|
|
|
$
|
12,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.17
|
|
|
$
|
0.39
|
|
|
$
|
0.74
|
|
|
$
|
0.54
|
|
|
$
|
0.04
|
|
|
$
|
0.46
|
|
|
$
|
0.90
|
|
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
16,959,020
|
|
|
|
17,834,520
|
|
|
|
18,633,251
|
|
|
|
18,703,958
|
|
|
|
18,525,849
|
|
|
|
18,751,417
|
|
|
|
19,426,294
|
|
|
|
19,009,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. We regularly monitor the
aging of our inventories and current market trends to evaluate
our current and future inventory needs. We also use this
evaluation in conjunction with our review of our current and
expected operating performance and expected growth to determine
the adequacy of our financing needs. These cash needs have
historically been financed with cash generated from operations
and borrowings under our line of credit facility. We currently
depend upon dividends and other payments from our consolidated
operating subsidiaries, and our line of
46
credit facility to fund our current operations and meet our cash
needs. Currently, no agreements exist that restrict this flow of
funds from our operating subsidiaries.
For the fiscal years ended September 30, 2004 and 2005,
cash used in operating activities was approximately
$30.0 million and $13.8 million, respectively. For the
fiscal year ended September 30, 2006, cash provided by
operating activities approximated $9.3 million. For the
fiscal year ended September 30, 2004, cash used in
operating activities was due primarily to an increase in
inventories due to the addition of new product lines, the
continued expansion of existing product lines, and to ensure
appropriate inventory levels, partially offset by net income, an
increase in accounts payable due to the timing of certain
payments to our manufacturers, and an increase in customer
deposits. For the fiscal year ended September 30, 2005,
cash used in operating activities was due primarily to a
decrease in accounts payable due to the timing of certain
payments to our manufacturers and an increase in inventories due
to the continued expansion of existing product lines and to
ensure appropriate inventory levels, partially offset by net
income and an increase in customer deposits. For the fiscal year
ended September 30, 2006, cash provided by operating
activities was due primarily to net income, adjusted for
non-cash depreciation, amortization, and stock based
compensation charges, and increases in accounts payable and
accrued expenses, partially offset by an increase in accounts
receivable due to increased revenues, an increase in inventories
to ensure appropriate inventory levels, and a decrease in
customer deposits.
For the fiscal years ended September 30, 2004, 2005, and
2006, cash used in investing activities was approximately
$20.2 million, $17.9 million, and $95.4 million,
respectively. For the fiscal years ended September 30, 2004
and 2006, cash used in investing activities was primarily used
in business acquisitions and to purchase property and equipment
associated with opening new retail facilities or improving and
relocating existing retail facilities. For the fiscal year ended
September 30, 2005 cash used in investing activities was
primarily used to purchase property and equipment associated
with opening new retail facilities or improving and relocating
existing retail facilities.
For the fiscal years ended September 30, 2004, 2005, and
2006, cash provided by financing activities was approximately
$54.7 million, $43.9 million, and $83.9 million,
respectively. For the fiscal year ended September 30, 2004,
cash provided by financing activities was primarily attributable
to proceeds from net borrowings on short-term borrowings as a
result of increased inventory levels and borrowings on long-term
debt on equipment and real estate acquired, and proceeds from
common shares issued upon the exercise of stock options and
under the employee stock purchase plan, partially offset by
repayments of long-term debt. For the fiscal year ended
September 30, 2005, cash provided by financing activities
was primarily attributable to proceeds from common shares issued
through the February 2005 public offering, upon the exercise of
stock options, and stock purchases under our employee stock
purchase plan, partially offset by net repayments on short-term
borrowings as a result of using the proceeds from the issuance
of common shares through the February 2005 public offering and
repayments of long-term debt. For the fiscal year ended
September 30, 2006, cash provided by financing activities
was primarily attributable to proceeds from net borrowings on
short-term borrowings as a result of increased inventory levels
and borrowings on long-term debt on equipment and real estate
acquired, and proceeds from common shares issued upon the
exercise of stock options and under the employee stock purchase
plan, partially offset by purchases of treasury stock and
repayments of long-term debt.
As of September 30, 2006, our indebtedness totaled
approximately $358.7 million, of which approximately
$37.2 million was associated with our real estate holdings
and $321.5 million was associated with financing our
inventory and working capital needs.
During June 2006, we entered into a second amended and restated
credit and security agreement with eight financial
institutions. The credit facility provides us a line of credit
with asset-based borrowing availability of up to
$500 million for working capital and inventory financing,
with the amount of permissible borrowings determined pursuant to
a borrowing base formula. The credit facility also permits
approved-vendor floorplan borrowings of up to $20 million.
The credit facility accrues interest at LIBOR plus 150 to 260
basis points, with the interest rate based upon the ratio of our
net outstanding borrowings to our tangible net worth. The credit
facility is secured by our inventory, accounts receivable,
equipment, furniture, and fixtures. The credit facility requires
us to satisfy certain covenants, including maintaining a
leverage ratio tied to our tangible net worth. The other terms
and conditions of the new credit facility are generally similar
to the previous credit facility. The credit facility matures in
47
May 2011, with two one-year renewal options remaining. As of
September 30, 2006, we were in compliance with all of the
credit facility covenants.
Prior to the June 2006 second amended and restated credit and
security agreement, our credit facility was amended during March
2006 and February 2006. The March 2006 amendment temporarily
increased our asset-based borrowing availability up to
$415 million through July 31, 2006. The February 2006
amendment increased our asset-based borrowing availability up to
$385 million, and extended the maturity of the credit
facility to March 1, 2009, with two one-year renewal
options. Prior to the February 2006 amendment, our credit
facility provided us with asset-based borrowing availability of
up to $340 million, permitted up to $20 million in
approved-vendor floorplan borrowings, accrued interest at a rate
of LIBOR plus 150 to 260 basis points, and was scheduled to
mature in March 2008, with two one-year renewal options
remaining. The other terms and conditions of the credit facility
were generally similar to the new credit facility.
During the fiscal years ended September 30, 2004, 2005, and
2006, we completed the acquisition of five marine retail
operations. We acquired the net assets, related property, and
buildings and assumed or retired certain liabilities, including
the outstanding floorplan obligations related to new boat
inventories, for approximately $62.8 million in cash,
including acquisition costs and 665,024 shares of common
stock valued at $33.71 per share.
Except as specified in this Managements Discussion
and Analysis of Financial Condition, and Results of
Operations and in our 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.
Contractual
Commitments and Commercial Commitments
The following table sets forth a summary of our material
contractual obligations and commercial commitments as of
September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of
|
|
|
Long-Term
|
|
|
Operating
|
|
|
|
|
Year Ending September 30,
|
|
Credit
|
|
|
Debt
|
|
|
Leases
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
2007
|
|
$
|
321,500
|
|
|
$
|
4,532
|
|
|
$
|
10,362
|
|
|
$
|
336,394
|
|
2008
|
|
|
|
|
|
|
4,626
|
|
|
|
8,300
|
|
|
|
12,926
|
|
2009
|
|
|
|
|
|
|
4,720
|
|
|
|
4,603
|
|
|
|
9,323
|
|
2010
|
|
|
|
|
|
|
4,826
|
|
|
|
3,532
|
|
|
|
8,358
|
|
2011
|
|
|
|
|
|
|
4,185
|
|
|
|
2,426
|
|
|
|
6,611
|
|
Thereafter
|
|
|
|
|
|
|
14,297
|
|
|
|
542
|
|
|
|
14,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
321,500
|
|
|
$
|
37,186
|
|
|
$
|
29,765
|
|
|
$
|
388,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
At September 30, 2006, approximately 98.0% of our short-
and long-term debt bore interest at variable rates, generally
tied to a reference rate such as the LIBOR rate or the prime
rate of interest of certain banks. Changes in interest rates on
loans from these financial institutions could affect our
earnings as a result of interest rates charged on certain
underlying obligations that are variable. At September 30,
2006, a hypothetical 100 basis point increase in interest rates
on our variable rate obligations would have resulted in an
increase of approximately $3.5 million in annual pre-tax
interest expense. This estimated increase is based upon the
outstanding balances of all of our variable rate obligations and
assumes no mitigating changes by us to reduce the outstanding
balances or additional interest assistance that would be
received from vendors due to the hypothetical interest rate
increase.
Products purchased from the Italy-based Ferretti Group and
Azimut are subject to fluctuations in the Euro to
U.S. dollar exchange rate, which ultimately may impact the
retail price at which we can sell such products. As a result,
fluctuations in the value of the Euro as compared with the
U.S. dollar may impact the price points at which we can
sell profitably Ferretti Group and Azimut products, and such
price points may not be competitive with other product lines in
the United States. Accordingly, such fluctuations in exchange
rates ultimately may impact the
48
amount of revenue, cost of goods sold, cash flows, and earnings
we recognize for the Ferretti Group and Azimut product lines. We
also could incur losses from hedging transactions designed to
reduce our risk to fluctuations in exchange rates. We cannot
predict the effects of exchange rate fluctuations or currency
rate hedges on our operating results. Therefore, in certain
cases, we have entered into foreign currency cash flow hedges to
reduce the variability of cash flows associated with forecasted
purchases of boats and yachts from Ferretti Group. As of
September 30, 2006, these outstanding contracts have a
combined notional amount of approximately $10.4 million and
mature at various times through December 2006. As of
September 30, 2006 these outstanding contracts had
unrealized gains of approximately $571,000, which were recorded
in other current assets on the condensed consolidated balance
sheet with approximately $453,000, net of tax, recorded in
accumulated other comprehensive income. The forecasted purchases
will settle in Euro dollars. We cannot assure that our
strategies will adequately protect our operating results from
the effects of exchange rate fluctuations.
|
|
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.
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of Controls and Procedures
We have evaluated, with the participation of our Chief Executive
Officer (CEO) and Chief Financial Officer (CFO), the
effectiveness of our disclosure controls and procedures as of
September 30, 2006. Based on this evaluation, our CEO and
CFO have each concluded that our disclosure controls and
procedures are effective to ensure that we record, process,
summarize, and report information required to be disclosed by us
in our reports filed under the Securities Exchange Act within
the time periods specified by the Securities and Exchange
Commissions rules and forms. During the fiscal year
covered by this report, there have not been any changes in our
internal controls over financial reporting that have materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting. Subsequent to the
date of their evaluation, there have not been any significant
changes in our internal controls or in other facts that could
significantly affect these controls, including any corrective
action with regard to significant deficiencies and material
weaknesses.
Managements
Report on Internal Control over Financial Reporting
During January 2006, we acquired substantially all of the
assets, including certain real estate, and assumed certain
liabilities of Port Arrowhead. During March 2006, we acquired
substantially all of the assets and assumed certain liabilities
of Surfside. As permitted by Securities and Exchange Commission
guidance, the scope of our Section 404 evaluation for the
fiscal year ended September 30, 2006 does not include the
internal controls over financial reporting of the acquired
operations of Port Arrowhead or Surfside. Port Arrowhead and
Surfside are included in our consolidated financial statements
from the date of acquisition. Port Arrowhead and Surfside
represented approximately $201.8 million and
$16.7 million of total assets and net assets, respectively,
as of September 30, 2006 and approximately
$192.3 million and $900,000 of revenues and net income,
respectively, for the year then ended. From the acquisition date
to September 30, 2006, the processes and systems of the
acquired operations were discrete and did not significantly
impact internal controls over financial reporting for our other
consolidated subsidiaries.
Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in
Rule 13a-15(f)
of the Securities Exchange Act of 1934. Under the supervision
and with the participation of the Companys management,
including its principal executive officer and principal
financial officer, the Company conducted an evaluation of the
effectiveness of the Companys internal control over
financial reporting as of September 30, 2005 as required by
the Securities Exchange Act of 1934
Rule 13a-15(c).
In making this assessment, the Company used the criteria set
forth by the Committee of Sponsoring Organizations of the
49
Treadway Commission (COSO) in Internal Control
Integrated Framework. Based on its evaluation, management
concluded that its internal control over financial reporting was
effective as of September 30, 2006.
Managements assessment of the effectiveness of the
Companys internal control over financial reporting as of
September 30, 2006 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as
stated in their report which appears below.
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
MarineMax, Inc.
We have audited managements assessment, included in the
accompanying Managements Report on Internal Control over
Financial Reporting, that MarineMax, Inc. maintained effective
internal control over financial reporting as of
September 30, 2006, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). MarineMax, Inc.s management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express an opinion on managements assessment and an
opinion on the effectiveness of the companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
As indicated in the accompanying Managements Report on
Internal Control over Financial Reporting, managements
assessment of and conclusion on the effectiveness of internal
control over financial reporting did not include the internal
controls of the Port Arrowhead Group or Surfside-3 Marina, Inc.,
which are included in the 2006 consolidated financial statements
of MarineMax, Inc. and constituted approximately
$201.8 million and $16.7 million of total assets and
net assets, respectively, as of September 30, 2006 and
approximately $192.3 million and $900,000 of revenues and
net income, respectively, for the year then ended. Our audit of
internal control over financial reporting of MarineMax, Inc.
also did not include an evaluation of the internal control over
financial reporting of the Port Arrowhead Group and
Surfside-3
Marina, Inc.
In our opinion, managements assessment that MarineMax,
Inc. maintained effective internal control over financial
reporting as of September 30, 2006, is fairly stated, in
all material respects, based on the COSO criteria.
50
Also, in our opinion, MarineMax, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of September 30, 2006, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of MarineMax, Inc. as of
September 30, 2006 and 2005, and the related consolidated
statements of operations, comprehensive income,
stockholders equity, and cash flows for each of the three
years in the period ended September 30, 2006 of MarineMax,
Inc. and our report dated December 14, 2006 expressed an
unqualified opinion thereon.
Ernst & Young LLP
Certified Public Accountants
Tampa, Florida
December 14, 2006
|
|
Item 9B.
|
Other
Information
|
Not applicable.
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
Exchange Act for our 2007 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 2007 Annual
Meeting of Stockholders.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
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 2007 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 2007 Annual
Meeting of Stockholders.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this Item is incorporated herein by
reference to the definitive Proxy Statement to be filled
pursuant to Regulation 14A of the Exchange Act for our 2007
Annual Meeting of Stockholders.
51
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
|
|
(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 amended 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.
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit
|
|
|
3
|
.1
|
|
Restated Certificate of
Incorporation of the Registrant, including all amendments to
date(3)
|
|
3
|
.2
|
|
Amended and Restated Bylaws of the
Registrant(3)
|
|
3
|
.3
|
|
Certificate of Designation of
Series A Junior Participating Preferred Stock(3)
|
|
4
|
.1
|
|
Specimen of Common Stock
Certificate(3)
|
|
4
|
.2
|
|
Rights Agreement, dated
August 28, 2001 between Registrant and American Stock
Transfer & Trust Company, as Rights Agent(2)
|
|
10
|
.1(k)
|
|
Asset Purchase Agreement between
Registrant, Port Arrowhead Marina, Inc., Lake Port Marina, Inc.,
Port Arrowhead, Inc., and Lakewood Resort Corporation(9)
|
|
10
|
.1(l)
|
|
Asset Purchase Agreement between
Registrant and Surfside-3 Marina, Inc.(11)
|
|
10
|
.3(h)
|
|
Employment Agreement dated
June 7, 2006 between Registrant and William H.
McGill, Jr.(12)
|
|
10
|
.3(i)
|
|
Employment Agreement dated
June 7, 2006 between Registrant and Michael H. McLamb(12)
|
|
10
|
.3(j)
|
|
Employment Agreement dated
June 7, 2006 between Registrant and Edward A. Russell(12)
|
|
10
|
.4
|
|
1998 Incentive Stock Plan, as
amended through November 15, 2000(4)
|
|
10
|
.5
|
|
1998 Employee Stock Purchase
Plan(1)
|
|
10
|
.11
|
|
Dealer Agreement dated
December 7, 2005 between the Sea Ray Division of Brunswick
Corporation and MarineMax, Inc.(6)
|
|
10
|
.12
|
|
Agreement Relating to Acquisitions
dated December 7, 2005 between the Sea Ray Division of
Brunswick Corporation and the Principal Operating Subsidiaries
of MarineMax, Inc.(6)
|
|
10
|
.17
|
|
Credit and Security Agreement
dated as of December 18, 2001 among the Registrant and its
subsidiaries, as Borrowers, and Banc of America Specialty
Finance, Inc. and various other lenders, as Lenders(4)
|
|
10
|
.17(a)
|
|
Amendment No. 2 to Credit and
Security Agreement dated January 30, 2004 among the
Registrant and its subsidiaries as Borrowers, Keybank National
Association, N.A., Bank of America, N.A., and various other
lenders, as Lenders (5)
|
|
10
|
.18
|
|
Hatteras Sales and Service
Agreement, dated July 1, 2003 among the Registrant,
MarineMax Motor Yachts, LLC, and Hatteras Yachts Division of
Brunswick Corporation(5)
|
|
10
|
.19
|
|
Dealer Agreement, effective
September 30, 2003 among the Registrant, Ferretti Group
USA, Inc., and Bertram Yacht, Inc.(7)
|
|
10
|
.20
|
|
Amended and Restated Credit and
Security Agreement executed on February 15, 2005 effective
as of February 3, 2005 among the Registrant and its
subsidiaries, as Borrowers, Keybank National Association and
Bank of America, N.A., and various other lenders as Lenders(8)
|
|
10
|
.20(a)
|
|
Amendment No. 2 to Amended
and Restated Credit and Security Agreement dated
February 10, 2006 among the Registrant and its
subsidiaries, as Borrowers, Keybank National Association, Bank
of America, N.A., and various other lenders, as Lenders(10)
|
|
10
|
.20(b)
|
|
Amendment No. 3 to Amended
and Restated Credit and Security Agreement dated March 10,
2006 among the Registrant and its subsidiaries, as Borrowers,
Keybank National Association, Bank of America, N.A., and various
other lenders, as Lenders(11)
|
52
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit
|
|
|
10
|
.20(c)
|
|
Amendment No. 4 to Amended
and Restated Credit and Security Agreement dated March 31,
2006 among the Registrant and its subsidiaries, as Borrowers,
Keybank National Association, Bank of America, N.A., and various
other lenders, as Lenders(11)
|
|
10
|
.21
|
|
Second Amended and Restated Credit
and Security Agreement dated June 19, 2006 among the
Registrant and its subsidiaries, as Borrowers, and Bank of
America, N.A., KeyBank, N.A., General Electric Commercial
Distribution Finance Corporation, Wachovia Bank, N.A., Wells
Fargo Bank, N.A., National City Bank, N.A., U.S. Bank,
N.A., and Branch Banking and Trust Company, as Lenders(13)
|
|
21
|
|
|
List of Subsidiaries
|
|
23
|
.1
|
|
Consent of Ernst & Young
LLP
|
|
31
|
.1
|
|
Certification of Chief Executive
Officer pursuant to
Rule 13a-14(a)
and
Rule 15d-14(a),
promulgated under the Securities Exchange Act of 1934, as
amended.
|
|
31
|
.2
|
|
Certification of Chief Financial
Officer pursuant to
Rule 13a-14(a)
and
Rule 15d-14(a),
promulgated under the Securities Exchange Act of 1934, as
amended.
|
|
32
|
.1
|
|
Certification pursuant to U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
(1) |
|
Incorporated by reference to Registration Statement on
Form S-1
(Registration
333-47873). |
|
(2) |
|
Incorporated by reference to Registrants
Form 8-K
Report dated September 30, 1998, as filed on
October 20, 1998. |
|
(3) |
|
Incorporated by reference to Registrants
Form 10-K
for the year ended September 30, 2001, as filed on
December 20, 2001. |
|
(4) |
|
Incorporated by reference to Registrants
Form 10-Q
for the quarterly period ended December 31, 2001, as filed
on February 14, 2002. |
|
(5) |
|
Incorporated by reference to Registrants
Form 10-Q
for the quarterly period ended December 31, 2003, as filed
on February 17, 2004. |
|
(6) |
|
Incorporated by reference to Registrants
Form 8-K
Report as filed on December 9, 2005. |
|
(7) |
|
Incorporated by reference to Registrants
Form 10-Q
for the quarterly period ended December 31, 2004, as filed
on February 9, 2005. |
|
(8) |
|
Incorporated by reference to Registrants
Form 8-K
Report dated February 15, 2005, as filed on
February 18, 2005. |
|
(9) |
|
Incorporated by reference to Registrants
Form 10-Q
for the quarterly period ended December 31, 2005, as filed
on February 9, 2006. |
|
(10) |
|
Incorporated by reference to Registrants
Form 8-K
Report dated February 10, 2006, as filed on
February 16, 2006. |
|
(11) |
|
Incorporated by reference to Registrants
Form 10-Q
for the quarterly period ended March 31, 2006, as filed on
May 10, 2006. |
|
(12) |
|
Incorporated by reference to Registrants
Form 8-K
Report as filed on June 13, 2006. |
|
(13) |
|
Incorporated by reference to Registrants
Form 10-Q
for the quarterly period ended June 30, 2006, as filed on
August 4, 2006. |
|
|
(c)
|
Financial
Statement Schedules
|
(1) See Item 15(a) above.
53
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
Marinemax,
Inc.
|
|
|
|
|
/s/ William
H. McGill Jr.
|
William H. McGill Jr.
Chairman of the Board and Chief Executive Officer
Date: December 14, 2006
In accordance with the Securities Exchange Act of 1934, the
following persons on behalf of the registrant and in the
capacities and on the date indicated have signed this report
below.
|
|
|
|
|
|
|
Signature
|
|
Capacity
|
|
Date
|
|
/s/ WILLIAM
H. MCGILL
JR.
William
H. McGill Jr.
|
|
Chairman of the Board, President,
and Chief Executive Officer
(Principal Executive Officer)
|
|
December 14, 2006
|
|
|
|
|
|
/s/ MICHAEL
H. MCLAMB
Michael
H. McLamb
|
|
Executive Vice President, Chief
Financial Officer, Secretary, and Director
(Principal Accounting and
Financial Officer)
|
|
December 14, 2006
|
|
|
|
|
|
/s/ ROBERT
D. BASHAM
Robert
D. Basham
|
|
Director
|
|
December 14, 2006
|
|
|
|
|
|
/s/ HILLIARD
M.
EURE III
Hilliard
M. Eure III
|
|
Director
|
|
December 14, 2006
|
|
|
|
|
|
/s/ JOHN
B. FURMAN
John
B. Furman
|
|
Director
|
|
December 14, 2006
|
|
|
|
|
|
/s/ ROBERT
S. KANT
Robert
S. Kant
|
|
Director
|
|
December 14, 2006
|
|
|
|
|
|
/s/ JOSEPH
A. WATTERS
Joseph
A. Watters
|
|
Director
|
|
December 14, 2006
|
|
|
|
|
|
/s/ DEAN
S. WOODMAN
Dean
S. Woodman
|
|
Director
|
|
December 14, 2006
|
54
MARINEMAX,
INC. AND SUBSIDIARIES
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
MarineMax, Inc.
We have audited the accompanying consolidated balance sheets of
MarineMax, Inc. and subsidiaries as of September 30, 2006
and 2005, and the related consolidated statements of operations,
comprehensive income, stockholders equity, and cash flows
for each of the three years in the period ended
September 30, 2006. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (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 consolidated
financial position of MarineMax, Inc. and subsidiaries at
September 30, 2006 and 2005, and the consolidated results
of their operations and their cash flows for each of the three
years in the period ended September 30, 2006 in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of MarineMax, Inc.s internal control over
financial reporting as of September 30, 2006, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated December 14, 2006
expressed an unqualified opinion thereon.
As discussed in Note 3 to the consolidated financial
statements, as of October 1, 2005, the Company adopted the
provisions of Statement of Financial Accounting Standards
No. 123R, Share-Based Payment.
Certified Public Accountants
Tampa, Florida
December 14, 2006
F-2
MARINEMAX,
INC. AND SUBSIDIARIES
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
ASSETS
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
27,271
|
|
|
$
|
25,113
|
|
Accounts receivable, net
|
|
|
26,235
|
|
|
|
57,589
|
|
Inventories, net
|
|
|
317,705
|
|
|
|
462,847
|
|
Prepaid expenses and other current
assets
|
|
|
6,934
|
|
|
|
8,445
|
|
Deferred tax assets
|
|
|
4,956
|
|
|
|
4,486
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
383,101
|
|
|
|
558,480
|
|
Property and equipment, net
|
|
|
99,994
|
|
|
|
122,215
|
|
Goodwill and other intangible
assets, net
|
|
|
56,184
|
|
|
|
116,195
|
|
Other long-term assets
|
|
|
211
|
|
|
|
4,673
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
539,490
|
|
|
$
|
801,563
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
18,146
|
|
|
$
|
37,398
|
|
Customer deposits
|
|
|
25,793
|
|
|
|
17,170
|
|
Accrued expenses
|
|
|
21,096
|
|
|
|
26,783
|
|
Short-term borrowings
|
|
|
150,000
|
|
|
|
321,500
|
|
Current maturities of long-term
debt
|
|
|
4,635
|
|
|
|
4,532
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
219,670
|
|
|
|
407,383
|
|
Deferred tax liabilities
|
|
|
10,771
|
|
|
|
11,639
|
|
Long-term debt, net of current
maturities
|
|
|
25,450
|
|
|
|
32,654
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
255,891
|
|
|
|
451,676
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par
value, 1,000,000 shares authorized, none issued or
outstanding at September 30, 2005 and 2006
|
|
|
|
|
|
|
|
|
Common stock, $.001 par
value; 24,000,000 shares authorized, 17,678,087 and
18,529,524 shares issued and outstanding at
September 30, 2005 and 2006, respectively
|
|
|
18
|
|
|
|
19
|
|
Additional paid-in capital
|
|
|
125,672
|
|
|
|
156,618
|
|
Retained earnings
|
|
|
160,924
|
|
|
|
200,306
|
|
Deferred stock compensation
|
|
|
(2,397
|
)
|
|
|
|
|
Accumulated other comprehensive
income
|
|
|
|
|
|
|
507
|
|
Treasury stock, at cost, 30,000
and 336,300 shares held at September 30, 2005 and
2006, respectively
|
|
|
(618
|
)
|
|
|
(7,563
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
283,599
|
|
|
|
349,887
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
539,490
|
|
|
$
|
801,563
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-3
MARINEMAX,
INC. AND SUBSIDIARIES
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
Revenue
|
|
$
|
762,009
|
|
|
$
|
947,347
|
|
|
$
|
1,213,541
|
|
Cost of sales
|
|
|
573,616
|
|
|
|
712,843
|
|
|
|
906,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
188,393
|
|
|
|
234,504
|
|
|
|
306,760
|
|
Selling, general, and
administrative expenses
|
|
|
139,470
|
|
|
|
169,975
|
|
|
|
222,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
48,923
|
|
|
|
64,529
|
|
|
|
83,954
|
|
Interest expense
|
|
|
6,499
|
|
|
|
9,291
|
|
|
|
18,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
42,424
|
|
|
|
55,238
|
|
|
|
65,338
|
|
Income tax provision
|
|
|
16,126
|
|
|
|
21,412
|
|
|
|
25,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
26,298
|
|
|
$
|
33,826
|
|
|
$
|
39,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
1.69
|
|
|
$
|
2.01
|
|
|
$
|
2.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share
|
|
$
|
1.58
|
|
|
$
|
1.88
|
|
|
$
|
2.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares used in computing net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
15,585,314
|
|
|
|
16,815,445
|
|
|
|
18,028,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
16,666,107
|
|
|
|
18,032,533
|
|
|
|
18,928,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-4
MARINEMAX,
INC. AND SUBSIDIARIES
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
Net income
|
|
$
|
26,298
|
|
|
$
|
33,826
|
|
|
$
|
39,382
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair market value of
interest rate swap, net of tax of $34
|
|
|
|
|
|
|
|
|
|
|
54
|
|
Change in fair market value of
foreign currency hedges, net of tax of $284
|
|
|
|
|
|
|
|
|
|
|
453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
26,298
|
|
|
$
|
33,826
|
|
|
$
|
39,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
MARINEMAX,
INC. AND SUBSIDIARIES
(Amounts in thousands except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Deferred
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Stock
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Income
|
|
|
Stock
|
|
|
Equity
|
|
|
BALANCE, September 30, 2003
|
|
|
15,401,686
|
|
|
$
|
15
|
|
|
$
|
65,235
|
|
|
$
|
100,806
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
166,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,298
|
|
Purchase of treasury stock
|
|
|
(32,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(678
|
)
|
|
|
(678
|
)
|
Issuance of treasury stock
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
54
|
|
Shares issued under employee stock
purchase plan
|
|
|
64,429
|
|
|
|
|
|
|
|
636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
636
|
|
Shares issued upon exercise of
stock options
|
|
|
271,338
|
|
|
|
1
|
|
|
|
2,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,965
|
|
Stock-based compensation
|
|
|
3,559
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
Tax benefits of options exercised
|
|
|
|
|
|
|
|
|
|
|
1,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, September 30, 2004
|
|
|
15,711,012
|
|
|
|
16
|
|
|
|
70,325
|
|
|
|
127,098
|
|
|
|
|
|
|
|
|
|
|
|
(618
|
)
|
|
|
196,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,826
|
|
Shares issued under employee stock
purchase plan
|
|
|
51,727
|
|
|
|
|
|
|
|
1,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,018
|
|
Shares issued upon exercise of
stock options
|
|
|
379,567
|
|
|
|
|
|
|
|
4,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,268
|
|
Shares issued through public
offering
|
|
|
1,429,000
|
|
|
|
2
|
|
|
|
44,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,203
|
|
Stock-based compensation
|
|
|
106,781
|
|
|
|
|
|
|
|
3,132
|
|
|
|
|
|
|
|
(3,027
|
)
|
|
|
|
|
|
|
|
|
|
|
105
|
|
Amortization of deferred stock
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
630
|
|
|
|
|
|
|
|
|
|
|
|
630
|
|
Tax benefits of options exercised
|
|
|
|
|
|
|
|
|
|
|
2,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, September 30, 2005
|
|
|
17,678,087
|
|
|
|
18
|
|
|
|
125,672
|
|
|
|
160,924
|
|
|
|
(2,397
|
)
|
|
|
|
|
|
|
(618
|
)
|
|
|
283,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,382
|
|
Purchase of treasury stock
|
|
|
(306,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,945
|
)
|
|
|
(6,945
|
)
|
Reclassification resulting from
adoption of SFAS 123R
|
|
|
|
|
|
|
|
|
|
|
(2,397
|
)
|
|
|
|
|
|
|
2,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued under employee stock
purchase plan
|
|
|
59,197
|
|
|
|
|
|
|
|
1,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,283
|
|
Shares issued upon exercise of
stock options
|
|
|
253,353
|
|
|
|
|
|
|
|
2,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,581
|
|
Stock-based compensation
|
|
|
180,163
|
|
|
|
|
|
|
|
5,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,567
|
|
Shares issued upon business
acquisition
|
|
|
665,024
|
|
|
|
1
|
|
|
|
22,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,418
|
|
Tax benefits of options exercised
|
|
|
|
|
|
|
|
|
|
|
1,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,495
|
|
Change in fair market value of
derivative instruments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
507
|
|
|
|
|
|
|
|
507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, September 30, 2006
|
|
|
18,529,524
|
|
|
$
|
19
|
|
|
$
|
156,618
|
|
|
$
|
200,306
|
|
|
$
|
|
|
|
$
|
507
|
|
|
$
|
(7,563
|
)
|
|
$
|
349,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-6
MARINEMAX,
INC. AND SUBSIDIARIES
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
26,298
|
|
|
$
|
33,826
|
|
|
$
|
39,382
|
|
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,273
|
|
|
|
6,118
|
|
|
|
8,607
|
|
Deferred income tax provision
|
|
|
180
|
|
|
|
363
|
|
|
|
1,338
|
|
Loss (gain) on sale of property and
equipment
|
|
|
1
|
|
|
|
(136
|
)
|
|
|
(42
|
)
|
Stock-based compensation expense
|
|
|
80
|
|
|
|
735
|
|
|
|
5,567
|
|
Tax benefits of options exercised
|
|
|
1,410
|
|
|
|
2,728
|
|
|
|
1,495
|
|
Excess tax benefits from
stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(1,127
|
)
|
(Increase) decrease in
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(3,220
|
)
|
|
|
(1,258
|
)
|
|
|
(21,385
|
)
|
Inventories, net
|
|
|
(110,369
|
)
|
|
|
(31,143
|
)
|
|
|
(25,334
|
)
|
Prepaid expenses and other assets
|
|
|
(1,640
|
)
|
|
|
(659
|
)
|
|
|
(1,411
|
)
|
Increase (decrease) in
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
43,439
|
|
|
|
(37,720
|
)
|
|
|
20,196
|
|
Customer deposits
|
|
|
5,989
|
|
|
|
9,876
|
|
|
|
(21,988
|
)
|
Accrued expenses
|
|
|
2,608
|
|
|
|
3,471
|
|
|
|
4,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
operating activities
|
|
|
(29,951
|
)
|
|
|
(13,799
|
)
|
|
|
9,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(10,174
|
)
|
|
|
(17,795
|
)
|
|
|
(10,164
|
)
|
Net cash invested in joint venture
|
|
|
|
|
|
|
|
|
|
|
(4,007
|
)
|
Net cash used in acquisitions of
businesses, net assets, and intangible assets
|
|
|
(10,232
|
)
|
|
|
(650
|
)
|
|
|
(81,369
|
)
|
Proceeds from sale of property and
equipment
|
|
|
235
|
|
|
|
571
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(20,171
|
)
|
|
|
(17,874
|
)
|
|
|
(95,435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of long-term debt
|
|
|
3,200
|
|
|
|
3,271
|
|
|
|
12,240
|
|
Repayments of long-term debt
|
|
|
(2,426
|
)
|
|
|
(3,463
|
)
|
|
|
(5,140
|
)
|
Net borrowings (repayments) on
short-term borrowings
|
|
|
50,939
|
|
|
|
(5,429
|
)
|
|
|
78,729
|
|
Purchases of treasury stock
|
|
|
(678
|
)
|
|
|
|
|
|
|
(6,945
|
)
|
Net proceeds from issuance of
common stock through public offering
|
|
|
|
|
|
|
44,203
|
|
|
|
|
|
Excess tax benefits from
stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
1,127
|
|
Net proceeds from issuance of
common stock under option and employee purchase plans
|
|
|
3,655
|
|
|
|
5,286
|
|
|
|
3,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
54,690
|
|
|
|
43,868
|
|
|
|
83,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS:
|
|
|
4,568
|
|
|
|
12,195
|
|
|
|
(2,158
|
)
|
CASH AND CASH EQUIVALENTS,
beginning of period
|
|
|
10,508
|
|
|
|
15,076
|
|
|
|
27,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of
period
|
|
$
|
15,076
|
|
|
$
|
27,271
|
|
|
$
|
25,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of
Non-Cash Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt assumed for property
and equipment purchases
|
|
$
|
3,120
|
|
|
$
|
4,040
|
|
|
$
|
|
|
Supplemental Disclosure of Non-Cash
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in connection
with business acquisition
|
|
$
|
|
|
|
$
|
|
|
|
$
|
22,418
|
|
See accompanying notes.
F-7
MARINEMAX,
INC. AND SUBSIDIARIES
|
|
1.
|
COMPANY
BACKGROUND AND BASIS OF PRESENTATION:
|
We were incorporated in Delaware in January 1998 and are the
largest recreational boat retailer in the United States. We
engage primarily in the retail sale, brokerage, and service of
new and used boats, motors, trailers, marine parts, and
accessories and offer slip and storage accommodations in certain
locations. In addition, we arrange related boat financing,
insurance, and extended service contracts. As of
September 30, 2006, we operated through 87 retail locations
in 22 states, consisting of Alabama, Arizona, California,
Colorado, Connecticut, Delaware, Florida, Georgia, Maryland,
Minnesota, Missouri, Nevada, New Jersey, New York, North
Carolina, Ohio, Oklahoma, Rhode Island, South Carolina,
Tennessee, Texas, and Utah.
We are the nations largest retailer of Sea Ray, Boston
Whaler, Meridian, and Hatteras Yachts, all of which are
manufactured by Brunswick Corporation (Brunswick), the
worlds largest manufacturer of marine products. Sales of
new Brunswick boats accounted for approximately 60%, 60%, and
59% of our revenue in fiscal 2004, 2005, and 2006, respectively.
We believe we represented approximately 10%, 10%, and 13% of all
Brunswick marine product sales during fiscal 2004, 2005, and
2006, respectively.
We have dealership agreements with Sea Ray, Boston Whaler,
Meridian, Hatteras Yachts, Mercury Marine, and Baja Marine
Corporation, all subsidiaries or divisions of Brunswick. We also
have dealer agreements with Ferretti Group, Bertram and Azimut.
These agreements allow us to purchase, stock, sell, and service
these manufacturers boats and products. These agreements
also allow us to use these manufacturers names, trade
symbols, and intellectual properties in our operations.
Each of our operating dealership subsidiaries that carry the Sea
Ray product line is party to a multi-year dealer agreement with
Brunswick covering Sea Ray products and is the exclusive dealer
of Sea Ray boats in its geographic markets. Our subsidiary,
MarineMax Motor Yachts, LLC, is a party to a dealer agreement
with Hatteras Yachts. The agreement gives us the right to sell
Hatteras Yachts throughout the state of Florida (excluding the
Florida Panhandle) and the state of Texas, as well as the
U.S. distribution rights for Hatteras products over
82 feet. Our subsidiary, MarineMax International, LLC, is a
party to a dealer agreement with Ferretti Group and Bertram
Yachts. The agreement appoints us as the exclusive dealer for
Ferretti Yachts, Pershing, Riva, Apreamare, and Mochi Craft
mega-yachts, yachts and other recreational boats for the United
States, Canada, and the Bahamas. The agreement also appoints us
as the exclusive dealer for Bertram in the United States
(excluding the Florida peninsula and certain portions of New
England), Canada, and the Bahamas.
Upon the completion of the Surfside-3 acquisition, we became the
exclusive dealer for Azimut-Benetti Groups product lines
Azimut and Atlantis. The Azimut dealer agreement provides a
geographic territory to promote the product line and to network
with the appropriate clientele through various independent
locations designated for Azimut retail sales.
As is typical in the industry, we deal with manufacturers, other
than the Sea Ray division of Brunswick, under renewable annual
dealer agreements, each of which gives us the right to sell
various makes and models of boats within a given geographic
region. Any change or termination of these agreements for any
reason, including changes in competitive, regulatory, or
marketing practices, including rebate or incentive programs,
could adversely affect our results of operations. Although there
are a limited number of manufacturers of the type of boats and
products that we sell, we believe that adequate alternative
sources would be available to replace any manufacturer other
than Brunswick as a product source. These alternative sources
may not be available at the time of any interruption, and
alternative products may not be available at comparable terms,
which could affect operating results adversely. Additionally, a
change in suppliers could cause a loss of revenue, which would
affect operating results adversely.
The consolidated financial statements include our accounts and
the accounts of our subsidiaries, all of which are wholly owned.
All significant intercompany transactions and accounts have been
eliminated.
F-8
MARINEMAX,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We commenced operations with the acquisition of five independent
recreational boat dealers on March 1, 1998. Since the
initial acquisitions, we have acquired 20 recreational boat
dealers, two boat brokerage operations, and two full-service
yacht repair facilities. As a part of our acquisition strategy,
we frequently engage in discussions with various recreational
boat dealers regarding their potential acquisition 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. The following describes the
acquisitions we completed during the fiscal years ended
September 30, 2004 and 2006. No significant acquisitions
were completed during the fiscal year ended September 30,
2005.
During October 2003, we acquired substantially all of the assets
and assumed certain liabilities of Emarine International, Inc.
and Steven Myers, Inc. (Emarine), a privately held boat
dealership located in Fort Lauderdale, Florida, for
approximately $305,000 in cash. The acquisition resulted in the
recognition of approximately $300,000 in tax deductible
goodwill, including acquisition costs. The acquisition provided
us with an established retail location to sell the newly offered
Ferretti Group products in the southeast Florida boating
community. The asset purchase agreement contained an earn out
provision based on the future profits of the location, assuming
certain conditions and provisions were met. In August 2004, the
earn out provisions were modified withdrawing the requirements
for any future earn out payments. Emarine has been included in
our consolidated financial statements since the date of
acquisition.
During June 2004, we acquired substantially all of the assets,
including real estate, and assumed certain liabilities of
Imperial Marine (Imperial), a privately held boat dealership
with locations in Baltimore and the northern Chesapeake area of
Maryland, for approximately $9.3 million in cash, including
acquisition costs. Imperial operates a highway location and a
marina on the Gunpowder River. The acquisition expanded our
ability to serve consumers in the Mid-Atlantic United States
boating community. Additionally, the acquisition allowed us to
capitalize on Imperials market position and leverage our
inventory management and inventory financing resources over the
acquired locations. The acquisition resulted in the recognition
of approximately $1.1 million in tax deductible goodwill,
including acquisition costs, and approximately $580,000 in tax
deductible indefinite-lived intangible assets (dealer
agreements). Imperial has been included in our consolidated
financial statements since the date of acquisition.
During June 2004, we purchased inventory, certain equipment and
assumed certain liabilities from the previous Jacksonville,
Florida-based Sea Ray dealer (Jacksonville) for the sport boat
and sport cruiser product lines for approximately $900,000 in
cash, including acquisition costs. The purchase enhanced our
ability to serve customers in the northeast Florida boating
community by adding the sport boat and sport cruiser product
lines to our existing Sea Ray product offerings. The acquisition
resulted in the recognition of approximately $240,000 in tax
deductible goodwill, including acquisition costs, and
approximately $450,000 in tax deductible indefinite-lived
intangible assets (dealer agreements). Jacksonville has been
included in our consolidated financial statements since the date
of acquisition.
During January 2006, we acquired substantially all of the
assets, including certain real estate, and assumed certain
liabilities of the Port Arrowhead Group (Port Arrowhead), a
privately held boat dealership with locations in Missouri and
Oklahoma, for approximately $27.5 million in cash, plus
$5.0 million in working capital adjustments including
acquisition costs. Port Arrowhead operates six retail locations,
including a large marina with more than 300 slips. The
acquisition expands our ability to serve consumers in the
Midwest boating community, including neighboring boating
destinations in Illinois, Kansas, and Arkansas. The acquisition
also allows us to capitalize on Port Arrowheads market
position and leverage our inventory management and inventory
financing resources over the acquired locations. Based on our
preliminary valuation, the purchase price, including acquisition
costs, is anticipated to result in the recognition of
approximately $6.1 million in tax deductible goodwill and
approximately
F-9
MARINEMAX,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$2.0 million in tax deductible indefinite-lived intangible
assets (dealer agreements). We are in the process of finalizing
the purchase price allocation and determining the fair value of
acquired intangible assets; accordingly, certain purchase price
allocations are subject to change. Port Arrowhead has been
included in our consolidated financial statements since the date
of acquisition.
Pro forma results of operations have not been presented with
respect to any of the above acquisitions, as the effects of
those acquisitions were not significant on either an individual
or an aggregate basis in the related acquisition year.
During March 2006, we acquired substantially all of the assets
and assumed certain liabilities of Surfside-3 Marina, Inc.
(Surfside), a privately held boat dealership with eight
locations in New York and Connecticut, for approximately
$24.8 million in cash and 665,024 shares of common
stock, plus $24.0 million in working capital adjustments
including acquisition costs. The shares were valued at
$33.71 per share, which was the average closing market
price of our common stock for the five day-period beginning two
days prior to and ending two days subsequent to the acquisition
date. Based on the provisions of the asset purchase agreement,
100,000 shares of common stock are currently held in
escrow, subject to the satisfaction of working capital
adjustments and other provisions in the acquisition documents.
We and Surfside are in current discussions to resolve such
matters. The acquisition expands our ability to serve consumers
in the Northeast boating community and allows us to capitalize
on Surfsides market position and leverage our inventory
management and inventory financing resources over the acquired
locations. Based on our preliminary valuation, the purchase
price, including acquisition costs, is anticipated to result in
the recognition of approximately $37.0 million in tax
deductible goodwill and approximately $14.7 million in tax
deductible indefinite-lived intangible assets (dealer
agreements). We are in the process of finalizing the purchase
price allocation and determining the fair value of acquired
intangible assets and determining the ultimate resolution of
certain matters related to purchase price adjustments with the
owners of Surfside; accordingly, certain purchase price
allocations are subject to change. Surfside has been included in
our consolidated financial statements since the date of
acquisition.
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed in the acquisitions of
Port Arrowhead and Surfside during 2006 (amounts in
thousands):
|
|
|
|
|
Receivables
|
|
$
|
9,969
|
|
Inventories
|
|
|
119,808
|
|
Other current assets
|
|
|
392
|
|
Property and equipment
|
|
|
20,383
|
|
Goodwill
|
|
|
43,074
|
|
Other identifiable intangible
assets
|
|
|
16,815
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
210,441
|
|
|
|
|
|
|
Short term borrowings
|
|
$
|
(92,770
|
)
|
Other current liabilities
|
|
|
(14,004
|
)
|
|
|
|
|
|
Total current liabilities assumed
|
|
|
(106,774
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
103,667
|
|
|
|
|
|
|
F-10
MARINEMAX,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following unaudited pro forma financial information presents
the combined results of operations of our company with the
operations of Surfside as if the acquisition had occurred as of
the beginning of fiscal 2005 and 2006 (amounts in thousands,
except per share data):
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended
|
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Revenue
|
|
$
|
1,095,410
|
|
|
$
|
1,264,854
|
|
Net income
|
|
$
|
36,455
|
|
|
$
|
37,678
|
|
Net income per common share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.09
|
|
|
$
|
2.05
|
|
Dilutive
|
|
$
|
1.95
|
|
|
$
|
1.96
|
|
This unaudited pro forma financial information is presented for
informational purposes only. The unaudited pro forma financial
information includes an adjustment to record income taxes as if
Surfside were taxed as a C corporation, interest for cash
paid to acquire the business and depreciation and amortization
as if we acquired them from the beginning of the periods
presented until its acquisition date. The unaudited pro forma
financial information does not include adjustments to remove
certain private company expenses, which may not be incurred in
future periods. Similarly, the unaudited pro forma financial
information from the beginning of the periods presented until
Surfsides acquisition date does not include adjustments
for additional expenses, such as rent, insurance and other
expenses that would have been incurred subsequent to the
acquisition date. The unaudited pro forma financial information
may not necessarily reflect our future results of operations or
what the results of operations would have been had we owned and
operated Surfside as of the beginning of the periods presented.
|
|
3.
|
SIGNIFICANT
ACCOUNTING POLICIES:
|
Statements
of Cash Flows
For purposes of the consolidated statements of cash flows, we
consider all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
We made interest payments of approximately $6.5 million,
$9.0 million, and $17.2 million for the fiscal years
ended September 30, 2004, 2005, and 2006, respectively,
including interest on debt to finance our real estate holdings
and new boat inventory. We made income tax payments of
approximately $16.2 million, $15.3 million, and
$8.9 million for the fiscal years ended September 30,
2004, 2005, and 2006, respectively.
Vendor
Consideration Received
We account for consideration received from our vendors in
accordance with Emerging Issues Task Force Issue
No. 02-16,
Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor (EITF
02-16). EITF
02-16 most
significantly requires us to classify interest assistance
received from manufacturers as a reduction of inventory cost and
related cost of sales as opposed to netting the assistance
against our interest expense incurred with our lenders. Pursuant
to EITF
02-16,
amounts received by us under our co-op assistance programs from
our manufacturers, are netted against related advertising
expenses.
Inventories
Inventory costs consist of the amount paid to acquire the
inventory, net of vendor consideration and purchase discounts,
the cost of equipment added, reconditioning costs, and
transportation costs relating to acquiring inventory for sale.
New and used boat, motor, and trailer 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. Based on the agings of the
inventories and our consideration of current market
F-11
MARINEMAX,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
trends, we maintain a lower of cost or market valuation
allowance, which was not material to the consolidated financial
statements taken as a whole as of September 30, 2005 or
2006.
Property
and Equipment
We record property and equipment at cost, net of accumulated
depreciation, and depreciate over their estimated useful lives
using the straight-line method. We capitalize and amortize
leasehold improvements over the lesser of the life of the lease
or the estimated useful life of the asset. Useful lives for
purposes of computing depreciation are as follows:
|
|
|
|
|
|
|
Years
|
|
|
Buildings and improvements
|
|
|
5-40
|
|
Machinery and equipment
|
|
|
3-10
|
|
Furniture and fixtures
|
|
|
5-10
|
|
Vehicles
|
|
|
3-5
|
|
We remove the cost of property and equipment sold or retired and
the related accumulated depreciation from the accounts at the
time of disposition, and include any resulting gain or loss in
the consolidated statements of operations. We charge
maintenance, repairs, and minor replacements to operations as
incurred; we capitalize and amortize major replacements and
improvements over their useful lives.
Valuation
of Goodwill and Other Intangible Assets
We account for goodwill and identifiable intangible assets in
accordance with Statement of Financial Accounting Standards
No. 141, Business Combinations (SFAS 141),
and Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets
(SFAS 142). SFAS 141 requires that all business
combinations initiated after June 30, 2001 be accounted for
using the purchase method of accounting and identifiable
intangible assets acquired in a business combination be
recognized as assets and reported separately from goodwill. We
have determined that our most significant acquired identifiable
intangible assets are the dealer agreements, which are
indefinite-lived intangible assets. SFAS 142 requires that
goodwill and indefinite-lived intangible assets no longer be
amortized, but instead tested for impairment at least annually
and whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. If the carrying
amount of goodwill or an identifiable intangible asset exceeds
its fair value, we would recognize an impairment loss. We
measure any potential impairment based on various business
valuation methodologies, including a projected discounted cash
flow method. We completed the annual impairment test during the
fourth quarter of fiscal 2006, based on financial information as
of the third quarter of fiscal 2006, which resulted in no
impairment of goodwill or identifiable intangible assets. To
date, we have not recognized any impairment of goodwill or
identifiable intangible assets in the application of
SFAS 142.
There was no goodwill amortization expense for the fiscal years
ended September 30, 2004, 2005, and 2006. Accumulated
amortization of goodwill was approximately $2.6 million at
September 30, 2005 and 2006.
Impairment
of Long-Lived Assets
Statement of Financial Accounting Standards No. 144,
Accounting for Impairment or Disposal of Long-Lived
Assets (SFAS 144), requires that long-lived assets,
such as property and equipment and purchased intangibles subject
to amortization, be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of the asset is
measured by comparison of its carrying amount to undiscounted
future net cash flows the asset is expected to generate. If such
assets are considered to be impaired, the impairment to be
recognized is measured as the amount by which the carrying
amount of the asset exceeds its fair market value. Estimates of
expected future cash flows represent managements best
estimate based on currently available information and reasonable
and supportable assumptions.
F-12
MARINEMAX,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Any impairment recognized in accordance with SFAS 144 is
permanent and may not be restored. To date, we have not
recognized any impairment of long-lived assets in connection
with SFAS 144.
Customer
Deposits
Customer deposits primarily include amounts received from
customers toward the purchase of boats. We recognize these
deposits as revenue upon delivery or acceptance of the related
boats to customers.
Insurance
We retain varying levels of risk relating to the insurance
policies we maintain, most significantly workers
compensation insurance and employee medical benefits. We are
responsible for the claims and losses incurred under these
programs, limited by per occurrence deductibles and paid claims
or losses up to pre-determined maximum exposure limits. Any
losses above the pre-determined exposure limits are paid by our
third-party insurance carriers. We estimate our liability for
incurred but not reported losses using our historical loss
experience, our judgment, and industry information.
Derivative
Instruments
We account for derivative instruments in accordance with
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Certain Hedging
Activities (SFAS 133), as amended by Statement of
Financial Accounting Standards No. 138, Accounting
for Certain Derivative Instruments and Certain Hedging Activity,
an Amendment of SFAS 133 (SFAS 138) and
Statement of Financial Accounting Standards No. 149,
Amendment of Statement 133 on Derivative Instruments and
Hedging Activities (SFAS 149), (collectively
SFAS 133). Under these standards, all derivative
instruments are recorded on the balance sheet at their
respective fair values.
We utilize certain derivative instruments, from time to time,
including interest rate swaps and forward contracts to manage
variability in cash flows associated with interest rates and
forecasted purchases of boats and yachts from certain of our
foreign suppliers in Euro dollars.
The accounting for changes in the fair value (i.e., gains or
losses) of a derivative instrument depends on whether it has
been designated and qualifies as part of a hedging relationship
based on its effectiveness in hedging against the exposure and
further, on the type of hedging relationship. For those
derivative instruments that are designated and qualify as
hedging instruments, we designate the hedging instrument, based
upon the exposure being hedged, as a fair value hedge or a cash
flow hedge.
Our forward contracts and interest rate swap are designated and
accounted for as cash flow hedges (i.e., hedging the exposure to
variability in expected future cash flows that is attributable
to a particular risk). SFAS No. 133 provides that the
effective portion of the gain or loss on a derivative instrument
designated and qualifying as a cash flow hedging instrument be
reported as a component of other comprehensive income and be
reclassified into earnings in the same line item in the income
statement as the hedged item in the same period or periods
during which the transaction affects earnings. The ineffective
portion of the gain or loss on these derivative instruments, if
any, is recognized in other income/expense in current earnings
during the period of change.
For derivative instruments not designated as hedging
instruments, the gain or loss is recognized in other
income/expense in current earnings during the period of change.
When a cash flow hedge is terminated, if the forecasted hedged
transaction is still probable of occurrence, amounts previously
recorded in other comprehensive
F-13
MARINEMAX,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
income remain in other comprehensive income and are recognized
in earnings in the period in which the hedged transaction
affects earnings.
Additional information with regard to accounting policies
associated with derivative instruments is contained in
Note 9, Derivative Instruments and Hedging
Activity.
Revenue
Recognition
We recognize revenue from boat, motor, and trailer sales and
parts and service operations at the time the boat, motor,
trailer, or part is delivered to or accepted by the customer or
service is completed. We recognize commissions earned from a
brokerage sale at the time the related brokerage transaction
closes. We recognize revenue from slip and storage services on a
straight-line basis over the term of the slip or storage
agreement. We recognize commissions earned by us for placing
notes with financial institutions in connection with customer
boat financing when we recognize the related boat sales. We also
recognize marketing fees earned on credit life, accident and
disability, and hull insurance products sold by third-party
insurance companies at the later of customer acceptance of the
insurance product as evidenced by contract execution or when we
recognize the related boat sale. Pursuant to negotiated
agreements with financial and insurance institutions, we are
charged back for a portion of these fees should the customer
terminate or default on the related finance or insurance
contract before it is outstanding for a stipulated minimal
period of time. The chargeback allowance, which was not material
to the consolidated financial statements taken as a whole as of
September 30, 2005 or 2006, is based on our experience with
repayments or defaults on the related finance or insurance
contracts.
We also recognize commissions earned on extended warranty
service contracts sold on behalf of third-party insurance
companies at the later of customer acceptance of the service
contract terms as evidenced by contract execution, or
recognition of the related boat sale. We are charged back for a
portion of these commissions should the customer terminate or
default on the service contract prior to its scheduled maturity.
The chargeback allowance, which was not material to the
consolidated financial statements taken as a whole as of
September 30, 2005 or 2006, is based upon our experience
with repayments or defaults on the service contracts.
Stock-Based
Compensation
Prior to October 1, 2005 we accounted for our share-based
compensation plans under the recognition and measurement
provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25) and related interpretations and disclosure
requirements established by Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123), as amended by Statement of
Financial Accounting Standards No. 148, Accounting
for Stock-Based Compensation Transition and
Disclosure (SFAS 148). Under APB 25, because the
grant price was equal to or greater than the fair value no
compensation expense was recorded in earnings for our stock
options and awards granted under our employee stock purchase
plan (ESPP). The pro forma effects on net income and earnings
per share for stock options and ESPP awards were disclosed in a
footnote to the financial statements. Compensation expense was
recorded in earnings for non-vested common stock awards
(restricted stock awards) and Board of Director fees.
Effective October 1, 2005, we adopted the provisions of
Statement of Financial Accounting Standards No. 123R,
Share-Based Payment (SFAS 123R) for our
share-based compensation plans. We adopted SFAS 123R using
the modified prospective transition method. Under this
transition method, compensation cost recognized in fiscal 2006
includes (a) the compensation cost for all share-based
awards granted prior to, but not yet vested as of
October 1, 2005, based on the grant-date fair value
estimated in accordance with the original provisions of
SFAS 123 and (b) the compensation cost for all
share-based awards granted subsequent to September 30,
2005, based on the grant-date fair value estimated in accordance
with the provisions of SFAS 123R. Results for prior periods
have not been restated. As a result of our adoption of SFAS
123R, we recorded compensation expense for stock options of
approximately $3.5 million before tax, or $0.15 per diluted
share after-tax in the fiscal year ended September 30, 2006.
F-14
MARINEMAX,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table illustrates the effect on net income and
earnings per share as if we had applied the fair-value
recognition provisions of SFAS 123 to all of our
share-based compensation awards for periods prior to the
adoption of SFAS 123R, and the actual effect on net income
and earnings per share for periods subsequent to the adoption of
SFAS 123R (amounts in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
Net income as reported
|
|
$
|
26,298
|
|
|
$
|
33,826
|
|
|
$
|
39,382
|
|
Add: Stock-based employee
compensation expense, included in reported net income, net of
related tax effects of $31, $283, and $1,464 for the fiscal year
ended September 30, 2004, 2005, and 2006, respectively
|
|
|
49
|
|
|
|
452
|
|
|
|
4,103
|
|
Deduct: Total stock-based employee
compensation expense determined under the fair value based
method for all awards, net of related tax effects of $339, $663,
and $1,464 for the fiscal year ended September 30, 2004,
2005, and 2006, respectively
|
|
|
(2,218
|
)
|
|
|
(2,953
|
)
|
|
|
(4,103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$
|
24,129
|
|
|
$
|
31,325
|
|
|
$
|
39,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
1.69
|
|
|
$
|
2.01
|
|
|
$
|
2.18
|
|
Pro forma
|
|
$
|
1.55
|
|
|
$
|
1.86
|
|
|
$
|
2.18
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
1.58
|
|
|
$
|
1.88
|
|
|
$
|
2.08
|
|
Pro forma
|
|
$
|
1.48
|
|
|
$
|
1.77
|
|
|
$
|
2.08
|
|
Advertising
and Promotional Costs
We expense advertising and promotional costs as incurred and
include them in selling, general, and administrative expenses in
the accompanying consolidated statements of operations. Pursuant
to EITF
02-16,
amounts received by us under our co-op assistance programs from
our manufacturers, are netted against the related advertising
expenses. Total advertising and promotional expenses
approximated $10.0 million, $14.5 million and
$16.5 million, net of related co-op assistance of
approximately $1.8 million, $1.6 million and
$1.3 million, for the fiscal years ended September 30,
2004, 2005, and 2006, respectively.
Income
Taxes
We account for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting
for Income Taxes (SFAS 109). Under SFAS 109, we
recognize deferred tax assets and liabilities for the future tax
consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. We measure deferred
tax assets and liabilities using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
We operate in multiple states with varying tax laws and are
subject to both federal and state audits of our tax filings. We
make estimates to determine that our tax reserves are adequate
to cover audit adjustments, if any. Actual audit results could
vary from the estimates recorded by us. As the number of years
that are open for tax audits vary depending on tax jurisdiction,
a number of years may elapse before a particular matter is
audited and finally resolved. While it is often difficult to
predict the final outcome or timing of resolution of a
particular tax matter, we believe that our consolidated
financial statements reflect the appropriate outcome of known
tax contingencies.
New
Accounting Pronouncements
During March 2005, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligations an
Interpretation of FASB Statement No. 143
F-15
MARINEMAX,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(FIN 47), which clarifies the timing of liability
recognition for legal obligations associated with an asset
retirement when the timing and (or) method of settling
obligations are conditional on a future event that may or may
not be within the control of the entity. FIN 47 is
effective no later than the end of fiscal years ending after
December 15, 2005. The adoption of FIN 47 did not have
an effect on our consolidated financial statements.
During May 2005, the FASB issued Statement of Financial
Accounting Standard No. 154, Accounting Changes and
Error Corrections (SFAS 154) which replaces
Accounting Principles Board Opinion No. 20,
Accounting Changes, (APB 20) and
SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements-An Amendment of APB Opinion
No. 28 (SFAS 3). SFAS 154 provides guidance
on the accounting for and reporting of accounting changes and
error corrections. SFAS 154 is effective for accounting
changes and correction of errors made in fiscal years beginning
after December 15, 2005. SFAS 154 is effective for the
first quarter of our fiscal year 2007 and we are currently
assessing the implications of this standard and the impact it
will have on our consolidated financial statements.
During June 2006, the Emerging Issues Task Force (EITF) of the
Financial Accounting Standards Board (FASB) reached a consensus
on Issue
No. 06-3,
How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income
Statement (That Is, Gross versus Net Presentation) (EITF
06-3). The
consensus determined that the scope of EITF
06-3
includes any tax assessed by a governmental authority that is
imposed concurrently on a specific revenue-producing transaction
between a seller and a customer, and may include, but is not
limited to, sales, use, value added, and some excise taxes. EITF
06-3 also
determined that the presentation of taxes on either a gross
basis or a net basis within the scope of EITF
06-3 is an
accounting policy decision that should be disclosed pursuant to
APB Opinion No. 22, Disclosure of Accounting
Policies (APB 22). EITF
06-3 does
not require a company to reevaluate its existing policies
related to taxes assessed by a governmental authority that are
directly imposed on a revenue-producing transaction between a
seller and a customer. EITF
06-3 is
effective for interim and annual financial statements beginning
after December 15, 2006, with early adoption permitted. We
will adopt EITF
06-3 in the
first quarter of fiscal year 2007 and do not expect the
implementation of this standard to have a material impact on our
consolidated financial statements as taxes collected from
customers and remitted to governmental authorities are presented
net in our consolidated statements of operations.
During June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), an interpretation of FASB Statement No. 109,
Accounting for Income Taxes (SFAS 109).
FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprises financial statements in
accordance with SFAS 109. FIN 48 prescribes a
recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.
FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN 48 is effective
for fiscal years beginning after December 15, 2006.
FIN 48 is effective for the first quarter of our 2008
fiscal year, and we are currently assessing the implications of
this standard and the impact it will have on our consolidated
financial statements.
During September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157).
SFAS 157 defines fair value, applies to other accounting
pronouncements that require or permit fair value measurements
and expands disclosures about fair value measurements.
SFAS 157 is effective for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal
years. We are currently assessing the implications of this
standard and the impact it will have on our consolidated
financial statements.
During September 2006, the SEC issued Staff Accounting
Bulletin No. 108 Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements (SAB 108), to
address diversity in practice in quantifying financial statement
misstatements and the potential for the build up of improper
amounts on the balance sheet. SAB 108 identifies the
approach that registrants should take when evaluating the
effects of unadjusted misstatements on each financial statement,
the circumstances under which corrections of misstatements
should result in a revision to financial statements, and
disclosures related to the correction of
F-16
MARINEMAX,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
misstatements. SAB 108 is effective for any report for an
interim period of the first fiscal year ending after
November 16, 2006. We are currently assessing the
implications of this standard and the impact it will have on our
consolidated financial statements.
Concentrations
of Credit Risk
Financial instruments, which potentially subject us to
concentrations of credit risk, consist principally of cash and
cash equivalents and accounts receivable. Concentrations of
credit risk with respect to our cash and cash equivalents are
limited primarily to amounts held with financial institutions.
Concentrations of credit risk arising from our receivables are
limited primarily to amounts due from manufacturers and
financial institutions.
Fair
Value of Financial Instruments
The carrying amount of our financial instruments approximates
fair value due either to length to maturity or existence of
interest rates that approximate prevailing market rates unless
otherwise disclosed in these consolidated financial statements.
Use of
Estimates and Assumptions
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States requires us 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.
Significant estimates made by us in the accompanying
consolidated financial statements relate to valuation
allowances, valuation of goodwill and intangible assets,
valuation of long-lived assets, and valuation of accruals.
Actual results could differ from those estimates.
Trade receivables consist primarily of receivables from
financial institutions, which provide funding for customer boat
financing, and amounts due from financial institutions earned
from arranging financing with our customers. We normally collect
these receivables within 30 days of the sale. Trade
receivables also include amounts due from customers on the sale
of boats, parts, service, and storage. Amounts due from
manufacturers represent receivables for various manufacturer
programs and parts and service work performed pursuant to the
manufacturers warranties. At September 30, 2006,
other receivables consists primarily of amounts we believe are
due related to certain unresolved matters associated to the
terms and conditions of the asset purchase agreement with
Surfside (see footnote 2. Acquisitions). We do not believe the
ultimate resolution of these matters will have a material
adverse effect on our consolidated financial condition, results
of operations or cash flows.
The allowance for uncollectible receivables, which was not
material to the consolidated financial statements taken as a
whole as of September 30, 2005 or 2006, was based on our
consideration of customer payment practices, past transaction
history with customers, and economic conditions. We review the
allowance for uncollectible receivables when an event or other
change in circumstances results in a change in the estimate of
the ultimate collectibility of a specific account.
The accounts receivable balances consisted of the following at
September 30,
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Trade receivables
|
|
$
|
14,570
|
|
|
$
|
22,125
|
|
Amounts due from manufacturers
|
|
|
10,374
|
|
|
|
26,087
|
|
Other receivables
|
|
|
1,291
|
|
|
|
9,377
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,235
|
|
|
$
|
57,589
|
|
|
|
|
|
|
|
|
|
|
F-17
MARINEMAX,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories, net consisted of the following at September 30,
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
New boats, motors and trailers
|
|
$
|
265,954
|
|
|
$
|
382,077
|
|
Used boats, motors and trailers
|
|
|
43,193
|
|
|
|
69,729
|
|
Parts, accessories and other
|
|
|
8,558
|
|
|
|
11,041
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
317,705
|
|
|
$
|
462,847
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
PROPERTY
AND EQUIPMENT:
|
Property and equipment consisted of the following at
September 30,
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Land
|
|
$
|
33,223
|
|
|
$
|
43,142
|
|
Buildings and improvements
|
|
|
58,082
|
|
|
|
71,991
|
|
Machinery and equipment
|
|
|
27,524
|
|
|
|
32,311
|
|
Furniture and fixtures
|
|
|
6,311
|
|
|
|
7,099
|
|
Vehicles
|
|
|
5,513
|
|
|
|
6,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,653
|
|
|
|
160,748
|
|
Less Accumulated
depreciation
|
|
|
(30,659
|
)
|
|
|
(38,533
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
99,994
|
|
|
$
|
122,215
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense totaled approximately $5.3 million,
$5.9 million, and $8.3 million for the fiscal years
ended September 30, 2004, 2005, and 2006, respectively.
|
|
7.
|
GOODWILL
AND OTHER INTANGIBLE ASSETS:
|
The changes in the carrying amounts of net goodwill and
identifiable intangible assets for the fiscal years ended
September 30, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable
|
|
|
|
|
|
|
|
|
|
Intangible
|
|
|
|
|
|
|
Goodwill
|
|
|
Assets
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Balance, September 30, 2004
|
|
$
|
50,322
|
|
|
$
|
5,540
|
|
|
$
|
55,862
|
|
Changes during the period
|
|
|
199
|
|
|
|
123
|
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2005
|
|
|
50,521
|
|
|
|
5,663
|
|
|
|
56,184
|
|
Changes during the period
|
|
|
43,546
|
|
|
|
16,464
|
|
|
|
60,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2006
|
|
$
|
94,068
|
|
|
$
|
22,127
|
|
|
$
|
116,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
OTHER
LONG-TERM ASSETS:
|
During February 2006, we became party to a joint venture with
Brunswick that acquired certain real estate and assets of Great
American Marina for an aggregate purchase price of approximately
$11.0 million, of which we contributed approximately
$4.0 million and Brunswick contributed approximately
$7.0 million. The terms of the agreement specify that we
operate and maintain the service business, and Brunswick
operates and maintains the marina business. Simultaneously with
the closing, the acquired entity became Gulfport Marina, LLC
(Gulfport). We account for our investment in Gulfport in
accordance with Accounting Principles Board Opinion No. 18,
The
F-18
MARINEMAX,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Equity Method of Accounting for Investments in Common
Stock. Accordingly, we adjust the carrying amount of our
investment in Gulfport to recognize our share of earnings or
losses.
|
|
9.
|
DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITY:
|
We have entered into foreign currency cash flow hedges to reduce
the variability of cash flows associated with forecasted
purchases of boats and yachts from certain of our foreign
suppliers in Euro dollars. These cash flow hedges are designed
to offset changes in expected cash flows due to fluctuations in
the Euro dollar from the time the contracts are entered into
until actual delivery of the inventory and corresponding
payments are made. At September 30, 2006, there were
outstanding contracts, which had a combined notional amount of
approximately $10.4 million and mature at various times
through December 2006. These contracts are designated as cash
flow hedges since they are expected to be highly effective in
offsetting changes in the cash flows attributable to forecasted
purchases of yachts and boats from certain of our foreign
suppliers in Euro dollars. Because the critical terms of the
forward contracts and the forecasted transactions coincide
(i.e., the currency, notional amount, and timing), changes in
cash flows attributable to the risks being hedged are expected
to be completely offset by the forward contract. However, if we
become aware of a forecasted purchase that will not occur as
planned and there are no extenuating circumstances, we will
write-off the related amount in other comprehensive income in
current earnings. Outstanding contracts at September 30,
2006 had unrealized gains of approximately $571,000, which were
recorded in other current assets on the consolidated balance
sheet and qualify as highly effective for reporting purposes.
Effectiveness of yacht and boat forward contracts is determined
by comparing the change in the fair value of the forward
contract to the change in the expected cash to be paid for the
hedged item. During the year ended September 30, 2006, the
ineffective portion of the hedging instruments was not
significant. For closed contracts related to inventory on hand
at September 30, 2006, we recorded approximately $92,000 of
unrealized gains as a contra inventory on the consolidated
balance sheet. These unrealized gains will be recognized as a
reduction to the cost of sales when the related boat is sold. At
September 30, 2006, the net unrealized gains related to
open and closed contracts recorded in accumulated other
comprehensive income were approximately $453,000, net of tax.
All of the existing gains are expected to be reclassified into
earnings within the next 12 months as the related boats are
sold. We had no significant foreign currency cash flow hedges
outstanding at September 30, 2005.
We have entered into an interest rate swap agreement with a
notional amount of $4.0 million, that matures in June 2015,
and is designated as a cash flow hedge to convert a portion of
the floating rate debt to a fixed rate of 5.67%. Since all of
the critical terms of the swap exactly match those of the hedged
debt, no ineffectiveness has been identified in the hedging
relationship. Consequently, all changes in fair value are
recorded as a component of other comprehensive income. We
periodically determine the effectiveness of the swap by
determining that the critical terms still match, determining
that the future interest payments are still probable of
occurrence, and evaluating the likelihood of the
counterpartys compliance with the terms of the swap. At
September 30, 2006, the swap agreement had a fair value of
approximately $88,000, which was recorded in other long-term
assets on the consolidated balance sheet. We had no significant
interest rate swap agreements outstanding at September 30,
2005.
|
|
10.
|
SHORT-TERM
BORROWINGS:
|
During June 2006, we entered into a second amended and restated
credit and security agreement with eight financial institutions.
The credit facility provides us a line of credit with
asset-based borrowing availability of up to $500 million
for working capital and inventory financing, with the amount of
permissible borrowings determined pursuant to a borrowing base
formula. The credit facility also permits approved-vendor
floorplan borrowings of up to $20 million. The credit
facility accrues interest at the London Interbank Offered Rate
(LIBOR) plus 150 to 260 basis points, with the interest
rate based upon the ratio of our net outstanding borrowings to
our tangible net worth. The credit facility is secured by our
inventory, accounts receivable, equipment, furniture, and
fixtures. The credit facility requires us to satisfy certain
covenants, including maintaining a leverage ratio tied to our
tangible net worth. The other terms and conditions of the new
credit facility are generally similar to the previous credit
facility.
F-19
MARINEMAX,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The credit facility matures in May 2011, with two one-year
renewal options remaining. At September 30, 2006, we were
in compliance with all of the credit facility covenants.
Prior to the June 2006 second amended and restated credit and
security agreement, our credit facility was amended during March
2006 and February 2006. The March 2006 amendment temporarily
increased our asset-based borrowing availability up to
$415 million through July 31, 2006. The February 2006
amendment increased our asset-based borrowing availability up to
$385 million, and extended the maturity of the credit
facility to March 1, 2009, with two one-year renewal
options.
Prior to the February 2006 amendment, our credit facility
provided us with asset-based borrowing availability of up to
$340 million, permitted up to $20 million in
approved-vendor floorplan borrowings, accrued interest at a rate
of LIBOR plus 150 to 260 basis points, and was scheduled to
mature in March 2008, with two one-year renewal options
remaining. The other terms and conditions of the credit facility
were generally similar to the new credit facility.
Short-term borrowings as of September 30, 2005 and 2006
were $150.0 million and $321.5 million, respectively.
The additional available borrowings under the credit facility at
September 30, 2005 and 2006 were $180.0 million and
$130.0 million, respectively. At September 30, 2005
and 2006, the interest rate on the outstanding short-term
borrowings was 5.2% and 6.8%, respectively.
As is common in our industry, we receive interest assistance
directly from boat manufacturers, including Brunswick. The
interest assistance programs vary by manufacturer and generally
include periods of free financing or reduced interest rate
programs. The interest assistance may be paid directly to us or
our lender depending on the arrangements the manufacturer has
established. We classify interest assistance received from
manufacturers as a reduction of inventory cost and related cost
of sales as opposed to netting the assistance against our
interest expense incurred with our lenders.
Long-term debt consisted of the following at September 30,
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Various mortgage notes payable to
financial institutions, due in monthly installments ranging from
$16,924 to $37,500, bearing interest at rates ranging from 6.82%
to 7.18%, maturing September 2012 through July 2014,
collateralized by machinery and equipment
|
|
|
12,593
|
|
|
|
9,669
|
|
Various mortgage notes payable to
financial institutions, due in monthly installments ranging from
$22,605 to $102,000, bearing interest at rates ranging from
5.67% to 7.75%, maturing September 2010 through June 2016,
collateralized by machinery and equipment
|
|
|
17,492
|
|
|
|
27,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,085
|
|
|
|
37,186
|
|
Less Current maturities
|
|
|
(4,635
|
)
|
|
|
(4,532
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,450
|
|
|
$
|
32,654
|
|
|
|
|
|
|
|
|
|
|
F-20
MARINEMAX,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The aggregate maturities of long-term debt were as follows at
September 30, 2006:
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
|
2007
|
|
$
|
4,532
|
|
2008
|
|
|
4,625
|
|
2009
|
|
|
4,720
|
|
2010
|
|
|
4,826
|
|
2011
|
|
|
4,185
|
|
Thereafter
|
|
|
14,298
|
|
|
|
|
|
|
Total
|
|
$
|
37,186
|
|
|
|
|
|
|
The components of our provision for income taxes consisted of
the following for the fiscal years ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Current provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
14,310
|
|
|
$
|
18,871
|
|
|
$
|
22,091
|
|
State
|
|
|
1,636
|
|
|
|
2,178
|
|
|
|
2,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current provision
|
|
|
15,946
|
|
|
|
21,049
|
|
|
|
24,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
164
|
|
|
|
330
|
|
|
|
927
|
|
State
|
|
|
16
|
|
|
|
33
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred provision
|
|
|
180
|
|
|
|
363
|
|
|
|
1,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
16,126
|
|
|
$
|
21,412
|
|
|
$
|
25,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below is a reconciliation of the statutory federal income tax
rate to our effective tax rate for the fiscal years ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
Federal tax provision
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State tax provision, net of
federal benefit
|
|
|
2.8
|
%
|
|
|
3.6
|
%
|
|
|
3.6
|
%
|
Other
|
|
|
0.2
|
%
|
|
|
0.2
|
%
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
38.0
|
%
|
|
|
38.8
|
%
|
|
|
39.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 tax effects
F-21
MARINEMAX,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of these temporary differences representing the components of
deferred tax assets (liabilities) at September 30 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Current deferred tax assets
(liabilities):
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
2,759
|
|
|
$
|
2,312
|
|
Accrued expenses
|
|
|
2,197
|
|
|
|
2,458
|
|
Foreign currency hedges
|
|
|
|
|
|
|
(284
|
)
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
$
|
4,956
|
|
|
$
|
4,486
|
|
|
|
|
|
|
|
|
|
|
Long-term deferred tax
(liabilities) assets:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
(11,121
|
)
|
|
$
|
(13,355
|
)
|
Stock based compensation
|
|
|
243
|
|
|
|
1,650
|
|
Other
|
|
|
107
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
Net long-term deferred tax
liabilities
|
|
$
|
(10,771
|
)
|
|
$
|
(11,639
|
)
|
|
|
|
|
|
|
|
|
|
At September 30, 2005 and 2006, we estimated that it is
more likely than not that we will recognize the benefit of our
deferred tax assets and, accordingly, no valuation allowance has
been recorded.
|
|
13.
|
STOCKHOLDERS
EQUITY:
|
In November 2005, our Board of Directors approved a share
repurchase plan allowing our company to repurchase up to
1,000,000 shares of our common stock. Under the plan, we
may buy back common stock from time to time in the open market
or in privately negotiated blocks, dependant upon various
factors, including price and availability of the shares, and
general market conditions. At September 30, 2006, we have
purchased an aggregate of 306,300 shares of common stock
under the plan for an aggregate purchase price of approximately
$6.9 million.
|
|
14.
|
STOCK-BASED
COMPENSATION:
|
Upon adoption of SFAS 123R, we continued to use the
Black-Scholes valuation model for valuing all stock options and
shares granted under the ESPP. Compensation for restricted stock
awards is measured at fair value on the grant date based on the
number of shares expected to vest and the quoted market price of
our common stock. Compensation cost for all awards is recognized
in earnings, net of estimated forfeitures, on a straight-line
basis over the requisite service period for each separately
vesting portion of the award.
Cash received from option exercises under all share-based
payment arrangements for the fiscal year ended
September 30, 2004, 2005, and 2006 was approximately
$3.7 million, $5.3 million, and $3.9 million,
respectively. Tax benefits realized for tax deductions from
option exercises for the fiscal year ended September 30,
2004, 2005, and 2006 was approximately $1.4 million,
$2.7 million, and $1.5 million, respectively. We
currently expect to satisfy share-based awards with registered
shares available to be issued.
|
|
15.
|
1998
INCENTIVE STOCK PLAN (THE INCENTIVE STOCK PLAN):
|
Our 1998 Incentive Stock Plan, provides for the grant of
incentive and non-qualified stock options to acquire our common
stock, the 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 us. The maximum number of
shares of common stock that may be issued pursuant to the
Incentive Stock Plan is the lesser of 4,000,000 shares or
the sum of (1) 20% of the then-outstanding shares of our
common stock plus (2) the number of shares exercised with
respect to any awards granted 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.
F-22
MARINEMAX,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 our non-employee directors.
The exercise price of options granted under the Incentive Stock
Plan is to be at least equal to the fair market value of shares
of common stock on the date of grant. The term of options under
the Incentive Stock Plan may not exceed ten years. The options
granted have varying vesting periods, but generally become fully
vested at either the end of year five or the end of year seven,
depending on the specific grant.
The following table summarizes option activity from
September 30, 2005 through September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
Remaining
|
|
|
|
Available
|
|
|
Options
|
|
|
Intrinsic
|
|
|
Weighted Average
|
|
|
Contractual
|
|
|
|
for Grant
|
|
|
Outstanding
|
|
|
Value
|
|
|
Exercise Price
|
|
|
Life
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Balance at September 30, 2005
|
|
|
929,488
|
|
|
|
2,258,131
|
|
|
|
|
|
|
$
|
13.57
|
|
|
|
6.0
|
|
Options authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(483,545
|
)
|
|
|
483,545
|
|
|
|
|
|
|
$
|
29.15
|
|
|
|
|
|
Options cancelled
|
|
|
123,785
|
|
|
|
(123,785
|
)
|
|
|
|
|
|
$
|
17.95
|
|
|
|
|
|
Restricted stock awards
|
|
|
(175,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
(253,353
|
)
|
|
|
|
|
|
$
|
10.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2006
|
|
|
394,728
|
|
|
|
2,364,538
|
|
|
$
|
22,583
|
|
|
$
|
16.80
|
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at
September 30, 2006
|
|
|
|
|
|
|
868,076
|
|
|
$
|
11,817
|
|
|
$
|
12.08
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair value of options granted
during the fiscal years ended September 30, 2004, 2005, and
2006 was $9.39, $12.35, and $12.53, respectively. The total
intrinsic value of options exercised during the fiscal years
ended September 30, 2004, 2005, and 2006 was approximately
$3.9 million, $7.5 million, and $5.2 million,
respectively.
As of September 30, 2006, there was approximately
$6.6 million of unrecognized compensation costs related to
non-vested options that is expected to be recognized over a
weighted average period of 3.9 years. The total fair value
of options vested during the fiscal years ended
September 30, 2004, 2005, and 2006 was approximately
$1.1 million, $1.5 million, and $1.4 million,
respectively.
We continued using the Black-Scholes model to estimate the fair
value of options granted during fiscal 2006. The expected term
of options granted is derived from the output of the option
pricing model and represents the period of time that options
granted are expected to be outstanding. Volatility is based on
the historical volatility of our common stock. The risk-free
rate for periods within the contractual term of the options is
based on the U.S. Treasury yield curve in effect at the
time of grant.
The following are the weighted-average assumptions used for the
fiscal years ended September 30:
|
|
|
|
|
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
Dividend yield
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
Risk-free interest rate
|
|
5.0%
|
|
5.0%
|
|
4.6%
|
Volatility
|
|
41.9%
|
|
42.1%
|
|
44.5%
|
Expected life
|
|
5.4 years
|
|
5.4 years
|
|
4.6 years
|
F-23
MARINEMAX,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the fiscal year ended September 30, 2004, all
warrants issued in conjunction with the fiscal 1999 Boating
World acquisition were exercised. The warrants enabled the
holder to purchase 40,000 shares of our common stock at
$15.00 per share.
|
|
16.
|
EMPLOYEE
STOCK PURCHASE PLAN (THE STOCK PURCHASE PLAN):
|
Our Employee Stock Purchase Plan, provides for up to
750,000 shares of common stock to be available for purchase
by our regular employees 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 participants earnings
during each offering period. However, no participant may
purchase more than $25,000 worth of common stock annually.
We continued using the Black-Scholes model to estimate the fair
value of options granted during fiscal 2006. The expected term
of options granted is derived from the output of the option
pricing model and represents the period of time that options
granted are expected to be outstanding. Volatility is based on
the historical volatility of our common stock. The risk-free
rate for periods within the contractual term of the options is
based on the U.S. Treasury yield curve in effect at the
time of grant.
The following are the weighted-average assumptions used for the
fiscal years ended September 30:
|
|
|
|
|
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
Dividend yield
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
Risk-free interest rate
|
|
1.3%
|
|
3.0%
|
|
4.8%
|
Volatility
|
|
50.3%
|
|
41.5%
|
|
37.1%
|
Expected life
|
|
six-months
|
|
six-months
|
|
six-months
|
As of September 30, 2006, we had issued 446,684 of the
750,000 shares of common stock reserved for issuance under
our 1998 employee stock purchase plan.
|
|
17.
|
RESTRICTED
STOCK AWARDS:
|
During the first quarter of fiscal 2005 and 2006, we granted
non-vested (restricted) stock awards to certain key employees
pursuant to the 1998 Incentive Stock Plan. The restricted stock
awards have varying vesting periods, but generally become fully
vested at either the end of year four or the end of year five,
depending on the specific award.
We accounted for the restricted stock awards granted in fiscal
2005 using the measurement and recognition provisions of
APB 25. Accordingly, we measured compensation cost at the
grant date using the intrinsic value method and will recognize
compensation cost in earnings over the requisite service period.
We accounted for the restricted stock awards granted subsequent
to September 30, 2005 using the measurement and recognition
provisions of SFAS 123R. Accordingly, the fair value of the
restricted stock awards is measured on the grant date and
recognized in earnings over the requisite service period for
each separately vesting portion of the award.
F-24
MARINEMAX,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes restricted stock activity from
September 30, 2005 through September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Non-vested balance at
September 30, 2005
|
|
|
103,000
|
|
|
$
|
29.39
|
|
Changes during the period
|
|
|
|
|
|
|
|
|
Shares granted
|
|
|
175,000
|
|
|
$
|
27.47
|
|
Shares vested
|
|
|
|
|
|
$
|
|
|
Shares forfeited
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested balance at
September 30, 2006
|
|
|
278,000
|
|
|
$
|
28.18
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2006, we had approximately
$5.3 million of total unrecognized compensation cost
related to restricted stock awards granted under the Plan. We
expect to recognize that cost over a weighted-average period of
3.5 years. Pursuant to SFAS 123R, the approximate
$2.4 million of deferred stock compensation recorded as a
reduction to stockholders equity as of September 30,
2005 is no longer reported as a separate component of
stockholders equity and is instead recorded in additional
paid-in capital.
|
|
18.
|
NET
INCOME PER SHARE:
|
The following is a reconciliation of the shares used in the
denominator for calculating basic and diluted earnings per share
for the fiscal years ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
Weighted average common shares
outstanding used in calculating basic net income per share
|
|
|
15,585,314
|
|
|
|
16,815,445
|
|
|
|
18,028,562
|
|
Effect of dilutive options
|
|
|
1,080,793
|
|
|
|
1,217,088
|
|
|
|
900,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and common
equivalent shares used in calculating diluted net income per
share
|
|
|
16,666,107
|
|
|
|
18,032,533
|
|
|
|
18,928,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 17,460, 53,000 and 699,500 shares of
common stock were outstanding at September 30, 2004, 2005,
and 2006, respectively, but were not included in the computation
of diluted earnings per share because the options exercise
prices were greater than the average market price of our common
stock, and therefore, their effect would be anti-dilutive.
|
|
19.
|
COMMITMENTS
AND CONTINGENCIES:
|
Lease
Commitments
We lease certain land, buildings, machinery, equipment, and
vehicles related to our dealerships under non-cancelable
third-party operating leases. Rental expense, including
month-to-month
rentals, were approximately $8.9 million,
$9.4 million, and $10.9 million for the fiscal years
ended September 30, 2004, 2005, and 2006, respectively.
Rental expense to related parties under both cancelable and
non-cancelable operating leases approximated $385,000 for each
of the fiscal years ended September 30, 2004, 2005, and
2006.
The rental payments to related parties, under both cancelable
and non-cancelable operating leases during fiscal 2004, 2005,
and 2006, represent rental payments for buildings to an entity
partially owned by an officer of our company. We believe the
terms of the transaction are consistent with those that we would
obtain from third parties.
F-25
MARINEMAX,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Future minimum lease payments under non-cancelable operating
leases at September 30, 2006, were as follows:
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
|
2007
|
|
$
|
10,362
|
|
2008
|
|
|
8,300
|
|
2009
|
|
|
4,603
|
|
2010
|
|
|
3,532
|
|
2011
|
|
|
2,426
|
|
Thereafter
|
|
|
542
|
|
|
|
|
|
|
Total
|
|
$
|
29,765
|
|
|
|
|
|
|
Other
Commitments and Contingencies
We are party to various legal actions arising in the ordinary
course of business. With the exception of a single lawsuit award
that we are currently appealing, the ultimate liability, if any,
associated with the other matters was not material at
September 30, 2006. However, based on information available
at September 30, 2006 surrounding the single lawsuit award,
our litigation accrual approximated $2.0 million. While it
is not feasible to determine the actual outcome of these actions
as of September 30, 2006, we do not believe that these
matters will have a material adverse effect on our consolidated
financial condition, results of operations, or cash flows.
We are 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. We believe that we are in compliance with such
regulations.
|
|
20.
|
EMPLOYEE
401(k) PROFIT SHARING PLANS:
|
Employees are eligible to participate in our 401(k) Profit
Sharing Plan (the Plan) following their
90-day
introductory period starting either April 1 or
October 1, provided that they are 21 years of age.
Under the Plan, we match 50% of participants
contributions, up to a maximum of 5% of each participants
compensation. We contributed, under the Plan, or pursuant to
previous similar plans, approximately $1.1 million ,
$1.3 million, and $1.7 million for the fiscal years
ended September 30, 2004, 2005, and 2006, respectively.
|
|
21.
|
PREFERRED
SHARE PURCHASE RIGHTS:
|
During September 2001, we adopted a Stockholders Rights
Plan (the Rights Plan) that may have the effect of deterring,
delaying, or preventing a change in control that might otherwise
be in the best interests of our stockholders. Under the Rights
Plan, a dividend of one Preferred Share Purchase Right was
issued for each share of common stock held by the stockholders
of record as of the close of business on September 7, 2001.
Each right entitles stockholders to purchase, at an exercise
price of $50 per share, one-thousandth of a share of a
newly created Series A Junior Participating Preferred Stock.
F-26
MARINEMAX,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In general, subject to certain limited exceptions, the stock
purchase rights become exercisable when a person or group
acquires 15% or more of our common stock or a tender offer or
exchange offer for 15% or more of our common stock is announced
or commenced. After any such event, other stockholders may
purchase additional shares of our common stock at 50% of the
then-current market price. The rights will cause substantial
dilution to a person or group that attempts to acquire us on
terms not approved by our Board of Directors. The rights should
not interfere with any merger or other business combination
approved by the Board of Directors. The rights may be redeemed
by us at $0.01 per stock purchase right at any time before any
person or group acquires 15% or more of the outstanding common
stock. The rights expire on August 28, 2011.
The Rights Plan adoption and Rights Distribution is a
non-taxable event with no impact on our financial results.
F-27
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit
|
|
|
3
|
.1
|
|
Restated Certificate of
Incorporation of the Registrant, including all amendments to
date(3)
|
|
3
|
.2
|
|
Amended and Restated Bylaws of the
Registrant(3)
|
|
3
|
.3
|
|
Certificate of Designation of
Series A Junior Participating Preferred Stock(3)
|
|
4
|
.1
|
|
Specimen of Common Stock
Certificate(3)
|
|
4
|
.2
|
|
Rights Agreement, dated
August 28, 2001 between Registrant and American Stock
Transfer & Trust Company, as Rights Agent(2)
|
|
10
|
.1(k)
|
|
Asset Purchase Agreement between
Registrant, Port Arrowhead Marina, Inc., Lake Port Marina, Inc.,
Port Arrowhead, Inc., and Lakewood Resort Corporation(9)
|
|
10
|
.1(l)
|
|
Asset Purchase Agreement between
Registrant and Surfside-3 Marina, Inc.(11)
|
|
10
|
.3(h)
|
|
Employment Agreement dated
June 7, 2006 between Registrant and William H.
McGill, Jr.(12)
|
|
10
|
.3(i)
|
|
Employment Agreement dated
June 7, 2006 between Registrant and Michael H. McLamb(12)
|
|
10
|
.3(j)
|
|
Employment Agreement dated
June 7, 2006 between Registrant and Edward A. Russell(12)
|
|
10
|
.4
|
|
1998 Incentive Stock Plan, as
amended through November 15, 2000(4)
|
|
10
|
.5
|
|
1998 Employee Stock Purchase
Plan(1)
|
|
10
|
.11
|
|
Dealer Agreement dated
December 7, 2005 between the Sea Ray Division of Brunswick
Corporation and MarineMax, Inc.(6)
|
|
10
|
.12
|
|
Agreement Relating to Acquisitions
dated December 7, 2005 between the Sea Ray Division of
Brunswick Corporation and the Principal Operating Subsidiaries
of MarineMax, Inc.(6)
|
|
10
|
.17
|
|
Credit and Security Agreement
dated as of December 18, 2001 among the Registrant and its
subsidiaries, as Borrowers, and Banc of America Specialty
Finance, Inc. and various other lenders, as Lenders(4)
|
|
10
|
.17(a)
|
|
Amendment No. 2 to Credit and
Security Agreement dated January 30, 2004 among the
Registrant and its subsidiaries as Borrowers, Keybank National
Association, N.A., Bank of America, N.A., and various other
lenders, as Lenders(5)
|
|
10
|
.18
|
|
Hatteras Sales and Service
Agreement, dated July 1, 2003 among the Registrant,
MarineMax Motor Yachts, LLC, and Hatteras Yachts Division of
Brunswick Corporation(5)
|
|
10
|
.19
|
|
Dealer Agreement, effective
September 30, 2003 among the Registrant, Ferretti Group
USA, Inc., and Bertram Yacht, Inc.(7)
|
|
10
|
.20
|
|
Amended and Restated Credit and
Security Agreement executed on February 15, 2005 effective
as of February 3, 2005 among the Registrant and its
subsidiaries, as Borrowers, Keybank National Association and
Bank of America, N.A., and various other lenders, as Lenders(8)
|
|
10
|
.20(a)
|
|
Amendment No. 2 to Amended
and Restated Credit and Security Agreement dated
February 10, 2006 among the Registrant and its
subsidiaries, as Borrowers, Keybank National Association, Bank
of America, N.A., and various other lenders, as Lenders(10)
|
|
10
|
.20(b)
|
|
Amendment No. 3 to Amended
and Restated Credit and Security Agreement dated March 10,
2006 among the Registrant and its subsidiaries, as Borrowers,
Keybank National Association, Bank of America, N.A., and various
other lenders, as Lenders(11)
|
|
10
|
.20(c)
|
|
Amendment No. 4 to Amended
and Restated Credit and Security Agreement dated March 31,
2006 among the Registrant and its subsidiaries, as Borrowers,
Keybank National Association, Bank of America, N.A., and various
other lenders, as Lenders(11)
|
|
10
|
.21
|
|
Second Amended and Restated Credit
and Security Agreement dated June 19, 2006 among the
Registrant and its subsidiaries, as Borrowers, and Bank of
America, N.A., KeyBank, N.A., General Electric Commercial
Distribution Finance Corporation, Wachovia Bank, N.A., Wells
Fargo Bank, N.A., National City Bank, N.A., U.S. Bank,
N.A., and Branch Banking and Trust Company, as Lenders(13)
|
|
21
|
|
|
List of Subsidiaries
|
|
23
|
.1
|
|
Consent of Ernst & Young
LLP
|
|
31
|
.1
|
|
Certification of Chief Executive
Officer pursuant to
Rule 13a-14(a)
and
Rule 15d-14(a),
promulgated under the Securities Exchange Act of 1934, as
amended.
|
|
31
|
.2
|
|
Certification of Chief Financial
Officer pursuant to
Rule 13a-14(a)
and
Rule 15d-14(a),
promulgated under the Securities Exchange Act of 1934, as
amended.
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit
|
|
|
32
|
.1
|
|
Certification pursuant to U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
(1) |
|
Incorporated by reference to Registration Statement on
Form S-1
(Registration
333-47873). |
|
(2) |
|
Incorporated by reference to Registrants
Form 8-K
Report dated September 30, 1998, as filed on
October 20, 1998. |
|
(3) |
|
Incorporated by reference to Registrants
Form 10-K
for the year ended September 30, 2001, as filed on
December 20, 2001. |
|
(4) |
|
Incorporated by reference to Registrants
Form 10-Q
for the quarterly period ended December 31, 2001, as filed
on February 14, 2002. |
|
(5) |
|
Incorporated by reference to Registrants
Form 10-Q
for the quarterly period ended December 31, 2003, as filed
on February 17, 2004. |
|
(6) |
|
Incorporated by reference to Registrants
Form 8-K
Report as filed on December 9, 2005. |
|
(7) |
|
Incorporated by reference to Registrants
Form 10-Q
for the quarterly period ended December 31, 2004, as filed
on February 9, 2005. |
|
(8) |
|
Incorporated by reference to Registrants
Form 8-K
Report dated February 15, 2005, as filed on
February 18, 2005. |
|
(9) |
|
Incorporated by reference to Registrants
Form 10-Q
for the quarterly period ended December 31, 2005, as filed
on February 9, 2006. |
|
(10) |
|
Incorporated by reference to Registrants
Form 8-K
Report dated February 10, 2006, as filed on
February 16, 2006. |
|
(11) |
|
Incorporated by reference to Registrants
Form 10-Q
for the quarterly period ended March 31, 2006, as filed on
May 10, 2006. |
|
(12) |
|
Incorporated by reference to Registrants
Form 8-K
Report as filed on June 13, 2006. |
|
(13) |
|
Incorporated by reference to Registrants
Form 10-Q
for the quarterly period ended June 30, 2006, as filed on
August 4, 2006. |