UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549
FORM 10-Q
(Mark One)
For the transition period from to
Commission File No. 1-14173
MARINEMAX, INC.(Exact name of registrant as specified in its charter)
727-531-1700(Registrant’s telephone number, including area code)
Indicate by check whether the registrant: (1) has filed all reports 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 No
The number of outstanding shares of the registrant’s Common Stock on May 8, 2002 was 15,277,974.
TABLE OF CONTENTS
MARINEMAX, INC.
Table of Contents
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ITEM 1. FINANCIAL STATEMENTS
MARINEMAX, INC. AND SUBSIDIARIESCondensed Consolidated Results of Operations(amounts in thousands except share and per share data)(Unaudited)
See Notes to Condensed Consolidated Financial Statements
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MARINEMAX, INC. AND SUBSIDIARIESCondensed Consolidated Balance Sheets(amounts in thousands except share data)
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MARINEMAX, INC. AND SUBSIDIARIESCondensed Consolidated Statements of Cash FlowsFor the Six-Month Periods Ended(amounts in thousands)(Unaudited)
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MARINEMAX, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
1. COMPANY BACKGROUND AND BASIS OF PRESENTATION
MarineMax, Inc. (a Delaware corporation) was incorporated in January 1998 and is the largest boat retailer in the United States. MarineMax, Inc. and subsidiaries (MarineMax or the Company) engage primarily in the retail sale, brokerage and service of new and used boats, motors, trailers, marine parts and accessories. As of March 31, 2002, the Company operated through 54 retail locations in 13 states, consisting of Arizona, California, Delaware, Florida, Georgia, Minnesota, Nevada, New Jersey, North Carolina, Ohio, South Carolina, Texas and Utah.
MarineMax is the nation’s largest retailer of Sea Ray, Boston Whaler, and Hatteras Yachts. Brunswick Corporation (Brunswick) is the world’s largest manufacturer of recreational boats, including Sea Ray and Boston Whaler. Sales of new Brunswick boats accounted for approximately 66%, 60%, and 58% of the Company’s revenue in fiscal 1999, 2000, and 2001, respectively. The Company represented approximately 9% of all Brunswick marine product sales during the same periods. The Company’s applicable subsidiaries are party to a 10-year dealer agreement with Brunswick covering Sea Ray products and are the exclusive dealer of Sea Ray boats in its geographic market.
In November 2001, Brunswick completed its acquisition of Hatteras Yachts from Genmar Industries, Inc. The Company’s subsidiary, MarineMax Motor Yachts, Inc. (Motor Yachts), is party to a Dealership Agreement with Hatteras Yachts. The agreement gives the Company the right to sell Hatteras Yachts throughout the state of Florida (excluding the Florida Panhandle) and the U.S. distribution rights for Hatteras products over 82 feet. Approximately 2%, 8%, and 12% of the Company’s revenue during fiscal 1999, 2000, and 2001, respectively was derived from the sale of new boats acquired from Hatteras.
The Company is party to dealer agreements with other manufacturers, each of which gives the Company the right to sell various makes and models of boats within a given geographic region.
These interim financial statements of MarineMax have been prepared in accordance with accounting principles generally accepted (GAAP) in the United States for interim financial information, the instructions to Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended September 30, 2001. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. All adjustments (consisting of only normal recurring adjustments) considered necessary for fair presentation have been reflected in these condensed consolidated financial statements. The operating results for the quarter and the six-month period ended March 31, 2002 are not necessarily indicative of the results that may be expected for the fiscal year ended September 30, 2002.
In order to maintain consistency and comparability between periods presented, certain amounts have been reclassified from the previously reported consolidated financial statements to conform with the financial statement presentation of the current period. The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All significant intercompany transactions and accounts have been eliminated.
2. NEW ACCOUNTING PRONOUNCEMENTS:
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) 141, "Business Combinations". SFAS 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting. It also specifies the types of acquired intangible assets that are required to be recognized and reported separately from goodwill. The implementation of SFAS 141 did not have any effect on the Company’s financial statements.
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In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (SFAS 143). SFAS 143 establishes accounting standards for recognition and measurement of a liability for an asset retirement obligation and the associated asset retirement cost. SFAS 143 is effective for financial statements relating to fiscal years beginning after June 15, 2002. Management does not expect SFAS 143 to have a material effect on the Company’s financial statements.
In September 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144). SFAS 144 addresses the financial accounting and reporting for the impairment or disposal of long-lived assets, other than goodwill (which is covered by SFAS 142). SFAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. Management does not expect SFAS 144 to have a material effect on the Company’s financial statements.
3. LONG-TERM DEBT
In March 2002 the Company entered into a $5.1 million mortgage note payable collateralized by the property and building located at the Company’s facility in Stuart, Florida. Payments of $59,712 are due monthly and the mortgage bears an interest rate of 7.09%. The mortgage note payable matures in March 2012.
4. SHORT-TERM BORROWINGS:
In December 2001, the Company entered into a revolving credit facility (Facility) that provides a line of credit with asset-based borrowing availability of up to $220 million. The Facility also allows the Company $20 million in traditional floorplan borrowings. The Facility, which has a three-year term, with two one-year renewal options, replaced four separate line of credit facilities. The Facility accrues interest at a rate of LIBOR plus 175 to 260 basis points, which shall be determined in accordance with a Performance Pricing grid, as defined. Borrowings under the Facility are pursuant to a borrowing base formula and are used primarily for working capital and inventory financing. The terms and conditions of the Facility are similar to the terms and conditions of the prior separate line of credit facilities.
5. GOODWILL AND OTHER INTANGIBLE ASSETS:
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) 142, "Goodwill and Other Intangible Assets". SFAS 142 requires that goodwill and certain intangibles no longer be amortized, but instead tested for impairment at least annually. SFAS 142 is required to be applied starting with fiscal years beginning after December 15, 2001, with early application permitted in certain circumstances. The Company has elected to early adopt SFAS 142 in fiscal 2002. SFAS 142 requires that the first step of the transitional goodwill impairment test to be completed within six months from the date of initial adoption of the statement. The Company has completed the transitional goodwill impairment test, which resulted in no impairment of goodwill.
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The changes in the carrying amount of goodwill, net for the six-month period ended
March 31, 2001 and 2002, are as follows:
The reduction of goodwill amortization, net of related tax effects, due to the adoption of SFAS 142 in fiscal 2002 increased net income in the three months ended March 31, 2002 and the six-months ended March 31, 2002, by approximately $175,000, or $.01 diluted earnings per share, and $350,000, or $.02 diluted earnings per share, respectively. The following presents the proforma SFAS 142 effect on the unaudited results of operations for each of the quarters in the fiscal year ended September 30, 2001:
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6. SUBSEQUENT EVENTS
On April 9, 2002, the Company acquired the net assets of Gulfwind Marine Partners, Inc. and Affiliates (Gulfwind Marine), including the assumption of certain liabilities and related property and buildings for approximately $16.0 million in cash. Gulfwind Marine operates sales and service facilities located in Sarasota, Venice, and Cape Haze, Florida. The acquisition has been accounted for under the purchase method of accounting, which resulted in the recognition of approximately $9.4 million in goodwill. The Company has entered into a commitment with a lending institution to finance the property and buildings acquired.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
This Management’s Discussion and Analysis of Results of Operations and Financial Condition contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate 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 listed in “Business-Special Considerations” of our Annual Report on Form 10-K for the fiscal year ended September 30, 2001. These risks include the impact of seasonality and weather, general economic conditions and the level of consumer spending, our ability to complete and integrate the acquisitions into existing operations and numerous other factors identified in our filings with the Securities and Exchange Commission.
GENERAL
We are the largest recreational boat retailer in the United States with fiscal 2001 revenue exceeding $504 million. Currently we operate 57 retail locations in 13 states, we sell new and used recreational boats and related marine products, including engines, boats, trailers, parts, and accessories. We also arrange related boat financing, insurance, and extended warranty contracts; provide boat repair and maintenance services; and offer boat brokerage services.
We were incorporated in January 1998. We have significantly expanded our operations through the acquisition of 17 recreational boat dealers, two boat brokerage operations, and one full-service yacht repair facility since our formation. 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.
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 any associated risks related to these policies on our business operations is discussed throughout Management’s 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 have made 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.
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Revenue Recognition
Revenue from boat, motor and trailer sales and parts and service operations is recognized at the time the boat, motor, trailer or part is delivered to or accepted by the customer or service is completed. We recognize commissions earned from a brokerage sale at the time the related brokerage transaction closes. Commissions earned by us for placing notes with financial institutions in connection with customer boat financing is recognized when the related boat sale is recognized. Marketing fees earned on credit life, accident and disability insurance products sold by third-party insurance companies are also recognized when the related boat sale is recognized. Commissions earned on extended warranty service contracts sold on behalf of third-party insurance companies are recognized at the later of customer acceptance of the service contract terms as evidenced by contract execution, or when the related boat sale is recognized.
Valuation of Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) 142, Goodwill and Other Intangible Assets. SFAS 142 requires that goodwill and certain intangibles no longer be amortized, but instead tested for impairment at least annually. SFAS 142 is required to be applied starting with fiscal years beginning after December 15, 2001, with early application permitted in certain circumstances. We have elected to early adopt SFAS 142 in fiscal 2002. SFAS 142 requires that the first step of the transitional goodwill impairment test to be completed within six months from the date of initial adoption of the statement.
In addition to this initial assessment, we assess the impairment of identifiable intangible assets and goodwill at least annually or 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 have completed the transitional goodwill impairment test and we have not recognized any impairment losses to date. If events occur and circumstances change, causing the fair value to fall below carrying amount, impairment losses may be recognized in the future. Identifiable intangible assets and net goodwill amounted to $40.1 million as of March 31, 2002.
Inventories
New and used boat inventories are stated at the lower of cost, determined on a specific-identification basis, or market. Parts and accessories are stated at the lower of cost, determined on the first-in, first-out basis, or market. If the carrying amount of our inventory exceeds its fair value, we write down our inventory to its 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, inventory write-downs may be required.
For a more comprehensive list of our accounting policies, including those which involve varying degrees of judgment, see Note 3 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2001.
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CONSOLIDATED RESULTS FROM OPERATIONS
The following discussion compares the three months ended March 31, 2002 to the three months ended March 31, 2001, and the six months ended March 31, 2002 to the six months ended March 31, 2001 and should be read in conjunction with the Condensed Consolidated Financial Statements, including the related notes thereto, appearing elsewhere in this Report.
Three-Month Period Ended March 31, 2002 Compared to Three-Month Period Ended March 31, 2001:
Revenue. Revenue decreased $8.8 million, or 6.2%, to $133.8 million for the three-month period ended March 31, 2002 from $142.6 million for the three-month period ended March 31, 2001. The decrease was attributable to a 6% decline in same-store sales of which all stores were eligible for inclusion in the comparable-store base. The decrease was primarily attributable to the softer economic environment.
Gross Profit. Gross profit decreased $2.3 million, or 7.8%, to $27.6 million for the three-month period ended March 31, 2002 from $29.9 million for the three-month period ended March 31, 2001. Gross profit margin as a percentage of revenue decreased slightly to 20.6% in 2002 from 21.0% in 2001. The decrease was attributable to downward pressure on the selling price of our products due to the declining economy. This decline was partially offset by an increase in service revenue and commissions/marketing fees received on certain finance and insurance products, which generally yield higher gross margins.
Selling, General, and Administrative Expenses. Selling, general, and administrative expenses decreased approximately $2.3 million, or 9.6%, to $21.9 million for the three-month period ended March 31, 2002 from $24.2 million for the three-month period ended March 31, 2001. Selling, general, and administrative expenses as a percentage of revenue decreased to 16.3% in 2002 from 17.0% in 2001. The decrease in selling, general, and administrative expenses as a percentage of revenue is attributable to our cost-containment initiatives, including workforce reductions, additional leveraging of our improved operating structure and a $285,000 reduction of goodwill amortization, which represents the impact of adopting SFAS 142.
Interest Expense, Net. Interest expense, net decreased approximately $300,000 or 54.4%, to approximately $300,000 for the three-month period ended March 31, 2002 from approximately $600,000 for the three-month period ended March 31, 2001. Interest expense, net as a percentage of revenue, decreased to 0.2% in 2002 from 0.4% in 2001. The decrease in total interest charges was the result of reduced average borrowings and a more favorable interest rate environment.
Six-Month Period Ended March 31, 2002 Compared to Six-Month Period Ended March 31,2001:
Revenue. Revenue increased $7.3 million, or 3.2%, to $234.4 million for the six-month period ended March 31, 2002 from $227.1 million for the six-month period ended March 31, 2001. This increase was attributable to a 3% increase in same-store sales of which all stores were eligible for inclusion in the comparable-store base. The increase in comparable store sales for the six-month period ended March 31, 2002 was attributable to a strong December 2001 quarter, partially due to a shift in business from the September 30, 2001 quarter, and increased focus on our customer centric retailing strategies which generally results in a higher closing rate.
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Gross Profit. Gross profit decreased $2.7 million, or 5.4%, to $47.3 million for the six-month period ended March 31, 2002 from $50.0 million for the six-month period ended March 31, 2001. Gross profit margin as a percentage of revenue decreased to 20.2% in 2002 from 22.0 % in 2001. The decrease in gross profit margin was attributable to downward pressure on the selling price of our products due to the declining economy and an increase in the sale of larger products, which historically yield lower gross profits per unit. This decline was partially offset by an increase in service revenue and commissions received on certain finance and insurance products, which generally yield higher gross margins. The increases in service revenue and finance and insurance commissions/marketing fees were driven by our comparable store-sales increase and expansion of our service operations.
Selling, General, and Administrative Expenses. Selling, general, and administrative expenses decreased approximately $3.3 million, or 7.4% to $41.7 million for the six-month period ended March 31, 2002 from $45.0 million for the six-month period ended March 31, 2001. Selling, general, and administrative expenses as a percentage of revenue decreased to 17.8% in 2002 from 19.8% in 2001. The decrease in selling, general, and administrative expenses as a percentage of revenue is attributable to our cost-containment initiatives, including workforce reductions, additional leveraging of our improved operating structure, and a $570,000 reduction of goodwill amortization, which represents the impact of adopting SFAS 142.
Interest Expense, Net. Interest expense, net decreased approximately $500,000, or 50.3%, to approximately $400,000 for the six-month period ended March 31, 2002 from approximately $900,000 for the six-month period ended March 31, 2001. Interest expense, net as a percentage of revenue, decreased to 0.2% in 2002 from 0.4% in 2001. The decrease in total interest charges was the result of reduced average borrowings and a more favorable interest rate environment.
LIQUIDITY AND CAPITAL RESOURCES
Our cash needs are primarily for working capital to support operations, including new and used boats and related parts inventories, off-season liquidity, growth through acquisitions, and new store openings. These cash needs have historically been financed from operations and borrowings under credit facilities. We depend upon dividends and other payments from our operating subsidiaries to fund our obligations and meet our cash needs. No agreements exist that restrict this flow of funds.
As of March 31, 2002, our indebtedness totaled approximately $122.3 million, of which approximately $13.3 million was associated with our real estate holdings and the remaining $109.0 million was associated with financing our current inventory level and working capital needs. 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 with the manufacturer. Discontinuance of these programs could result in a material increase in interest expense to us.
In December 2001, we entered into a revolving credit facility that provides a line of credit with asset-based borrowing availability of up to $220 million. The facility also allows us $20 million in traditional floorplan borrowings. The facility, which has a three-year term, with two one-year renewal options, replaces four separate line of credit facilities. The facility accrues interest at a rate of LIBOR plus 175 to 260 basis points, which shall be determined in accordance with a Performance Pricing grid, as defined. Borrowings under the facility are pursuant to a borrowing base formula and are used primarily for working capital and inventory financing. The terms and conditions of the facility are similar to the terms and conditions of the prior separate line of credit facilities.
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Subsequent to the quarter ended March 31, 2002, we acquired the net assets of Gulfwind Marine Partners, Inc. and Affiliates, including the assumption of certain liabilities and related property and buildings for approximately $16.0 million in cash. Gulfwind Marine operates sales and service facilities located in Sarasota, Venice, and Cape Haze, Florida. We have entered into a commitment with a lending institution to finance the property and buildings acquired.
Except as specified in this “Management’s Discussion and Analysis of Results of Operations and Financial Condition” and in the attached condensed 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 the Company’s 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 March 31, 2002:
IMPACT OF SEASONALITY AND WEATHER ON OPERATIONS
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 in the quarterly period ending December 31, with boat sales generally improving in January with the onset of the public boat and recreation shows. Our current operations and our business could become substantially more seasonal as we acquire retailers that operate in colder regions of the United States.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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PART IIOTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(b) Reports on Form 8-K
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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