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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

Form 10-K

 

 

☑

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2020

Commission File Number 1-14173

 

 

MarineMax, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Florida

 

59-3496957

(State of Incorporation)

 

(I.R.S. Employer Identification No.)

 

2600 McCormick Drive

Suite 200

Clearwater, Florida 33759

(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 Act:

 

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, par value $.001 per share

HZO

New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the 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  ☐   No  ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes  ☐   No  ☑

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  ☑   No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  ☑  No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

☐

 

Accelerated filer

☑

Non-accelerated filer

☐

 

Smaller reporting company

☐

 

 

 

Emerging growth company

☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of

the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.

7262(b)) by the registered public accounting firm that prepared or issued its audit report.☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes  ☐     No  ☑

The aggregate market value of common stock held by non-affiliates of the registrant (20,687,048 shares) based on the closing price of the registrant’s common stock as reported on the New York Stock Exchange on March 31, 2020, which was the last business day of the registrant’s most recently completed second fiscal quarter, was $215,559,040.  For purposes of this computation, all officers and directors of the registrant are deemed to be affiliates.  Such determination should not be deemed to be an admission that such officers and directors are, in fact, affiliates of the registrant.

As of November 25, 2020, there were outstanding 22,073,368 shares of the registrant’s common stock, par value $.001 per share.

Documents Incorporated by Reference

Portions of the registrant’s definitive proxy statement for the 2021 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.

 

 

 

MARINEMAX, INC.

ANNUAL REPORT ON FORM 10-K

Fiscal Year Ended September 30, 2020

TABLE OF CONTENTS

 

PART I

 

 

 

 

Item 1

 

Business

1

Item 1A

 

Risk Factors

16

Item 1B

 

Unresolved Staff Comments

27

Item 2

 

Properties

27

Item 3

 

Legal Proceedings

30

Item 4

 

Mine Safety Disclosures

30

 

 

 

 

PART II

 

 

 

 

Item 5

 

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

31

Item 6

 

Selected Financial Data

33

Item 7

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

34

Item 7A

 

Quantitative and Qualitative Disclosures about Market Risk

42

Item 8

 

Financial Statements and Supplementary Data

43

Item 9

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

43

Item 9A

 

Controls and Procedures

43

Item 9B

 

Other Information

47

 

 

 

 

PART III

 

 

 

 

Item 10

 

Directors, Executive Officers and Corporate Governance

47

Item 11

 

Executive Compensation

47

Item 12

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

47

Item 13

 

Certain Relationships and Related Transactions, and Director Independence

47

Item 14

 

Principal Accountant Fees and Services

47

 

 

 

 

PART IV

 

 

 

 

Item 15

 

Exhibits, Financial Statement Schedules

47

 

 

Statement Regarding Forward-Looking Information

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,” “anticipations,” “intentions,” “plans,” “beliefs,” or “strategies” regarding the future.  Forward-looking statements also include statements regarding revenue, margins, expenses, and earnings for fiscal 2021 and thereafter; our belief that our practices 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; our assessment of our competitive advantages, including our hassle-free 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; our belief that our core values of customer service and satisfaction and our strategies for growth and enhancing our business, including without limitation, our acquisition strategies and pursuit of contract manufacturing and vertical integration, will enable us to achieve success and long-term growth as economic conditions continue to recover; our belief that our retailing strategies are aligned with the desires of consumers; and the scope and duration of the COVID-19 pandemic and its impact on global economic systems, our employees, sites, operations, customers, suppliers and supply chain, managing growth effectively.  All forward-looking statements included in this report are based on information available to us as of the filing date of this report, and we assume no obligation to update any such forward-looking statements.  Our actual results could differ materially from the forward-looking statements.  Among the factors that could cause actual results to differ materially are the factors discussed under Item 1A, “Risk Factors.”

 

 

 

 

PART I

 

 

Item 1.

Business

Introduction

Our Company

We are the largest recreational boat and yacht retailer in the United States.  Through 77 retail locations in Alabama, California, Connecticut, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Rhode Island, South Carolina, Texas, Washington and Wisconsin, 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 provide repair, maintenance, and slip and storage services; we arrange related boat financing, insurance, and extended service contracts; we offer boat and yacht brokerage sales; yacht charter services; and we operate a yacht charter business in the British Virgin Islands. We also own Fraser Yachts Group and Northrop & Johnson, leading superyacht brokerage and luxury yacht services companies with operations in multiple countries.  

In October 2020, we purchased all of the outstanding equity of Skipper Marine Corp., Skipper Marine of Madison, Inc., Skipper Marine of Fox Valley, Inc., Skipper Bud’s of Illinois, Inc., Skipper Marine of Chicago-Land, Inc., Skipper Marine of Michigan, Inc., and Skipper Marine of Ohio, LLC, (collectively, the “SkipperBud’s”). This acquisition significantly increased our presence in the Great Lakes region and the West Coast of the United States. In addition, we believe that the increase of our marina/storage services will help decrease our seasonality. SkipperBud’s is one of the largest sales, brokerage, service and marina/storage groups in the United States.

We are the nation’s largest retailer of Sea Ray and Boston Whaler recreational boats and yachts which are manufactured by Brunswick Corporation (“Brunswick”).  Sales of new Brunswick boats accounted for approximately 33% of our revenue in fiscal 2020. Sales of new Sea Ray and Boston Whaler boats, both divisions of Brunswick, accounted for approximately 15% and 16%, respectively, of our revenue in fiscal 2020.  Brunswick is a world leading manufacturer of marine products and marine engines.  We believe our sales represented approximately 12% of all Brunswick marine sales during our fiscal 2020.  We have agreements with Brunswick covering Sea Ray products and Boston Whaler products and are the exclusive dealer of Sea Ray and Boston Whaler boats in almost all of our geographic markets. Additionally, we are the exclusive dealer for Harris aluminum boats, a division of Brunswick, in most of our geographic markets.  We also are the exclusive dealer for Italy-based Azimut-Benetti Group, or Azimut, for Azimut and Benetti mega-yachts, yachts, and other recreational boats for the United States.  Sales of new Azimut boats and yachts accounted for approximately 9% of our revenue in fiscal 2020.  Additionally, we are the exclusive dealer for certain other premium brands that serve certain industry segments in our markets as shown by the table on page three.

We also are involved in other boating-related activities.  We sell used boats at our retail locations, online, and at various third-party marinas and other offsite locations; we sell marine engines and propellers, primarily to our retail customers as replacements for their existing engines and propellers; we sell a broad variety of parts and accessories at our retail locations and at various offsite locations, and through our print catalog; we offer maintenance, repair, and slip and storage services at most of our retail locations; we offer finance and insurance, or F&I, products at most of our retail locations and at various offsite locations and to our customers and independent boat dealers and brokers; we offer boat and yacht brokerage sales at most of our retail locations and at various offsite locations; and we conduct a yacht charter business in which we offer customers the opportunity to charter third-party and Company owned power yachts in exotic locations.

Beginning in March 2020, we had temporarily closed certain departments or locations based on guidance from local government or health officials as a result of the COVID-19 global pandemic. We are following guidelines to ensure we are safely operating as recommended. As the COVID-19 pandemic is complex and evolving rapidly with many unknowns, the Company will continue to monitor ongoing developments and respond accordingly. Management expects its business, across all of its geographies, will be impacted to some degree, but the significance of the impact of the COVID-19 pandemic on the Company’s business and the duration for which it may have an impact cannot be determined at this time.

MarineMax commenced operations as a result of the March 1, 1998 acquisition of five previously independent recreational boat dealers.  Since that time, we have acquired 30 additional previously independent recreational boat dealers, four boat brokerage operations, and two full-service yacht repair operations.  We attempt to capitalize on the experience and success of the acquired companies in order to establish a high 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 2020 was approximately $215,000, a slight increase from approximately $204,000 in fiscal 2019, compared with the industry average selling price for calendar 2019 of approximately $56,000 based on industry data published by the National Marine Manufacturers Association.  Our stores that operated at least 12 months averaged approximately $25.8 million in annual sales in fiscal 2020.  We

1

consider a store to be one or more retail locations that are adjacent or operate as one entity. Our same-store sales increased 10% in fiscal 2018, increased 1% in fiscal 2019 and increased 25% in fiscal 2020.

The U.S. recreational boating industry generated approximately $43.1 billion in retail sales in calendar 2019, which is slightly above the former peak of $41.8 billion in calendar 2018. Total powerboats sold in calendar 2019 were approximately 201,400 units as compared to 206,900 units sold in calendar 2018.  The retail sales include 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 $33.4 billion of these sales in 2019 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 find it increasingly difficult to make the managerial and capital commitments necessary to achieve higher customer service levels and upgrade systems and facilities as required by boat manufacturers and often demanded by customers.  We also believe that many dealers lack an exit strategy for their owners.  We believe these factors contribute to our opportunity to gain a competitive advantage in current and future markets, through market expansions and acquisitions.

Material Updates to Our Strategy

Since the last discussion of our strategy in our Form 10-K for our fiscal year ended September 30, 2019, our primary goal remains to enhance our position as the nation’s leading recreational boat and yacht retailer.  In addition, we have broadened our strategy, including through our recent acquisitions of Fraser Yachts Group, Northrop & Johnson and SkipperBud’s, to increase our superyacht brokerage and luxury yacht services and marina/storage services.  Our goal is that this broadening of our strategy will potentially increase our margins.  

In addition, we continue to broaden and strengthen our digital initiatives.  Our digital services are always available and offer our full selection of boats, yachts and charters, as well as our expert team to answer customers’ questions and help them find a boat virtually. Additionally, our Boatyard digital platform allows marine businesses effective and customized digital solutions delivering great customer experiences by enabling customers to interact through a personalized experience tailored to their needs.

Development of the Company; Expansion of Business

Since our initial acquisitions in March 1998, we have acquired 30 additional recreational boat dealers, four boat brokerage operations, and two full-service yacht repair operations.  Acquired dealers operate under the MarineMax name.

We continually attempt to enhance our business by providing a full range of services, offering extensive and high-quality product lines, maintaining prime retail locations, pursuing the MarineMax One Price hassle-free sales approach, and emphasizing a high level of customer service and satisfaction.

We also from time to time evaluate opportunities to expand our operations by potentially acquiring recreational boat dealers to expand our geographic scope, expanding our product lines, opening new retail locations within or outside our existing territories, and offering new products and services for our customers and by potentially acquiring companies to pursue contract manufacturing or vertical integration strategies.

Apart from acquisitions, we have opened 35 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 and previous depressed economic conditions, we have closed 74 retail locations since March 1998 which includes the 2008 financial crisis, excluding those opened on a temporary basis for a specific purpose and including 11 during the last three fiscal years.


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The following table sets forth information regarding the businesses that we have acquired and their geographic regions since fiscal year 2011.

 

Acquired Companies

 

Acquisition Date

 

Geographic Region

Treasure Island Marina, LLC

 

February 2011

 

Florida Panhandle

Bassett Marine, LLC

 

September 2012

 

Connecticut, Rhode Island and

   Western Massachusetts

Parker Boat Company

 

March 2013

 

Central Florida

Ocean Alexander Yachts

 

April 2014

 

Eastern United States

Bahia Mar Marina

 

January 2016

 

Florida Panhandle

Russo Marine

 

April 2016

 

Eastern Massachusetts and Rhode Island

Hall Marine Group

 

January 2017

 

North Carolina, South Carolina and Georgia

Island Marine Center

 

January 2018

 

New Jersey

Tera Miranda

 

April 2018

 

Oklahoma

Bay Pointe Marina

 

September 2018

 

Massachusetts

Sail & Ski Center

 

April 2019

 

Texas

Fraser Yachts Group

 

July 2019

 

United States and Europe

Boatyard, Inc.

 

February 2020

 

Worldwide

Northrop & Johnson

 

July 2020

 

United States and Europe

SkipperBud’s

 

October 2020

 

Great Lakes region and West Coast United States

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 certain of our current product lines that we have added to our existing locations during the years indicated.

Product Line

 

Fiscal Year

 

Current Geographic Regions

Boston Whaler

 

1998

 

West Central Florida, Stuart, Florida, and Dallas, Texas

Hatteras Yachts

 

1999

 

Florida

Grady-White

 

2002

 

Houston, Texas

Boston Whaler

 

2004-2005

 

North and South Carolina (2004), Houston, Texas (2005)

Azimut

 

2006

 

Northeast United States from Maryland to Maine

Grady-White

 

2006-2010

 

Pensacola, Florida (2006), Jacksonville, Florida (2010)

Azimut

 

2008

 

Florida

Boston Whaler

 

2009-2012

 

Southwest Florida (2009), Pompano Beach, Florida (2012)

Harris

 

2010

 

Missouri, Minnesota, and New Jersey

Nautique by Correct Craft

 

2010

 

West Central Florida and Minnesota

Harris

 

2011-2012

 

West Central Florida (2011), Alabama (2012), North and Southwest Florida (2012), and Texas (2012)

Crest

 

2011-2018

 

Georgia (2011), Oklahoma (2012), North Carolina and South Carolina (2012), New Jersey (2015), Florida (2018)

Azimut

 

2012

 

United States other than where previously held

Scout

 

2012

 

Southeast Florida, Maryland, and New Jersey

Sailfish

 

2013

 

Connecticut, New Jersey, North Carolina, Ohio, and Rhode Island

Ocean Alexander Yachts

 

2014

 

Eastern United States

Scout

 

2014

 

Texas, New York

Aquila

 

2014

 

Worldwide, excluding China

Galeon

 

2015

 

North America, Central America, and South America

Grady-White

 

2016

 

Miami, Florida

Yamaha Jet Boats

 

2017

 

Georgia, North Carolina, and South Carolina

Bennington

 

2017

 

South Carolina

Mastercraft

 

2018

 

South Carolina

NauticStar

 

2018

 

Panama City, Florida, Oklahoma, Missouri, Minnesota, North

   Carolina and South Carolina

Tigé

 

2018 - 2019

 

Orlando, Florida, Oklahoma, Georgia, and North Carolina

Benetti

 

2019

 

United States and Canada

Aviara

 

2019

 

United States

MJM Yachts

 

2019

 

Florida

ATX Surf Boats

 

2020

 

Orlando, Florida, Oklahoma, Georgia, and North Carolina

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We add brands with the intent to either offer a migration path for our existing customer base or fill a gap in our product offerings.  As a result, we believe that new brands we offer are generally complementary and do not negatively impact the business generated from our other prominent brands.  We also discontinue offering product lines from time to time, primarily based upon customer preferences.

We strive to maintain our core values of high customer service and satisfaction and plan to continue to pursue strategies that we believe will enable us to achieve long-term success and growth. We believe our expanded product offerings have strengthened our same-store sales growth. We plan to further expand our business through both acquisitions in new territories and new store openings in existing territories.  In addition, we plan to continue to expand our other traditional services, including conducting used boat sales at our retail locations, at offsite locations, and digitally; selling related marine products, including engines, trailers, parts, and accessories at our retail locations and at various offsite locations; providing maintenance, repair, and storage services at most of our retail locations; offering our customers the ability to finance new or used boats; offering extended service contracts; arranging insurance coverage, including boat property, credit-life, accident, disability, and casualty coverage; offering boat and yacht brokerage sales at most of our retail locations and at various offsite locations; offering boat storage; and conducting our yacht charter business. Our expansion plans will depend, in large part, upon economic and industry conditions.

 

U.S. Recreational Boating Industry

The U.S. recreational boating industry generated approximately $43.1 billion in retail sales in calendar 2019, which is slightly above the former peak of $41.8 billion in calendar 2018. The retail sales include 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 and used boats, engines, trailers, equipment, and accessories accounted for approximately $33.4 billion of such sales in calendar 2019. Total powerboats sold in calendar 2019 were approximately 201,400 units as compared to 206,900 units sold in calendar 2018. To provide historical perspective, annual retail recreational boating sales were $17.9 billion in 1988, 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 attributable to several factors, including a recession, the Gulf War, and the imposition throughout 1991 and 1992 of a luxury tax on boats sold at prices in excess of $100,000.  The luxury tax was repealed in 1993, and retail boating sales increased each year thereafter except for 1998, 2003, and 2007 through 2010. We believe recreational boating has a natural appeal to consumers, along with other outdoor activities, and will continue to grow in favorable economic conditions absent any unusual industry headwinds (see Risk Factors).

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.

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; offer slip and storage accommodations; provide boat and yacht brokerage sales; and conduct a yacht charter business.

New Boat Sales

We primarily sell recreational boats, including pleasure boats and fishing boats.  A number of the products we offer are manufactured by Brunswick, a leading worldwide manufacturer of recreational boats and yachts, including Sea Ray pleasure boats, Boston Whaler fishing boats, and Harris aluminum boats. Sales of new Brunswick boats accounted for approximately 33% of our revenue in fiscal 2020. Sales of new Sea Ray and Boston Whaler boats, both divisions of Brunswick, accounted for approximately 15% and 16%, respectively, of our revenue in fiscal 2020. We believe our sales represented approximately 12% of all Brunswick marine sales during our fiscal 2020.  Certain of our dealerships also sell luxury yachts, fishing boats, and pontoon boats provided by other manufacturers, including Italy-based Azimut. Sales of new Azimut boats and yachts accounted for approximately 9% of our revenue in fiscal 2020. During fiscal 2020, new boat sales accounted for approximately 70.2% or $1.06 billion 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 2020 average new boat sales price of approximately $215,000 a slight increase from approximately $204,000

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in fiscal 2019, compared with an estimated industry average selling price for calendar 2019 of approximately $56,000 based on industry data published by the National Marine Manufacturers Association.  Given our locations in some of the more affluent, offshore-oriented 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 style.

The following table is illustrative of the range and approximate manufacturer suggested retail price range of new boats that we currently offer, but is not all inclusive.

 

Product Line and Trade Name

 

Overall Length

 

Manufacturer Suggested

Retail Price Range

Motor Yachts

 

 

 

 

Azimut

 

40’ to 120’+

 

$800,000 to $16,000,000+

Hatteras Motor Yachts

 

60’ to 100’+

 

2,000,000 to 10,000,000+

Ocean Alexander Yachts

 

45’ to 155’+

 

1,500,000 to 35,000,000+

Benetti

 

30M to 145M

 

12,000,000 to 24,000,000+

Convertibles

 

 

 

 

Hatteras Convertibles

 

45’ to 77’+

 

2,000,000 to 7,000,000+

Pleasure Boats

 

 

 

 

Sea Ray

 

19’ to 40’

 

30,000 to 800,000+

Aquila

 

32’ to 48’

 

400,000 to 1,200,000

Galeon

 

40’ to 80’

 

750,000 to 6,000,000+

NauticStar

 

19’ to 32’

 

30,000 to 300,000

MJM Yachts

 

35’ to 50’+

 

800,000 to 2,000,000+

Aviara

 

32’ to 40’

 

400,000 to 800,000+

Pontoon Boats

 

 

 

 

Harris

 

18’ to 27’

 

25,000 to 250,000

Crest

 

20’ to 27’

 

40,000 to 175,000

Bennington

 

17’ to 25’

 

20,000 to 250,000

Fishing Boats

 

 

 

 

Boston Whaler

 

11’ to 42’

 

12,000 to 1,200,000

Grady White

 

18’ to 45’

 

40,000 to 1,200,000

Scout

 

17’ to 53’

 

20,000 to 2,700,000

Sailfish

 

19’ to 36’

 

35,000 to 500,000

Ski Boats

 

 

 

 

Nautique by Correct Craft

 

20’ to 25’

 

80,000 to 325,000

Tigé

 

20’ to 25’

 

80,000 to 180,000

ATX Surf Boats

 

20’ to 24’

 

70,000 to 150,000

Mastercraft

 

20’ to 26’

 

70,000 to 250,000

Jet Boats

 

 

 

 

Yamaha Jet Boats

 

19’ to 24’

 

30,000 to 80,000

 

Motor Yachts.  Hatteras Yachts, Ocean Alexander Yachts, and Azimut are three of the world’s premier yacht builders.  The motor yacht product lines typically include state-of-the-art designs with live-aboard luxuries.  Hatteras 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.  Azimut yachts are known for their Americanized open layout with Italian design and powerful performance.  The luxurious interiors of Azimut yachts are accented by windows and multiple accommodations that have been designed for comfort.  Ocean Alexander Yachts are known for their excellent engineering, performance, and functionality combined with luxuries typically found on larger mega yachts. Benetti yachts and mega yachts are known for maintaining the highest quality standards with excellent aesthetic and functional results as well as combining the finest Italian tradition and craftsmanship with the latest technology.

Convertibles.  Hatteras Yachts is one of the world’s premier convertible yacht builders and offers 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.  Hatteras 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.  

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Pleasure Boats.  Sea Ray pleasure boats target both the luxury and the family recreational boating markets and come in a variety of configurations to suit each customer’s particular recreational boating style. Sea Ray 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 pleasure boats feature Mercury or MerCruiser engines. Galeon specializes in luxury yacht and motor boats with over thirty years of experience. Galeon is one of Europe’s leading and premier boat manufacturers. We believe Galeon yachts combine the latest technology, hand crafted excellence, excellent attention to detail, superb performance, and great innovative designs with modern styling and convenience. Aquila power catamarans provide form, function, and offer practicality and comfort with trend setting innovation. We believe NauticStar provides sport deck boats that combine comfort, features, economy, and versatility that make NauticStar a popular choice among experienced boaters. MJM Yachts combine speed, performance, greater stability, innovative designs and layouts, along with comforts and space for entertaining in addition to a patent-protected MJM signature look. Aviara is the newest brand manufactured by MasterCraft focused on the production of vessels 30-feet and over with the goal of creating an elevated open water experience by fusing progressive style, effortless comfort, and modern luxury.

Pontoon Boats. Harris is a pontoon industry leader and offers a variety of some of the most innovative, luxurious, and premium pontoon models to fit boaters’ needs.  Harris is known for exceptional performance combined with a stable and safe platform. Crest provides a variety of pontoon models that are designed to provide extreme levels of quality, safety, style and comfort to meet family recreational needs. Bennington offers what we believe to be industry leading design, meticulous craftsmanship, and a quiet, smooth, ride. With a variety of designs and options, the pontoon boats we offer appeal to a broad audience of pontoon boat enthusiasts and existing customers.

Fishing Boats.  The fishing boats we offer, such as Boston Whaler, Grady-White, Scout, and Sailfish, 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.

Ski Boats.  The ski boats we offer are Nautique by Correct Craft, Tigé, ATX Surf Boats, and Mastercraft, which range from entry level models to advanced models and all of which are designed to achieve an ultimate wake for increased skiing, surfing, and wakeboarding performance and safety.  With a variety of designs and options, Nautique, Tigé, ATX Surf Boats, and Mastercraft ski boats appeal to the competitive and recreational user alike.

Jet Boats.  Yamaha jet boats are designed to offer a reliable, high performing, internal propulsion system with superior handling. Yamaha is a worldwide leader in jet boats. With a variety of designs and options, the jet boats we offer appeal to a broad audience of jet boat enthusiasts and existing customers.

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 2020, used boat sales accounted for 15.1% or approximately $228 million of our revenue, and 45.1% 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 boat inventory through customer trade-ins.  We intend to continue to increase our used boat business as a result of the availability of quality used boats generated from our new boat 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 digital properties, which expands the awareness and availability of our products to a large audience of boating enthusiasts.  We also sell used boats at various marinas and other offsite locations throughout the country.

To further enhance our used boat sales, we offer the Brunswick Product Protection warranty plan available for used Brunswick boats less than nine years old.  The Brunswick Product Protection plan applies to each qualifying used boat, which has passed a 48-point inspection, and provides protection against failure of most mechanical parts for up to three years.  We believe this type of program enhances our sales of used boats by motivating purchasers of used boats to complete their purchases through our dealerships.

Marine Engines, Related Marine Equipment, and Boating Parts and Accessories

We offer marine engines and equipment, predominantly manufactured by Mercury Marine, a division of Brunswick, and Yamaha.  We sell marine engines and propellers primarily to retail customers as replacements for their existing engines or propellers.  Mercury Marine and Yamaha have introduced various new engine models that are designed to reduce engine emissions to comply with current Environmental Protection Agency requirements.  See “Business — Environmental and Other Regulatory Issues.”

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Industry leaders, Mercury Marine and Yamaha, specialize in state-of-the-art marine propulsion systems and accessories.  Many of our dealerships have been recognized by Mercury Marine as “Premier Service Dealers.” This designation is generally awarded based on meeting certain standards and qualifications.

We also sell a broad variety of marine parts and accessories at our retail locations, at various offsite locations, and through our print catalog.  These marine parts and accessories include marine electronics; dock and anchoring products, such as boat fenders, lines, and anchors; boat covers; trailer parts; water sport accessories, such as tubes, lines, wakeboards, and skis; engine parts; oils; lubricants; steering and control systems; corrosion control products and service products; 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 manufacturer’s or dealer’s logos. In all of our parts and accessories business, we utilize our industry knowledge and experience to offer boating enthusiasts high-quality products with which we have experience.

The sale of marine engines, related marine equipment, and boating parts and accessories, which are all tangible products, accounted for approximately 3.0% or $45 million of our fiscal 2020 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 success.  We provide maintenance and repair services at most of our retail locations, with extended service hours at certain of our locations.  In addition, in many of our markets, we provide mobile maintenance and repair services at the location of the customer’s boat.  We believe that this service commitment is a competitive advantage in the markets in which we compete and is critical to our efforts to provide a trouble-free boating experience.  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 manufacturer’s warranty reimbursement program.  For warranty work, most manufacturers, including Brunswick, reimburse a percentage of the dealer’s posted service labor rates, with the percentage varying depending on the dealer’s customer satisfaction index rating and attendance at service training courses.  We derive the majority of our warranty revenue from Brunswick products, as Brunswick products comprise the largest percentage of our 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 both in-season and out-of-season storage.

Maintenance, repair, and storage services accounted for approximately 4.8% or $72 million of our revenue during fiscal 2020 of which, approximately 3.1% or $47 million related to repair services, approximately 0.7% or $10 million related to parts and accessories for repairs, and approximately 1.0% or $15 million related to income from storage service rentals.  This includes warranty and non-warranty services.

F&I Products

At each of our retail locations and at various offsite locations where applicable, 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, disability, undercoating, gel sealant, fabric protection, 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

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the lender’s then current minimum required annual percentage rate charged to the buyer on the contract.  This participation is subject to repayment by us if the buyer prepays the contract or defaults within a designated time period, usually 0 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 manufacturer’s standard hull and engine warranty, extended service contracts provide additional coverage beyond the time frame or scope of the manufacturer’s warranty.  Purchasers of used boats generally are able to purchase an extended service contract, even if the selected boat is no longer covered by the manufacturer’s warranty.  Generally, we receive a fee 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. Beginning in fiscal 2021, we have partnered with a third-party to offer prepaid maintenance plans.

We also are able to assist our customers with the opportunity to obtain property and casualty insurance. 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 do, 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 2020, fee income generated from F&I products accounted for approximately 2.7% or $41 million 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 Sales

Through employees or subcontractors that are licensed boat or yacht brokers where applicable, we offer boat or yacht brokerage sales at most of our retail locations.  For a commission, we offer for sale brokered boats or yachts, listing them digitally on various sites, advising our other retail locations of their availability through our integrated computer system, and posting them on our website, www.MarineMax.com.  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 sales also enable us to offer a broad array of used boats or yachts without increasing related inventory costs. Also, through Fraser Yachts and Northrop & Johnson we offer yacht and superyacht brokerage. During fiscal 2020, brokerage sales commissions accounted for approximately 2.6% or $39 million 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 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.

Yacht Charter

In 2011 we launched a yacht charter business in which we offer customers the opportunity to charter power yachts in exotic destinations, starting with our initial location in the British Virgin Islands (BVI).  In this business, we sell specifically designed yachts to third parties for inclusion in our yacht charter fleet; enter into yacht management agreements under which yacht owners enable us to put their yachts in our yacht charter program for a period of several years for a fixed monthly fee payable by us; provide our services in storing, insuring, and maintaining their yachts; and charter these yachts to vacation customers at agreed fees payable to us.  The yacht owners will be able to utilize the yachts for personal use for a designated number of weeks during the terms of the management agreement and take possession of their yachts following the expiration of the yacht management agreements.

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In addition to the specific business we launched in the BVI, we also offer yacht charter services. For a fee, we assist yacht owners in the charter of their vessel by third-parties. Additionally, through Fraser Yachts and Northrop & Johnson we offer yacht and superyacht chartering, charter management, yacht management, crew placement, new boat build oversight services and other luxury yacht services. During fiscal 2020, the income from rentals of chartering power yachts, yacht charter fees, and other charter services accounted for approximately 1.6% or $24 million of our revenue. Our facilities in the British Virgin Islands and yacht charter fleet suffered damage from Hurricane Irma in September of 2017. We maintain insurance for inventory damage, subject to deductibles. The yacht charter fleet resumed charters during fiscal 2019 on a limited basis as damage was repaired and returned to full operations in 2020. Beginning in March 2020, we have temporarily closed our facilities in the British Virgin Islands and yacht charters based on guidance from local government and health officials as a result of the COVID-19 global pandemic. We expect yacht charters to resume during fiscal 2021, but impact of the COVID-19 pandemic and the duration for which it may have an impact cannot be determined at this time.

Offsite Sales

We sell used boats, offer F&I products, and sell parts and accessories at various third-party offsite locations, including marinas.

Retail Locations

We sell our recreational boats and other marine products and offer our related boat services through 77 retail locations in Alabama, California, Connecticut, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Rhode Island, South Carolina, Texas, Washington and Wisconsin.  Each retail location generally includes an indoor showroom (including some of the industry’s largest indoor boat showrooms) and an outside area for displaying boat inventories, a business office to assist customers in arranging financing and insurance, maintenance and repair facilities, and at certain retail locations boat storage services, including in-water slip storage and inside and outside land storage.

Many of our retail locations are waterfront properties on some of the nation’s most popular boating locations, including the Norwalk Harbor and Westbrook Harbor in Connecticut; multiple locations on the Intracoastal Waterway, the Atlantic Ocean, Boca Ciega Bay, Caloosahatchee River, Naples Bay, Tampa Bay, Pensacola Bay, and the Saint Andrews Bay in Florida; Lake Lanier and Wilmington River in Georgia; Chesapeake Bay in Maryland; Lake Minnetonka, and the St. Croix River in Minnesota; Lake of the Ozarks in Missouri; Barnegat Bay, Lake Hopatcong, Little Egg Harbor Bay, and the Manasquan River in New Jersey; Huntington Harbor in New York; Town River in Massachusetts; Masonboro Inlet in North Carolina; Lake Wylie in South Carolina; Lake Erie in Ohio; Grand Lake in Oklahoma; Newport Bay, San Diego Bay, and Richardson Bay in California, Saginaw River, Lake St. Clair, Cass Lake, Spring Lake, and Lake Fenton in Michigan, Lake Union in Washington, Sturgeon Bay, Lake Mendota, Kinnickinnic River, and Lake Butte Des Mortes in Wisconsin, Lake Michigan and Lake Marie in Illinois, Newport Harbor in Rhode Island; and Clear Lake and Lake Lewisville in Texas.  Our waterfront retail locations, most of which include marina-type facilities and docks at which we display our yachts and 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.

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 general manager, who oversees the day-to-day operations, personnel, and financial performance of the individual store, subject to the direction of a regional president or district president, who generally has responsibility for the retail locations within a specified geographic region.  Typically, each retail location also has a staff consisting of an F&I manager, a parts manager, a service manager, sales representatives, maintenance and repair technicians, and various support personnel.

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, no-hassle sales approach, highly trained sales representatives, high level of customer service, emphasis on educating the customer and the customer’s family on boating, and providing our customers with opportunities for boating through our MarineMax Getaways!®.  We strive to provide superior customer service and support before, during, and after the sale. Our team and customers are United by Water®.

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Each retail location offers the customer the opportunity to evaluate a 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.

The brands we offer are diverse in size and use and are spread across our customer activities of leisure, fishing, watersports, luxury, and vacations.  We believe the transformative qualities of the water should be shared by everyone, so we created our boat lineup accordingly. Our promise gives our brands meaning and reason to exist next to one another on our showroom floor.

We sell our boats at posted MarineMax “One Price” that generally represent a discount from the manufacturer’s 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, our digital marketing activity is important, with the majority of leads coming through our digital properties, www.MarineMax.com. Social media is a growing venue for customer engagement with stores and prospecting of new leads. Additionally, we hold online experience events that allow participants to explore boats and yachts from multiple manufactures, segments, and models from nearly any electronic device including their phone, tablet, laptop or desktop computer.

We participate in boat shows and in-the-water sales events at area boating locations, typically held in January, February, March, and toward the end of the boating season, in each of our markets and in certain locations in close proximity to our markets.  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. Online we are always available and can offer our full selection of boats, yachts and charters, as well as our expert team to answer customers’ questions and help them find a boat virtually.   

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 boating safety, the use and operation of boats, and product demonstrations.  Typically, one of our delivery captains or the sales representative delivers the customer’s boat to an area boating location and thoroughly instructs the customer about the operation of the boat, including hands-on instructions for docking and trailering the boat.  To enhance our customer relationships after the sale, we lead and sponsor MarineMax Getaways!® group boating trips to various destinations, rendezvous gatherings, and on-the-water organized events that promote the pleasures of the boating lifestyle.  Each Company-sponsored event, planned and led by a Company employee, also provides a favorable medium for acclimating new customers to boating, sharing exciting boating destinations, creating friendships with other boaters, and enabling us to promote new product offerings to boating enthusiasts.

As a result of our relative size, we believe we have a competitive advantage within the industry by being able to conduct an organized and systematic advertising and marketing effort.  Part of our marketing effort includes an integrated customer relationship management system that tracks the status of each sales representative’s contacts with a prospect, automatically generates follow-up correspondence, and facilitates Company-wide availability of a particular boat or other marine product desired by a customer.

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 and their market share.  We also exchange new boats with other dealers to accommodate customer demand and to balance inventory.

In fiscal 2020, sales of new Brunswick and Azimut boats and yachts accounted for approximately 33% and 9% of our revenue, respectively. Sales of new Sea Ray and Boston Whaler boats, both divisions of Brunswick, accounted for approximately 15% and 16%, respectively, of our revenue in fiscal 2020. No purchases of new boats and other marine related products from any other manufacturer accounted for more than 10% of our revenue in fiscal 2020. We believe our sales represented approximately 12% of all Brunswick marine product sales during fiscal 2020.

We have entered into multi-year agreements with Brunswick covering Sea Ray and Boston Whaler. We also have a multi-year agreement with Azimut-Benetti Group for its Azimut product line. We typically deal with each of our manufacturers, other than Brunswick and Azimut-Benetti Group, under an annually renewable, non-exclusive dealer agreement.

The dealer agreements do not restrict our right to sell any product lines or competing products provided that we are in compliance with the material obligations of our dealer agreements.  The terms of each dealer agreement appoints a designated geographical territory for the dealer, which is exclusive to the dealer provided that the dealer is able to meet the material obligations of its dealer agreement.

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Manufacturers generally establish prices on an annual basis, but may change prices at 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.  Arrangements with certain other manufacturers may restrict our right to offer some product lines in certain markets.

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 or dealership rights.

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.

We account for consideration received from our vendors in accordance with FASB Accounting Standards Codification 606, “Revenue from Contracts with Customers” (“ASC 606”).  ASC 606 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 ASC 606, amounts received by us under our co-op assistance programs from our manufacturers are netted against related advertising expenses.

We are party to a Loan and Security Agreement (the “Credit Facility”) with Wells Fargo Commercial Distribution Finance LLC, M&T Bank of the West, and Truist Bank. The Credit Facility has a three-year term and expires in May 2023, subject to extension for two one-year periods, with lender approval. The Credit Facility provides the Company a line of credit with asset based borrowing availability of up to $440 million for working capital and inventory financing, with the amount permissible pursuant to a borrowing base formula. The Credit Facility is further discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operation” section of this Annual Report on Form 10-K.

Management Information System

We believe that our management information system, which is utilized by each of our dealerships 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 dealerships 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 but not limited to purchasing, inventory, receivables, payables, financial reporting, budgeting, and sales management.  The system enables us to monitor each dealership’s operations in order to identify quickly areas requiring additional focus and to manage inventory.  The system also provides sales representatives with prospect and customer information that aids them in tracking the status of their contacts with prospects, automatically generates follow-up correspondence to such prospects, facilitates the availability of a particular boat Company-wide, locates boats needed to satisfy a particular customer request, and monitors the maintenance and service needs of customers’ boats.  Company representatives also utilize the system to assist in arranging financing and insurance packages. We mitigate cybersecurity risks by employing a number of measures, including employee training, systems, monitoring and testing, and maintenance of protective systems and contingency plans.

Human Capital Resources

As of September 30, 2020, we had 1,736 employees, 1,626 (94%) of whom were in store-level operations and 110 (6%) of whom were in corporate administration and management.  We are not a party to any collective bargaining agreements.  We consider our relations with our employees to be excellent.

In managing the business, we devote substantial efforts to recruit employees that we believe to be exceptionally well qualified for their position.  We also 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

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process, customer service, F&I, accounting, leadership, and human resources. We also have a specialized service training center and program in Clearwater, Florida where we train our service technicians in best practices.  

Sales representatives receive compensation primarily on a commission basis.  Each general 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 the performance their personnel on a daily, weekly, and monthly basis.  We have a uniform, fully integrated management information system serving each of our dealerships.

Our philosophy is to pay competitive base salaries to team members at levels that help us to attract, motivate, and retain highly qualified team members and reduce turnover. Cash incentive bonuses are designed to reward individuals based on our Company’s financial results as well as the achievement of personal and corporate objectives designed to contribute to our long-term success in building shareholder value.  Grants of stock-based awards under our 2011 Stock-Based Compensation Plan are intended to align compensation with the price performance of our common stock. Total compensation levels reflect corporate positions, responsibilities, and achievement of goals. As a result of our performance-based compensation philosophy, pay levels may vary significantly from year to year and among our various team members. Performance metrics utilized by our cash compensation plans include pretax income performance bonus, aged inventory, district and regional financial performance targets, and net promoter score (customer satisfaction).

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,” “MarineMax Delivering the Boating Dream,” “Newcoast Financial Services,” “MarineMax Boating Gear Center,” “Boating Gear Center Powered by MarineMax,” “MarineMax Vacations,” “United by Water,” “Women on Water,” “MarineMax Maximizing Your Enjoyment on the Water,” “MarineMax Hall Marine,” “MarineMax Fort Myers at Deep Lagoon,” “MarineMax Yacht Gala,” “MarineMax Rewards Club,” “Myboat.com,” “Nukleus,” and “Max Makeover.” We have registered the name “MarineMax” in the European Union, China, Australia, Brazil, India, and Cuba; “MarineMax Maximizing Your Enjoyment on the Water” in the European Union, Cuba, India, and Australia; and “United by Water” in the European Union, China, Australia, India, and Cuba. We have trade names and trademarks registered in Canada for various names, including “MarineMax,” “Delivering the Dream,” “United by Water,” “The Water Gene,” “MyBoat.com,” and “Nukleus.” We have various trade name and trademark applications outside of the United States for various marks, specifically “Nukleus” in India, and “United by Water” in Brazil.  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, 2020, the average revenue for the quarters ended December 31, March 31, June 30 and September 30 represented approximately 20%, 22%, 32%, and 26%, 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 generally stimulates boat sales and typically allows us to reduce our inventory levels and related short-term borrowings throughout the remainder of the fiscal year.  Our expansion into boat storage may act to reduce our seasonality and cyclicality.

Our business is also subject to weather patterns, which may adversely affect our results of operations.  For example, prolonged winter conditions, drought conditions (or merely reduced rainfall levels) or excessive rain, may limit access to 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 has been the case when Florida and other markets were affected by hurricanes, such as Hurricanes Harvey and Irma in 2017.  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.

Governmental Regulations, including Environmental Regulations

Our operations are subject to extensive regulation, supervision, and licensing under various foreign, 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

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condition, and results of operations.  The adoption of additional laws, rules, and regulations could also have a material adverse effect on our business.  Various foreign, 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 foreign, federal, state, and local agencies, have jurisdiction over the operation of our dealerships, repair facilities, and other operations with respect to matters such as consumer protection and privacy, 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.  The majority of the outboard marine engines we sell are manufactured by Mercury Marine.  Mercury Marine’s product line of low-emission engines, including the OptiMax, Verado, SeaPro, Pro XS, and other four-stroke outboards, have achieved the EPA’s mandated 2006 emission levels. While we remain committed to supporting sustainable manufacturing and a sustainable environment for all boaters, 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, and above ground storage tanks, or ASTs, for the storage of various petroleum products.  The USTs and ASTs are generally subject to federal, state, and local laws and regulations that require testing and upgrading of tanks and remediation of contaminated soils and groundwater resulting from leaking tanks.  In addition, if leakage from Company-owned or operated tanks 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 tank 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 certain of the acquired dealers have indemnified us (and such indemnification is continuing) 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 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.

Three 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. We do not believe that any of 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.

Environmental Responsibility

We operate many retail locations near or on bodies of water that are acutely susceptible to the risks associated with climate change. Such risks include those related to the physical impacts of climate change, such as possibly more frequent and severe weather events, rising sea levels, and/or long term shifts in climate patterns, and risks related to the transition to a lower-carbon economy, such as reputational, market and/or regulatory risks. Our commitment to environmental responsibility and initiatives to reduce our environmental foot print are outlined in our “Environmental Policy.” Our Environmental Policy can be found on the Investor

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Relations section of our website at www.MarineMax.com under Governance Documents. Our Environmental Policy and associated climate related risks and opportunities are reviewed by our Board of Directors on an annual basis or more frequently as needed.

We have engaged in many efforts to mitigate and adapt to climate change. For example, we seek out, to the extent feasible, manufacturers committed to the highest levels of sustainability, environmental stewardship, and low-emissions as demonstrated by Mercury Marine. Mercury Marine’s commitment to sustainability and successes are detailed in its 2019 Sustainability Report. Mercury Marine’s accomplishments include winning the 2018 Sustainable Product of the Year from the Wisconsin Sustainable Business Council for its Active Trim technology and the 2018 Business Friend of the Environment Award for their new V6 and V8 outboard engines. For the ninth consecutive year, the Wisconsin Sustainable Business Council awarded Mercury Marine a “Green Masters” designation, a program measuring a broad range of sustainability issues including energy and water conservation, waste management, community outreach, and education. Additionally, Azimut Yachts was awarded ISO 14001 certification, for its consistent and effective management system aimed at reducing the environmental impact of its operations. Also, to maximize the eco-compatible standards of their yachts, Azimut Yachts adopted RINA (an organization specializing in classification, certification, testing, and inspection) principles to achieve RINA Green Plus notation.

Further, while not our primary focus, as opportunities arise we have made targeted investments to support new technology, innovations, and research in the marine industry to reduce emissions, provide environmental stewardship, and support a sustainable environment for all boaters. The Fraser Yachts Group has become the first yacht company to sign the Pact for Energy Transition with the Monaco Government. The energy transition pact was created by the Monaco government to improve energy efficiency and promote renewable energy sources, with the target to reducing greenhouse gas emissions, by allowing residents, workers, businesses, institutions and associations to contribute to the energy transition effort.  

We take pride in maintaining our retail locations and marinas for the benefit of the local communities and boaters we serve. We strive to execute a proactive strategy related to environmental, health, and safety laws and regulations, and environmental stewardship, which includes investing significant resources in maintaining and developing our retail locations and marinas for the long term. Additionally, several of our Florida locations have been designated Clean Marinas through the Florida Department of Environmental Protection Clean Marina Program. The Clean Marina Program recognizes facilities engaging in environmental best practices and exceeding regulatory requirements in and around Florida’s waterways.  

Corporate Social Responsibility

Our commitment to social responsibility is outlined in our “Human Rights Policy.” Our Human Rights Policy can be found on the Investor Relations section of our website at www.MarineMax.com under Governance Documents. Our Human Rights Policy is reviewed by our Board of Directors on an annual basis or more frequently as needed. We strive to conduct our business in an ethical and socially responsible way, and are sensitive to the needs of the environment, our customers, our shareholders, our team members and our communities. Our ethical and social responsibility is guided by our MarineMax culture and values which are honesty, trust, loyalty, professionalism, consistency, always do what is right, treat others as we want to be treated, and always consider the long term. Our culture, values, and mission are shared and reinforced with our team members through daily stand up meetings, team events, and online communications. We pride ourselves in supporting our local communities both on and off the water. One way in which our presence is felt within the local community is by providing our team members time to volunteer and assist with Habitat for Humanity housing projects in addition to making charitable donations to Habitat for Humanity. Additionally, we are proud to support the ocean cleanup company 4ocean and its mission to end the world’s plastic pollution crises. 4ocean is a global company that actively removes trash from the ocean and coastlines, helps create sustainable economies around the world and inspires individuals to work together for a cleaner ocean.

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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Executive Officers

The following table sets forth information concerning each of our executive officers as of December X, 2020:

 

Name

 

Age

 

Position

William H. McGill Jr.

 

76

 

Executive Chairman of the Board and Director

William Brett McGill

 

52

 

Chief Executive Officer, President and Director

Michael H. McLamb

 

55

 

Executive Vice President, Chief Financial Officer,

   Secretary, and Director

Charles A. Cashman

 

57

 

Executive Vice President and Chief Revenue Officer

Anthony E. Cassella, Jr

 

51

 

Vice President and Chief Accounting Officer

 

William H. McGill Jr. has served as the Executive Chairman of the Board since October 2018. Mr. McGill served as Chief Executive Officer of MarineMax from January 23, 1998 to September 30, 2018 and as the Chairman of the Board and as a director of the Company since March 6, 1998.  Mr. McGill served as the President of the Company from January 23, 1988 until September 8, 2000 and re-assumed the position from July 1, 2002 to October 1, 2017.  Mr. McGill was the principal owner and president of Gulfwind USA, Inc., one of our operating subsidiaries, from 1973 until its merger with us in 1998. In December 2016, Mr. McGill joined the Board of Directors of Joi Scientific, Inc., an energy company with which we have a licensing agreement.  

William Brett McGill has served as Chief Executive Officer since October 2018, as President since October 2017, and as a director since February 21, 2019. Mr. McGill served as President and Chief Operating Officer of MarineMax from October 2017 to October 2018. Mr. McGill served as Executive Vice President and Chief Operating Officer from October 2016 to October 2017, Executive Vice President Operations of the Company from October 2015 to September 2016, as Vice President of West Operations of the Company from May 2012 to September 2015, and was appointed as an executive officer by our Board of Directors in November 2012.  Mr. McGill served as one of our Regional Presidents from March 2006 to May 2012, as Vice President of Information Technology, Service and Parts of the Company from October 2004 to March 2006, and as Director of Information Services from March 1998. Mr. McGill began his professional career with a software development firm, Integrated Dealer Systems, prior to joining MarineMax in 1996.  William Brett McGill is the son of William H. McGill, Jr.

Michael H. McLamb has served as Executive Vice President of MarineMax since October 2002, as Chief Financial Officer since January 23, 1998, as Secretary since April 5, 1998, and as a director since November 1, 2003.  Mr. McLamb served as Vice President and Treasurer of the 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.

Charles A. Cashman has served as Executive Vice President and Chief Revenue Officer of MarineMax since October 2016.  Mr. Cashman served as Executive Vice President Sales, Marketing, and Manufacturer Relations of the Company from October 2015 to September 2016, served as Vice President of East Operations from May 2012 to September 2015, and was appointed as an executive officer by our Board of Directors in November 2012.  Mr. Cashman served as Regional President of East Florida from October 2008 to May 2012, and as District Manager of the East Coast of Florida from March 2007 to October 2008.  Mr. Cashman served several other positions of increasing responsibility, including Sales Consultant, Sales Manager, and General Manager, since joining MarineMax in 1992.

Anthony E. Cassella, Jr. has served as Vice President of MarineMax since February 2016, Chief Accounting Officer since October 2014, and Vice President of Accounting and Shared Services since February 2011. Mr. Cassella served as Director of Shared Services from October 2007 until February 2011 and Regional Controller from March 1999 until October 2007. Mr. Cassella was the Controller of Merit Marine which the Company acquired in March 1999. Mr. Cassella, a certified public accountant, worked in public accounting from June 1991 to February 1998, serving most recently as manager.

 

 

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Item 1A.

Risk Factors

 

Competition and Industry Conditions Risk Factors

 

Our success depends to a significant extent on the well-being, as well as the continued popularity and reputation for quality of the boating products, of our manufacturers, particularly Brunswick’s Sea Ray and Boston Whaler boat lines and Azimut-Benetti Group’s Azimut products. The failure to obtain a high quality and desirable mix of competitively priced products that our customers demand could have a material adverse effect on our business, financial condition, and results of operations.

Approximately 33% of our revenue in fiscal 2020 resulted from sales of new boats manufactured by Brunswick, including approximately 15% from Brunswick’s Sea Ray division, 16% from Brunswick’s Boston Whaler division, and approximately 2% from Brunswick’s other divisions.  Additionally, approximately 9% of our revenue in fiscal 2020 resulted from sales of new boats manufactured by Azimut-Benetti Group. The remainder of our fiscal 2020 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.

We depend on our manufacturers to provide us with products that compare favorably with competing products in terms of quality, performance, safety, and advanced features, including the latest advances in propulsion and navigation systems.  Any adverse change in the production efficiency, product development efforts, technological advancement, expansion of manufacturing footprint, supply chain and third-party suppliers, marketplace acceptance, marketing capabilities, ability to secure adequate access to capital, and financial condition of our manufacturers, particularly Brunswick including Mercury Marine a division of Brunswick, and Azimut-Benetti Group given our reliance on Sea Ray, Boston Whaler, Mercury Marine engines, and Azimut, would have a substantial adverse impact on our business.  Any difficulties encountered by any of our manufacturers, particularly Brunswick and Azimut-Benetti Group, resulting from economic, financial, or other factors, such as the COVID-19 pandemic, could adversely affect the quality and amount of products that they are able to supply to us and the services and support they provide to us.

Any interruption or discontinuance of the operations of Brunswick, Azimut-Benetti Group or other manufacturers, as experienced in June 2018 with Brunswick discontinuing its Sea Ray sport yacht and yacht models, could cause us to experience shortfalls, disruptions or delays with respect to needed inventory.  Although we believe in our brand, our product diversification and that adequate alternate sources would be available that could replace any manufacturer other than Brunswick and Azimut-Benetti Group 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 price.

Boat manufacturers exercise substantial control over our business.

We depend on our dealer agreements.  We have dealer agreements with Brunswick covering Sea Ray and Boston Whaler products.  Each dealer agreement has a multi-year term and provides for the lowest product prices charged by the Sea Ray division of Brunswick or Boston Whaler, as applicable, from time to time to other domestic Sea Ray or Boston Whaler dealers, as applicable.  These terms are subject to:

 

•

the dealer meeting all the requirements and conditions of the manufacturer’s applicable programs; and

 

•

the right of Brunswick in good faith to charge lesser prices to other dealers

 

•

to meet existing competitive circumstances;

 

•

for unusual and non-ordinary business circumstances; or

 

•

for limited duration promotional programs.

Each dealer agreement designates a specific geographical territory for the dealer, which is exclusive to the dealer provided that the dealer is able to meet the material obligations of its dealer agreement.

We are the exclusive dealer for Azimut-Benetti Group’s Azimut product line for the United States.  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. Our dealer agreement is a multi-year term but requires us to be in compliance with its terms and conditions.

As is typical in the industry, we generally deal with manufacturers, other than Sea Ray and Boston Whaler (both divisions of Brunswick) and Azimut, under renewable annual dealer agreements.  These agreements do not contain any contractual provisions

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concerning product pricing or required purchasing levels.  Pricing is generally established on a model year basis, but is subject to change in the manufacturer’s sole discretion.  Any change or termination of these arrangements for any reason could adversely affect product availability and cost and our financial performance.

Through these dealer agreements, boat manufacturers (particularly Brunswick and Azimut) exercise significant control over their dealers, restrict them to specified locations, and retain approval rights over changes in management and ownership, among other things.  Failure to meet the customer satisfaction, market share goals, and other conditions set forth in any dealer agreement could have various consequences, including the following:

 

•

the termination of the dealer agreement;

 

•

the imposition of additional conditions in subsequent dealer agreements;

 

•

limitations on boat inventory allocations;

 

•

reductions in reimbursement rates for warranty work performed by the dealer;

 

•

loss of certain manufacturer to dealer incentives;

 

•

denial of approval of future acquisitions; or

 

•

the loss of exclusive rights to sell in the geographic territory.

These events could have a material adverse effect on our competitive position and financial performance.

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, 2020, the average revenue for the quarterly periods ended December 31, March 31, June 30 and September 30 represented approximately 20%, 22%, 32%, and 26%, respectively, of our average annual revenue.  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 typically 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 if we acquire dealers that operate in colder regions of the United States, which are generally closed or experience lower volume in the winter months.

The failure to receive rebates and other dealer incentives on inventory purchases or retail sales 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, whether relating to the ability of manufacturers to pay or our ability to qualify for such incentive programs, 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.

Other recreational activities, poor industry perception, and potential health risks from environmental conditions can adversely affect the levels of boat purchases.

Demand for our products can be adversely affected by competition from other activities that occupy consumers’ time, including other forms of recreation as well as religious, cultural and community activities.  In addition, real or perceived health risks from engaging in outdoor activities and local environmental conditions in the areas in which we operate dealerships could adversely affect the levels of boat purchases.  Further, as a seller of high-end consumer products, we must compete for discretionary spending with a wide variety of other recreational activities and consumer purchases.  In addition, perceived hassles of boat ownership and customer service and lack of customer education throughout the retail boat industry, which has traditionally been perceived to be relatively poor, represent impediments to boat purchases.  

We face intense 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.  

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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, online 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 affected in markets that do not have sufficient marine and storage availability to satisfy demand.

Timing of large boat and yacht sales and failure to adequately anticipate consumer preference and demand may have an adverse impact on our business.

Forecasting optimal inventory levels is difficult to predict based on, among other things, changes in economic conditions, consumer preferences, delivery of new models from manufacturers, and timing of large boat and yacht sales. Failure to adequately anticipate consumer demand and preferences could negatively impact our inventory management strategies, inventory carrying costs, and our operating margins.

Strategy Risk Factors

Failure to implement strategies to enhance our performance or our strategies could have a material adverse effect on our business and financial condition.

We are increasing our efforts to grow our financing and insurance, parts and accessories, service, yacht charter, brokerage, and boat storage businesses to better serve our customers and thereby increase revenue and improve profitability as a result of these higher margin businesses.  In addition, we have implemented programs to increase the lead capture and digital sales of used boats, parts, accessories, and a wide range of boating supplies and products.  These efforts and programs are designed to increase our revenue and reduce our dependence on the sale of new boats. We are also pursuing certain acquisitions as discussed in the immediately following Risk Factors.  These business initiatives have required, and will continue to require, us to add personnel, invest capital, enter businesses in which we do not have extensive experience, and encounter substantial competition.  As a result, our strategies to enhance our performance may not be successful and we may increase our expenses or write off such investments if not successful.

Our success depends, in part, on our ability to continue to make successful acquisitions at attractive or fair prices and to integrate the operations of acquired dealers and each dealer we acquire in the future.

Since March 1, 1998, we have acquired 30 recreational boat dealers, four boat brokerage operations, and two full-service yacht repair facilities.  Each acquired dealer and entity operated independently prior to its acquisition by us.  Our success depends, in part, on our ability to continue to make successful acquisitions at attractive or fair prices that align with our culture and focus on customer service and to integrate the operations of acquired dealers, 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, realize anticipated synergies, or 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.

We may pursue acquisition strategies in new lines of business.

We have historically pursued 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.  We have also recently pursued, and may continue to pursue, potential contract manufacturing, vertical integration strategies, yacht charter and brokerage, marinas, boat storage, or other acquisitions as opportunities arise.  To the extent we are successful in pursuing one or more of these strategies, we will face certain risks in addition to those that exist with acquisitions more closely related to our historical business, including potential inexperience in a line of business that is either new to us or that has become materially more significant to us as a result of a transaction, the potential difficulty of presenting a unified corporate image, greater uncertainties in the financial benefits and potential liabilities associated with this expanded base of acquisitions, different types of legal and operational risks, and different types of applicable financial metrics and

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goals.  Our failure to pursue successfully our acquisition strategies in new lines of business, operate effectively the combined entity, and/or mitigate any potential new risks, could have a material adverse effect on our rate of growth and operating performance.

 

Unforeseen expenses, difficulties, and delays frequently encountered in connection with expansion through acquisitions could inhibit our growth and negatively impact our profitability.

The acquisition of additional recreational boat dealers, boat storage facilities, yacht brokerage operations, and marinas, which is one of our growth strategies, and vertical integration strategies, all involve 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 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 expected returns required by our acquisition criteria to be in the best interest of shareholders.  Acquisitions also may become more difficult or less attractive in the future as we acquire more of the most attractive dealers that best align with our culture and focus on customer service.  In addition, we may encounter difficulties in integrating the operations of acquired dealers with our own operations, difficulties in retaining employees, potential risks of losing customers, suppliers, or other business relationships, and difficulties in managing acquired dealers profitably without substantial costs, delays, or other operational or financial problems.

Our ability to continue to grow through acquisitions depends upon various factors, including the following:

 

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the availability of suitable acquisition candidates at attractive purchase prices;

 

•

the ability to compete effectively for available acquisition opportunities;

 

•

the availability of cash on hand, borrowed funds or stock with a sufficient value to complete the acquisitions;

 

•

the ability to obtain any requisite manufacturer or governmental approvals;

 

•

the ability to obtain approval of our lenders under our current credit agreement; and

 

•

the absence of one or more manufacturers attempting to impose unsatisfactory restrictions on us in connection with their approval of acquisitions.

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 shareholders will experience dilution in the voting power of their common stock and earnings per share could be negatively impacted.  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.  

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.

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.  This strategy may entail 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.

Accomplishing these goals for expansion will depend upon a number of factors, including the following:

 

•

our ability to identify new markets in which we can obtain distribution rights to sell our existing or additional product lines;

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•

our ability to lease or construct suitable facilities at a reasonable cost in existing or new markets;

 

•

our ability to hire, train, and retain qualified personnel;

 

•

the timely and effective integration of new retail locations into existing operations;

 

•

our ability to achieve adequate market penetration at favorable operating margins without the acquisition of existing dealers; and

 

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our financial resources.

Our dealer agreements with Brunswick require Brunswick’s consent to open, close, or change retail locations that sell Sea Ray or Boston Whaler products as applicable, 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 continue to expend significant time and effort in opening and acquiring new retail locations, improving existing retail locations in our current markets, and introducing new products.  Our systems, procedures, controls, financial resources, and management and staffing levels may not be adequate to support expanding operations.  The inability to manage our growth effectively could have a material adverse effect on our business, financial condition, and results of operations.

In addition to our traditional repeat and referral business in our physical locations, digital channels are increasingly significant in serving our existing customer base and reaching new customers.  Our continued expansion and success will be negatively impacted if we are not able to fully exploit these channels.

Our digital channels are subject to a number of risks and uncertainties that are beyond our control, including the following:

 

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changes in technology;

 

•

cybersecurity risk;

 

•

changes in consumer willingness to conduct business electronically, including increasing concerns with consumer privacy and risk and changing laws, rules, and regulations, such as the imposition of or increase in taxes;

 

•

technology or security impediments that may inhibit our ability to electronically market our products and services;

 

•

changes in applicable international, federal, state and commercial regulation;

 

•

failure of our service providers, suppliers or service partners to perform their services properly and in a timely and efficient manner;

 

•

failure to adequately respond to customers, process orders or deliver services;

 

•

our failure to assess and evaluate our digital product and service offerings to ensure that our products and services are desired by boating enthusiasts; and

 

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the potential exposure to liability with respect to third-party information, including but not limited to copyright, trademark infringement, or other wrongful acts of third parties; false or erroneous information provided by third parties; or illegal activities by third parties, such as the sale of stolen boats or other goods.

Further, we may also be vulnerable to competitive pressures from the growing electronic commerce activity in our market, both as they may impact our own on-line business, and as they may impact the operating results and investment values of our existing physical locations.

Various operations in multiple countries around the world expose us to international political, economic, foreign currency, and other risks.

Our operations involve certain international activities, including our sales of yachts produced by the Azimut-Benetti Group in Italy, yachts produced by Galeon in Poland, and power catamarans for our charter fleet produced by Sino Eagle in China, as well as our Fraser Yacht and Northrop & Johnson operations.  These activities in multiple countries around the world expose us to international political, economic, foreign currency, and other risks. Some of our sales and purchases of inventory are denominated in a currency other than the U.S. dollar. Consequently, a strong or weak U.S. dollar may adversely affect reported revenues and our profitability. We may hedge certain foreign currency exposures to lessen and delay, but not to completely eliminate, the effects of foreign currency fluctuations on our financial results. Our future financial results could be significantly affected by the value of the

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U.S. Dollar in relation to the foreign currencies in which we conduct business. The degree to which our financial results are affected for any given time period will depend in part upon the success and extent of our hedging activities.

Additionally, protectionist trade legislation in the United States, the European Union, Poland, or China, such as a change in current tariff structures, export or import compliance laws, or other trade policies could adversely affect our ability to import yachts from these foreign suppliers under economically favorable terms and conditions. There have been recent changes and additional changes may occur in the future, to United States and foreign trade and tax policies, including heightened import restrictions, import and export licenses, new tariffs, trade embargoes, government sanctions, and trade barriers. Any of these restrictions could prevent or make it difficult or more costly for us to import yachts from foreign suppliers under economically favorable terms and conditions. Increased tariffs could require us to increase our prices which likely could decrease demand for our products. In addition, other countries may limit their trade with the United States or retaliate through their own restrictions and/or increased tariffs which would affect our ability to export products and therefore adversely affect our sales.  Many of these challenges, particularly tariffs, are present in commerce with China, a market from which we purchase products. While such tariffs may be delayed or cancelled before coming into effect and we believe we have taken steps to mitigate their potential effects, such tariffs would likely increase our costs for our Chinese suppliers.

Our international operations create a number of logistical and communications challenges. The economic, political and other risks we face resulting from these operations include the following:

•        compliance with U.S. and local laws and regulatory requirements, including labor, tax, and environmental, health and safety, as well as changes in those laws and requirements;

•        transportation delays or interruptions and other effects of less developed infrastructures;

•        effects from the voter-approved exit of the United Kingdom from the European Union (often referred to as Brexit), including any resulting deterioration in economic conditions, volatility in currency exchange rates, or adverse regulatory changes;

•        limitations on imports and exports;

•        adverse foreign exchange rate fluctuations;

•        imposition of restrictions on currency conversion or the transfer of funds;

•        withdrawal from or revision to international trade agreements;

•        national and international conflicts, including foreign policy changes, political or economic instability, or terrorist acts;

•        the effects of issued or threatened government sanctions, tariffs and duties, trade barriers or economic restrictions;

•        maintenance of quality standards; and/or

•        possible employee turnover or labor unrest.

Operational Risk Factors

The availability and costs of borrowed funds can adversely affect our ability to obtain adequate boat inventory and the ability and willingness of our customers to finance boat purchases.

The availability and costs of borrowed funds can adversely affect our ability to obtain and maintain adequate boat inventory and the holding costs of that inventory as well as the ability and willingness of our customers to finance boat purchases. We rely on the Credit Facility led by Wells Fargo Commercial Distribution Finance LLC to purchase and maintain our inventory of boats. The Credit Facility provides a floor plan financing commitment of up to $440.0 million. The collateral for the Credit Facility is all of our personal property with certain limited exceptions.  None of our real estate has been pledged for collateral for the Credit Facility. As of September 30, 2020, we were in compliance with all of the covenants under the Credit Facility and our additional available borrowings under the Credit Facility was approximately $82.0 million based upon the outstanding borrowing base availability.

Our ability to borrow under the Credit Facility depends on our ability to continue to satisfy our covenants and other obligations under the Credit Facility and the ability for our manufacturers to be approved vendors under our Credit Facility. The variable interest rate under our Credit Facility will fluctuate with changing market conditions and, accordingly, our interest expense will increase as interest rates rise. A significant increase in interest rates could have a material adverse effect on our operating results.  The aging of our inventory limits our borrowing capacity as defined provisions in the Credit Facility reduce the allowable advance rate as our inventory ages.  Depressed economic conditions, weak consumer spending, turmoil in the credit markets, and lender difficulties, among other potential reasons, could interfere with our ability to maintain compliance with our debt covenants and to utilize the Credit

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Facility to fund our operations.  Any inability to utilize the Credit Facility or the acceleration of amounts owed, resulting from a covenant violation, insufficient collateral, or lender difficulties, could require us to seek other sources of funding to repay amounts outstanding under the Credit Facility or replace or supplement the Credit Facility, which may not be possible at all or under commercially reasonable terms.

Similarly, decreases in the availability of credit and increases in the cost of credit adversely affect the ability of our customers to purchase boats from us and thereby adversely affect our ability to sell our products and impact the profitability of our finance and insurance activities.

Higher energy and fuel costs along with adequate supply may adversely 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.  Increases in fuel prices negatively impact boat sales.  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, adversely impacting our business. Also, increases in energy costs can adversely affect the pricing and availability of petroleum-based raw materials such as resins and foam that are used in many of the marine products produced by boat manufacturers increasing our cost of inventory. Additionally, higher fuel prices may also have an adverse effect on demand for our parts and accessories business, because higher fuel prices increase the cost of boat ownership and possibly affect product use.

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’ purchases is critical to our success.  Any difficulty of customers to obtain affordable boat insurance could impede boat sales and adversely affect our business.

Elements of our yacht charter and charter brokerage businesses expose us to certain risks.

Our yacht charter business entails the sale of specifically designed yachts to third parties for inclusion in our yacht charter fleet; a yacht management agreement under which yacht owners enable us to put their yachts in our yacht charter program for a period of several years for a fixed monthly fee payable by us; our services in storing, insuring, and maintaining their yachts; and the charter by us of these yachts to vacation customers at agreed fees payable to us.  Our failure to find purchasers for yachts intended for our charter fleet will increase our boat inventory and related operating costs; lack of sales into our charter fleet may result in increased losses due to market adjustments of our yacht charter inventory; and our failure to generate a sufficient number of vacation charter customers will require us to absorb all the costs of the monthly fees to the yacht owners as well as other operating costs.

Customers consider safety and reliability a primary concern in selecting a yacht charter provider.  The yacht charter business may present a number of safety risks including, but not limited to, catastrophic disaster, adverse weather and marine conditions, such as Hurricane Irma in 2017, mechanical failure and collision, and health issues such as the COVID-19 pandemic.  If we are unable to maintain acceptable records for safety and reliability, our ability to retain current customers and attract new customers may be adversely affected.  Additionally, any safety issue encountered during a yacht charter may result in claims against us as well as negative publicity. Beginning in March 2020, we have temporarily closed our facilities in the British Virgin Islands and yacht charters based on guidance from local government and health officials as a result of the COVID-19 global pandemic. Additionally, our yacht charter brokerage business in Europe has slowed as a result of the COVID-19 global pandemic. We expect yacht charters and our charter brokerage business to resume during fiscal 2021, but impact of the COVID-19 pandemic and the duration for which it may have an impact cannot be determined at this time. These events could have a material adverse effect on the competitive position and financial performance of both our yacht charter business and our core retail sales business.

The yacht charter business is also highly fragmented, consisting primarily of local operators and franchisees.  Competition among charter operators is based on location, the type and size of yachts offered, charter rates, destinations serviced, and attention to customer service.  Yacht charters also face competition from other travel and leisure options, including, but not limited to, cruises, hotels, resorts, theme parks, organized tours, land-based casino operators, and vacation ownership properties.  We therefore risk losing business not only to other charter operators, but also to vacation operators that provide such alternatives.

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 finance and insurance, or 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.

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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.  Laws or regulations may be enacted nationally or locally which could result in fees from lenders being eliminated or reduced, materially impacting our operating results. If customer financing becomes more difficult to secure, it may adversely impact our business.

Changes, including the lengthening of manufacturer warranties, may reduce our ability to offer and sell extended service contracts which may have a material adverse impact on our ability to sell F&I products.

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.

Our continued success is dependent on positive perceptions of our MarineMax brand which, if impaired, could adversely affect our sales.

We believe that our MarineMax brand is one of the reasons our customers choose to come to us for their boating needs. To be successful, we must preserve our reputation. Reputational value is based in large part on perceptions, and broad access to social media makes it easy for anyone to provide public feedback that can influence perceptions of us. It may be difficult to control negative publicity, regardless of whether it is accurate. While reputations may take decades to build, any negative incidents can quickly erode trust and confidence, particularly if they result in significant negative mainstream and/or social media publicity, governmental investigations, or litigation. Additionally, an isolated business incident at a single retail location could materially adversely affect our other stores, retail brands, reputation and sales channels, particularly if such incident results in significant adverse publicity, governmental investigations or litigation. Negative incidents, such as quality and safety concerns or incidents related to our manufacturers’ products, could lead to tangible adverse effects on our business, including lost sales or team member retention and recruiting difficulties. In addition, vendors and others with whom we choose to do business may affect our reputation.

Our operations are dependent upon key personnel and team members.

Our success depends, in large part, upon our ability to attract, train and retain, qualified team members and executive officers, as well as the continuing efforts and abilities of team members and executive officers.  Although we have employment agreements with certain of our executive officers and management succession plans, we cannot ensure that these or other executive personnel and team members will remain with us, or that our succession planning will adequately mitigate the risk associated with key personnel transitions.  As a result of our decentralized operating strategy, we also rely on the management teams of our dealerships.  In addition, we likely will depend on the senior management of any significant businesses we acquire in the future.  

The products we sell, or services we provide, 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.

Environmental and Geographic Risk Factors

Weather and environmental conditions may adversely impact our business.

Weather and environmental conditions may adversely impact our operating results.  For example, drought conditions, reduced rainfall levels, excessive rain and environmental conditions, and hurricanes may force boating areas to close or render boating dangerous or inconvenient, thereby curtailing customer demand for our products.  While we traditionally maintain a full range of insurance coverage for any such events, there can be no assurance that such insurance coverage is adequate to cover losses that we sustain as a result of such disasters.  In addition, unseasonably cool weather and prolonged winter conditions may lead to shorter selling seasons in certain locations.  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 any future geographic expansion should reduce the overall impact on us of adverse weather and environmental conditions in any one market area, weather and environmental conditions will continue to represent potential material adverse risks to us and our future operating performance. Additionally, to the extent unfavorable weather conditions are exacerbated by global climate change, regardless of the cause, resulting

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in environmental changes including, but not limited to, severe weather, changing sea levels, poor water conditions, or reduced access to water, which could disrupt or negatively affect our business.

Environmental and climate changes could affect our business.

We operate many retail locations near or on bodies of water that are acutely susceptible to the risks associated with climate change. Such risks include those related to the physical impacts of climate change, such as more frequent and severe weather events, rising sea levels, and/or long term shifts in climate patterns, and risks related to the transition to a lower-carbon economy, such as reputational, market and/or regulatory risks. Climate change and climate events could result in social, cultural and economic disruptions in these areas, including supply chain disruptions, the disruption of local infrastructure and transportation systems that could limit the ability of our team members and our customers to access our retail locations. These events could also compound adverse economic conditions and impact consumer confidence and discretionary spending.

A significant amount of our boat sales are from the State of Florida.

Economic conditions, weather and environmental conditions, competition, market conditions, and any other adverse conditions impacting the State of Florida in which we generated approximately 51%, 54% and 54% of our revenue during fiscal 2018, 2019, and 2020, respectively, could have a major impact on our operations.

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, such as those relating to finance and insurance, consumer protection, consumer privacy, escheatment, anti-money laundering, environmental, emissions, health or safety, U.S. trade sanctions, the U.S. Foreign Corrupt Practices Act and employment practices.  With respect to employment practices, we are subject to various laws and regulations, including complex federal, state and local wage and hour and anti-discrimination laws.  The failure to satisfy those and other regulatory requirements could have a material adverse effect on our business, financial condition, and results of operations, as well as potentially the assessment of damages, the imposition of penalties, changes to our processes, or a cessation of our operations, and/or damage to our image and reputation.

Various federal, state, and local regulatory agencies, including the Occupational Safety and Health Administration (“OSHA”), the United States Environmental Protection Agency (“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 promulgated emissions regulations for outboard marine engines that impose stricter emissions standards for two-cycle, gasoline outboard marine engines.  It is possible that environmental regulatory bodies (including state regulatory bodies) may impose higher emissions standards in the future for these and other marine engines.  Any increased costs of producing engines resulting from current or potentially higher EPA or state standards in the future could be passed on to our company, or could result in the inability or potential unforeseen delays of our manufacturers to comply with current and future EPA or state requirements, and these potential consequences could have a material adverse effect on our business.

Certain of our facilities own and operate underground storage tanks (“USTs”), and above ground storage tanks (“ASTs”) for the storage of various petroleum products.  USTs and ASTs are generally subject to federal, state and local laws and regulations that require testing and upgrading of tanks and remediation of contaminated soils and groundwater resulting from leaking tanks.  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 tanks 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 (“CERCLA” or “Superfund”) imposes joint, strict, and several liability on:

 

•

owners or operators of facilities at, from, or to which a release of hazardous substances has occurred;

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•

parties that generated hazardous substances that were released at such facilities; and

 

•

parties that transported or arranged for the transportation of hazardous substances to such facilities.

A majority of states have adopted Superfund statutes comparable to and, in some cases, more stringent than CERCLA.  If we were to be found to be a responsible party under CERCLA or a similar state statute, we could be held liable for all investigative and remedial costs associated with addressing such contamination.  In addition, claims alleging personal injury or property damage may be brought against us as a result of alleged exposure to hazardous substances resulting from our operations.  In addition, certain of our retail locations are located on waterways that are subject to federal or state laws regulating navigable waters (including oil pollution prevention), fish and wildlife, and other matters.

Soil and groundwater contamination has been known to exist at certain properties owned or leased by us.  We have also been required and may in the future be required to remove aboveground and underground storage tanks containing hazardous substances or wastes.  As to certain of our properties, specific releases of petroleum have been or are in the process of being remediated in accordance with state and federal guidelines.  We are monitoring the soil and groundwater as required by applicable state and federal guidelines.  We also may have additional storage tank liability insurance and Superfund coverage where applicable.  Environmental laws and regulations are complex and subject to frequent change.  Compliance with amended, new or more stringent laws or regulations, more strict interpretations of existing laws, or the future discovery of environmental conditions may require additional expenditures by us, and such expenditures may be material.

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.

General Risk Factors

General economic conditions and consumer spending patterns can have a material adverse effect on our business, financial condition, and results of operations.

General economic conditions and consumer spending patterns can negatively impact our operating results.  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.  Economic conditions in areas in which we operate dealerships, such as corporate downsizing, military base closings, and inclement weather such as hurricanes or other storms, environmental conditions, and specific events, such as the BP oil spill in the Gulf of Mexico in 2010, or Hurricanes Harvey and Irma in 2017, also could adversely affect, and in certain instances have adversely affected, our operations in certain markets.

In an economic downturn, consumer discretionary spending levels generally decline, at times resulting in disproportionately large reductions in the sale of luxury goods.  Consumer spending on luxury goods also may decline as a result of lower consumer confidence levels, even if prevailing economic conditions are favorable.  As a result, an economic downturn could impact us more than certain of our competitors due to our strategic focus on a higher end of our market.

Unfavorable economic conditions can cause us to reduce our acquisition program, delay new store openings, reduce our inventory purchases, engage in inventory reduction efforts, close a number of our retail locations, reduce our headcount, and amend and replace our credit facility, and could also interfere with our supply of certain brands by manufacturers, reduce marketing and other support by manufacturers, decrease revenue, put additional pressures on margins, and result in our failure to satisfy covenants under our credit agreement.

The ongoing COVID-19 pandemic may adversely affect our revenues, results of operations and financial condition

Our business could be materially adversely affected by the widespread outbreak of contagious disease, including the recent COVID-19 pandemic. COVID-19 has spread in many of the geographic areas in which we operate. National, state and local governments in affected regions have implemented and will continue to implement safety precautions, including quarantines, travel restrictions, business closures, cancellations of public gatherings and other measures, for an indefinite time period. Other organizations and individuals are taking additional steps to avoid or reduce infection, including limiting travel and staying home from work. These measures are disrupting normal business operations both in and outside of affected areas and have had significant negative impacts on businesses and financial markets worldwide.

We continue to monitor our operations and government recommendations and have made modifications to our normal operations, including taking proactive steps to enhance financial flexibility including working to extract capital from our debt-free sizable real estate holdings, taking action to monetize our unlevered inventory, implementing operating cost savings plans, and delaying or reducing capital expenditures. The onset of the COVID-19 pandemic caused a number of adverse impacts, including

25

reductions in demand for our products, inefficiencies caused by team members working remotely, and certain closed departments or locations based on guidance from each local government or health officials. Disruptions in the capital markets as a result of the COVID-19 outbreak may also adversely affect us if these impacts continue for a prolonged period and we need additional liquidity. While it is not possible at this time to estimate the entirety of the impact that COVID-19 will have on our business, customers, suppliers or other business partners, depending on the severity of the COVID-19 pandemic the length of time of its impact and the applicable government actions in response to it, the effect of the adverse impacts identified in this paragraph may increase and additional adverse impacts may arise.

Adverse federal or state tax policies can have a negative effect on us.

Changes in federal and state tax laws, such as an imposition of luxury taxes on new boat purchases, increases in prevailing federal or state tax rates, and removal of certain interest deductions, also 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 1988 to a low of $10.3 billion in 1992.  

Increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted computer crime could pose a risk to our systems, networks, data and our third-party service providers. Our business operations could be negatively impacted by an outage or breach of our informational technology systems or a cybersecurity event.

Our business is dependent upon the efficient operation of our information systems.  The systems facilitate the interchange of information and enhance cross-selling opportunities throughout our company.  The systems integrate each level of operations on a Company-wide basis, including but not limited to purchasing, inventory, receivables, payables, financial reporting, budgeting, marketing, sales management, as well as to prepare our consolidated financial and operating data.  The failure of our information systems to perform as designed or the failure to maintain and enhance or protect the integrity of these systems and the systems of our third-party service providers, could disrupt our business operations, impact sales and the results of operations, expose us to customer or third-party claims, or result in adverse publicity.  

Increased global cybersecurity vulnerabilities, threats and more sophisticated and targeted cyber-related attacks pose a risk to the security of our and our customers’, suppliers’ and third-party service providers’ products, systems and networks and the confidentiality, availability and integrity of our data. Unauthorized parties may also attempt to gain access to our systems or facilities, or those of third parties with whom we do business, through fraud, trickery or other forms of deceiving our team members, contractors, vendors, and temporary staff. While we attempt to mitigate these risks by employing a number of measures, including employee training, systems, monitoring and testing, and maintenance of protective systems and contingency plans, we remain potentially vulnerable to additional known or unknown threats.

We may also have access to sensitive, confidential or personal data or information that is subject to privacy, security laws, and regulations.  Despite our efforts to protect sensitive, confidential or personal data or information, we and our third-party service providers may be vulnerable to security breaches, theft, misplaced or lost data, programming errors, employee errors and/or malfeasance that could potentially lead to the compromising of sensitive, confidential or personal data or information, improper use of our systems, unauthorized access, use, disclosure, modification or destruction of information, and operational disruptions.

It is possible that we or our third-party service providers might not be aware of a successful cyber-related attack on our systems until well after the incident.  In addition, a cyber-related attack could result in other negative consequences, including damage to our reputation or competitiveness, remediation or increased protection costs, litigation or regulatory action, and could adversely affect our business, financial condition, and results of operations. Depending on the nature of the information compromised, we may have obligations to notify customers and/or employees about the incident, and we may need to provide some form of remedy, such as a subscription to a credit monitoring service, for the individuals affected by the incident, which could result in material reputational damage to us.

We are also subject to laws and regulations in the United States and other countries concerning the handling of personal information, including laws that require us to notify governmental authorities and/or affected individuals of data breaches involving certain personal information. These laws and regulations include, for example, the European General Data Protection Regulation (GDPR), effective May 2018, and the California Consumer Privacy Act (CCPA), effective January 2020. Regulatory actions or litigation seeking to impose significant penalties could be brought against us in the event of a data breach or alleged non-compliance with such laws and regulations.

The timing and amount of our share repurchases are subject to a number of uncertainties.

26

In March 2020, the Board of Directors approved a new stock repurchase plan authorizing the Company to purchase up to 10 million shares of its commons stock through March 2022. There is no guarantee that our stock repurchase plans will be able to successfully mitigate the dilutive effect of stock options and stock-based grants.  The success of our stock repurchase plans is based upon a number of factors, including the price and availability of the Company’s stock, general market conditions, the nature of other investment opportunities available to us from time to time, and the availability of cash.

We do not pay cash dividends.

We have never paid cash dividends on our common stock and we have no current intention to do so for the foreseeable future.

Our sales may be adversely impacted by a material increase in interest rates and adverse changes in fiscal policy or credit market conditions.

Over the past several years, our economy has been positively impacted by historically unprecedented low interest rates.  Such interest rates, driven by the policies of the Federal Reserve, can be a political issue in the United States. Any change by the Federal Reserve to raise its benchmark interest rate in the future or market expectations of such change may result in significantly higher long-term interest rates, which may negatively impact our customers’ willingness or desire to purchase our products.  

We may be adversely affected by changes in LIBOR reporting practices or the method by which LIBOR is determined.

We rely on the Credit Facility led by Wells Fargo Commercial Distribution Finance LLC to purchase and maintain our inventory of boats. The interest rate for amounts outstanding under the Credit Facility is 345 basis points above the one-month LIBOR.  In July 2017, the Financial Conduct Authority (the regulatory authority over LIBOR) stated they will plan for a phase out of regulatory oversight of LIBOR interest rate indices after 2021 to allow for an orderly transition to an alternate reference rate. The Alternative Reference Rates Committee (“ARRC”) has proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents the best alternative to LIBOR. The ARRC has proposed a market transition plan to SOFR from LIBOR. We are evaluating the potential impact of the eventual replacement of the LIBOR benchmark interest rate, including the possibility of SOFR as the dominant replacement. The market transition away from LIBOR towards SOFR is expected to be complicated. There can be no guarantee that SOFR will become a widely accepted benchmark in place of LIBOR. Although the full impact of any transition away from LIBOR, including the potential or actual discontinuance of LIBOR publication, remains unclear, these changes may have a material adverse impact on the availability of financing, including LIBOR-based loans, the terms of our Credit Facility, and on our financing costs.

 

Item 1B.

Unresolved Staff Comments

Not applicable.

 

 

Item 2.

Properties

We lease our corporate offices in Clearwater, Florida.  We also lease 55 properties under leases in the United States and British Virgin Islands, many of which contain multi-year renewal options and some of which grant us right of first 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 28 properties associated with the retail locations we operate.  Additionally, we own four retail locations that are currently closed as noted below.  A store is considered one or more retail locations that are adjacent or operate as one entity. Fraser Yacht Group and Northrop & Johnson lease offices in the United States and Europe.

 

27

The following table reflects the status, approximate size, and facilities of the various retail locations in the United States and British Virgin Islands we operate as of the date of this report.

 

Location

 

Location Type

 

Square

Footage(1)

 

 

Facilities at Property

 

Operated

Since(2)

 

 

Waterfront

 

Alabama

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gulf Shores

 

Company owned

 

 

4,000

 

 

Retail and service

 

1998

 

 

 

—

 

California

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Port Beach

 

Third-party lease

 

 

1,000

 

 

Retail only, 4 wet slips

 

2020

 

 

Newport Bay

 

San Diego

 

Third-party lease

 

 

1,350

 

 

Retail only, 12 wet slips

 

2020

 

 

San Diego Bay

 

Sausalito

 

Third-party lease

 

 

2,000

 

 

Retail and service; 6 wet slips

 

2020

 

 

Richardson Bay

 

Connecticut

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Norwalk

 

Third-party lease

 

 

9,000

 

 

Retail and service; 56 wet slips

 

1994

 

 

Norwalk Harbor

 

Westbrook

 

Third-party lease

 

 

4,200

 

 

Retail and service

 

1998

 

 

Westbrook Harbor

 

Florida

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cape Haze

 

Company owned

 

 

18,000

 

 

Retail, 8 wet slips

 

 

—

 

 

Intracoastal Waterway

 

Clearwater

 

Company owned

 

 

42,000

 

 

Retail and service; 20 wet slips

 

1973

 

 

Tampa Bay

 

Cocoa

 

Company owned

 

 

15,000

 

 

Retail and service

 

1968

 

 

 

—

 

Dania

 

Company owned

 

 

32,000

 

 

Repair and service; 16 wet slips

 

1991

 

 

Port Everglades

 

Fort Lauderdale

 

Third-party lease

 

 

1,200

 

 

Retail only, 3 wet slips

 

2020

 

 

 

—

 

Fort Walton Beach

 

Third-party lease

 

 

3,000

 

 

Repair and service; 83 wet slips

 

2019

 

 

Choctawhatchee Bay

 

Fort Myers

 

Company owned

 

 

60,000

 

 

Retail, service, and storage; 64 wet slips

 

1983

 

 

Caloosahatchee River

 

Jacksonville

 

Third-party lease

 

 

9,000

 

 

Retail and service

 

2016

 

 

Intracoastal Waterway

 

Key Largo

 

Third-party lease

 

 

8,900

 

 

Retail and service; 6 wet slips

 

2002

 

 

Card Sound

 

Miami

 

Company owned

 

 

7,200

 

 

Retail and service; 15 wet slips

 

1980

 

 

Little River

 

Miami

 

Company owned

 

 

5,000

 

 

Service only; 11 wet slips

 

2005

 

 

Little River

 

Naples

 

Company owned

 

 

19,600

 

 

Retail and service; 14 wet slips

 

1997

 

 

Naples Bay

 

North Palm Beach

 

Third-party lease

 

 

960

 

 

Retail only

 

2016

 

 

Intracoastal Waterway

 

Orlando

 

Third-party lease

 

 

18,389

 

 

Retail and service

 

1984

 

 

 

—

 

Panama City

 

Third-party lease

 

 

10,500

 

 

Retail only; 8 wet slips

 

2011

 

 

Saint Andrews Bay

 

Pensacola

 

Company owned

 

 

52,750

 

 

Retail, service, and storage; 60 wet slips

 

2016

 

 

Pensacola Bay

 

Pompano Beach

 

Company owned

 

 

23,000

 

 

Retail and service; 16 wet slips

 

1990

 

 

Intracoastal Waterway

 

Pompano Beach

 

Company owned

 

 

5,400

 

 

Retail and service; 24 wet slips

 

2005

 

 

Intracoastal Waterway

 

Sarasota

 

Third-party lease

 

 

26,500

 

 

Retail, service, and storage; 15 wet slips

 

1972

 

 

Sarasota Bay

 

St. Petersburg(3)

 

Company owned

 

 

15,000

 

 

Retail and service; 20 wet slips

 

2006

 

 

Boca Ciega Bay

 

Stuart

 

Company owned

 

 

29,100

 

 

Retail and service; 66 wet slips

 

2002

 

 

Intracoastal Waterway

 

Venice

 

Company owned

 

 

62,000

 

 

Retail, service, and storage; 90 wet slips

 

1972

 

 

Intracoastal Waterway

 

Georgia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Buford (Atlanta)(4)

 

Company owned

 

 

13,500

 

 

Retail and service

 

2001

 

 

 

—

 

Cumming (Atlanta)

 

Third-party lease

 

 

13,000

 

 

Retail and service; 50 wet slips

 

1981

 

 

Lake Lanier

 

Savannah

 

Third-party lease

 

 

50,600

 

 

Retail, marina, service and storage; 36 wet slips

 

2017

 

 

Wilmington River

 

Illinois

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28

Praire Harbor

 

Third-party lease

 

 

3,500

 

 

Marina, 140 wet slips

 

2020

 

 

Lake Michigan

 

Sequoit Harbor Antioch

 

Third-party lease

 

 

85,304

 

 

Retail, marina, service and storage; 208 wet slips

 

2020

 

 

Lake Marie

 

Winthrop Harbor

 

Third-party lease

 

 

319,105

 

 

Retail, marina, service and storage; 53 wet slips

 

2020

 

 

Lake Michigan

 

Maryland

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Baltimore

 

Third-party lease

 

 

7,600

 

 

Retail and service; 17 wet slips

 

2005

 

 

Baltimore Inner Harbor

 

Joppa(4)

 

Company owned

 

 

28,400

 

 

Retail, service, and storage; 294 wet slips

 

1966

 

 

Gunpowder River

 

White Marsh(4)

 

Company owned

 

 

19,800

 

 

Retail and service

 

 

—

 

 

 

—

 

Massachusetts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Danvers

 

Third-party lease

 

 

32,000

 

 

Retail and service

 

2016

 

 

 

—

 

Quincy

 

Company owned

 

 

14,700

 

 

Retail, service, and storage; 247 wet slips

 

2018

 

 

Town River

 

Michigan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bay City

 

Third-party lease

 

 

195,810

 

 

Retail, marina, service and storage; 59 wet slips

 

2020

 

 

Saginaw River

 

Bele Mear Harbor

 

Third-party lease

 

 

8,500

 

 

Retail and service, 4 wet slips

 

2020

 

 

Lake St. Clair

 

Cass Lake

 

Third-party lease

 

 

31,596

 

 

Retail, marina, service and storage; 124 wet slips

 

2020

 

 

Cass Lake

 

Grand Haven

 

Third-party lease

 

 

32,000

 

 

Retail, service, and storage; 6 wet slips

 

2020

 

 

Spring Lake

 

Lake Fenton

 

Third-party lease

 

 

57,856

 

 

Retail, marina, service and storage; 123 wet slips

 

2020

 

 

Lake Fenton

 

Mac Ray Harbor

 

Third-party lease

 

 

300

 

 

Retail only, 4 wet slips

 

2020

 

 

Lake St. Clair

 

Minnesota

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bayport

 

Third-party lease

 

 

450

 

 

Retail only; 10 wet slips

 

1996

 

 

St. Croix River

 

Excelsior

 

Third-party lease

 

 

2,500

 

 

Retail only; 14 wet slips

 

2013

 

 

Lake Minnetonka

 

Rogers

 

Company owned

 

 

70,000

 

 

Retail, service, and storage

 

1991

 

 

 

—

 

Missouri

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lake Ozark

 

Company owned

 

 

60,300

 

 

Retail, service, and storage; 300 wet slips

 

1987

 

 

Lake of the Ozarks

 

Laurie(4)

 

Company owned

 

 

700

 

 

Retail and service

 

 

—

 

 

 

—

 

Osage Beach

 

Company owned

 

 

2,000

 

 

Retail and service

 

1987

 

 

 

—

 

New Jersey

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brant Beach

 

Third-party lease

 

 

3,800

 

 

Retail, service, and storage; 36 wet slips

 

1965

 

 

Barnegat Bay

 

Brick

 

Company owned

 

 

20,000

 

 

Retail, service, and storage; 225 wet slips

 

1977

 

 

Manasquan River

 

Lake Hopatcong

 

Company owned

 

 

4,600

 

 

Retail and service; 80 wet slips

 

1998

 

 

Lake Hopatcong

 

Ship Bottom

 

Third-party lease

 

 

19,300

 

 

Retail and service

 

1972

 

 

 

—

 

Somers Point

 

Third-party lease

 

 

31,000

 

 

Retail, service, and storage; 33 wet slips

 

1987

 

 

Little Egg Harbor Bay

 

Ocean View

 

Third-party lease

 

 

13,800

 

 

Retail, service, and storage

 

2018

 

 

 

—

 

North Somers Point

 

Third-party lease

 

 

500

 

 

Storage only

 

2018

 

 

Little Egg Harbor Bay

 

New York

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Huntington

 

Third-party lease

 

 

1,200

 

 

Retail and service

 

1995

 

 

Huntington Harbor and Long Island Sound

 

North Carolina

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lake Norman

 

Third-party lease

 

 

10,300

 

 

Retail only

 

2017

 

 

 

—

 

Southport

 

Third-party lease

 

 

1,600

 

 

Retail only

 

2008

 

 

Cape Fear River

 

Wrightsville Beach

 

Third-party lease

 

 

34,500

 

 

Retail, service, and storage

 

1996

 

 

Masonboro Inlet

 

Ohio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marina Del Isle

 

Third-party lease

 

 

163,773

 

 

Retail, marina, service and storage; 189 wet slips

 

2020

 

 

Lake Erie

 

29

Port Clinton

 

Company owned

 

 

80,000

 

 

Retail, service and storage; 8 wet slips

 

1997

 

 

Lake Erie

 

Oklahoma

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Afton

 

Third-party lease

 

 

3,500

 

 

Retail and service; 23 wet slips

 

2003

 

 

Grand Lake

 

Rhode Island

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Newport

 

Third-party lease

 

 

700

 

 

Retail only

 

2011

 

 

Newport Harbor

 

South Carolina

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charleston

 

Third-party lease

 

 

14,800

 

 

Retail, service, and storage

 

2017

 

 

 

—

 

Greenville

 

Third-party lease

 

 

24,500

 

 

Retail, service, and storage

 

2017

 

 

 

—

 

Lake Wylie

 

Third-party lease

 

 

76,400

 

 

Retail, marina, service, and storage; 82 wet slips

 

2017

 

 

Lake Wylie

 

Texas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Austin

 

Third-party lease

 

 

26,000

 

 

Retail and service

 

2019

 

 

 

—

 

San Antonio

 

Third-party lease

 

 

14,100

 

 

Retail and service

 

2019

 

 

 

—

 

Lakeway

 

Third-party lease

 

 

10,000

 

 

Retail only

 

2019

 

 

 

—

 

Lewisville (Dallas)

 

Company owned

 

 

22,000

 

 

Retail and service

 

2002

 

 

 

—

 

Seabrook

 

Company owned

 

 

32,000

 

 

Retail and service; 30 wet slips

 

2002

 

 

Clear Lake

 

Washington

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seattle

 

Third-party lease

 

 

400

 

 

Retail only, 6 wet slips

 

2020

 

 

Lake Union

 

Wisconsin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Harbor Club Marina

 

Third-party lease

 

 

1,000

 

 

Marina, 140 wet slips

 

2020

 

 

Sturgeon Bay

 

Lake Geneva

 

Third-party lease

 

 

114,876

 

 

Retail, service and storage; 2 wet slips

 

2020

 

 

 

—

 

Madison

 

Third-party lease

 

 

138,334

 

 

Retail, marina, service and storage; 135 wet slips

 

2020

 

 

Lake Mendota

 

Milwaukee

 

Third-party lease

 

 

68,095

 

 

Retail, service and storage; 11 wet slips

 

2020

 

 

Kinnickinnic River

 

Oshkosh

 

Third-party lease

 

 

98,284

 

 

Retail, marina, service and storage; 98 wet slips

 

2020

 

 

Lake Butte Des Mortes

 

Pewaukee

 

Third-party lease

 

 

157,200

 

 

Retail, service and storage;

 

2020

 

 

 

—

 

Sturgeon Bay

 

Third-party lease

 

 

222,150

 

 

Retail, marina, service and storage; 260 wet slips

 

2020

 

 

Sturgeon Bay

 

British Virgin

Islands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tortola

 

Third-party lease

 

 

2,550

 

 

Vacation Charters; 45 wet slips

 

2011

 

 

Caribbean Sea

 

 

 

(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)

Initially a joint venture; full ownership acquired in February 2016.

(4)

Owned location that is currently closed.

 

We have leased offices in the United States through the Fraser Yachts Group and Northrop & Johnson in Ft. Lauderdale, Florida and San Diego, California as well as leased offices outside the United States in Monaco (two offices), France (two offices), Italy, Spain (two offices), and the United Kingdom.  

 

Item 3.

We are party to various legal actions arising in the ordinary course of business.  While it is not feasible to determine the actual outcome of these actions as of September 30, 2020, 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.

Mine Safety Disclosures

Not applicable.

 

30

 

 

PART II

 

 

Item 5.

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information, Holders

Our common stock is listed on the New York Stock Exchange under the symbol HZO.  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

 

2018

 

 

 

 

 

 

 

 

Fourth quarter

 

$

26.11

 

 

$

16.57

 

2019

 

 

 

 

 

 

 

 

First quarter

 

$

21.09

 

 

$

17.11

 

Second quarter

 

$

19.99

 

 

$

15.34

 

Third quarter

 

$

17.33

 

 

$

13.73

 

Fourth quarter

 

$

18.76

 

 

$

14.56

 

2020

 

 

 

 

 

 

 

 

First quarter

 

$

23.15

 

 

$

7.25

 

Second quarter

 

$

23.00

 

 

$

7.80

 

Third quarter

 

$

34.06

 

 

$

21.93

 

Fourth quarter (through November 25, 2020)

 

$

35.22

 

 

$

25.54

 

 

On November 25, 2020, the closing sale price of our common stock was $33.66 per share.  On November 25, 2020, there were approximately 100 record holders and approximately 9,400 beneficial owners of our common stock.

Dividends

We have never declared or paid cash dividends on our common stock.  We currently plan to retain any earnings to finance the growth of our business rather than to pay cash dividends.  Payments of any cash dividends in the future will depend on our financial condition, results of operations, statutory restrictions, loan covenants and capital requirements as well as other factors deemed relevant by our board of directors (such as market expectations).

Purchases of Equity Securities by the Issuer

The following table presents information with respect to our repurchases of our common stock during the three months ended September 30, 2020.

 

Period

 

Total

Number

of Shares

Purchased (1)(2)

 

 

Average

Price Paid

per Share

 

 

Total Number

of Shares

Purchased

as Part of

Publicly

Announced

Plans or

Programs

 

 

Maximum Number of Shares that may be Purchased Under the Plans or Programs

 

July 1, 2020 to July 31, 2020

 

 

—

 

 

 

—

 

 

 

—

 

 

 

9,919,764

 

August 1, 2020 to August 31, 2020

 

 

—

 

 

 

—

 

 

 

—

 

 

 

9,919,764

 

September 1, 2020 to September 30, 2020

 

 

44,927

 

 

$

25.67

 

 

 

—

 

 

 

9,919,764

 

Total

 

 

44,927

 

 

$

25.67

 

 

 

—

 

 

 

9,919,764

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Under the terms of the program, the Company is authorized to purchase up to 10 million shares of its common stock through March 2022.  

(2)

44,927 shares reported in September 2020 are attributable to shares tendered by employees for the payment of applicable withholding taxes in connection with the vesting of restricted stock or restricted stock unit awards.

 

31

Performance Graph

The following line graph compares cumulative total shareholder returns for the five years ended September 30, 2020 for (i) our common stock, (ii) the Russell 2000 Index, and (iii) the Nasdaq Retail Trade Index.  The graph assumes an investment of $100 on September 30, 2014.  The calculations of cumulative shareholder return on the Russell 2000 Index and the Nasdaq Retail Trade Index include reinvestment of dividends.  The calculation of cumulative shareholder return on our common stock does not include reinvestment of dividends because we did not pay any dividends during the measurement period.  The historical performance shown is not necessarily indicative of future performance.

 

 

The performance graph above shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or Exchange Act, or otherwise subject to the liability of that section.  The performance graph above will not be deemed incorporated by reference into any filing of our company under the Exchange Act or the Securities Act of 1933, as amended.

 

 

32

Item 6.

Selected Financial Data

The following table contains certain financial and operating data and is qualified by the more detailed consolidated financial statements and notes thereto included elsewhere in this report.  The balance sheet and statement of operations data were derived from the consolidated financial statements and notes thereto that have been audited by KPMG LLP.  The financial data shown below should be read in conjunction with the consolidated financial statements and the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this report.

 

 

 

Fiscal Year Ended September 30,

 

 

 

2016

 

 

2017

 

 

2018

 

 

2019

 

 

2020

 

 

 

(Amounts in thousands except share, per share, and retail location data)

 

Statement of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

942,050

 

 

$

1,052,320

 

 

$

1,177,371

 

 

$

1,237,153

 

 

$

1,509,713

 

Cost of sales

 

 

716,022

 

 

 

787,005

 

 

 

879,138

 

 

 

914,321

 

 

 

1,111,000

 

Gross profit

 

 

226,028

 

 

 

265,315

 

 

 

298,233

 

 

 

322,832

 

 

 

398,713

 

Selling, general and administrative expenses

 

 

185,776

 

 

 

220,026

 

 

 

235,050

 

 

 

262,300

 

 

 

291,998

 

Income from operations

 

 

40,252

 

 

 

45,289

 

 

 

63,183

 

 

 

60,532

 

 

 

106,715

 

Interest expense, net

 

 

5,462

 

 

 

7,481

 

 

 

9,903

 

 

 

11,579

 

 

 

9,275

 

Income before income tax provision

 

 

34,790

 

 

 

37,808

 

 

 

53,280

 

 

 

48,953

 

 

 

97,440

 

Income tax provision

 

 

12,208

 

 

 

14,261

 

 

 

13,968

 

 

 

12,968

 

 

 

22,806

 

Net income

 

$

22,582

 

 

$

23,547

 

 

$

39,312

 

 

$

35,985

 

 

$

74,634

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

$

0.91

 

 

$

0.95

 

 

$

1.71

 

 

$

1.57

 

 

$

3.37

 

Weighted average number of shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

24,820,847

 

 

 

24,678,800

 

 

 

23,030,662

 

 

 

22,881,147

 

 

 

22,125,338

 

Other Data (as of year-end):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of retail locations (1)

 

 

56

 

 

 

62

 

 

 

63

 

 

 

59

 

 

 

57

 

Sales per store (2) (4)

 

$

18,539

 

 

$

18,364

 

 

$

19,873

 

 

$

19,554

 

 

$

25,780

 

Same-store sales growth (3) (4)

 

 

22

%

 

 

5

%

 

 

10

%

 

 

1

%

 

 

25

%

 

 

 

September 30,

 

 

 

2016

 

 

2017

 

 

2018

 

 

2019

 

 

2020

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working capital

 

$

159,232

 

 

$

139,069

 

 

$

179,276

 

 

$

155,690

 

 

$

230,793

 

Total assets

 

 

546,688

 

 

 

639,990

 

 

 

640,538

 

 

 

784,083

 

 

 

775,319

 

Goodwill and other intangible assets, net

 

 

10,000

 

 

 

26,005

 

 

 

27,491

 

 

 

64,077

 

 

 

84,293

 

Total shareholders’ equity

 

 

312,473

 

 

 

302,198

 

 

 

353,092

 

 

 

368,819

 

 

 

455,397

 

 

 

(1)

Includes only those retail locations open at period end.

(2)

Includes only those stores open for the entire preceding 12-month period.

(3)

New and acquired stores are included in the comparable base at the end of the store’s thirteenth month of operations.

(4)

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.

 

 

33

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following should be read in conjunction with Part I, including the matters set forth in the “Risk Factors” section of this report, and our Consolidated Financial Statements and notes thereto included elsewhere in this report.

Overview

In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization, and the outbreak has become increasingly widespread in the United States (including Florida in which we generated approximately 54% of our revenue in 2019 and 2020), and other countries in which we operate. As a result, beginning in March 2020, we had temporarily closed certain departments or locations based on guidance from local government or health officials. As of today, many of our stores are fully or partially operational. We are following guidelines to ensure we are safely operating as recommended. Where possible, we are offering private personal showings as well as virtual appointments. Our digital platform is serving as an effective solution in this environment with robust online activity. Our experienced teams continue to engage with customers virtually and in our stores to help customers select their boats, and obtain appropriate services.

We are the largest recreational boat and yacht retailer in the United States with fiscal 2020 revenue above $1.5 billion. Through our current 77 retail locations in 21 states (as of the filing of this Annual Report on Form 10-K), 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 service contracts; provide boat repair and maintenance services; offer yacht and boat brokerage sales; yacht charter services; and, where available, offer slip and storage accommodations, as well as the charter of power yachts in the British Virgin Islands. We also own Fraser Yachts Group and Northrop & Johnson, leading superyacht brokerage and luxury yacht services companies with operations in multiple countries, and SkipperBud’s, one of the largest sales, brokerage, service and marina/storage groups in the United States.

MarineMax was incorporated in January 1998 (and reincorporated in Florida in March 2015).  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, as of the filing of this Annual Report on Form 10-K, acquired 30 recreational boat dealers, four 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.  We completed three acquisitions in the fiscal year ended September 30, 2018, two acquisitions in the fiscal year ended September 30, 2019, and two acquisitions in the fiscal year ending September 30, 2020.

General economic conditions and consumer spending patterns can negatively impact our operating results. 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.  Economic conditions in areas in which we operate dealerships, particularly Florida in which we generated approximately 51%, 54% and 54% of our revenue during fiscal 2018, 2019, and 2020, respectively, can have a major impact on our operations.  Local influences, such as corporate downsizing, military base closings, and inclement weather such as hurricanes and other storms, environmental conditions, and specific events, such as the BP oil spill in the Gulf of Mexico in 2010, also could adversely affect, and in certain instances have adversely affected, our operations in certain markets.

In an economic downturn, consumer discretionary spending levels generally decline, at times resulting in disproportionately large reductions in the sale of luxury goods. Consumer spending on luxury goods also may decline as a result of lower consumer confidence levels, even if prevailing economic conditions are favorable. As a result, an economic downturn could impact us more than certain of our competitors due to our strategic focus on a higher end of our market. Although we have expanded our operations during periods of stagnant or modestly declining industry trends, the cyclical nature of the recreational boating industry or the lack of industry growth may adversely affect our business, financial condition, and results of operations. Any period of adverse economic conditions or low consumer confidence is likely to have a negative effect on our business.

Historically, in periods of lower consumer spending and depressed economic conditions, we have, among other things, substantially reduced our acquisition program, delayed new store openings, reduced our inventory purchases, engaged in inventory reduction efforts, closed a number of our retail locations, reduced our headcount, and amended and replaced our credit facility. 

34

Although past economic conditions have adversely affected our operating results, we believe we have capitalized on our core strengths to substantially outperform the industry, resulting in market share gains.  Our ability to capture such market share supports the alignment of our retailing strategies with the desires of consumers.  We believe the steps we have taken to address weak market conditions in the past have yielded, and will we believe yield in the future, an increase in revenue. Acquisitions remain an important strategy for us, and, subject to a number of conditions, including macro-economic conditions and finding attractive acquisition targets, we plan to explore opportunities through this strategy. We expect our core strengths and retailing strategies including our digital platform, will position us to capitalize on growth opportunities as they occur and will allow us to emerge with greater earnings potential.

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 are 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 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 experiences and on various other assumptions (including future earnings) that we believe are reasonable under the circumstances.  The results of these assumptions form the basis for making judgments about the carrying values of assets and liabilities, including contingent assets and liabilities such as contingent consideration liabilities from acquisitions, which 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

The majority of our revenue is from contracts with customers for the sale of boats, motors, and trailers. We recognize revenue from boat, motor, and trailer sales upon transfer of control of the boat, motor, or trailer to the customer, which is generally upon acceptance or delivery to the customer. At the time of acceptance or delivery, the customer is able to direct the use of, and obtain substantially all of the benefits of the boat, motor, or trailer at such time. We recognize commissions earned from a brokerage sale when the related brokerage transaction closes upon transfer of control of the boat, motor, or trailer to the customer, which is generally upon acceptance or delivery to the customer.

We do not directly finance our customers’ boat, motor, or trailer purchases. In many cases, we assist with third-party financing for boat, motor, and trailer sales. 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. Pursuant to negotiated agreements with financial institutions, we are charged back for a portion of these fees should the customer terminate or default on the related finance contract before it is outstanding for a stipulated minimum period of time.  We base the chargeback allowance, which was not material to the consolidated financial statements taken as a whole as of September 30, 2020, on our experience with repayments or defaults on the related finance contracts. We recognize variable consideration from commissions earned on extended warranty service contracts sold on behalf of third-party insurance companies at generally the later of customer acceptance of the service contract terms as evidenced by contract execution or recognition of the related boat sale. We also recognize variable consideration from marketing fees earned on 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 recognize revenue from parts and service operations (boat maintenance and repairs) over time as services are performed. Each boat maintenance and repair service is a single performance obligation that includes both the parts and labor associated with the service. Payment for boat maintenance and repairs is typically due upon the completion of the service, which is generally completed within a short period of time from contract inception. We satisfy our performance obligations, transfer control, and recognize revenue over time for parts and service operations because we are creating a contract asset with no alternative use and we have an enforceable right to payment for performance completed to date. Contract assets primarily relate to our right to consideration for work in process not yet billed at the reporting date associated with maintenance and repair services. We use an input method to recognize revenue and measure progress based on labor hours expended to satisfy the performance obligation at average labor rates. We have determined labor hours expended to be the relevant measure of work performed to complete the maintenance and repair service for the customer. As a practical expedient, since repair and maintenance service contracts have an original duration of one year or less, we do not consider the time value of money, and we do not disclose estimated revenue expected to be recognized in the future for performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period or when we expect to recognize such revenue.

35

Contract liabilities primarily consist of customer deposits. We recognize contract liabilities (customer deposits) as revenue at the time of delivery or acceptance by the customers.  Total contract liabilities of approximately $24.3 million recorded as of September 30, 2019 were recognized in revenue during the fiscal year ended September 30, 2020. Contract assets, recorded in prepaid expenses and other current assets, totaled approximately $2.5 million and $2.6 million as of September 30, 2019 and September 30, 2020, respectively.

Vendor Consideration Received

We account for consideration received from our vendors in accordance with ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. ASC 606 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 ASC 606, amounts received by us under our co-op assistance programs from our manufacturers are netted against related advertising expenses.  Our consideration received from our vendors contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding a number of factors, including our ability to collect amounts due from vendors and the ability to meet certain criteria stipulated by our vendors.  We do not believe there is a reasonable likelihood that there will be a change in the future estimates or assumptions we use to calculate our vendor considerations which would result in a material effect on our operating results.

Inventories

Inventory costs consist of the amount paid to acquire inventory, net of vendor consideration and purchase discounts, the cost of equipment added, reconditioning costs, and transportation costs relating to acquiring inventory for sale.  We state new and used boat, motor, and trailer inventories at the lower of cost, determined on a specific-identification basis, or net realizable value.  We state parts and accessories at the lower of cost, determined on an average cost basis, or net realizable value.  We utilize our historical experience, the aging of the inventories, and our consideration of current market trends as the basis for determining a lower of cost or net realizable value valuation allowance.  Our lower of cost or net realizable value valuation allowance contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding the amount at which the inventory will ultimately be sold which considers forecasted market trends, model changes, and new product introductions. We do not believe there is a reasonable likelihood that there will be a change in the future estimates or assumptions we use to calculate our lower of cost or net realizable value valuation allowance which would result in a material effect on our operating results. As of September 30, 2019 and September 30, 2020, our lower of cost or net realizable value valuation allowance for new and used boat, motor, and trailer inventories was $2.2 million and $2.4 million, respectively.  If events occur and market conditions change, causing the fair value to fall below carrying value, the lower of cost or net realizable value valuation allowance could increase.

Goodwill

We account for goodwill in accordance with FASB Accounting Standards Codification 350, “Intangibles — Goodwill and Other” (“ASC 350”), which provides that the excess of cost over net assets of businesses acquired is recorded as goodwill. In July 2020, we purchased Northrop & Johnson, a leading superyacht brokerage and services company. In March 2020, we purchased Boatyard, a digital platform with an expansive range of on-demand services to streamline the boating experience by qualified service providers from a smartphone. In July 2019, we purchased Fraser Yachts Group, a leading superyacht brokerage and largest luxury yacht services company. In April 2019, we purchased Sail & Ski Center, a privately owned boat dealer located in Texas. Goodwill and other intangible assets increased, due to acquisitions, by $37.0 million and $20.2 million, for the fiscal years ended September 30, 2019 and 2020, respectively. These acquisitions have resulted in the recording of goodwill for tax purposes of $10.5 million and $16.8 million, for the fiscal years ended September 30, 2019 and 2020, respectively. In total, current and previous acquisitions have resulted in the recording of $84.3 million in goodwill and other intangible assets as of September 30, 2020. In accordance with ASC 350, we review goodwill for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  Our annual impairment test is performed during the fourth fiscal quarter. If the carrying amount of goodwill exceeds its fair value we would recognize an impairment loss in accordance with ASC 350. As of September 30, 2020, and based upon our most recent analysis, we determined through our qualitative assessment that it is not “more likely than not” that the fair values of our reporting units are less than their carrying values.  As a result, we were not required to perform a quantitative goodwill impairment test.  The qualitative assessment requires us to make judgments and assumptions regarding macroeconomic and industry conditions, our financial performance, and other factors.  We do not believe there is a reasonable likelihood that there will be a change in the judgments and assumptions used in our qualitative assessment which would result in a material effect on our operating results.

Impairment of Long-Lived Assets

FASB Accounting Standards Codification 360-10-40, “Property, Plant, and Equipment - Impairment or Disposal of Long-Lived Assets” (“ASC 360-10-40”), 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

36

may not be recoverable.  Recoverability of the asset (or asset group) is measured by comparison of its carrying amount to undiscounted future net cash flows the asset (or asset group) is expected to generate over the remaining life of the asset (or asset group).  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 (or asset group) exceeds its fair market value. Estimates of expected future cash flows represent our best estimate based on currently available information and reasonable and supportable assumptions.  Our impairment loss calculations contain uncertainties because they require us to make assumptions and to apply judgment in order to estimate expected future cash flows.  Any impairment recognized in accordance with ASC 360-10-40 is permanent and may not be restored. Based upon our most recent analysis, we believe no impairment of long-lived assets existed as of September 30, 2020.  We do not believe there is a reasonable likelihood that there will be a change in the future estimates or assumptions used to test for recoverability which would result in a material effect on our operating results.

Stock-Based Compensation

We account for our stock-based compensation plans following the provisions of FASB Accounting Standards Codification 718, “Compensation — Stock Compensation” (“ASC 718”).  In accordance with ASC 718, we use the Black-Scholes valuation model for valuing all stock-based compensation and shares purchased under our Employee Stock Purchase Plan.  We measure compensation for restricted stock awards and restricted stock units 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.  We recognize compensation cost for all awards in operations on a straight-line basis over the requisite service period for each separately vesting portion of the award.  Our valuation models and generally accepted valuation techniques require us to make assumptions and to apply judgment to determine the fair value of our awards.  These assumptions and judgments include estimating the volatility of our stock price, expected dividend yield, employee turnover rates and employee stock option exercise behaviors.  We do not believe there is a reasonable likelihood that there will be a change in the future estimates or assumptions we use to calculate our stock-based compensation which would result in a material effect on our operating results.

Income Taxes

We account for income taxes in accordance with FASB Accounting Standards Codification 740, “Income Taxes” (“ASC 740”).  Under ASC 740, 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 bases.  We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect those temporary differences to be recovered or settled. We record valuation allowances to reduce our deferred tax assets to the amount expected to be realized by considering all available positive and negative evidence.

Pursuant to ASC 740, we must consider all positive and negative evidence regarding the realization of deferred tax assets.  ASC 740 provides for four possible sources of taxable income to realize deferred tax assets: 1) taxable income in prior carryback years, 2) reversals of existing deferred tax liabilities, 3) tax planning strategies and 4) projected future taxable income.  As of September 30, 2020, we have no available taxable income in prior carryback years, limited reversals of existing deferred tax liabilities or prudent and feasible tax planning strategies.  Therefore, the recoverability of our deferred tax assets is dependent upon generating future taxable income.

The determination of releasing valuation allowances against deferred tax assets is made, in part, pursuant to our assessment as to whether it is more likely than not that we will generate sufficient future taxable income against which benefits of the deferred tax assets may or may not be realized.  Significant judgment is required in making estimates regarding our ability to generate income in future periods.

During the first quarter of fiscal 2018, the Company recorded a reduction of our beginning deferred tax assets of approximately $889,000 and a corresponding increase in our income tax provision as a result of the Tax Cuts and Jobs Act legislation passed in December 2017, which lowered the federal corporate tax rate from 35% to 21%, among other changes.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”). Corporate taxpayers may carryback net operating losses (“NOL’s”) originating during 2018 through 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020.

Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for tax years beginning January 1, 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act. The enactment of the CARES Act did not result in any material

37

adjustments to the Company’s income tax provision for the fiscal year ended September 30, 2020, or to its net deferred tax assets as of September 30, 2020.

The application of income tax law is inherently complex.  Laws and regulations in this area are voluminous and are often ambiguous.  Under ASC 740, the impact of uncertain tax positions taken or expected to be taken on an income tax return must be recognized in the financial statements at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority.  An uncertain income tax position will not be recognized in the financial statements unless it is more likely than not of being sustained.  As such, we are required to make subjective assumptions and judgments regarding our effective tax rate and our income tax exposure.  Our effective income tax rate is affected by changes in tax law in the jurisdictions in which we currently operate, tax jurisdictions of new retail locations, our earnings, and the results of tax audits.  We believe that the judgments and estimates discussed herein are reasonable.

Recent Accounting Pronouncements

See Note 3 of the Notes to the Consolidated Financial Statements.

 

Results of Operations

The following table sets forth certain financial data as a percentage of revenue for the periods indicated:

 

 

 

Fiscal Year Ended September 30,

 

 

 

2018

 

 

2019

 

 

2020

 

 

 

(Amounts in thousands)

 

Revenue

 

$

1,177,371

 

 

 

100.0

%

 

$

1,237,153

 

 

 

100.0

%

 

$

1,509,713

 

 

 

100.0

%

Cost of sales

 

 

879,138

 

 

 

74.7

%

 

 

914,321

 

 

 

73.9

%

 

 

1,111,000

 

 

 

73.6

%

Gross profit

 

 

298,233

 

 

 

25.3

%

 

 

322,832

 

 

 

26.1

%

 

 

398,713

 

 

 

26.4

%

Selling, general and administrative expenses

 

 

235,050

 

 

 

20.0

%

 

 

262,300

 

 

 

21.2

%

 

 

291,998

 

 

 

19.3

%

Income from operations

 

 

63,183

 

 

 

5.3

%

 

 

60,532

 

 

 

4.9

%

 

 

106,715

 

 

 

7.1

%

Interest expense

 

 

9,903

 

 

 

0.8

%

 

 

11,579

 

 

 

0.9

%

 

 

9,275

 

 

 

0.6

%

Income before income taxes

 

 

53,280

 

 

 

4.5

%

 

 

48,953

 

 

 

4.0

%

 

 

97,440

 

 

 

6.5

%

Income tax provision

 

 

13,968

 

 

 

1.2

%

 

 

12,968

 

 

 

1.0

%

 

 

22,806

 

 

 

1.5

%

Net income

 

$

39,312

 

 

 

3.3

%

 

$

35,985

 

 

 

3.0

%

 

$

74,634

 

 

 

5.0

%

 

Fiscal Year Ended September 30, 2020, Compared with Fiscal Year Ended September 30, 2019

Revenue.  Revenue increased $272.6 million, or 22.0%, to approximately $1.510 billion for the fiscal year ended September 30, 2020 from $1.237 billion for the fiscal year ended September 30, 2019.  Of this increase, $291.0 million was attributable to a 25% increase in comparable-store sales and an approximate $18.4 million net decrease related to stores opened or closed that were not eligible for inclusion in the comparable-store base.  The increase in our comparable-store sales was primarily due to incremental increases in new and used boat sales and incremental increases in storage services, finance and insurance products, and brokerage sales. Improving industry conditions in the seasonal summer months contributed to our growth.

Gross Profit. Gross profit increased $75.9 million, or 23.5%, to $398.7 million for the fiscal year ended September 30, 2020 from $322.8 million for the fiscal year ended September 30, 2019.  Gross profit as a percentage of revenue increased to 26.4% for the fiscal year ended September 30, 2020 from 26.1% for the fiscal year ended September 30, 2019.  The increase in gross profit as a percentage of revenue was primarily the result of increases to our higher margins businesses and from the acquisition of the Fraser Yachts Group and Northrop & Johnson because the sales generated by Fraser and Northrop & Johnson relating to their services tend to be of higher margins relative to our overall business. The increase in gross profit dollars was primarily attributable to the increase in our gross margins and increased boat sales.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $29.7 million, or 11.3%, to $292.0 million for the fiscal year ended September 30, 2020 from $262.3 million for the fiscal year ended September 30, 2019. Selling, general and administrative expenses for the fiscal year ended September 30, 2020, included $1.7 million of adjustments related to store closings and other related costs. Selling, general and administrative expenses for the fiscal year ended September 30, 2019, included $3.1 million of adjustments related to store closings and other related costs, partially offset by a $1.2 million recovery recognized from the Deepwater Horizon Settlement Program for damages suffered as a result of the Deepwater Horizon Oil Spill. Excluding these items and making both years comparable, selling, general and administrative expenses increased $29.9 million, or 11.5%, to $290.3 million and as a percentage of revenue decreased to 19.2% for the fiscal year ended September 30, 2020. The

38

increase in selling, general and administrative expense dollars was primarily attributable to recent acquisitions including the Fraser Yachts Group and Northrop & Johnson and increased sales and brokerage commissions from the growth in revenue.

Interest Expense. Interest expense decreased $2.3 million, or 19.9%, to $9.3 million for the fiscal year ended September 30, 2020, from $11.6 million for the fiscal year ended September 30, 2019. Interest expense as a percentage of revenue decreased to 0.6% for the fiscal year ended September 30, 2020, from 0.9% for the fiscal year ended September 30, 2019. The decrease in interest expense was primarily the result of lower interest rates and less overall borrowings.

Income Taxes.  Income tax expense increased $9.8 million, or 75.9%, to $22.8 million for the fiscal year ended September 30, 2020 from $13.0 million for the fiscal year ended September 30, 2019. Our effective income tax rate decreased to 23.4% for fiscal year ended September 30, 2020, from 26.5% for fiscal year ended September 30, 2019. The decrease in the effective income tax rate was primarily attributed to excess equity compensation for tax purposes.

Fiscal Year Ended September 30, 2019, Compared with Fiscal Year Ended September 30, 2018

Revenue.  Revenue increased $59.8 million, or 5.1%, to approximately $1.237 billion for the fiscal year ended September 30, 2019 from $1.177 billion for the fiscal year ended September 30, 2018.  Of this increase, $15.4 million was attributable to a 1% increase in comparable-store sales and an approximate $44.4 million net increase related to stores opened or closed that were not eligible for inclusion in the comparable-store base.  The increase in our comparable-store sales was primarily due to incremental increases in new and used boat sales and incremental increases in storage services, finance and insurance products, service revenue, and parts revenue. Eroding industry conditions throughout most of fiscal 2019, adversely impacted our comparable-store sales.  

Gross Profit. Gross profit increased $24.6 million, or 8.2%, to $322.8 million for the fiscal year ended September 30, 2019 from $298.2 million for the fiscal year ended September 30, 2018.  Gross profit as a percentage of revenue increased to 26.1% for the fiscal year ended September 30, 2019 from 25.3% for the fiscal year ended September 30, 2018.  The increase in gross profit as a percentage of revenue was primarily the result of increases to our higher margins businesses and from the acquisition of the Fraser Yachts Group because the sales generated by Fraser relating to its services tend to be of higher margins relative to our overall business. The increase in gross profit dollars was primarily attributable to the increase in our gross margins and increased boat sales.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $27.3 million, or 11.6%, to $262.3 million for the fiscal year ended September 30, 2019 from $235.0 million for the fiscal year ended September 30, 2018. Selling, general and administrative expenses for the fiscal year ended September 30, 2019, included $3.1 million of adjustments related to store closings and other related costs, which reduced expenses, partially offset by a $1.2 million recovery recognized from the Deepwater Horizon Settlement Program for damages suffered as a result of the Deepwater Horizon Oil Spill.  Selling, general and administrative expenses for the fiscal year ended September 30, 2018, included $1.4 million of adjustments related to contingent consideration obligations, which reduced expenses, partially offset by a $1.2 million increase in non-recurring unusual costs. Excluding these items and making both years comparable, selling, general and administrative expenses increased $25.2 million, or 10.6%, to $260.2 million and as a percentage of revenue increased to 21.1% for the fiscal year ended September 30, 2019. The increase in selling, general and administrative expenses was primarily attributable to recent acquisitions including the Fraser Yachts Group, new store openings, additional marketing expenses to drive sales growth, and the reestablishing of our British Virgin Islands’ Charter business as the business restarted operations after Hurricane Irma, which occurred in September 2017.

Interest Expense. Interest expense increased $1.7 million, or 16.9%, to $11.6 million for the fiscal year ended September 30, 2019, from $9.9 million for the fiscal year ended September 30, 2018. Interest expense as a percentage of revenue increased to 0.9% for the fiscal year ended September 30, 2019, from 0.8% for the fiscal year ended September 30, 2018. The increase in interest expense was primarily the result of increased borrowings.

Income Taxes.  Income tax expense decreased $1.0 million, or 7.2%, to $13.0 million for the fiscal year ended September 30, 2019 from $14.0 million for the fiscal year ended September 30, 2018. Our effective income tax rate increased to 26.5% for fiscal year ended September 30, 2019, from 26.2% for fiscal year ended September 30, 2018. The increase in our effective income tax rate was mainly the result of increased tax expense from jurisdictions outside the United States as result of the acquisition of the Fraser Yachts Group in July 2019.

 


39

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 typically 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 if we acquire dealers that operate in colder regions of the United States or close retail locations in warm climates.

Our business is also subject to weather patterns, which may adversely affect our results of operations.  For example, prolonged winter conditions, drought conditions (or merely reduced rainfall levels) or excessive rain, may limit access to area boating locations or render boating dangerous or inconvenient, thereby curtailing customer demand for our products and services.  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 has been the case when Florida and other markets were affected by hurricanes.  Although we believe 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.

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.  Acquisitions remain an important strategy for us, and we plan to continue our growth through this strategy if more robust economic conditions return. However, we cannot predict the return of or length of unfavorable economic or financial conditions.  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 business levels to determine the adequacy of our financing needs.

These cash needs have historically been financed with cash generated from operations and borrowings under the Credit Facility.  Our ability to utilize the Credit Facility to fund operations depends upon the collateral levels and compliance with the covenants of the Credit Facility.  Turmoil in the credit markets and weakness in the retail markets may interfere with our ability to remain in compliance with the covenants of the Credit Facility and therefore our ability to utilize the Credit Facility to fund operations.  As of September 30, 2020, we were in compliance with all covenants under the Credit Facility.  We currently depend upon dividends and other payments from our dealerships and the Credit Facility to fund our current operations and meet our cash needs.  As 100% owner of each of our dealerships, we determine the amounts of such distributions subject to applicable law, and currently, no agreements exist that restrict this flow of funds from any of our dealerships.

For the fiscal year ended September 30, 2020, cash provided by operating activities was approximately $304.7 million. For the fiscal year ended September 30, 2019, cash used in operating activities was approximately $12.4 million.  For fiscal years ended September 30, 2018 cash provided by operating activities was approximately $70.4 million. For the fiscal year ended September 30, 2020, cash provided by operating activities was primarily related to decreases in inventory, accounts receivable, increases in accrued expenses and other liabilities, increases in accounts payable, and our net income adjusted for non-cash expenses and gains such as depreciation and amortization expense, deferred income tax provision, stock-based compensation expense, and insurance proceeds received. For the fiscal year ended September 30, 2019, cash used by operating activities was primarily related to increases in inventory, accounts receivable, and prepaid expenses and other assets, partially offset by our net income adjusted for non-cash expenses and gains such as depreciation and amortization expense, deferred income tax provision, stock-based compensation expense, insurance proceeds received, and increases in accounts payable, contract liabilities, and accrued expenses and other long-term liabilities. For the fiscal year ended September 30, 2018, cash provided by operating activities was primarily related to our net income adjusted for non-cash expenses and gains such as depreciation and amortization expense, deferred income tax provision, stock-based compensation expense, gains on insurance settlements, gain on contingent acquisition consideration, decreases in inventory driven by inventory optimization efforts, insurance proceeds received as a result of Hurricane Irma, and increases in accrued expenses and other long-term liabilities, partially offset by increases in accounts receivable and decreases in accounts payable and contract liabilities.

For the fiscal years ended September 30, 2020, 2019 and 2018, cash used in investing activities was approximately $30.1 million, $56.3 million, and $23.3 million, respectively. For the fiscal year ended September 30, 2020, cash used in investing activities was primarily used to purchase property and equipment associated with improving existing retail facilities and purchase property and equipment and other assets associated with business acquisitions. For the fiscal year ended September 30, 2019, cash used in investing activities was primarily used to purchase property and equipment associated with improving existing retail facilities and purchase property and equipment and other assets associated with business acquisitions. For the fiscal year ended September 30, 2018, cash used in investing activities was primarily used to purchase property and equipment associated with improving existing

40

retail facilities, purchase property and equipment associated with business acquisitions, and capital improvements as a result of Hurricane Irma.  

For the fiscal year ended September 30, 2020, cash used in financing activities was approximately $158.1 million. For the fiscal year ended September 30, 2019, cash provided by financing activities was approximately $58.6 million. For the fiscal year ended September 30, 2018, cash used in financing activities was approximately $40.2 million. For the fiscal year ended September 30, 2020, cash used in financing activities was primarily attributable to a decrease in net short-term borrowings as a result of decreased inventory levels, repurchase of common stock under the share repurchase program, payments on tax withholdings for equity awards, partially offset by proceeds from the issuance of common stock from our stock based compensation plans and proceeds from long- term debt. For the fiscal year ended September 30, 2019, cash provided by financing activities was primarily attributable to net short term borrowings as a result of increased inventory levels and proceeds from the issuance of common stock from our stock based compensation plans, partially offset by the repurchase of common stock under the share repurchase program and payments on tax withholdings for equity awards.  For the fiscal year ended September 30, 2018, cash used in financing activities was primarily attributable to a decrease in net short-term borrowings as a result of decreased inventory levels, contingent consideration payments from acquisitions, and repurchase of common stock under the share repurchase program, partially offset by proceeds from the issuance of common stock from our stock based compensation plans.  

In May 2020, we entered into the Credit Facility, with Wells Fargo Commercial Distribution Finance LLC (formerly GE Commercial Distribution Finance Corporation), M&T Bank, Bank of the West, and Truist Bank. The Credit Facility has a three-year term and expires in May 2023, and includes two additional one-year extension periods, with lender approval. The Credit Facility provides a floor plan financing commitment of up to $440.0 million subject to borrowing base availability resulting from the amount and aging of our inventory.

The Credit Facility has certain financial covenants as specified in the agreement.  The covenants include provisions that our leverage ratio must not exceed 2.75 to 1.0 and that our current ratio must be greater than 1.2 to 1.0. The interest rate for amounts outstanding under the Credit Facility is 345 basis points above the one-month LIBOR. There is an unused line fee of ten basis points on the unused portion of the Credit Facility.

Advances under the Credit Facility are initiated by the acquisition of eligible new and used inventory or are re-advances against eligible new and used inventory that have been partially paid-off.  Advances on new inventory will generally mature 1,080 days from the original invoice date.  Advances on used inventory will mature 361 days from the date we acquire the used inventory.  Each advance is subject to a curtailment schedule, which requires that we pay down the balance of each advance on a periodic basis starting after six months.  The curtailment schedule varies based on the type and value of the inventory.  The collateral for the Credit Facility is primarily the Company’s inventory that is financed through the Credit Facility and related accounts receivable. None of our real estate has been pledged for collateral for the Credit Facility.

As of September 30, 2020, our indebtedness associated with financing our inventory and working capital needs totaled approximately $144.4 million.  As of September 30, 2019 and 2020, the interest rate on the outstanding short-term borrowings was approximately 5.6% and 4.2%, respectively.  As of September 30, 2020, our additional available borrowings under our Credit Facility were approximately $82.0 million based upon the outstanding borrowing base availability.  The aging of our inventory limits our borrowing capacity as defined curtailments reduce the allowable advance rate as our inventory ages.

As of September 30, 2020 we had approximately $7.4 million under a mortgage facility secured by one of our retail locations. The interest rate for amounts outstanding under the mortgage facility is prime minus 100 basis points with a floor of 2.00%. As of September 30, 2020, the interest rate on amounts outstanding was 2.25%. The mortgage facility requires monthly principal and interest payments with a balloon payment of approximately $4.0 million due August 2027. Prepayment of the mortgage facility may be made in whole or in part at any time without premium or penalty.

Except as specified in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” 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 our operations for at least the next 12 months, except for possible significant acquisitions.

41

Commitments and Commercial Commitments

The following table sets forth a summary of our material contractual obligations and commercial commitments as of September 30, 2020:

 

 

Payments Due by Period Ending September 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

Less than 1 Year

 

 

1-3 Years

 

 

3-5 Years

 

 

More Than 5 Years

 

 

 

(Amounts in thousands)

 

Short-term Borrowings (1)

 

$

144,393

 

 

$

144,393

 

 

 

—

 

 

 

—

 

 

 

—

 

Long-term Debt

 

 

7,850

 

 

 

507

 

 

 

1,445

 

 

 

992

 

 

 

4,906

 

Other Liabilities (2)

 

 

3,101

 

 

 

1,663

 

 

 

1,438

 

 

 

—

 

 

 

—

 

Operating Leases (3)

 

 

60,241

 

 

 

9,433

 

 

 

14,312

 

 

 

8,728

 

 

 

27,768

 

Total

 

$

215,585

 

 

$

155,996

 

 

$

17,195

 

 

$

9,720

 

 

$

32,674

 

 

 

(1)

Estimates of future interest payments for short-term borrowings have been excluded in the tabular presentation. Amounts due are contingent upon the outstanding balances and the variable interest rates.  As of September 30, 2020, the interest rate on our short-term borrowings was approximately 4.2%.

(2)

The amounts included in other liabilities consist primarily of our estimated liability for claims on certain workers’ compensation insurance policies and estimated future contingent consideration payments.

(3)

Amounts for operating lease commitments do not include certain operating expenses such as maintenance, insurance, and real estate taxes.  These amounts are not a material component of operating expenses.

Off-Balance Sheet Arrangements

We do not have any transactions, arrangements, or other relationships with unconsolidated entities that are reasonably likely to affect our financial condition, liquidity, or capital resources.  We have no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity, or market or credit risk support; we do not engage in hedging or research and development services; and we do not have other relationships that expose us to liability that is not reflected in the financial statements.

 

 

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

As of September 30, 2020, all of our short-term debt bore interest at a variable rate, tied to LIBOR as a reference rate.  Changes in the underlying LIBOR interest rate on our short-term debt could affect our earnings.  For example, a hypothetical 100 basis point increase in the interest rate on our short-term debt would result in an increase of approximately $1.4 million in annual pre-tax interest expense.  This estimated increase is based upon the outstanding balance of our short-term debt as of September 30, 2020 and assumes no mitigating changes by us to reduce the outstanding balances and no additional interest assistance that could be received from vendors due to the interest rate increase.

Foreign Currency Exchange Rate Risk

Products purchased from European-based and Chinese-based manufacturers are transacted in U.S. dollars. Fluctuations in the U.S. dollar exchange rate may impact the retail price at which we can sell foreign products. Accordingly, fluctuations in the value of other currencies compared with the U.S. dollar may impact the price points at which we can profitably sell such foreign products, and such price points may not be competitive with other products in the United States. Thus, such fluctuations in exchange rates ultimately may impact the amount of revenue, cost of goods sold, cash flows and earnings we recognize for such foreign products. We cannot predict the effects of exchange rate fluctuations on our operating results. In certain cases, we may enter into foreign currency cash flow hedges to reduce the variability of cash flows associated with forecasted purchases of boats and yachts from European-based and Chinese-based manufacturers. We are not currently engaged in foreign currency exchange hedging transactions to manage our foreign currency exposure. If and when we do engage in foreign currency exchange hedging transactions, there can be no assurance that our strategies will adequately protect our operating results from the effects of exchange rate fluctuations.

Additionally, the Fraser Yachts Group and Northrop & Johnson have transactions and balances denominated in currencies other than the U.S dollar. Most of the transactions or balances are denominated in euros. Net revenues recognized whose functional currency was not the U.S. dollar were less than 2% of our total revenues in fiscal 2020.  

 

 

42

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 statements, 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 Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed by us in Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report.  Based on such evaluation, such officers have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Controls

During the quarter ended September 30, 2020, there were no changes in our internal control over financial reporting that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures and internal control over financial reporting will prevent all errors and all fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Although our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

CEO and CFO Certifications

Exhibits 31.1 and 31.2 are the Certifications of the Chief Executive Officer and Chief Financial Officer, respectively.  The Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”).  This Item of this report, which you are currently reading is the information concerning the Evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

Management’s Report on Internal Control over Financial Reporting

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 our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2020 as required by the Securities Exchange Act of 1934 Rule 13a-15(c).  In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the

43

Treadway Commission (“COSO”) in Internal Control — Integrated Framework (2013).  Based on its evaluation, our management concluded that its internal control over financial reporting was effective as of September 30, 2020. The Company acquired Northrop & Johnson, during 2020, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2020, Northrop & Johnson’s internal control over financial reporting associated with 1% of total assets and 1% of total revenues included in the consolidated financial statements of the Company as of and for the year ended September 30, 2020.  

 

Our internal control over financial reporting as of September 30, 2020, has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which appears herein.


44

 

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
MarineMax, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited MarineMax, Inc.’s and subsidiaries’ (the Company) internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2020 and 2019, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended September 30, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated December 2, 2020 expressed an unqualified opinion on those consolidated financial statements.

The Company acquired Northrop & Johnson during 2020, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2020, Northrop & Johnson’s internal control over financial reporting associated with 1% of total assets and 1% of total revenues included in the consolidated financial statements of the Company as of and for the year ended September 30, 2020. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Northrop & Johnson.

Basis for Opinion

The Company’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, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.


45

 

Definition and Limitations of Internal Control Over Financial Reporting

A company’s 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 company’s 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 company’s 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.

 

/s/ KPMG LLP

 

Tampa, Florida

December 2, 2020

 

46

Item 9B.

Other Information

None.

 

PART III

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

The information required by this Item relating to our directors and corporate governance is incorporated herein by reference to the definitive Proxy Statement (particularly under the caption “Corporate Governance”) to be filed pursuant to Regulation 14A of the Exchange Act for our 2020 Annual Meeting of Shareholders (the “2021 Proxy Statement”).  The information required by this Item relating to our executive officers is included in “Business — Executive Officers.”

We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, and other senior accounting personnel.  The “Code of Ethics for the CEO and Senior Financial Officers” is located on our website at www.MarineMax.com in the Investor Relations section under Corporate Governance.

We intend to satisfy the disclosure requirement under Item 5.05(c) of Form 8-K regarding any amendment to, or waiver from, a provision of this code of ethics by posting such information on our website, at the address and location specified above.

 

 

Item 11.

Executive Compensation

The information required by this Item is incorporated herein by reference to the 2021 Proxy Statement (particularly under the caption “Executive Compensation”).

 

 

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 2021 Proxy Statement (particularly under the caption “Security Ownership of Principal Shareholders, Directors, and Officers”).

 

 

Item 13.

The information required by this Item is incorporated herein by reference to the 2021 Proxy Statement (particularly under the caption “Certain Relationships and Related Transactions”).

 

 

Item 14.

Principal Accountant Fees and Services

The information required by this Item is incorporated herein by reference to the 2021 Proxy Statement (particularly under the caption “Ratification of Appointment of Independent Auditor”).

 

 

PART IV

 

 

Item 15.

Exhibits, Financial Statement Schedules

(a)

Financial Statements and Financial Statement Schedules

(1)

Financial Statements. Financial Statements are listed in the Index to Consolidated Financial Statements on page F-1 of this report.

(2)

Financial Statement Schedules. 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.

(3)

Exhibits.  See Item 15(b) below.

(b)

Exhibits

 

Exhibit
Number

 

Exhibit

  2.1

 

Agreement and Plan of Merger, dated February 25, 2015, by and between MarineMax, Inc. and MarineMax Reincorporation, Inc. (1)

  3.1

 

Articles of Incorporation of the Registrant. (2)

47

Exhibit
Number

 

Exhibit

3.2

 

Bylaws of the Registrant. (2)

4.1

 

Specimen of Common Stock Certificate. (2)

4.2

 

Description of Securities.

10.1*

 

Employment Agreement, dated November 29, 2018, between Registrant and William H.  McGill Jr., as amended. (3)

10.1(b)*

 

Employment Agreement, dated November 29, 2018, between Registrant and Michael H.  McLamb, as amended. (3)

10.1(c)*

 

Employment Agreement, dated November 29, 2018, between Registrant and William Brett McGill. (3)

10.2*

 

Amended 2008 Employee Stock Purchase Plan. (4)

10.3*

 

2011 Stock-Based Compensation Plan. (5)

10.3(a)*

 

Form Stock Option Agreement for 2011 Stock-Based Compensation Plan. (6)

10.3(b)*

 

Form Restricted Stock Unit Award Agreement for 2011 Stock-Based Compensation Plan. (6)

10.4

 

Sales and Service Agreement, dated October 30, 2020, between Registrant and Boston Whaler, Inc.

10.5

 

Sales and Service Agreement, dated October 30, 2020, between Registrant and Sea Ray Division of Brunswick Corporation.

10.6

 

Agreement Relating to Acquisitions between Registrant and Brunswick Corporation, dated December 7, 2005. (7)  

10.6(a)

 

Amendment, executed October 17, 2014, to Agreement Relating to Acquisitions between Registrant and Brunswick Corporation, dated December 7, 2005. (8)

10.6(b)

 

Sea Ray Sales and Service Agreement. (7)

10.6(c)†

 

Sea Ray Sales and Service Agreement, executed October 17, 2014, by and between MarineMax East, Inc. and Sea Ray, a Division of Brunswick Corporation. (8)

10.6(d)†

 

Sea Ray Sales and Service Agreement, executed October 17, 2014, by and between MarineMax Northeast, LLC, and Sea Ray, a Division of Brunswick Corporation. (8)

10.6(e)†

 

Sea Ray Sales and Service Agreement, executed October 17, 2014, by and between MarineMax, Inc. and Sea Ray, a Division of Brunswick Corporation. (8)

10.6(f)†

 

Boston Whaler Sales and Service Agreement, executed December 5, 2014, by and between MarineMax East, Inc. and Boston Whaler, a Division of Brunswick Corporation. (9)

10.6(g)†

 

Boston Whaler Sales and Service Agreement, executed December 5, 2014, by and between MarineMax Northeast, LLC, and Boston Whaler, a Division of Brunswick Corporation. (9)

10.6(h)†

 

Boston Whaler Sales and Service Agreement, executed December 5, 2014, by and between MarineMax, Inc. and Boston Whaler, a Division of Brunswick Corporation. (9)

10.7 †

 

Loan and Security Agreement, dated May 20, 2020, by and among MarineMax, Inc. and its subsidiaries, Wells Fargo Commercial Distribution Finance, LLC, M&T Bank, Bank of the West, and Truist Bank. (10)

10.7(a) †

 

Sixth Amended and Restated Program Terms Letter, dated May 20, 2020, by and among MarineMax, Inc. and its subsidiaries, as Borrowers, and Wells Fargo Commercial Distribution Finance, LLC. (10)

10.8

 

Director Fee Share Purchase Program. (11)]

10.9*

 

Severance Policy for Key Executives. (12)

10.10†

 

Dealership Agreement dated September 1, 2008 by and between MarineMax Northeast, LLC and Azimut Benetti S.p.A. (13)

10.10(a)

 

First Amendment dated June 22, 2010 to Dealership Agreement dated September 1, 2008, by and between MarineMax Northeast, LLC and Azimut Benetti S.p.A. (13)

10.10(b)

 

Second Amendment dated February 29, 2012 to Dealership Agreement dated September 1, 2008, by and between MarineMax Northeast, LLC and Azimut Benetti S.p.A. (13)

10.10(c)

 

Third Amendment dated July 21, 2012 to Dealership Agreement dated September 1, 2008, by and between MarineMax Northeast, LLC and Azimut Benetti S.p.A. (13)

10.11†

 

Dealership Agreement dated September 1, 2008 by and between MarineMax East, LLC and Azimut Benetti S.p.A. (13)

10.11(a)

 

First Amendment dated June 22, 2010 to Dealership Agreement dated September 1, 2008, by and between MarineMax East, Inc. and Azimut Benetti S.p.A. (13)

10.11(b)

 

Second Amendment dated February 29, 2012 to Dealership Agreement dated September 1, 2008, by and between MarineMax East, Inc. and Azimut Benetti S.p.A. (13)

10.11(c)

 

Third Amendment dated July 21, 2012 to Dealership Agreement dated September 1, 2008, by and between MarineMax East, Inc. and Azimut Benetti S.p.A. (13)

10.11(d)

 

Fourth Amendment dated August 21, 2013 to Dealership Agreement dated September 1, 2008, by and between MarineMax East, Inc. and Azimut Benetti S.p.A. (13)

10.12

 

Equity Purchase Agreement dated October 1, 2020, by and among Skipper Marine Holdings, Inc., SSY Holdings, Inc., Michael J. Pretasky, Sr., Michael John Pretasky, Jr. 2014 Trust, Mark Ellerbrock, and Robert Ross Tefft, Jr., Michael J. Pretasky, Jr., and MarineMax, Inc.

21

 

List of Subsidiaries.

23.1

 

Consent of KPMG LLP.

48

Exhibit
Number

 

Exhibit

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 18 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.

101.INS

 

Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

 

†

Certain information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions where applicable.

*

Management contract or compensatory plan or arrangement.

(1)

Incorporated by reference to Registrant’s Form 8-K as filed February 26, 2015.

(2)

Incorporated by reference to Registrant’s Form 8-K as filed March 20, 2015.

(3)

Incorporated by reference to Registrant’s Form 10-K for the year ended September 30, 2019, as filed on November 29, 2018.

(4)

Incorporated by reference to Registrant’s Form S-8 (File No. 333-236618) as filed February 25, 2020.

(5)

Incorporated by reference to Registrant’s Form S-8 (File No. 333-236617) as filed February 25, 2020.

(6)

Incorporated by reference to Registrant’s Form 8-K as filed on January 25, 2011.

(7)     Incorporated by reference to Registrant’s Form 8-K as filed on December 9, 2005.

(8)

Incorporated by reference to Registrant’s Form 10-K for the year ended September 30, 2014, as filed on December 11, 2014.

(9)

Incorporated by reference to Registrant’s Form 10-Q for the quarterly period ended December 31, 2014, as filed on February 5, 2015.

(10)

Incorporated by reference to Registrant’s Form 10-Q for the quarterly period ended June 30, 2020, as filed on July 28, 2020.

(11)

Incorporated by reference to Registrant’s Form S-8 (File No. 333-141657) as filed March 29, 2007.

(12)

Incorporated by reference to Registrant’s Form 8-K as filed on November 27, 2012.

(13)

Incorporated by reference to Registrant’s Form 10-K for the year ended September 30, 2013, as filed on December 6, 2013.

(c)Financial Statements Schedules

(1)

See Item 15(a) above.

 

 

49

SIGNATURES

Pursuant to the requirements of 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/  W. Brett McGill

 

W. Brett McGill

 

Chief Executive Officer and President

Date: December 2, 2020

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature

 

Capacity

 

Date

/s/  W. Brett McGill

 

Chief Executive Officer and President
(Principal Executive Officer)

 

December 2, 2020

W. Brett McGill

 

 

 

 

 

 

 

/s/  Michael H. McLamb

 

Executive Vice President, Chief Financial Officer, Secretary and Director
(Principal Accounting and
Financial Officer)

 

December 2, 2020

Michael H. McLamb

 

 

 

 

 

 

 

 

 

 

 

 

/s/  William H. McGill Jr.

 

Executive Chairman of the Board,

 

December 2, 2020

William H. McGill Jr.

 

Director

 

 

 

 

 

 

 

/s/ Clint Moore

 

 

Lead Independent Director

 

 

Clint Moore

 

 

December 2, 2020

 

 

 

 

 

/s/ George E. Borst

 

 

Director

 

 

December 2, 2020

George E. Borst

 

 

 

 

 

 

 

/s/ Hilliard M. Eure III

 

 

 

 

Hilliard M. Eure III

 

Director

 

December 2, 2020

 

 

 

 

 

/s/  Evelyn Follit

 

 

Director

 

 

December 2, 2020

Evelyn Follit

 

 

 

 

 

 

 

/s/  Charles R. Oglesby

 

 

Director

 

 

December 2, 2020

Charles R. Oglesby

 

 

 

 

 

 

 

/s/  Joseph A. Watters

 

 

Director

 

 

December 2, 2020

Joseph A. Watters

 

 

 

 

 

 

 

/s/  Rebecca White

 

 

 

 

Rebecca White

 

Director

 

December 2, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50

MARINEMAX, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Page

CONSOLIDATED FINANCIAL STATEMENTS

 

 

Report of Independent Registered Public Accounting Firm

 

F-2

Consolidated Balance Sheets

 

F-3

Consolidated Statements of Operations

 

F-4

Consolidated Statements of Comprehensive Income

 

F-5

Consolidated Statements of Shareholders’ Equity

 

F-6

Consolidated Statements of Cash Flows

 

F-7

Notes to Consolidated Financial Statements

 

F-8

 

 

 

 

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
MarineMax, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of MarineMax, Inc. and subsidiaries (the Company) as of September 30, 2020 and 2019, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended September 30, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2020, 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) (PCAOB), the Company’s internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated December 2, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principles

As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for leases as of October 1, 2019 due to the adoption of Accounting Standards Update (ASU) 2016-02, Leases, and several related amendments, as issued by the Financial Accounting Standards Board (FASB), and the Company has changed its method of accounting for revenue as of October 1, 2018 due to the adoption of ASU 2014-09, Revenue from Contracts with Customers, and several related amendments, as issued by the FASB.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ KPMG LLP

We have served as the Company’s auditor since 2013.

Tampa, Florida

December 2, 2020

 

 

F-2

MARINEMAX, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands except share and per share data)

 

 

 

September 30, 2019

 

 

September 30, 2020

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

38,511

 

 

$

155,493

 

Accounts receivable, net

 

 

42,398

 

 

 

40,195

 

Inventories, net

 

 

477,468

 

 

 

298,002

 

Prepaid expenses and other current assets

 

 

10,206

 

 

 

9,637

 

Total current assets

 

 

568,583

 

 

 

503,327

 

Property and equipment, net

 

 

144,298

 

 

 

141,934

 

Operating lease right-of-use assets, net

 

 

—

 

 

 

37,991

 

Goodwill and other intangible assets, net

 

 

64,077

 

 

 

84,293

 

Other long-term assets

 

 

7,125

 

 

 

7,774

 

Total assets

 

$

784,083

 

 

$

775,319

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

33,674

 

 

$

37,343

 

Contract liabilities (customer deposits)

 

 

24,305

 

 

 

31,821

 

Accrued expenses

 

 

42,849

 

 

 

52,123

 

Current operating lease liabilities

 

 

—

 

 

 

6,854

 

Short-term borrowings

 

 

312,065

 

 

 

144,393

 

Total current liabilities

 

 

412,893

 

 

 

272,534

 

Noncurrent operating lease liabilities

 

 

—

 

 

 

33,473

 

Deferred tax liabilities, net

 

 

1,142

 

 

 

4,509

 

Long-term debt, net of current maturities

 

 

—

 

 

 

7,343

 

Other long-term liabilities

 

 

1,229

 

 

 

2,063

 

Total liabilities

 

 

415,264

 

 

 

319,922

 

COMMITMENTS AND CONTINGENCIES (Note 17)

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

Preferred stock, $.001 par value, 1,000,000 shares authorized,

   none issued or outstanding as of September 30, 2019 and 2020

 

 

—

 

 

 

—

 

Common stock, $.001 par value; 40,000,000 shares authorized, 27,508,473

   and 28,130,312 shares issued and 21,321,688 and 21,863,291 shares

   outstanding as of September 30, 2019 and 2020, respectively

 

 

28

 

 

 

28

 

Additional paid-in capital

 

 

269,969

 

 

 

280,436

 

Accumulated other comprehensive (loss) income

 

 

(669

)

 

 

829

 

Retained earnings

 

 

202,455

 

 

 

277,699

 

Treasury stock, at cost, 6,186,785 and 6,267,021 shares held as of

   September 30, 2019 and 2020, respectively

 

 

(102,964

)

 

 

(103,595

)

Total shareholders’ equity

 

 

368,819

 

 

 

455,397

 

Total liabilities and shareholders’ equity

 

$

784,083

 

 

$

775,319

 

 

See accompanying notes to consolidated financial statements.

 

F-3

MARINEMAX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands except share and per share data)

 

 

 

For the Year Ended September 30,

 

 

 

2018

 

 

2019

 

 

2020

 

Revenue

 

$

1,177,371

 

 

$

1,237,153

 

 

$

1,509,713

 

Cost of sales

 

 

879,138

 

 

 

914,321

 

 

 

1,111,000

 

Gross profit

 

 

298,233

 

 

 

322,832

 

 

 

398,713

 

Selling, general and administrative expenses

 

 

235,050

 

 

 

262,300

 

 

 

291,998

 

Income from operations

 

 

63,183

 

 

 

60,532

 

 

 

106,715

 

Interest expense

 

 

9,903

 

 

 

11,579

 

 

 

9,275

 

Income before income tax provision

 

 

53,280

 

 

 

48,953

 

 

 

97,440

 

Income tax provision

 

 

13,968

 

 

 

12,968

 

 

 

22,806

 

Net income

 

$

39,312

 

 

$

35,985

 

 

$

74,634

 

Basic net income per common share

 

$

1.77

 

 

$

1.61

 

 

$

3.46

 

Diluted net income per common share

 

$

1.71

 

 

$

1.57

 

 

$

3.37

 

Weighted average number of common shares used

   in computing net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

22,269,378

 

 

 

22,294,114

 

 

 

21,547,665

 

Diluted

 

 

23,030,662

 

 

 

22,881,147

 

 

 

22,125,338

 

 

See accompanying notes to consolidated financial statements.

 

 

 

F-4

MARINEMAX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

 

 

 

 

For the Year Ended September 30,

 

 

 

2018

 

 

2019

 

 

2020

 

Net income

 

$

39,312

 

 

$

35,985

 

 

$

74,634

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) gain, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

-

 

 

 

(669

)

 

 

1,498

 

Total other comprehensive (loss) gain, net of tax

 

 

-

 

 

 

(669

)

 

 

1,498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

39,312

 

 

$

35,316

 

 

$

76,132

 

 

See accompanying notes to consolidated financial statements.

F-5

MARINEMAX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Amounts in thousands except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock Issued

 

 

Paid-in

 

 

Other Comprehensive

 

 

Retained

 

 

Treasury

 

 

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(loss) income

 

 

Earnings

 

 

Stock

 

 

Equity

 

BALANCE, September 30, 2017

 

 

26,314,066

 

 

$

26

 

 

$

249,974

 

 

 

—

 

 

$

126,759

 

 

$

(74,561

)

 

$

302,198

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

39,312

 

 

 

—

 

 

 

39,312

 

Purchase of treasury stock

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(695

)

 

 

(695

)

Shares issued pursuant to employee stock

   purchase plan

 

 

67,187

 

 

 

—

 

 

 

950

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

950

 

Shares issued upon vesting of equity awards,

   net of minimum tax withholding

 

 

163,350

 

 

 

—

 

 

 

(1,643

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1,643

)

Shares issued upon exercise of stock options

 

 

586,531

 

 

 

1

 

 

 

6,732

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

6,733

 

Stock-based compensation

 

 

10,133

 

 

 

—

 

 

 

6,237

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

6,237

 

BALANCE, September 30, 2018

 

 

27,141,267

 

 

$

27

 

 

$

262,250

 

 

 

—

 

 

$

166,071

 

 

$

(75,256

)

 

$

353,092

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

35,985

 

 

 

—

 

 

 

35,985

 

Purchase of treasury stock

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(27,708

)

 

 

(27,708

)

Shares issued pursuant to employee stock

   purchase plan

 

 

62,287

 

 

 

—

 

 

 

1,022

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,022

 

Shares issued upon vesting of equity awards,

   net of minimum tax withholding

 

 

174,606

 

 

 

—

 

 

 

(1,216

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1,216

)

Shares issued upon exercise of stock options

 

 

119,275

 

 

 

1

 

 

 

1,389

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,390

 

Stock-based compensation

 

 

11,038

 

 

 

—

 

 

 

6,524

 

 

 

 

 

 

 

—

 

 

 

—

 

 

 

6,524

 

Foreign currency translation adjustments,

   net of tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(669

)

 

 

—

 

 

 

—

 

 

 

(669

)

Cumulative effect of change in accounting principle - revenue recognition, net of tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

399

 

 

 

—

 

 

 

399

 

BALANCE, September 30, 2019

 

 

27,508,473

 

 

$

28

 

 

$

269,969

 

 

 

(669

)

 

$

202,455

 

 

$

(102,964

)

 

$

368,819

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

74,634

 

 

 

—

 

 

 

74,634

 

Purchase of treasury stock

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(631

)

 

 

(631

)

Shares issued pursuant to employee stock

   purchase plan

 

 

94,741

 

 

 

—

 

 

 

1,004

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,004

 

Shares issued upon vesting of equity awards,

   net of minimum tax withholding

 

 

228,304

 

 

 

—

 

 

 

(1,659

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1,659

)

Shares issued upon exercise of stock options

 

 

286,702

 

 

 

—

 

 

 

3,625

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

3,625

 

Stock-based compensation

 

 

12,092

 

 

 

—

 

 

 

7,497

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

7,497

 

Foreign currency translation adjustments,

   net of tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,498

 

 

 

—

 

 

 

—

 

 

 

1,498

 

Cumulative effect of change in accounting principle - leases, net of tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

610

 

 

 

—

 

 

 

610

 

BALANCE, September 30, 2020

 

 

28,130,312

 

 

$

28

 

 

$

280,436

 

 

$

829

 

 

$

277,699

 

 

$

(103,595

)

 

$

455,397

 

 

See accompanying notes to consolidated financial statements.

 

F-6

MARINEMAX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands) 

 

 

For the Year Ended September 30,

 

 

 

2018

 

 

2019

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

39,312

 

 

$

35,985

 

 

$

74,634

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

10,673

 

 

 

11,597

 

 

 

12,772

 

Deferred income tax provision

 

 

5,361

 

 

 

4,384

 

 

 

3,157

 

Loss on sale of property and equipment

 

 

330

 

 

 

956

 

 

 

366

 

Gain on insurance settlements

 

 

(1,082

)

 

 

—

 

 

 

—

 

Proceeds from insurance settlements

 

 

2,342

 

 

 

475

 

 

 

703

 

Gain on contingent acquisition consideration

 

 

(1,440

)

 

 

—

 

 

 

—

 

Stock-based compensation expense, net

 

 

6,237

 

 

 

6,524

 

 

 

7,497

 

(Increase) Decrease in, net of effects of acquisitions—

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(11,279

)

 

 

(5,071

)

 

 

2,584

 

Inventories, net

 

 

26,773

 

 

 

(84,330

)

 

 

179,466

 

Prepaid expenses and other assets

 

 

(996

)

 

 

(3,182

)

 

 

101

 

(Decrease) Increase in, net of effects of acquisitions —

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

(3,325

)

 

 

8,701

 

 

 

2,887

 

Contract liabilities (customer deposits)

 

 

(4,065

)

 

 

6,804

 

 

 

7,411

 

Accrued expenses and other liabilities

 

 

1,573

 

 

 

4,731

 

 

 

13,097

 

Net cash provided by (used in) operating activities

 

 

70,414

 

 

 

(12,426

)

 

 

304,675

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(13,804

)

 

 

(17,061

)

 

 

(12,807

)

Proceeds from insurance settlements

 

 

823

 

 

 

461

 

 

 

—

 

Cash used in acquisition of businesses, net of cash acquired

 

 

(10,524

)

 

 

(40,713

)

 

 

(19,766

)

Proceeds from sale of property and equipment

 

 

190

 

 

 

979

 

 

 

2,464

 

Net cash used in investing activities

 

 

(23,315

)

 

 

(56,334

)

 

 

(30,109

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

Net borrowings on short-term borrowings

 

 

(43,383

)

 

 

85,580

 

 

 

(167,672

)

Proceeds from long-term debt

 

 

—

 

 

 

—

 

 

 

7,437

 

Payments for long-term debt

 

 

—

 

 

 

—

 

 

 

(41

)

Net proceeds from issuance of common stock under incentive

   compensation, and employee purchase plans

 

 

7,683

 

 

 

2,412

 

 

 

4,629

 

Contingent acquisition consideration payments

 

 

(3,324

)

 

 

(129

)

 

 

(148

)

Payments on tax withholdings for equity awards

 

 

(510

)

 

 

(1,525

)

 

 

(1,703

)

Purchase of treasury stock

 

 

(695

)

 

 

(27,708

)

 

 

(631

)

Net cash provided (used in) provided by financing activities

 

 

(40,229

)

 

 

58,630

 

 

 

(158,129

)

Effect of exchange rate changes on cash

 

 

—

 

 

 

(181

)

 

 

545

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:

 

 

6,870

 

 

 

(10,311

)

 

 

116,982

 

CASH AND CASH EQUIVALENTS, beginning of year

 

 

41,952

 

 

 

48,822

 

 

 

38,511

 

CASH AND CASH EQUIVALENTS, end of year

 

$

48,822

 

 

$

38,511

 

 

$

155,493

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

$

12,021

 

 

$

13,669

 

 

$

13,082

 

Income taxes

 

 

9,424

 

 

 

9,152

 

 

 

18,930

 

Non-cash items:

 

 

 

 

 

 

 

 

 

 

 

 

Initial operating lease right-of-use assets for adoption of ASU 2016-02

 

 

-

 

 

 

-

 

 

 

42,070

 

Initial current and noncurrent operating lease liabilities for adoption of ASU 2016-02

 

 

-

 

 

 

-

 

 

 

43,953

 

Accrued tax withholdings upon vesting of equity awards

 

 

1,525

 

 

 

1,198

 

 

 

1,153

 

Contingent consideration liabilities from acquisitions

 

 

-

 

 

 

640

 

 

 

2,270

 

Accrued acquisition of property and equipment

 

 

129

 

 

 

995

 

 

 

491

 

See accompanying notes to consolidated financial statements

 

F-7

MARINEMAX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

1.  COMPANY BACKGROUND AND BASIS OF PRESENTATION:

We are the largest recreational boat and yacht 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.  We also offer the charter of power yachts in the British Virgin Islands.  As of September 30, 2020, we operated through 57 retail locations in 16 states, consisting of Alabama, Connecticut, Florida, Georgia, Maryland, Massachusetts, Minnesota, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Rhode Island, South Carolina, and Texas.  Our MarineMax Vacations operations maintain a facility in Tortola, British Virgin Islands. We also own Fraser Yachts Group and Northrop & Johnson, leading superyacht brokerage and luxury yacht services companies with operations in multiple countries.

We are the nation’s largest retailer of Sea Ray and Boston Whaler recreational boats and yachts which are manufactured by Brunswick Corporation (“Brunswick”).  Sales of new Brunswick boats accounted for approximately 33% of our revenue in fiscal 2020.  Sales of new Sea Ray and Boston Whaler boats, both divisions of Brunswick, accounted for approximately 15% and 16%, respectively, of our revenue in fiscal 2020. Brunswick is a world leading manufacturer of marine products and marine engines.  

We have dealership agreements with Sea Ray, Boston Whaler, Harris, and Mercury Marine, all subsidiaries or divisions of Brunswick.  We also have dealer agreements with Italy-based Azimut-Benetti Group’s product line for Azimut and Benetti yachts and mega yachts.  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. The agreements for Sea Ray and Boston Whaler products appoint us as the exclusive dealer of Sea Ray or Boston Whaler boats in our geographic markets. In addition, we are the exclusive dealer for Azimut Yachts for the entire United States. Sales of new Azimut boats and yachts accounted for approximately 9% of our revenue in fiscal 2020.  We believe non-Brunswick brands offer a migration for our existing customer base or fill a void in our product offerings, and accordingly, do not compete with the business generated from our other prominent brands.

Beginning in March 2020, we had temporarily closed certain departments or locations based on guidance from local government or health officials as a result of the COVID-19 global pandemic. We are following guidelines to ensure we are safely operating as recommended. As the COVID-19 pandemic is complex and evolving rapidly with many unknowns, the Company will continue to monitor ongoing developments and respond accordingly. Management expects its business, across all of its geographies, will be impacted to some degree, but the significance of the impact of the COVID-19 pandemic on the Company’s business and the duration for which it may have an impact cannot be determined at this time.

As is typical in the industry, we deal with most of our manufacturers, other than Sea Ray, Boston Whaler, and Azimut Yachts, 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, or the agreements discussed above, for any reason, or 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 Sea Ray and Azimut 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.

General economic conditions and consumer spending patterns can negatively impact our operating results.  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.  Economic conditions in areas in which we operate dealerships, particularly Florida in which we generated approximately 51%, 54% and 54% of our revenue during fiscal 2018, 2019, and 2020, respectively, can have a major impact on our operations.  Local influences, such as corporate downsizing, military base closings, inclement weather such as Hurricane Sandy in 2012 or Hurricanes Harvey and Irma in 2017, environmental conditions, and specific events, such as the BP oil spill in the Gulf of Mexico in 2010, also could adversely affect, and in certain instances have adversely affected, our operations in certain markets.

In an economic downturn, consumer discretionary spending levels generally decline, at times resulting in disproportionately large reductions in the sale of luxury goods. Consumer spending on luxury goods also may decline as a result of lower consumer confidence levels, even if prevailing economic conditions are favorable. As a result, an economic downturn would likely impact us more than certain of our competitors due to our strategic focus on a higher end of our market. Although we have expanded our operations during periods of stagnant or modestly declining industry trends, the cyclical nature of the recreational boating industry or

F-8

MARINEMAX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

the lack of industry growth may adversely affect our business, financial condition, and results of operations. Any period of adverse economic conditions or low consumer confidence is likely to have a negative effect on our business.

Historically, in periods of lower consumer spending and depressed economic conditions, we have, among other things, substantially reduced our acquisition program, delayed new store openings, reduced our inventory purchases, engaged in inventory reduction efforts, closed a number of our retail locations, reduced our headcount, and amended and replaced our credit facility.  Acquisitions remain an important strategy for us, and, subject to a number of conditions, including macro-economic conditions and finding attractive acquisition targets, we plan to explore opportunities through this strategy.

 

 

2.  SIGNIFICANT ACCOUNTING POLICIES:

Cash and Cash Equivalents

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. Fraser Yachts Group customer charter management cash accounts are excluded from cash and cash equivalents. These accounts belong to our customers and we provide management assistance at the request of the customer and for the benefit of the customer.

Vendor Consideration Received

We account for consideration received from our vendors in accordance with ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. ASC 606 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 ASC 606, amounts received by us under our co-op assistance programs from our manufacturers are netted against related advertising expenses.  Our consideration received from our vendors contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding a number of factors, including our ability to collect amounts due from vendors and the ability to meet certain criteria stipulated by our vendors.  We do not believe there is a reasonable likelihood that there will be a change in the future estimates or assumptions we use to calculate our vendor considerations which would result in a material effect on our operating results.

Inventories

Inventory costs consist of the amount paid to acquire inventory, net of vendor consideration and purchase discounts, the cost of equipment added, reconditioning costs, and transportation costs relating to acquiring inventory for sale. We state new and used boat, motor, and trailer inventories at the lower of cost, determined on a specific-identification basis, or net realizable value. We state parts and accessories at the lower of cost, determined on an average cost basis, or net realizable value. We utilize our historical experience, the aging of the inventories, and our consideration of current market trends as the basis for determining lower of cost or net realizable value. We do not believe there is a reasonable likelihood that there will be a change in the future estimates or assumptions we use to calculate our valuation allowance which would result in a material effect on our operating results. As of September 30, 2019 and 2020, our valuation allowance for new and used boat, motor and trailer inventories was $2.2 million and $2.4 million, respectively.  If events occur and market conditions change, causing the fair value to fall below carrying value, the valuation allowance could increase.

Property and Equipment

We record property and equipment at cost, net of accumulated depreciation, and depreciate property and equipment 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

 

F-9

MARINEMAX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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, and we capitalize and amortize major replacements and improvements over their useful lives.

Goodwill

We account for goodwill in accordance with FASB Accounting Standards Codification 350, “Intangibles — Goodwill and Other” (“ASC 350”), which requires the excess purchase price over the estimated fair value of net assets acquired in a business combination to be recorded as goodwill. In July 2020, we purchased Northrop & Johnson, a leading superyacht brokerage and services company. In March 2020, we purchased Boatyard, a digital platform with an expansive range of on-demand services to streamline the boating experience by qualified service providers from a smartphone. In July 2019, we purchased Fraser Yachts Group, a leading superyacht brokerage and largest luxury yacht services company. In April 2019, we purchased Sail & Ski Center, a privately owned boat dealer located in Texas. Goodwill and other intangible assets increased, due to acquisitions, by $37.0 million and $20.2 million, for the fiscal years ended September 30, 2019 and 2020, respectively. These acquisitions have resulted in the recording of goodwill for tax purposes of $10.5 million and $16.8 million, for the fiscal years ended September 30, 2019 and 2020, respectively. In total, current and previous acquisitions have resulted in the recording of $84.3 million in goodwill and other intangible assets as of September 30, 2020. In accordance with ASC 350, we test goodwill for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  Our annual impairment test is performed during the fourth fiscal quarter.  If the carrying amount of a reporting unit’s goodwill exceeds its fair value we recognize an impairment loss in accordance with ASC 350. As of September 30, 2020, and based upon our most recent analysis, we determined through our qualitative assessment that it is not “more likely than not” that the fair values of our reporting units are less than their carrying values.  As a result, we were not required to perform a quantitative goodwill impairment.

Impairment of Long-Lived Assets

FASB Accounting Standards Codification 360-10-40, “Property, Plant, and Equipment — Impairment or Disposal of Long-Lived Assets” (“ASC 360-10-40”), requires that long-lived assets, such as property and equipment and intangible assets 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 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 our best estimate based on currently available information and reasonable and supportable assumptions. The analysis is performed at a regional level for indicators of permanent impairment given the geographical interdependencies among our locations.  Based upon our most recent analysis, we believe no impairment of long-lived assets existed as of September 30, 2020.

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.  Our third-party insurance carriers pay any losses above the pre-determined exposure limits.  We estimate our liability for incurred but not reported losses using our historical loss experience, our judgment, and industry information.

Revenue Recognition

The majority of our revenue is from contracts with customers for the sale of boats, motors, and trailers. We recognize revenue from boat, motor, and trailer sales upon transfer of control of the boat, motor, or trailer to the customer, which is generally upon acceptance or delivery to the customer. The transaction price is determined with the customer at time of sale. Customers may trade in boats to apply toward the purchase of a new or used boat. The trade-in is a type of noncash consideration measured at fair value, based on external and internal market data and applied as payment to the contract price for the purchased boat. At the time of acceptance or delivery, the customer is able to direct the use of, and obtain substantially all of the benefits of the boat, motor, or trailer at such time. We recognize commissions earned from a brokerage sale when the related brokerage transaction closes upon transfer of control of the boat, motor, or trailer to the customer, which is generally upon acceptance or delivery to the customer.

F-10

MARINEMAX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

We do not directly finance our customers’ boat, motor, or trailer purchases. In many cases, we assist with third-party financing for boat, motor, and trailer sales. 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. Pursuant to negotiated agreements with financial institutions, we are charged back for a portion of these fees should the customer terminate or default on the related finance contract before it is outstanding for a stipulated minimum period of time.  We base the chargeback allowance, which was not material to the consolidated financial statements taken as a whole as of September 30, 2020, on our experience with repayments or defaults on the related finance contracts. We recognize variable consideration from commissions earned on extended warranty service contracts sold on behalf of third-party insurance companies at generally the later of customer acceptance of the service contract terms as evidenced by contract execution or recognition of the related boat sale. We also recognize variable consideration from marketing fees earned on 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 recognize revenue from parts and service operations (boat maintenance and repairs) over time as services are performed. Each boat maintenance and repair service is a single performance obligation that includes both the parts and labor associated with the service. Payment for boat maintenance and repairs is typically due upon the completion of the service, which is generally completed within a short period of time from contract inception. We satisfy our performance obligations, transfer control, and recognize revenue over time for parts and service operations because we are creating a contract asset with no alternative use and we have an enforceable right to payment for performance completed to date. Contract assets primarily relate to our right to consideration for work in process not yet billed at the reporting date associated with maintenance and repair services. We use an input method to recognize revenue and measure progress based on labor hours expended to satisfy the performance obligation at average labor rates. We have determined labor hours expended to be the relevant measure of work performed to complete the maintenance and repair service for the customer. As a practical expedient, because repair and maintenance service contracts have an original duration of one year or less, we do not consider the time value of money, and we do not disclose estimated revenue expected to be recognized in the future for performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period or when we expect to recognize such revenue.

Contract liabilities primarily consist of customer deposits. We recognize contract liabilities (customer deposits) as revenue at the time of delivery or acceptance by the customers.  Total contract liabilities of approximately $24.3 million recorded as of September 30, 2019 were recognized in revenue during the fiscal year ended September 30, 2020. Contract assets, recorded in prepaid expenses and other current assets, totaled approximately $2.5 million and $2.6 million as of September 30, 2019 and September 30, 2020, respectively.

We recognize deferred revenue from service operations and slip and storage services over time on a straight-line basis over the term of the contract as our performance obligations are met. We recognize income from the rentals of chartering power and sailing yachts over time on a straight-line basis over the term of the contract as our performance obligations are met.

The following table sets forth percentages on the timing of revenue recognition for the fiscal years ended September 30,

 

 

 

Fiscal Year Ended

 

 

Fiscal Year Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2020

 

Goods and services transferred at a point in time

 

 

90.8

%

 

 

92.7

%

Goods and services transferred over time

 

 

9.2

%

 

 

7.3

%

     Total Revenue

 

 

100.0

%

 

 

100.0

%

 

 

F-11

MARINEMAX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following table sets forth percentages of our revenue generated by certain products and services, for each of last three fiscal years.

 

 

 

2018

 

 

2019

 

 

2020

 

New boat sales

 

 

71.2

%

 

 

70.1

%

 

 

70.2

%

Used boat sales

 

 

14.8

%

 

 

14.9

%

 

 

15.1

%

Maintenance, repair, storage, and charter services

 

 

6.2

%

 

 

6.9

%

 

 

6.4

%

Finance and insurance products

 

 

2.4

%

 

 

2.6

%

 

 

2.7

%

Parts and accessories

 

 

3.6

%

 

 

3.6

%

 

 

3.0

%

Brokerage sales

 

 

1.8

%

 

 

1.9

%

 

 

2.6

%

Total revenue

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

Stock-Based Compensation

We account for our stock-based compensation plans following the provisions of FASB Accounting Standards Codification 718, “Compensation — Stock Compensation” (“ASC 718”).  In accordance with ASC 718, we use the Black-Scholes valuation model for valuing all stock-based compensation and shares purchased under our Employee Stock Purchase Plan.  We measure compensation for restricted stock awards and restricted stock units 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.  We recognize compensation cost for all awards in operations, net of estimated forfeitures, on a straight-line basis over the requisite service period for each separately vesting portion of the award.

Leases

 

We lease numerous facilities relating to our operations. See Note 7 of the Notes to Consolidated Financial Statements for a discussion of our significant accounting policies related to leases.

Foreign Currency Transactions

For the Company’s foreign subsidiaries that use a currency other than the U.S. dollar as their functional currency, the assets and liabilities are translated at exchange rates in effect at the balance sheet date, and revenues and expenses are translated at the weighted average exchange rate for the period. The effects of these translation adjustments are reported in accumulated other comprehensive income. Gains and losses arising from transactions denominated in a currency other than the functional currency of the entity involved are included in operating income. As of September 30, 2020, our accumulated other comprehensive income, net of tax, was $0.8 million. As of September 30, 2019, our accumulated other comprehensive loss, net of tax, was $0.7 million. The change in accumulated other comprehensive income was the result of foreign currency translation adjustments net of taxes. No amounts were reclassified out of accumulated other comprehensive income in fiscal 2020.  

Advertising and Promotional Cost

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 ASC 606, we net amounts received by us under our co-op assistance programs from our manufacturers against the related advertising expenses.  Total advertising and promotional expenses approximated $16.5 million, $18.8 million and $14.0 million, net of related co-op assistance of approximately $653,000, $807,000, and $589,000, for the fiscal years ended September 30, 2018, 2019, and 2020, respectively.

Income Taxes

We account for income taxes in accordance with FASB Accounting Standards Codification 740, “Income Taxes” (“ASC 740”).  Under ASC 740, 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 we expect those temporary differences to be recovered or settled.  We record valuation allowances to reduce our deferred tax assets to the amount expected to be realized by considering all available positive and negative evidence.

F-12

MARINEMAX, INC. AND SUBSIDIARIES

NOTES TO 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

Our financial instruments include cash and cash equivalents, accounts receivable, accounts payable, other payables and accrued expenses and debt. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, other payables and accrued expenses approximate their fair values due to their short-term nature. The carrying value of debt approximates its fair value due to the debt agreements bearing interest at rates that approximate current market rates for debt agreements with similar maturities and credit quality.

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 revenues 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, valuation of contingent consideration, and valuation of accruals.  Actual results could differ materially from those estimates.

Segment Reporting

We operate as one reporting segment in accordance with the FASB Accounting Standards Codification 280, “Segment Reporting”.  The metrics used by our Chief Executive Officer (as the Company’s chief operating decision maker or the “CODM”) to assess the performance of the Company are focused on viewing the business as a single integrated business.

 

 

3.  NEW ACCOUNTING PRONOUNCEMENTS:

Revenue Recognition

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), a converged standard on revenue recognition.  The new pronouncement requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer, as well as enhanced disclosure requirements. The FASB also subsequently issued several amendments to the standard, including clarification on principal versus agent guidance, identifying performance obligations, and immaterial goods and services in a contract.

The new accounting standard update must be applied using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a modified retrospective approach with the cumulative effect of initially adopting the standard recognized at the date of adoption (which requires additional footnote disclosures).

The new accounting standard is effective for reporting periods beginning after December 15, 2017. We adopted the accounting standard effective October 1, 2018, using the modified retrospective approach applied only to contracts not completed as of the date of adoption, with no restatement of comparative periods. Therefore, the comparative information has not been adjusted and continues to be reported under ASC Topic 605. We recognized a net after-tax cumulative effect adjustment to retained earnings of $399,000 as of the date of adoption. The details and quantitative impacts of the significant changes are described below.

We previously recognized revenue for parts and service operations (boat maintenance and repairs) when the services were completed and recorded amounts due to us as receivables. Under ASC Topic 606, performance obligations associated with parts and service operations are satisfied over time, which results in the acceleration of revenue recognition, and amounts due to us are reflected as a contract asset until the right to such consideration becomes unconditional, at which time amounts due to us are reclassified to receivables.

F-13

MARINEMAX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Consolidated Balance Sheet Line Items

 

 

 

Impact of changes in accounting policies

 

 

 

 

 

 

 

Balances without

 

 

Impact of

 

 

 

 

 

 

 

adoption of ASC

 

 

adoption

 

September 30, 2019

 

As Reported

 

 

Topic 606

 

 

Higher/(Lower)

 

Inventories, net

 

$

477,468

 

 

$

477,405

 

 

$

63

 

Prepaid expenses and other current assets

 

 

10,206

 

 

 

7,681

 

 

 

2,525

 

     Accounts payable

 

 

33,674

 

 

 

33,708

 

 

 

(34

)

     Accrued expenses

 

 

42,849

 

 

 

40,669

 

 

 

2,180

 

     Deferred tax liabilities

 

 

1,142

 

 

 

1,005

 

 

 

137

 

     Retained earnings

 

$

202,455

 

 

$

202,150

 

 

$

305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Operations Line Items

 

 

 

Impact of changes in accounting policies

 

 

 

 

 

 

 

Balances without

 

 

Impact of

 

 

 

 

 

 

 

adoption of ASC

 

 

adoption

 

Fiscal Year Ended September 30, 2019

 

As Reported

 

 

Topic 606

 

 

Higher/(Lower)

 

Revenue

 

$

1,237,153

 

 

$

1,237,899

 

 

$

(746

)

Cost of sales

 

 

914,321

 

 

 

914,939

 

 

 

(618

)

Income from operations

 

 

60,532

 

 

 

60,660

 

 

 

(128

)

     Income before income tax provision

 

 

48,953

 

 

 

49,081

 

 

 

(128

)

Income tax provision

 

 

12,968

 

 

 

13,002

 

 

 

(34

)

Net Income

 

$

35,985

 

 

$

36,079

 

 

$

(94

)

 

Consolidated Statements of Cash flows

 

 

 

Impact of changes in accounting policies

 

 

 

 

 

 

 

Balances without

 

 

Impact of

 

 

 

 

 

 

 

adoption of ASC

 

 

adoption

 

Fiscal Year Ended September 30, 2019

 

As Reported

 

 

Topic 606

 

 

Higher/(Lower)

 

Net income

 

$

35,985

 

 

$

36,079

 

 

$

(94

)

(Increase) decrease in —

 

 

 

 

 

 

 

 

 

 

 

 

Inventories, net

 

 

(84,330

)

 

 

(83,712

)

 

 

(618

)

Prepaid expenses and other assets

 

 

(3,182

)

 

 

(1,748

)

 

 

(1,434

)

Increase (decrease) in —

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

8,701

 

 

 

8,735

 

 

 

(34

)

Accrued expenses and other long-term liabilities

 

$

4,731

 

 

$

2,551

 

 

$

2,180

 

 

Accounting for Leases

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”).  This update requires organizations to recognize lease assets and lease liabilities on the balance sheet and also disclose key information about leasing arrangements. ASU 2016-02 was effective for annual reporting periods beginning on or after December 15, 2018, and interim periods within those annual periods. Earlier application was permitted for all entities as of the beginning of an interim or annual period. Subsequent amendments to the standard provide an additional and optional transition method that allows entities to initially apply the new standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. An entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current GAAP (ASC Topic 840) if the optional transition method is elected.

 

F-14

MARINEMAX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

We adopted ASU 2016-02 effective October 1, 2019 the first day of fiscal 2020. We elected the package of practical expedients available under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification of our existing leases. Consequently, on adoption, we recognized additional operating lease liabilities of $44.0 million and right-of-use (“ROU”) assets of $42.1 million. The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify. As a result, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and we did not recognize ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also elected the practical expedient to not separate lease and non-lease components. We recognized a net after-tax cumulative effect adjustment to retained earnings of $0.6 million as of the date of adoption. See Note 7 for additional information on our leases.

 

Other New Pronouncements

 

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The guidance amends Accounting Standards Codification (ASC) 350 to include in its scope implementation costs of a cloud computing arrangement that is a service contract and clarifies that a customer should apply ASC 350 to determine which implementation costs should be capitalized in such a cloud computing arrangement. This guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. We are currently evaluating the impact that this standard will have on our consolidated financial statements.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses. ASU 2016-13 requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures relating to significant estimates and judgments used in estimating credit losses, as well as the credit quality. This guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. We are currently evaluating the impact that this standard will have on our consolidated financial statements.

 

4.  ACCOUNTS RECEIVABLE:

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.

The allowance for uncollectible receivables, which was not material to the consolidated financial statements as of September 30, 2019 or 2020, was based on our consideration of customer payment practices, past transaction history with customers, and economic conditions.  When an account becomes uncollectable, we expense it as a bad debt and we credit payments subsequently received to the bad debt expense account.  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 collectability of a specific account.

Accounts receivable, net consisted of the following as of September 30,

 

 

 

2019

 

 

2020

 

 

 

(Amounts in thousands)

 

Trade receivables, net

 

$

29,750

 

 

$

31,289

 

Amounts due from manufacturers

 

 

11,245

 

 

 

7,575

 

Other receivables

 

 

1,403

 

 

 

1,331

 

 

 

$

42,398

 

 

$

40,195

 

 

 

F-15

MARINEMAX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

5.  INVENTORIES:

Inventories, net, consisted of the following as of September 30,

 

 

 

2019

 

 

2020

 

 

 

(Amounts in thousands)

 

New boats, motors, and trailers

 

$

413,335

 

 

$

252,605

 

Used boats, motors, and trailers

 

 

56,363

 

 

 

36,686

 

Parts, accessories, and other

 

 

7,770

 

 

 

8,711

 

 

 

$

477,468

 

 

$

298,002

 

 

 

6.  PROPERTY AND EQUIPMENT:

Property and equipment consisted of the following as of September 30,

 

 

 

2019

 

 

2020

 

 

 

(Amounts in thousands)

 

Land

 

$

56,549

 

 

$

55,549

 

Buildings and improvements

 

 

112,892

 

 

 

115,394

 

Machinery and equipment

 

 

36,368

 

 

 

39,416

 

Furniture and fixtures

 

 

4,995

 

 

 

5,233

 

Vehicles

 

 

11,292

 

 

 

12,612

 

 

 

 

222,096

 

 

 

228,204

 

Accumulated depreciation and amortization

 

 

(77,798

)

 

 

(86,270

)

 

 

$

144,298

 

 

$

141,934

 

 

Depreciation and amortization expense on property and equipment totaled approximately $10.7 million, $11.6 million, and $12.8 million for the fiscal years ended September 30, 2018, 2019, and 2020, respectively.

 

 

7.  LEASES:

 

The majority of leases that we enter into are real estate leases. We lease numerous facilities relating to our operations, including showrooms, display lots, service facilities, slips, offices, equipment and our corporate headquarters. Leases for real property have terms, including renewal options, ranging from one to in excess of twenty-five years. In addition, we lease certain charter boats for our yacht charter business. As of September 30, 2020, the weighted-average remaining lease term for our leases was approximately 10 years. All of our leases are classified as operating leases, which are included as ROU assets and operating lease liabilities in our consolidated balance sheet. For the fiscal years ended September 30, 2018, 2019, and 2020, operating lease expenses recorded in selling, general, and administrative expenses were approximately $11.8 million, $12.8 million, and $13.9 million, of which approximately $0.4 million, $0.4 million, and $0.5 million, related to variable lease expenses, respectively. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We do not have any significant leases that have not yet commenced but that create significant rights and obligations for us. We have elected the practical expedient under ASC 842 to not separate lease and nonlease components for all asset classes.

 

Our real estate and equipment leases often require that we pay maintenance in addition to rent. Additionally, our real estate leases generally require payment of real estate taxes and insurance. Maintenance, real estate taxes, and insurance payments are generally variable and based on actual costs incurred by the lessor. Therefore, these amounts are not included in the consideration of the contract when determining the ROU asset and lease liability, but are reflected as variable lease expenses.

 

A majority of our lease agreements include fixed rental payments. Certain of our lease agreements include fixed rental payments that are adjusted periodically by a fixed rate or changes in an index. The fixed payments, including the effects of changes in the fixed rate or amount, and renewal options reasonably certain to be exercised, are included in the measurement of the related lease liability. Most of our real estate leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The exercise of lease renewal options is at our sole discretion. If it is reasonably certain that we will exercise such options, the periods covered by such options are included in the lease term and are recognized as part of our right of use assets and

F-16

MARINEMAX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

lease liabilities. The depreciable life of assets and leasehold improvements are limited by the expected lease term, which includes renewal options reasonably certain to be exercised.

 

For our incremental borrowing rate, we generally use a portfolio approach to determine the discount rate for leases with similar characteristics. We determine discount rates based upon our hypothetical credit rating, taking into consideration our short-term borrowing rates, and then adjusting as necessary for the appropriate lease term. As of September 30, 2020, the weighted-average discount rate used was approximately 7.3%.

 

As of September 30, 2020, maturities of lease liabilities are summarized as follows:

 

 

 

(Amounts in thousands)

 

2021

 

$

9,433

 

2022

 

 

7,658

 

2023

 

 

6,654

 

2024

 

 

5,138

 

2025

 

 

3,590

 

Thereafter

 

 

27,768

 

Total lease payments

 

 

60,241

 

Less: interest

 

 

(19,914

)

Present value of lease liabilities

 

$

40,327

 

 

Under the previous lease accounting prior to the adoption of ASC 842, future minimum annual rental commitments for operating leases as of September 30, 2019 were as follows:

 

 

(Amounts

in thousands)

 

2020

 

9,480

 

2021

 

8,148

 

2022

 

6,906

 

2023

 

6,329

 

2024

 

5,003

 

Thereafter

 

29,111

 

Total

$

64,977

 

 

Supplemental cash flow information related to leases was as follows (amounts in thousands):

 

 

For the Year Ended

 

 

September 30,

 

 

2020

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

Operating cash flows from operating leases

$

10,209

 

Right-of-use assets obtained in exchange for lease obligations:

 

 

 

Operating leases

$

3,811

 

 

The Company reports the amortization of ROU assets and the change in operating lease liabilities on a net basis in accrued expenses and other liabilities in the accompanying Consolidated Statements of Cash Flows.

 

F-17

MARINEMAX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

8.  GOODWILL, INTANGIBLE ASSETS, AND OTHER LONG-TERM ASSETS:

In total, current and previous acquisitions have resulted in the recording of $64.1 million and $84.3 million in goodwill and other intangible assets as of September 30, 2019 and 2020, respectively. Our previous acquisitions and fiscal 2020 acquisitions have not resulted in recording any significant identifiable intangible assets besides goodwill. See Note 2 of the Notes to Consolidated Financial Statements for more information about our annual impairment tests of goodwill and recent acquisitions. Other long-term assets as of September 30, 2019 and 2020 of $7.1 million and $7.8 million, respectively, are primarily long-term deposits and other long-term investments.

 

 

9.  SHORT-TERM BORROWINGS AND LONG-TERM DEBT:

 

Short-term Borrowings

In May 2020, we entered into a Loan and Security Agreement (the “Credit Facility”), with Wells Fargo Commercial Distribution Finance LLC, M&T Bank, Bank of the West, and Truist Bank. The Credit Facility provides the Company a line of credit with asset based borrowing availability of up to $440 million for working capital and inventory financing, with the amount permissible pursuant to a borrowing base formula. The Credit Facility has a three-year term and expires in May 2023, subject to extension for two one-year periods, with lender approval.

The Credit Facility has certain financial covenants as specified in the agreement.  The covenants include provisions that our leverage ratio must not exceed 2.75 to 1.0 and that our current ratio must be greater than 1.2 to 1.0. The interest rate for amounts outstanding under the Credit Facility is 345 basis points plus the greater of 75 basis points or the one-month LIBOR. There is an unused line fee of ten basis points on the unused portion of the Credit Facility.

New inventory borrowing eligibility will generally mature 1,080 days from the original invoice date. Used inventory borrowing eligibility will generally mature 361 days from the date we acquire the used inventory. The collateral for the Credit Facility is all of our personal property with certain limited exceptions.  None of our real estate has been pledged for collateral for the Credit Facility.

As of September 30, 2020, our indebtedness associated with financing our inventory and working capital needs totaled approximately $144.4 million. As of September 30, 2019 and 2020, the interest rate on the outstanding short-term borrowings was approximately 5.6% and 4.2%, respectively.  As of September 30, 2020, our additional available borrowings under our Credit Facility were approximately $82.0 million based upon the outstanding borrowing base availability.

As is common in our industry, we receive interest assistance directly from boat manufacturers, including Brunswick.  The interest assistance programs vary by manufacturer, but 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.

The availability and costs of borrowed funds can adversely affect our ability to obtain adequate boat inventory and the holding costs of that inventory as well as the ability and willingness of our customers to finance boat purchases. However, we rely on our Credit Facility to purchase our inventory of boats.  The aging of our inventory limits our borrowing capacity as defined curtailments reduce the allowable advance rate as our inventory ages.  Our access to funds under our Credit Facility also depends upon the ability of our lenders to meet their funding commitments, particularly if they experience shortages of capital or experience excessive volumes of borrowing requests from others during a short period of time.  Unfavorable economic conditions, weak consumer spending, turmoil in the credit markets, and lender difficulties, among other potential reasons, could interfere with our ability to utilize our Credit Facility to fund our operations.  Any inability to utilize our Credit Facility could require us to seek other sources of funding to repay amounts outstanding under the credit agreements or replace or supplement our credit agreements, which may not be possible at all or under commercially reasonable terms.

Similarly, decreases in the availability of credit and increases in the cost of credit adversely affect the ability of our customers to purchase boats from us and thereby adversely affect our ability to sell our products and impact the profitability of our finance and insurance activities.

F-18

MARINEMAX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Long-term Debt

As of September 30, 2020 we had approximately $7.4 million under a mortgage facility secured by one of our retail locations. The interest rate for amounts outstanding under the mortgage facility is prime minus 100 basis points with a floor of 2.00%. As of September 30, 2020, the interest rate on amounts outstanding was 2.25%. The mortgage facility requires monthly principal and interest payments with a balloon payment of approximately $4.0 million due August 2027. Prepayment of the mortgage facility may be made in whole or in part at any time without premium or penalty. The current portion of long-term debt of approximately $507,000 was recorded in accrued expenses as of September 30, 2020.  

 

 

10.  INCOME TAXES:

 

Earnings before income taxes consisted of the following components for the fiscal years ended September 30,

     

 

 

2018

 

 

2019

 

 

2020

 

 

 

(Amounts in thousands)

 

Earnings before income taxes

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

53,280

 

 

$

46,986

 

 

$

94,854

 

Other

 

 

—

 

 

 

1,967

 

 

 

2,586

 

Total

 

$

53,280

 

 

$

48,953

 

 

$

97,440

 

 

The components of our provision from income taxes consisted of the following for the fiscal years ended September 30,

 

 

 

2018

 

 

2019

 

 

2020

 

 

 

(Amounts in thousands)

 

Current provision:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

8,055

 

 

$

7,933

 

 

$

17,654

 

Foreign

 

 

—

 

 

 

516

 

 

 

654

 

State

 

 

195

 

 

 

135

 

 

 

1,365

 

Total current provision

 

$

8,250

 

 

$

8,584

 

 

$

19,673

 

Deferred provision:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

 

4,205

 

 

 

2,285

 

 

 

2,262

 

Foreign

 

 

—

 

 

 

—

 

 

 

—

 

State

 

 

1,513

 

 

 

2,099

 

 

 

871

 

Total deferred provision

 

 

5,718

 

 

 

4,384

 

 

 

3,133

 

Total income tax provision

 

$

13,968

 

 

$

12,968

 

 

$

22,806

 

 

On December 22, 2017, the Tax Act was enacted which, among a number of its provisions, lowered the U.S. corporate tax rate from 35% to 21%, effective January 1, 2018. The Company’s blended statutory tax rate for fiscal year 2018 was approximately 24.5% as a result of the change in statutory rates. For fiscal year 2018, we recorded a non-cash adjustment to income tax expense of $805,000 for the remeasurement of deferred taxes on the enactment date.

 

F-19

MARINEMAX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Below is a reconciliation of the statutory federal income tax rate to our effective tax rate for the fiscal years ended September 30,

 

 

 

2018

 

 

2019

 

 

2020

 

Federal tax provision

 

 

24.5

%

 

 

21.0

%

 

 

21.0

%

State taxes, net of federal effect

 

 

4.1

%

 

 

4.1

%

 

 

3.1

%

Stock based compensation

 

 

(2.0

)%

 

 

—

 

 

 

(0.5

)%

Valuation allowance

 

 

(0.3

)%

 

 

(0.1

)%

 

 

(0.2

)%

Foreign rate differential

 

 

—

 

 

 

0.2

%

 

 

0.1

%

Effect of Federal Tax Reform

 

 

1.5

%

 

 

—

 

 

 

—

 

Other

 

 

(1.6

)%

 

 

1.3

%

 

 

(0.1

)%

Effective tax rate

 

 

26.2

%

 

 

26.5

%

 

 

23.4

%

 

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 of these temporary differences representing the components of deferred tax assets as of September 30,

 

 

 

2019

 

 

2020

 

 

 

(Amounts in thousands)

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Inventories

 

$

774

 

 

$

808

 

Operating lease right-of-use assets

 

 

-

 

 

$

9,926

 

Accrued expenses

 

 

492

 

 

 

640

 

Stock based compensation

 

 

2,388

 

 

 

2,170

 

Tax loss carryforwards

 

 

2,316

 

 

 

810

 

Other

 

 

562

 

 

 

268

 

Valuation allowance

 

 

(164

)

 

 

-

 

Total long-term deferred tax assets

 

 

6,368

 

 

 

14,622

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

(7,510

)

 

 

(9,095

)

Operating lease liabilities

 

 

-

 

 

 

(10,036

)

Total long-term deferred tax liabilities

 

$

(7,510

)

 

$

(19,131

)

Net deferred tax liabilities

 

$

(1,142

)

 

$

(4,509

)

 

Pursuant to ASC 740, we must consider all positive and negative evidence regarding the realization of deferred tax assets.  ASC 740 provides four possible sources of taxable income to realize deferred tax assets: 1) taxable income in prior carryback years, 2) reversals of existing deferred tax liabilities, 3) tax planning strategies and 4) projected future taxable income.  As of September 30, 2020, we have no available taxable income in prior carryback years, limited reversals of existing deferred tax liabilities or prudent and feasible tax planning strategies.  Therefore, the recoverability of our deferred tax assets is dependent upon generating future taxable income.

  

The Company included a $164,000 reversal of its outstanding valuation allowance due to the likelihood that the Company would use these deferred tax assets prior to the statute of limitations.  The valuation allowance related to net operating loss (NOL) carryforwards in jurisdictions where the Company has expanded operations.  

As of September 30, 2017, we no longer had federal NOL carryforwards for federal income tax purposes. As of September 30, 2020, the Company has state NOL carryforwards of approximately $15.4 million for state income tax purposes, which resulted in a deferred tax asset of $0.8 million, and expire at various dates from 2029 through 2032.    

Significant judgment is required in evaluating our uncertain tax positions. Although we believe our tax return positions are sustainable, we recognize tax benefits from uncertain tax positions in the financial statements only when it is more likely than not that the positions will not be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits and a consideration of the relevant taxing authority’s administrative practices and precedents. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes

F-20

MARINEMAX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest and penalties.

We are subject to tax by both federal and state taxing authorities.  Until the respective statutes of limitations expire, we are subject to income tax audits in the jurisdictions in which we operate.  We are no longer subject to U.S. federal tax assessments for fiscal years prior to 2015, we are not subject to assessments prior to the 2014 fiscal year for the majority of the State jurisdictions and we are not subject to assessments prior to the 2014 calendar year for the majority of the foreign jurisdictions.

 

 

11.  SHAREHOLDERS’ EQUITY:

In March 2020, our Board of Directors approved a new share repurchase plan allowing the Company to repurchase up to 10 million shares of our common stock through March 2022.  Under the plan, we may buy back common stock from time to time in the open market or in privately negotiated blocks, dependent upon various factors, including price and availability of the shares, and general market conditions.  Through September 30, 2020 we had purchased an aggregate of 6,267,021 shares of common stock under the current and historical share repurchase plans for an aggregate purchase price of approximately $103.6 million.  As of September 30, 2020, approximately 9.9 million shares remained available for future purchases under the share repurchase program.

 

 

12.  STOCK-BASED COMPENSATION:

We account for our stock-based compensation plans following the provisions of FASB Accounting Standards Codification 718, “Compensation — Stock Compensation” (“ASC 718”).  In accordance with ASC 718, we use the Black-Scholes valuation model for valuing all stock-based compensation and shares purchased under our Employee Stock Purchase Plan.  We measure compensation for restricted stock awards and restricted stock units 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.  We recognize compensation cost for all awards in operations 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 compensation arrangements for the fiscal years ended September 30, 2018, 2019 and 2020 was approximately $7.7 million, $2.4 million, and $4.6 million, respectively. We currently expect to satisfy share-based awards with registered shares available to be issued.

 

 

13. THE INCENTIVE STOCK PLANS:

During February 2020, our shareholders approved a proposal to amend the 2011 Stock-Based Compensation Plan (“2011 Plan”) to increase the 3,200,456 share threshold by 1,000,000 shares to 4,200,456 shares.  During January 2011, our shareholders approved a proposal to authorize our 2011 Plan, which replaced our 2007 Incentive Compensation Plan (“2007 Plan”).  Our 2011 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, stock units, bonus stock, dividend equivalents, other stock related awards, and performance awards (collectively “awards”), that may be settled in cash, stock, or other property.  Our 2011 Plan is designed to attract, motivate, retain, and reward our executives, employees, officers, directors, and independent contractors by providing such persons with annual and long-term performance incentives to expend their maximum efforts in the creation of shareholder value.  Subsequent to the February 2020 amendment described above, the total number of shares of our common stock that may be subject to awards under the 2011 Plan is equal to 4,000,000 shares, plus: (i) any shares available for issuance and not subject to an award under the 2007 Plan, which was 200,456 shares at the time of approval of the 2011 Plan; (ii) the number of shares with respect to which awards granted under the 2011 Plan and the 2007 Plan terminate without the issuance of the shares or where the shares are forfeited or repurchased; (iii) with respect to awards granted under the 2011 Plan and the 2007 Plan, the number of shares that are not issued as a result of the award being settled for cash or otherwise not issued in connection with the exercise or payment of the award; and (iv) the number of shares that are surrendered or withheld in payment of the exercise price of any award or any tax withholding requirements in connection with any award granted under the 2011 Plan or the 2007 Plan.  The 2011 Plan terminates in January 2021, and awards may be granted at any time during the life of the 2011 Plan.  The dates on which awards vest are determined by the Board of Directors or the Plan Administrator.  The Board of Directors has appointed the Compensation Committee as the Plan Administrator.  The exercise prices of options are determined by the Board of Directors or the Plan Administrator and are at least equal to the fair market value of shares of common stock on the date of grant.  The term of options under the 2011 Plan may not exceed ten years.  The options granted have varying vesting periods.  To date, we have not settled or been under any obligation to settle any awards in cash.

F-21

MARINEMAX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following table summarizes option activity from September 30, 2019 through September 30, 2020:

 

 

 

Shares

Available

for Grant

 

 

Options

Outstanding

 

 

Aggregate

Intrinsic

Value

(in thousands)

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Life

 

Balance as of September 30, 2019

 

 

715,590

 

 

 

484,031

 

 

$

1,569

 

 

$

12.42

 

 

 

3.7

 

Shares authorized

 

 

1,000,000

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

Options granted

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

Options cancelled/forfeited/expired

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

Options exercised

 

 

—

 

 

 

(287,702

)

 

 

—

 

 

 

12.63

 

 

 

 

 

Restricted stock awards granted

 

 

(477,271

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

Restricted stock awards forfeited

 

 

49,188

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

Additional shares of stock issued

 

 

(12,092

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

Balance as of September 30, 2020

 

 

1,275,415

 

 

 

196,329

 

 

$

2,636

 

 

$

12.12

 

 

 

2.5

 

Exercisable as of September 30, 2020

 

 

 

 

 

 

196,239

 

 

$

2,636

 

 

$

12.12

 

 

 

2.5

 

 

The weighted-average grant date fair value of options granted during the fiscal year ended September 30, 2018 was $8.42. No options were granted during the fiscal years ended September 30, 2019 and September 30, 2020. The total intrinsic value of options exercised during the fiscal years ended September 30, 2018, 2019 and 2020 was approximately $6.3 million, $1.4 million, and $3.8 million, respectively. The total fair value of options vested during the fiscal year ended September 30, 2018, was approximately $1.3 million.

 

We used the Black-Scholes model to estimate the fair value of options granted. The expected term of options granted is estimated based on historical experience.  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.

Below are the weighted-average assumptions used for the fiscal year ended September 30, 2018. No options were granted for the fiscal years ended September 30, 2019 or September 30, 2020.

 

 

 

2018

 

 

2019

 

 

2020

 

Dividend yield

 

0.0%

 

 

—

 

 

—

 

Risk-free interest rate

 

2.7%

 

 

—

 

 

—

 

Volatility

 

45.4%

 

 

—

 

 

—

 

Expected life

 

5.0 years

 

 

—

 

 

—

 

 

 

14.  EMPLOYEE STOCK PURCHASE PLAN:

During February 2019, our shareholders approved a proposal to amend our Amended 2008 Employee Stock Purchase Plan (“Stock Purchase Plan”) to increase the number of shares available under that plan by 500,000 shares.  The Stock Purchase Plan as amended provides for up to 1,500,000 shares of common stock to be available for purchase by our regular employees who have completed at least one year of continuous service.  In addition, there were 52,837 shares of common stock available under our 1998 Employee Stock Purchase Plan, which have been made available for issuance under our Stock Purchase Plan.  The Stock Purchase Plan provides for implementation of annual offerings beginning on the first day of October in each of the years 2008 through 2027, with each offering terminating on September 30 of the following year.  Each annual offering may be divided into two six-month offerings.  For each offering, the purchase price per share will be the lower of: (i) 85% of the closing price of the common stock on the first day of the offering or (ii) 85% of the closing price of the common stock on the last day of the offering.  The purchase price is paid through periodic payroll deductions not to exceed 10% of the participant’s earnings during each offering period.  However, no participant may purchase more than $25,000 worth of common stock annually.

We used the Black-Scholes model to estimate the fair value of options granted to purchase shares issued pursuant to the Stock Purchase Plan. 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.

 

F-22

MARINEMAX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following are the weighted-average assumptions used for the fiscal years ended September 30,

 

 

 

2018

 

 

2019

 

 

2020

 

Dividend yield

 

0.0%

 

 

0.0%

 

 

0.0%

 

Risk-free interest rate

 

1.5%

 

 

2.4%

 

 

0.8%

 

Volatility

 

49.9%

 

 

48.3%

 

 

69.7%

 

Expected life

 

Six months

 

 

Six months

 

 

Six months

 

 

As of September 30, 2020, we had issued 1,017,563 shares of common stock under our Stock Purchase Plan.

 

 

15.  RESTRICTED STOCK AWARDS:

We have granted non-vested (restricted) stock awards (“restricted stock”) and restricted stock units (“RSUs”) to employees, Directors, and Officers pursuant to the 2011 Plan and the 2007 Plan. The restricted stock awards and RSUs have varying vesting periods, but generally become fully vested between two and four years after the grant date, depending on the specific award, performance targets met for performance based awards granted to Officers, and vesting period for time based awards.  Officer performance based awards are granted at the target amount of shares that may be earned and the actual amount of the award earned generally could range from 0% to 175% of the target number of shares based on the actual specified performance target met.  We accounted for the restricted stock awards granted using the measurement and recognition provisions of ASC 718.  Accordingly, the fair value of the restricted stock awards, including performance based awards, is measured on the grant date and recognized in earnings over the requisite service period for each separately vesting portion of the award.

The following table summarizes restricted stock award activity from September 30, 2019 through September 30, 2020:

 

 

 

Shares/

Units

 

 

Weighted

Average

Grant Date

Fair Value

 

Non-vested balance as of September 30, 2019

 

 

779,627

 

 

$

18.71

 

Changes during the period

 

 

 

 

 

 

 

 

Awards granted

 

 

477,271

 

 

$

17.07

 

Awards vested

 

 

(305,079

)

 

$

17.78

 

Awards forfeited

 

 

(49,188

)

 

$

20.08

 

Non-vested balance as of September 30, 2020

 

 

902,631

 

 

$

18.08

 

 

As of September 30, 2020, we had approximately $8.1 million of total unrecognized compensation cost related to non-vested restricted stock awards. We expect to recognize that cost over a weighted-average period of 2.1 years.

 

 

16.  NET INCOME PER SHARE:

The following is a reconciliation of the shares used in the denominator for calculating basic and diluted net income per share for the fiscal years ended September 30,

 

 

 

2018

 

 

2019

 

 

2020

 

Weighted average common shares outstanding used in

   calculating basic income per share

 

 

22,269,378

 

 

 

22,294,114

 

 

 

21,547,665

 

Effect of dilutive options and non-vested restricted

   stock awards

 

 

761,284

 

 

 

587,033

 

 

 

577,673

 

Weighted average common and common equivalent shares

   used in calculating diluted income per share

 

 

23,030,662

 

 

 

22,881,147

 

 

 

22,125,338

 

 

F-23

MARINEMAX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

During the fiscal years ended September 30, 2018, 2019, and 2020 there were 1,288, 10,988, and 9,650 weighted average shares of options outstanding, respectively, that were not included in the computation of diluted income 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.

 

 

17.  COMMITMENTS AND CONTINGENCIES:

We are party to various legal actions arising in the ordinary course of business. We believe that these matters should not have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

During the fiscal years ended September 30, 2018, 2019, and 2020, we incurred costs associated with store closings and lease terminations of approximately $0, $3.1 million, and $1.7 million, respectively. The store closing costs have been included in selling, general, and administrative expenses in the consolidated statements of operations during the fiscal years ended September 30, 2018, 2019, and 2020.

In connection with certain of our workers’ compensation insurance policies, we maintain standby letters of credit for our insurance carriers in the amount of $1.1 million relating primarily to retained risk on our workers compensation claims.

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.

 

 

18.  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 matched 50% of participants’ contributions, up to a maximum of 5% of each participant’s compensation. We contributed, under the Plan, or pursuant to previous similar plans, approximately $1.9 million, $2.3 million, and $2.7 million for the fiscal years ended September 30, 2018, 2019 and 2020, respectively.

 

19.  SUBSEQUENT EVENTS:

 

On October 1, 2020, under the Equity Purchase Agreement, dated October 1, 2020, by and among (a) Skipper Marine Holdings, Inc., SSY Holdings, Inc., Michael J. Pretasky, Sr., Michael John Pretasky, Jr. 2014 Trust, Mark Ellerbrock and Robert Ross Tefft, Jr. (collectively the “Skippers Sellers”) and (b) Michael J. Pretasky, Jr., as the representative of the Skippers Sellers, the Company acquired all of the outstanding equity of Skipper Marine Corp., Skipper Marine of Madison, Inc., Skipper Marine of Fox Valley, Inc., Skipper Bud’s of Illinois, Inc., Skipper Marine of Chicago-Land, Inc., Skipper Marine of Michigan, Inc., and Skipper Marine of Ohio, LLC, (collectively, the “Skippers Companies”) for an aggregate purchase price of $55,000,000, subject to certain customary closing and post-closing adjustments including certain holdbacks. The Skippers Sellers have the opportunity to earn additional consideration as part of an earnout subject to the achievement of certain pre-tax earnings levels. The Skippers Sellers will be subject to certain customary post-closing covenants and indemnities.

 

Through the transaction, the Company added 20 locations in Wisconsin, Michigan, Illinois, Ohio, California, Washington and Florida, including 11 marina and storage facilities, expanding the Company’s marina portfolio, and adding to its overall geographic reach in the Great Lakes and the West Coast. The Company is retaining the management of the Skippers Companies.

 

On October 30, 2020, we and the Sea Ray and Boston Whaler Divisions of Brunswick Corporation (each separately “Builder”) each entered into a new Sales and Service Agreement relating to the Builder’s products effective September 1, 2021 and extending through August 31, 2024, under certain conditions, with automatic renewal for successive three-year extensions, unless the agreements are terminated earlier or either party gives the other written notice not less than 6 months prior to the end of the then current term of the agreement that the agreement will not renew at the end of such term. See our Form 8-K filed on November 5, 2020 for a further summary of the agreements.

 

 

 

 

F-24

MARINEMAX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

20.  QUARTERLY FINANCIAL DATA (UNAUDITED):

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.

 

 

 

December 31,

2018

 

 

March 31,

2019

 

 

June 30,

2019

 

 

September 30,

2019

 

 

December 31,

2019

 

 

March 31,

2020

 

 

June 30,

2020

 

 

September 30,

2020

 

 

 

 

 

Revenue

 

$

241,937

 

 

$

303,586

 

 

$

383,494

 

 

$

308,136

 

 

$

304,172

 

 

$

308,475

 

 

$

498,304

 

 

$

398,762

 

Cost of sales

 

 

178,459

 

 

 

229,384

 

 

 

285,784

 

 

 

220,694

 

 

 

224,154

 

 

 

229,699

 

 

 

374,851

 

 

 

282,296

 

Gross profit

 

 

63,478

 

 

 

74,202

 

 

 

97,710

 

 

 

87,442

 

 

 

80,018

 

 

 

78,776

 

 

 

123,453

 

 

 

116,466

 

Selling, general

   and administrative

   expenses

 

 

54,492

 

 

 

63,976

 

 

 

68,968

 

 

 

74,864

 

 

 

64,386

 

 

 

69,060

 

 

 

74,838

 

 

 

83,714

 

Income from

   operations

 

 

8,986

 

 

 

10,226

 

 

 

28,742

 

 

 

12,578

 

 

 

15,632

 

 

 

9,716

 

 

 

48,615

 

 

 

32,752

 

Interest expense

 

 

2,516

 

 

 

3,033

 

 

 

2,936

 

 

 

3,094

 

 

 

3,344

 

 

 

3,013

 

 

 

2,133

 

 

 

785

 

Income before income

   income tax

   provision

 

 

6,470

 

 

 

7,193

 

 

 

25,806

 

 

 

9,484

 

 

 

12,288

 

 

 

6,703

 

 

 

46,482

 

 

 

31,967

 

Income tax

   provision

 

 

1,560

 

 

 

1,890

 

 

 

6,719

 

 

 

2,799

 

 

 

3,229

 

 

 

1,638

 

 

 

11,555

 

 

 

6,384

 

Net income

 

$

4,910

 

 

$

5,303

 

 

$

19,087

 

 

$

6,685

 

 

$

9,059

 

 

$

5,065

 

 

$

34,927

 

 

$

25,583

 

Net income

   per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

$

0.21

 

 

$

0.23

 

 

$

0.84

 

 

$

0.31

 

 

$

0.41

 

 

$

0.23

 

 

$

1.58

 

 

$

1.13

 

Weighted average

   number of shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

23,400,685

 

 

 

23,417,688

 

 

 

22,821,202

 

 

 

21,896,257

 

 

 

21,890,065

 

 

 

21,960,285

 

 

 

22,045,900

 

 

 

22,604,060

 

 

 

F-25