What changed in this filing

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Item 1. Financial Statements

2021-02-02 compared with 2020-07-28 · 167 added, 167 removed, 317 unchanged (51% of the section changed)

5 unchanged sentences

Three Months Ended

Nine Months Ended

Cost of sales

14 unchanged sentences

Three Months Ended

Nine Months Ended

Other comprehensive gain, net of tax:

Other comprehensive (loss) gain, net of tax:

Foreign currency translation adjustments

Total other comprehensive gain, net of tax

Interest rate swap contract

Total other comprehensive income, net of tax

Comprehensive income

18 unchanged sentences

Accounts payable

Customer deposits

Contract liabilities (customer deposits)

Accrued expenses

Current operating lease liabilities

Short-term borrowings

Current maturities on long-term debt

Current operating lease liabilities

Total current liabilities

Long-term debt, net of current maturities

Noncurrent operating lease liabilities

2 unchanged sentences

Total liabilities

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS’ EQUITY:

Preferred stock, $ .001 par value, 1,000,000 shares authorized, none issued or outstanding

as of September 30, 2019 and June 30, 2020

as of September 30, 2020 and December 31, 2020

Common stock, $ .001 par value, 40,000,000 shares authorized, 28,130,312 and

28,393,710 shares issued and 21,863,291 and 22,126,689 shares outstanding as of

September 30, 2019 and June 30, 2020, respectively

September 30, 2020 and December 31, 2020, respectively

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated other comprehensive income

Retained earnings

Treasury stock, at cost, 6,267,021 and 6,267,021 shares held as of September 30, 2020

and June 30, 2020, respectively

and December 31, 2020, respectively

Total shareholders’ equity

13 unchanged sentences

Stock-based compensation

Foreign currency translation adjustments,

Cumulative effect of change in accounting

principle - leases, net after tax

Other comprehensive income

BALANCE, December 31, 2020

Purchase of treasury stock

Shares issued upon exercise of stock options

Stock-based compensation

Foreign currency translation adjustments,

BALANCE, March 31, 2020

Purchase of treasury stock

Shares issued pursuant to employee stock purchase plan

Shares issued upon vesting of equity awards, net

of minimum tax withholding

Shares issued upon exercise of stock options

Stock-based compensation

Foreign currency translation adjustments,

BALANCE, June 30, 2020

MARINEMAX, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity

(Amounts in thousands, except share data)

Comprehensive

1 unchanged sentence

BALANCE, September 30, 2019

Purchase of treasury stock

Shares issued pursuant to employee stock purchase plan

Shares issued upon vesting of equity awards, net of minimum tax withholding

Shares issued upon vesting of equity awards, net

of minimum tax withholding

Shares issued upon exercise of stock options

Stock-based compensation

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

Other comprehensive income

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

BALANCE, December 31, 2019

Shares issued upon exercise of stock options

Stock-based compensation

BALANCE, March 31, 2019

Purchase of treasury stock

Shares issued pursuant to employee stock purchase plan

Stock-based compensation

BALANCE, June 30, 2019

See accompanying notes to condensed consolidated financial statements.

3 unchanged sentences

(Amounts in thousands)

Nine Months Ended

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net income to net cash provided by operating

Adjustments to reconcile net income to net cash used in operating

Depreciation and amortization

Deferred income tax provision

Gain on sale of property and equipment

Proceeds from insurance settlements

Loss on sale of property and equipment

Stock-based compensation expense

3 unchanged sentences

Prepaid expenses and other assets

Increase in, net of effects of acquisitions —

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

Accounts payable

Customer deposits

Contract liabilities (customer deposits)

Accrued expenses and other liabilities

Net cash provided by operating activities

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

Proceeds from insurance settlements

Cash used in acquisition of businesses, net of cash acquired

2 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Net borrowings on short-term borrowings

Net (payment) borrowings on short-term borrowings

Proceeds from long-term debt

Payments for long-term debt

Payments for debt issuance costs

Net proceeds from issuance of common stock under incentive compensation and

employee purchase plans

Contingent acquisition consideration payments

Payments on tax withholdings for equity awards

Purchases of treasury stock

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Effect of exchange rate changes on cash

NET INCREASE IN CASH AND CASH EQUIVALENTS

NET DECREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, beginning of period

15 unchanged sentences

We also offer the charter of power yachts in the British Virgin Islands.

As of June 30, 2020, we operated through 59 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 operation maintains a facility in Tortola, British Virgin Islands.

We also own Fraser Yachts Group, a leading superyacht brokerage and luxury yacht services company 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”).

As of December 31, 2020, we operated through 77 retail locations in 21 states, consisting of 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.

Our MarineMax Vacation operation maintains 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 which are manufactured by Brunswick Corporation (“Brunswick”).

Sales of new Brunswick boats accounted for approximately 33 % of our revenue in fiscal 2020.

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Brunswick is a world leading manufacturer of marine products and marine engines.

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.

In June 2018, Brunswick announced it was discontinuing Sea Ray sport yacht and yacht models.

Sea Ray sport yacht and yacht models represented approximately 10 % of revenue during fiscal year 2018.

Our brand and product diversification actions allowed us to replace the Sea Ray sport yacht and yacht revenue.

We have dealership agreements with Sea Ray, Boston Whaler, Harris, and Mercury Marine, all subsidiaries or divisions of Brunswick.

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These agreements also allow us to use these manufacturers’ names, trade symbols, and intellectual properties in our operations.

We have multi-year dealer agreements with Brunswick covering Sea Ray products that appoint us as the exclusive dealer of Sea Ray boats in our geographic markets.

We are the exclusive dealer for Boston Whaler through multi-year dealer agreements for many of our geographic markets.

In addition, we are the exclusive dealer for Azimut Yachts for the entire United States through a multi-year dealer agreement.

Sales of new Azimut boats accounted for approximately 9 % of our revenue in fiscal 2019.

The agreements for Sea Ray and Boston Whaler products, respectively, appoint us as the exclusive dealer of Sea Ray and Boston Whaler boats, respectively, in our geographic markets.

In addition, we are the exclusive dealer for Azimut Yachts for the entire United States.

Sales of new Azimut 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.

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, “SkipperBud’s”).

This acquisition significantly increased our presence in the Great Lakes region and the West Coast of the United States.

SkipperBud’s is one of the largest boat sales, brokerage, service and marina/storage groups in the United States .

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, Boston Whaler, 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.

From March 2020 through June 2020, we 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.

General economic conditions and consumer spending patterns can negatively impact our operating results.

1 unchanged sentence

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.

BP oil spill in the Gulf of Mexico in 2010, as well as global influences, such as the COVID-19 pandemic, also could adversely affect, and in certain instances have adversely affected, our operations in certain markets .

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 could impact us more than certain of our competitors due to our strategic focus on a higher end of our market.

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 the lack of industry growth may adversely affect our business, financial condition, and results of operations.

1 unchanged sentence

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.

BASIS OF PRESENTATION:

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information, the instructions to Quarterly Report on Form 10-Q, and Rule 10-01 of Regulation S-X and should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles

generally accepted in the United States for interim financial information, the instructions to Quarterly Report on Form 10-Q, and Rule 10-01 of Regulation S-X and should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.

Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

All adjustments, consisting of only normal recurring adjustments considered necessary for fair presentation, have been reflected in these unaudited condensed consolidated financial statements.

As of June 30, 2020, our financial instruments consisted of cash and cash equivalents, accounts receivable, accounts payable, customer deposits, and short-term borrowings.

The carrying amounts of our financial instruments reported on the balance sheet as of June 30, 2020, approximated fair value due either to length to maturity or existence of variable interest rates, which approximate prevailing market rates.

The operating results for the nine months ended June 30, 2020, are not necessarily indicative of the results that may be expected in future periods.

As of December 31, 2020, our financial instruments consisted of cash and cash equivalents, accounts receivable, accounts payable, customer deposits, short-term borrowings, long-term debt, and an interest rate swap contract.

The carrying amounts of our financial instruments reported on the balance sheet as of December 31, 2020, approximated fair value due either to length to maturity or existence of variable interest rates, which approximate prevailing market rates.

The interest rate swap contract is reported at fair value and is designated as a cash flow hedge with changes in fair value reported in other comprehensive income.

The operating results for the three months ended December 31, 2020, are not necessarily indicative of the results that may be expected in future periods.

The preparation of unaudited condensed 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 as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods.

1 unchanged sentence

Actual results could differ from those estimates.

Unless the context otherwise requires, all references to “MarineMax” mean MarineMax, Inc.

prior to its acquisition of five previously independent recreational boat dealers in March 1998 (including their related real estate companies) and all references to the “Company,” “our company,” “we,” “us,” and “our” mean, as a combined company, MarineMax, Inc.

and the 29 recreational boat dealers, three boat brokerage operations, and two full-service yacht repair operations acquired as of June 30, 2020 (the “acquired dealers,” and together with the brokerage and repair operations, “operating subsidiaries” or the “acquired companies”).

In order to provide comparability between periods presented, certain amounts have been reclassified from the previously reported unaudited condensed consolidated financial statements to conform to the unaudited condensed consolidated financial statement presentation for the current period.

All references to the “Company,” “our company,” “we,” “us,” and “our” mean, as a combined company, MarineMax, Inc.

and the 30 recreational boat dealers, four boat brokerage operations, and two full-service yacht repair operations acquired as of December 31, 2020 (the “acquired dealers,” and together with the brokerage and repair operations, “operating subsidiaries” or the “acquired companies”).

The unaudited condensed consolidated financial statements include our accounts and the accounts of our subsidiaries, all of which are wholly owned.

1 unchanged sentence

NEW ACCOUNTING PRONOUNCEMENTS:

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.

We adopted ASU 2016-02 effective October 1, 2019 the first day of fiscal 2020.

We elected certain 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 5 for additional information on our leases.

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.

1 unchanged sentence

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.

We adopted ASU 2018-05 effective October 1, 2020 the first day of fiscal 2020.

The adoption of this standard had no impact on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses.

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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 .

We adopted ASU 2016-13 effective October 1, 2020 the first day of fiscal 2020.

The adoption of this standard had no impact on our consolidated financial statements.

REVENUE RECOGNITION:

1 unchanged sentence

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.

4 unchanged sentences

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 unaudited condensed consolidated financial statements taken as a whole as of June 30, 2020, on our experience with repayments or defaults on the related finance contracts.

We base the chargeback allowance, which was not material to the unaudited condensed consolidated financial statements taken as a whole as of December 31, 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.

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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.

Contract assets, recorded in Prepaid expenses and other current assets, totaled approximately $ 2.5 million and $ 4.1 million as of September 30, 2019 and June 30, 2020, respectively.

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.

Contract assets, recorded in prepaid expenses and other current assets, totaled approximately $ 3.6 million and $ 4.5 million as of December 31, 2019 and December 31, 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 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 three and nine months ended June 30, 2020.

The following table sets forth percentages on the timing of revenue recognition for the three months ended December 31,

Three Months Ended

Nine Months Ended

Goods and services transferred at a point in time

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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.

We lease numerous facilities relating to our operations, including showrooms, display lots, marinas, 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 June 30, 2020, the weighted-average remaining lease term for our leases was approximately 10 years.

As of December 31, 2020, the weighted-average remaining lease term for our leases was approximately 13 years .

All of our leases are classified as operating leases, which are included as ROU assets and operating lease liabilities in our unaudited condensed consolidated balance sheet.

For the nine months ended June 30, 2020 and June 30, 2019, operating lease expenses recorded in selling, general, and administrative expenses were approximately $ 10.3 million and $ 9.7 million, respectively.

For the three months ended December 31, 2019 and December 31, 2020, operating lease expenses recorded in selling, general, and administrative expenses were approximately $ 3.3 million and $ 5.8 million, respectively.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

6 unchanged sentences

A majority of our lease agreements include fixed rental payments.

Certain of our lease agreements include fixed rental payments that are adjusted periodically for changes in the Consumer Price Index.

P ayments based on a change in an index or a rate are estimated for future periods, including renewal options expected to be exercised, at the beginning of the lease in the determination of lease payments for purposes of measuring the related lease liability.

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 ROU assets and lease liabilities.

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

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 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 June 30, 2020, the weighted-average discount rate used was approximately 7.3 %.

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

As of December 31, 2020, the weighted-average discount rate used was approximately 5.7 %.

As of December 31, 2020, maturities of lease liabilities are summarized as follows:

(Amounts in thousands)

1 unchanged sentence

Present value of lease liabilities

As previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2019, and 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)

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

For the Nine Months Ended

Three Months Ended

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

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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.

As of September 30, 2019 and June 30, 2020, our valuation allowance for new and used boat, motor, and trailer inventories was $ 2.2 million and $ 3.4 million, respectively.

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, 2020 and December 31, 2020, our valuation allowance for new and used boat, motor, and trailer inventories was $ 2.4 million and $ 2.3 million, respectively.

If events occur and market conditions change, causing the fair value to fall below carrying value, the valuation allowance could increase.

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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.

ROU assets are also reviewed for impairment.

Based upon our most recent analysis, we believe no impairment of long-lived assets or ROU assets existed as of June 30, 2020.

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 2019, we purchased Fraser Yachts Group, a leading superyacht brokerage and the largest luxury yacht services company in the world.

In April 2019, we purchased Sail & Ski Center, a privately owned boat dealer located in Texas.

In February 2020, we purchased Boatyard, a mobile software developer for the marine industry.

In total, current and previous acquisitions have resulted in the recording of $ 65.4 million in goodwill and other intangible assets as of June 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 June 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.

Based upon our most recent analysis, we believe no impairment of long-lived assets existed as of December 31, 2020.

We account for acquisitions in accordance with FASB Accounting Standards Codification (“ASC”) 805, “Business Combinations” (“ASC 805”), and goodwill in accordance with ASC 350, “Intangibles — Goodwill and Other” (“ASC 350”).

For business combinations, the excess of the purchase price over the estimated fair value of net assets acquired in a business combination is recorded as goodwill.

In October 2020, we purchased all of the outstanding equity of SkipperBud’s for an aggregate purchase price

of $ 55,000,000 , subject to certain customary closing and post-closing adjustments, and net working capital adjustments including certain holdbacks.

In addition, the former equity owners of SkipperBud’s (“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 maximum amount of consideration that can be paid under the earnout is approximately $ 9.3 million.

The fair value of $ 8.2 million of the contingent consideration arrangement was estimated by a third party valuation expert by applying an income valuation approach .

The earnout was estimated based on forecasted pre-tax earnings as a base scenario (among other assumptions) subject to a Monte Carlo simulation.

The Skippers Sellers are subject to certain customary post-clo sing covenants and indemnities.

The acquisition of SkipperBud’s enhances our sales, brokerage, service and marin a/storage presence in the Great Lakes region and West Coast of the Unites States.

The following table summarizes the consideration paid for SkipperBud’s and the preliminary allocation of the purchase consideration to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date.

(Amounts in thousands)

Consideration:

Cash purchase price and net working capital adjustments, net of cash acquired of $ 30,615

Contingent consideration arrangement

Fair value of total consideration transferred

Recognized amounts of identifiable assets acquired and liabilities assumed:

Current assets, net of cash acquired of $ 30,615

Property and equipment

Intangible assets

Current liabilities

Total identifiable net assets acquired:

The fair value of current assets acquired includes accounts receivable and inventory of approximately $ 5.4 million and $ 42.3 million, respectively.

The fair value of current liabilities assumed includes short-term borrowings of approximately $ 30.5 million, accrued expenses of approximately $ 14.6 million, and customer deposits of approximately $ 7.5 million.

We recorded approximately $ 56.4 million in goodwill and approximately $ 2.0 million of other identifiable intangibles (trade name and customer relationships) in connection with the SkipperBud’s acquisition, however, purchase price allocations are preliminary pending receipt of final valuation analyses of certain assets from our valuation advisor.

The goodwill represents our enhanced geographic reach and brand infrastructure in the Great Lakes region and West Coast of the Unites States.

The majority of the goodwill is expected to be deductible for tax purposes.

The intangible assets have a weighted average useful life of approximately 3.3 years.

For the three months ended December 31, 2020, SkipperBud’s revenue was approximately $ 40.4 million and income before taxes was approximately $ 1.9 million.

SkipperBud’s financial information for the three months ended December 31, 2019 was not practical to obtain for comparative purposes and as such is not presented because SkipperBud’s historical monthly internal accounting and reporting processes and practices would not provide complete information sufficient for the purposes of this pro forma disclosure.

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 total, current and previous acquisitions have resulted in the recording of $ 84.3 million and $ 143.1 million in goodwill and other intangible assets as of September 30, 2020 and December 31, 2020, respectively.

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 third 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 December 31, 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.

INCOME TAXES:

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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.

Due to the uncertainties caused by the COVID-19 pandemic, we cannot reliably estimate the overall annual effective tax rate in the current reporting period and as such have used the actual effective tax rate for the nine months ended June 30, 2020 to account for income taxes.

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 re covered 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.

As of September 30, 2019 and June 30, 2020, we had a valuation allowance on our deferred tax assets of $ 164,000 .

During the three months ended June 30, 2019 and 2020 we recognized an income tax provision of $ 6.7 million and $ 11.6 million, respectively.

During the nine months ended June 30, 2019 and 2020 we recognized an income tax provision of $ 10.2 million and $ 16.4 million, respectively.

The effective income tax rate for the three months ended June 30, 2019 and 2020 was 26.0 % and 24.9 %, respectively .

The effective income tax rate for the nine months ended June 30, 2019 and 2020 was 25.8 % and 25.1 %, respectively .

During the three months ended December 31, 2019 and 2020 we recognized an income tax provision of $ 3.2 million and $ 7.1 million, respectively.

The effective income tax rate for the three months ended December 31, 2019 and 2020 was 26.3 % and 23.2 %, respectively .

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 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 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 London Inter-Bank Offering Rate (“LIBOR”).

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.

As of December 31, 2020, we were in compliance with all covenants under the Credit Facility.

New inventory borrowing eligibility will generally mature 1,080 days from the original invoice date.

U sed inventory borrowing eligibility will generally mature 361 days from the date we acquire the used inventory.

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 June 30, 2020, our indebtedness associated with financing our inventory and working capital needs totaled approximately $ 147.0 million.

As of June 30, 2019 and 2020, the interest rate on the outstanding short-term borrowings was approximately 5.9 % and 3.9 %, respectively.

As of June 30, 2020, our additional available borrowings under our Credit Facility were approximately $ 93.4 million based upon the outstanding borrowing base availability.

As of December 31, 2020, our indebtedness associated with financing our inventory and working capital needs totaled approximately $ 163.4 million.

As of December 31, 2019 and 2020, the interest rate on the outstanding short-term borrowings was approximately 5.6 % and 4.2 %, respectively.

As of December 31, 2020, our additional available borrowings under our Credit Facility were approximately $ 133.4 million based upon the outstanding borrowing base availability.

As is common in our industry, we receive interest assistance directly from boat manufacturers, including Brunswick.

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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.

As of June 30, 2020, we had no long-term debt.

However, we rely on our Credit Facility to purchase our inventory of boats.

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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.

Long-term Debt

( amounts in thousands)

December 31, 2020

Mortgage facility payable to Flagship Bank bearing interest at 2.25 % ( prime minus 100 basis points with a floor of 2.00 % ).

Requires monthly principal and interest payments with a balloon payment of approximately $ 4.0 million due August 2027 .

Mortgage facility payable to Seacoast National Bank bearing interest at 3.0 % ( greater of 3% or prime minus 62.5 basis points ).

Requires monthly interest payments for the first year and then monthly principal and interest payments with a balloon payment of approximately $ 6.0 million due September 2031 .

Mortgage facility payable to Hancock Whitney Bank bearing interest at 2.6 % ( prime minus 62.5 basis points with a floor of 2.25 % ).

Requires monthly principal and interest payments with a balloon payment of approximately $ 15.5 million due November 2027 .

50 % of the outstanding borrowings are hedged with an interest rate swap contract with a fixed rate of 3.2 %.

Revolving mortgage facility with FineMark National Bank & Trust bearing interest at 3.0 % ( base minus 25 basis points with a floor of 3 % ).

Facility matures in September 2027 .

Current available borrowings under the facility were approximately $ 26.4 million at December 31, 2020.

Less current portion

Less unamortized portion of debt issuance costs

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 2008 Employee Stock Purchase Plan (the “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.

In accordance with ASC 718, we use the Black-Scholes valuation model for valuing all options granted (Note 12) and shares purchased under our Amended 2008 Employee Stock Purchase Plan (“Stock Purchase Plan”) (Note 13).

We measure compensation for restricted stock awards and restricted stock units (Note 14) 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.

During the three months ended June 30, 2019 and 2020, we recognized stock-based compensation expense of approximately $ 1.8 million and $ 2.2 million, respectively, and for the nine months ended June 30, 2019 and 2020, we recognized stock-based compensation expense of approximately $ 5.0 million and $ 5.5 million, respectively, in selling, general, and administrative expenses in the unaudited condensed consolidated statements of operations.

Cash received from option exercises under all share-based compensation arrangements and the employee stock purchase plan for the three months ended June 30, 2019 and 2020, was approximately $ 0.5 million and $ 0.6 million, respectively and for the nine months ended June 30, 2019 and 2020, was approximately $ 2.3 million and $ 1.6 million, respectively.

During the three months ended December 31, 2019 and 2020, we recognized stock-based compensation expense of approximately $ 1.5 million and $ 2.0 million, respectively, in selling, general, and administrative expenses in the unaudited condensed consolidated statements of operations.

Cash received from option exercises under all share-based compensation arrangements for the three months ended December 31, 2019 and 2020, was approximately $ 0.6 million and $ 1.5 million, respectively.

We currently expect to satisfy share-based awards with registered shares available to be issued from the Stock Purchase Plan.

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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:

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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 2011 Plan was to terminate in January 2021 but has since been extended to February 2030, and awards may be granted at any time during the life of the

The dates on which awards vest are determined by the Board of Directors or the Plan Administrator.

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To date, we have not settled or been under any obligation to settle any awards in cash.

The following table summarizes activity from our incentive stock plans from September 30, 2019 through June 30, 2020:

The following table summarizes activity from our incentive stock plans from September 30, 2020 through December 31, 2020:

Options Outstanding

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Balance as of September 30, 2020

Shares authorized

Options granted

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Additional shares of stock issued

Balance as of June 30, 2020

Exercisable as of June 30, 2020

No options were granted for the nine months ended June 30, 2019 and 2020.

The total intrinsic value of options exercised during the nine months ended June 30, 2019 and 2020, was $ 1.3 million and $ 0.4 million, respectively.

Balance as of December 31, 2020

Exercisable as of December 31, 2020

No options were granted for the three months ended December 31, 2019 and 2020.

The total intrinsic value of options exercised during the three months ended December 31, 2019 and 2020, was $ 0.1 million and $ 1.1 million, respectively.

We used the Black-Scholes model to estimate the fair value of options granted.

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EMPLOYEE STOCK PURCHASE PLAN:

During February 2019, our shareholders approved a proposal to amend our 2008 Employee Stock Purchase Plan (“Stock Purchase Plan”) to increase the number of shares available under that plan by 500,000 shares.

During February 2019, our shareholders approved a proposal to amend our 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.

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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 t he Stock Purchase Plan.

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.

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Three Months Ended

Nine Months Ended

Dividend yield

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Expected life

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

As of December 31, 2020, we had issued 1,101,135 shares of common stock under our Stock Purchase Plan.

RESTRICTED STOCK AWARDS:

We have granted non-vested (restricted) stock awards (“restricted stock”) and restricted stock units (“RSUs”) to employees and officers pursuant to the 2011 Plan and the 2007 Plan.

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.

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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 June 30, 2020:

The following table summarizes restricted stock award activity from September 30, 2020 through December 31, 2020:

Shares/ Units

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Awards forfeited

Non-vested balance as of June 30, 2020

As of June 30, 2020, we had approximately $ 9.2 million of total unrecognized compensation cost, assuming applicable performance conditions are met, related to non-vested restricted stock awards.

Non-vested balance as of December 31, 2020

As of December 31, 2020, we had approximately $ 16.3 million of total unrecognized compensation cost, assuming applicable performance conditions are met, related to non-vested restricted stock awards.

We expect to recognize that cost over a weighted average period of 2.6 years.

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Three Months Ended

Nine Months Ended

Weighted average common shares outstanding used in

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used in calculating diluted income per share

For the three months ended June 30, 2019 and 2020, there were 10,068 and 15,000 weighted average shares related to options outstanding and non-vested restricted stock awards, respectively, that were not included in the computation of diluted income per share because the options’ exercise prices or assumed proceeds per share were greater than the average market price of our common stock, and therefore, would have an anti-dilutive effect.

For the nine months ended June 30, 2019 and 2020, there were 5,168 and 29,601 weighted average shares related to options outstanding and non-vested restricted stock awards, respectively, that were not included in the computation of diluted income per share because the options’ exercise prices or assumed proceeds per share were greater than the average market price of our common stock, and therefore, would have an anti-dilutive effect.

For the three months ended December 31, 2019 and 2020, there were 32,366 and 30,807 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.

COMMITMENTS AND CONTINGENCIES:

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 June 30, 2020, we believe that these matters should not have a material adverse effect on our unaudited condensed consolidated financial condition, results of operations, or cash flows.

While it is not feasible to determine the actual outcome of these actions as of December 31, 2020, we believe that these matters should not have a material adverse effect on our unaudited condensed consolidated financial condition, results of operations, or cash flows.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements