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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For fiscal year ended June 30, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________.
Commission File Number: 0-14712
FOUNTAIN POWERBOAT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-0160250
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
Post Office Drawer 457, Whichard's Beach Road., Washington, NC 27889
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (252) 975-2000
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $ .01 per share
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 requirement for the past 90 day.
[ X ]Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ] Yes [ X ] No
The aggregate market value of the voting stock held by non-affiliates
of the registrant was $ 6,096,628 at September 15, 2000 based upon a
closing price of $2.4063 per share on such date for the Company's Common
Stock.
As of September 15, 2000 there were 4,732,608 shares of the Company's
Common Stock issued of which 15,000 shares are owned by the Company's
subsidiary Fountain Powerboats, Inc. and are regarded as treasury shares.
Documents incorporated by reference: None.
Part I
Item 1. Business.
Background
Fountain Powerboat Industries, Inc. (the "Company"), through its
wholly-owned subsidiary, Fountain Powerboats, Inc. (the "Subsidiary"),
designs, manufactures, and sells offshore sport boats, sport cruisers,
sport fishing boats and sport yachts intended for that segment of the
recreational power boat market where speed, performance, and quality are
the main criteria for purchase. In addition, the Company produces various
military support craft for domestic and international government agencies,
including the United States Customs Service, the United States Navy and the
United States Coast Guard. The Company's strategy in concentrating on
these segments of the market is to maximize its use of the reputation of
its Chairman and President, Reginald M. Fountain, Jr., as an
internationally recognized designer and builder of high speed power boats.
The Company's products are sold through a network of authorized
dealers worldwide. The Company has targeted that segment of the market in
which purchase decisions are generally predicated to a relatively greater
degree on the product's image, style, speed, performance, quality, and
safety.
Products.
Each of the Company's recreational products is based upon a deep V-
shaped fiberglass hull with a V-shaped pad, a notched transom, and a
positive lift step hull. This design enables the boat to achieve
performance and stability standards which the Company believes are greater
than those offered by any of its competitors worldwide. As a result, the
Company maintains that its boats are among the fastest, smoothest, safest,
and best-handling boats of their kind.
The Company's sport boats, ranging from 27' to 47' are of
inboard/outboard design. They are propelled by single, twin, or triple
gasoline (or diesel) engines ranging from 300 HP to more than 900 HP each.
The Company also builds custom racing boats designed specifically for
competition. The Company also produces outboard powered center consoles
and outboard or stern drive cabin model offshore sport fishing boats
ranging from 25' through 32'. Furthermore, the Company builds 38' and 47'
sport cruisers. During Fiscal 1999, the company introduced the first of
the new Cruiser Line, a 65' long by 16' wide high speed cruising yacht.
During Fiscal 2000, the Company initiated tooling and design of a 37' wide-
beam cruiser, a 37' wide-beam fishing boat, and a 48' wide-beam cruiser.
These wide-beam models will form the start of a new product line aimed at
the hot middle market of family oriented cruiser sales.
In addition to Sportboats, Fishing boats, Sport Yachts, and the new
Cruiser Line, the Company is producing an ever-increasing line of
military/governmental boats of various configurations. These boats are
commercial versions of the large sportboats and fishing boats, and along
with the new models of rigid inflatables (RIB) in 38' and 40' and the 38'
Riverine Craft, form the beginning of a separate military/commercial
product line.
The 47 Sport Cruiser was designed with both performance and maximum
amenities in mind. Its hull design is based upon that of the Company's 47'
Lightning which currently holds the title of SBI Super-V World Champion.
The model features a walk-in cabin, enclosed head with shower, complete
galley with refrigerator and microwave among its very extensive list of
standard equipment. With the amenities of a traditional cruising yacht,
the Fountain 47' Sport Cruiser is capable of speeds in excess of 70 mph
with standard triple MerCruiser 500 EFI engines. A high performance diesel
engine version is also available. This boat was named "The Outstanding
Offshore Performance Boat" by Powerboat Magazine and "Best of the Best" by
Boating Magazine. Depending primarily upon the customer's choice of
engines, the retail price of this boat is from $417,000 to $509,000.
The Company's 47' Lightning Sport Boat operates at speeds of 75 to 100
mph and is very stable and suited for long range cruising in offshore
waters. Its sleek styling makes it particularly attractive. Depending
primarily upon the type of engines and options selected, this boat retails
at prices ranging from $443,000 to $545,000. This boat's standard features
include an integrated swim platform, flush deck hatches, and an
attractively appointed cockpit and cabin.
2
This boat has been cited by Powerboat Magazine as "The Outstanding
Offshore Performance Boat".Equipped with special racing engines, this
model set a new world speed record for V-hulled boats in February, 1996
at 131.941 mph.
The 42' Lightning designed with the new second-generation positive
lift hull comes with a new style deck and full wrap around windshield and
canvas top, which is designed for use in all running conditions. This top
selling model equipped with special engines set a new world speed record
for V-hulled boats in August, 1999 at 140.120 mph.
The 38' Sport Cruiser offers most of the amenities found on the 47'
Sport Cruiser. This model has successfully incorporated performance
features without compromising the comforts found in a cruiser. Depending
primarily upon the customer's choice of engines, the retail price of the
boat is from $236,000 to $270,000.
The 38' Lightning or Fever, introduced in Fiscal 1999, operates at
speeds of between 70 and 100 mph. The retail price ranges from $220,000 to
$263,000, depending primarily upon the type of engines selected. This
model was cited by Powerboat Magazine as "Offshore Performance Boat of the
Year". It also captured an award from The Hot Boat Magazine for "Boat of
the Year".
The 35' Lightning Sport Boat was totally redesigned and introduced in
Fiscal 2000 to go with a higher freeboard, new twin-step design, and new
deck and interior. It will operate at speeds between 70 and 100 mph. This
new design has proven itself as the fastest boat in Factory II history,
setting the kilo record at 91.490 mph. This boat retails at prices ranging
from $178,000 to $217,000, depending primarily upon the type of engines
selected.
Fountain's 32' Fever Sport Boat satisfies the market's demand for a
mid-size twin engine sport boat between the single engine 29' Fever and the
35' Lightning. This model combines many of the advantages of both the 29'
model and the 35' model. Depending primarily upon the customer's choice of
engines, the retail price of this boat is from $146,000 to $179,000.
The 29' Fever is one of the most popular boats in the line. It
operates at speeds of 55 to 75 mph and retails between $95,000 and $111,000
depending on engine size. It has great balance and speed for a single
engine and operates in offshore sea conditions with superior safety and
handling. This boat is also offered with twin 30 small block engines. The
Company plans to introduce a new 29' deck in Fiscal 2001.
Fountain's 27' Fever and 27' Fever Classic Sport Boats are also
equipped with single engines. These boats represent the most affordable
access to the Fountain line of safe, smooth, high performance boats. The
27' Fever also captured the Powerboat Magazine award for "Outstanding full-
size Workmanship" in 1995. The Company introduced a new 27' deck in Fiscal
2000. Depending primarily upon the type of engine selected, the retail
price of this boat is from $79,000 to $100,000.
The Company also builds and markets a sport fishing line. The 31'
sport fish model features a center console with T-Top design and
incorporates the same high performance, styling, and structural integrity
as its sport boat models. It has a deck configuration engineered for the
knowledgeable, experienced sport fisherman. This boat has won the Southern
Kingfish Association's World Championship for five of the last nine years,
which is more than all other manufacturers combined.
The additional models include the 29' twin engine center console model
and 25' single engine center console model. The design, construction, and
performance of these models, together with the proven features of the 31'
center console model, makes a line that appeals to many experienced sport
fishermen, in addition to the weekend warrior.
To further enhance its sport fishing boat line, the Company added a
31' walk around cabin model based upon the proven 31' center console hull
design. This model features a deck design that incorporates a cabin with
standup headroom, and enclosed head with shower, and a full galley. With
twin outboard engine power, this model is produced either as a fishing
machine or as a recreational cruiser.
The Company also produces both a 25' and a 29' walk around cabin
fishing boat with outboard engine power and a 29' and a 32' walk around
cabin fishing model with twin stern drive power.
3
For Fiscal 1999, Fountain introduced a 38' Rigid Inflatable Boat
(RIB), the first in a series of special purpose boats with a rigid
fiberglass hull surrounded with an inflatable collar, surface drive
technology and diesel engine power. This type of boat will primarily be
sold to Government Agencies such as the U. S. Coast Guard and U. S.
Customs.
For Fiscal 1998, the Company introduced an all-new 42' Lightning.
This boat comes with the Company's new second-generation positive lift
hull. It comes with a new style deck with full wrap around windshield,
canvas top and the all-new positive lift hull, which increases speed,
stability and ride comfort.
Also in 1998, Fountain launched into the yacht market with the
introduction of the all-new 65' Supercruiser. This performance yacht is
much faster than the competition, while still providing all the comforts of
a luxury yacht through the use of Fountain's all new super ventilated
positive lift hull equipped with Fountain's all new Surface Drive System.
Performance at wide-open throttle can exceed 60 mph.
Following is a table showing the number of boats completed and shipped
in each of the last three fiscal years by product line:
Fiscal Fiscal Fiscal
2000 1999 1998
Sport boats 325 316 324
Sport cruisers - 1 9
Yachts - 1 -
Defense boats 9 - -
Sport fishing boats 112 130 116
---- ---- ----
Total 446 448 449
==== ==== ====
The Company conducts research and development projects for the design
of its plugs and molds for hull, deck, and small parts production. The
design, engineering, and tooling departments currently employ approximately
35 full-time employees. Amounts spent on design research and development
and to build new plugs and molds in recent years were:
Design Construction
Research & of New Plugs
Development and Molds
Fiscal 2000 ....... $926,486 $1,154,908
Fiscal 1999 ....... $876,965 $1,275,182
Fiscal 1998 ....... 575,918 $2,050,745
Fiscal 1997 ....... 635,652 $1,684,274
For Fiscal 2001, planned design research and development expenses are
estimated to be $900,000 and plug and mold construction expenditures are
estimated to be $1,750,000. These expenditures will be primarily to
complete the tooling for the new mid-size cruiser line, wide beam fish
boats, and new diesel boats.
4
Manufacturing capacity is sufficient to accommodate approximately 30
to 40 boats in various stages of construction at any one time.
Construction of a current model boat, depending on size, takes
approximately three to five weeks. The Company, with additional personnel,
currently has the capacity to manufacture approximately 450 sport and
fishing boats, 100 cruisers, and 12 yachts per year.
The manufacturing process for the hulls and decks consists primarily
of the hand "lay-up" of vinylester resins and high quality stitched, bi-
directional and quad-directional fiberglass over a foam core in the molds
designed and constructed by the Company's engineering and tooling
department. This creates a composite structure with strong outer and inner
skins with a thicker, light core in between. The "lay-up" of fiberglass by
hand rather than using chopped fiberglass and mechanical blowers, results
in superior strength and appearance. The resin used to bind the composite
structure together is vinylester, which is stronger, better bonding, and
more flexible than the polyester resins used by most other fiberglass boat
manufacturers. Decks are bonded to the hulls using bonding agents, rivets,
screws and fiberglass to achieve a strong, unitized construction.
As one of the most highly integrated manufacturers in the marine
industry, the Company manufactures many metal, plexiglass, plastic, and
small parts (such as gas tanks, seat frames, steering systems, instrument
panels, bow rails, brackets, T-tops, and windscreens) to assure that its
quality standards are met. In addition, the company also manufactures all
of its upholstery to its own custom specifications and benefits from lower
costs as it receives parts just in time for assembly. All other component
parts and materials used in the manufacture of the Company's boats are
readily available from a variety of suppliers at comparable prices
exclusive of discounts. However, where practicable, the Company purchases
certain supplies and materials from a limited number of suppliers in order
to obtain the benefit of volume discounts.
Certain materials used in boat manufacturing, including the resins
used to make the decks and hulls, are toxic, flammable, corrosive, or
reactive and are classified by the federal and state governments as
"hazardous materials." Control of these substances is regulated by the
Environmental Protection Agency and state pollution control agencies which
require reports and inspect facilities to monitor compliance with their
regulations. The Company's cost of compliance with environmental
regulations has not been material. The Company's manufacturing facilities
are regularly inspected by the Occupational Safety and Health
Administration and by state and local inspection agencies and departments.
The Company believes that its facilities comply with substantially all
regulations. The Company, however, has been informed that it may incur or
may have incurred liability for re-mediation of ground water contamination
at two hazardous waste disposal sites resulting from the disposal of a
hazardous substance at those sites by a third-party contractor of the
Subsidiary. (See Item 3. Legal Proceedings.)
Recreational powerboats must be certified by the manufacturer to meet
U.S. Coast Guard specifications. In addition, their safety is subject to
federal regulation under the Boat Safety Act of 1971, as amended, pursuant
to which boat manufacturers may be required to recall products for
replacement of parts or components that have demonstrated defects affecting
safety. The Company has never had to conduct a product recall. In
addition, boats manufactured for sale in the European Community must meet
CE Certification Standards.
Sales and Marketing.
Sales are made through approximately 35 dealer shipping locations
throughout the United States. The Company also has 6 international
dealers. Most of these dealers are not exclusive to the Company and carry
the boats of other companies, including some boats that may be competitive
with the Company's products. The territories served by any dealer are not
exclusive to the dealer. However, the Company uses discretion in locating
new dealers in an effort to protect the interests of the existing dealers.
Following is a table of sales by geographic area for the last three fiscal
years:
5
Fiscal 2000 Fiscal 1999 Fiscal 1998
United States $ 55,777,049 $ 49,711,114 $ 46,068,495
Canada, Mexico,
Central and
South America $ 1,485,615 $ 2,495,048 $ 2,639,523
Europe and the
Middle East $ 269,797 $ 1,222,325 $ 1,834,524
Asia $ - $ - $ 109,495
------------- ------------- ------------
Total $ 57,532,461 $ 53,428,487 $ 50,652,037
============= ============= ============
The Company targets a portion of its advertising program into a number
of foreign countries through various advertising media. It continues to
seek new dealers in many areas throughout Europe, South America, the Far
East and the Mideast. In general, the Company requires payment in full or
an irrevocable letter of credit from a domestic bank before it will ship a
boat overseas. Consequently, there is no credit risk associated with its
foreign sales nor risk related to foreign currency fluctuation. The
Company believes that within several years, foreign sales could account for
up to 10% of its total sales.
For Fiscal 2000 one dealer accounted for 7.4% of sales, one for 6.1%
of sales and one for 5.7% of sales. For Fiscal 1999 one dealer accounted
for 6.83% of sales, one for 6.77% of sales and one for 6.71% of sales. For
Fiscal 1998 one dealer accounted for 6.7% of sales, one for 6.3% and one
other dealer accounted for more than 5% of sales. The Company believes that
the loss of any particular dealer would not have a materially adverse
effect on sales. As sales continue to grow through more dealers, it is
reasonable to assume the Company will grow less dependent on any one
dealer.
Field sales representatives call upon existing dealers and develop new
dealers. The field sales force is headed by the Fountain National Director
of Sales who is responsible for developing a full dealer organization for
sport boats, sport cruisers, sport fishing boats and yachts. The Company
is seeking to establish separate sport boat and fishing boat dealers in
most marketing areas due to the specialization of each type of boat and the
different sales programs required.
Beginning in Fiscal 1999, sales to Government and Defense Agencies,
both domestic and foreign, are headed up by a Director of Defense
Operations who is responsible for establishing contractual relationships
with key Armed Services and Congressional Leaders. The Company continues
to seek new growth in this market.
Although a sales order can be cancelled at any time, most boats are
pre-sold to a dealer before entering the production line. To date,
cancellations have not had any material effect on the Company. The Company
normally does not manufacture boats for inventory.
The Company ships boats to some dealers on a cash-on-delivery basis.
However, most of the Company's shipments are made pursuant to commercial
dealer "floor plan financing" programs in which the Company participates on
behalf of its dealers. Under these arrangements, a dealer establishes
lines of credit with one or more third-party lenders for the purchase of
showroom inventory. When a dealer purchases a boat pursuant to a floor
plan arrangement, it draws against its line of credit and the lender pays
the invoice cost of the boat directly to the Company. Generally, payment
is made to the Company within five business days. When the dealer in turn
sells the boat to a retail customer, the dealer repays the lender, thereby
restoring its available credit line. For the 2000 model year (which
commenced July 1, 1999), the Company had made arrangements to pay all
interest charged to dealers by certain floor plan lenders for up to six
months. This and other incentives to the dealers have resulted in
relatively level month to month production and sales. After six months,
the free interest program ends and interest cost reverts to the dealer at
the rates set by the lender.
6
The dealers will make curtailment payments (principal payments) on the
boats as required by their particular commercial lenders. Similar
sales promotion programs were in effect during Fiscal 1999, 1998, and 1997.
Each dealer's floor plan credit facilities are secured by the dealer's
inventory, letters of credit, and perhaps other personal and real property.
In connection with the dealer's floor plan arrangements, the Company
(together with substantially all other major manufacturers) has agreed to
repurchase any of its boats which a lender repossesses from a dealer and
returns to the Company in a new or like new condition. In the event that a
dealer defaults under a credit line, the lender may then invoke the
manufacturers' repurchase agreements with respect to that dealer. In that
event, all repurchase agreements of all manufacturers supplying a
defaulting dealer are generally invoked regardless of the boat or boats
with respect to which the dealer has defaulted (See also Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations). The Company participates in floor plan arrangements with
several major third-party lenders on behalf of its dealers, most of who
have financing arrangements with more than one lender. Except as described
above, or where it has a direct repurchase agreement with a dealer, the
Company is under no material obligation to repurchase boats from its
dealers. From time to time the Company will voluntarily repurchase a boat
for the convenience of the dealer or for another dealer who needs a
particular model not readily available from the factory. The marketing of
boats to retail customers is primarily the responsibility of the dealer,
whose efforts are supplemented by the Company through advertising in
boating magazines, participation in regional, national, and international
boat shows, and on TNN, ESPN, and Speed Vision.
Additionally, in order to further promote its products over the years,
the Company has developed racing programs to participate in the major
classes of offshore powerboat races, many of which are regularly televised
on networks such as ESPN, TNN and Speed Vision. Additionally, Fountain
single, twin and triple engine racing boats continue to hold their
respective world speed records. The result of these racing victories and
world speed records has established the Company's products as the highest
performing and safest designed offshore boats. The Company believes that
the favorable publicity generated by these performance programs contributes
to its sales volume. The Company Founder and C.E.O., Reggie Fountain, has
won numerous races in both factory and customer boats; he has also set
numerous speed records in both factory and customer boats. These Fountain
race boats were, in general, very successful in the various racing circuits
in which they competed. The Company constructed two race boats during
Fiscal 1997 and implemented a racing program during Fiscal 1998, of which a
major engine manufacturer was a sponsor. In Fiscal 1998, the company
completed the structure of its racing program with a third boat and
captured several world speed records through the summer of calendar 1998
with the 100th victory completed by Reggie Fountain in New York City in
September, 1998.
As part of the marketing program for its line of sport fishing
boats, the Company sponsors several outstanding sport fishermen in the
Southern Kingfish Association Circuit. This competitive circuit sanctions
King Mackerel Tournaments throughout the Atlantic and Gulf Coast from North
Carolina to Texas. In Fiscal 1991, the Company's boats and sponsored
fishermen dominated this circuit by winning 4 of the top 5 spots. One
Fountain fisherman, Clayton Kirby was named `Angler of the Year' and
finished in first place. Since Fiscal 1992, the Fountain Fishing Team has
continued to dominate the S.K.A. circuit winning many of the top spots.
Fountain Fishermen have won the coveted `Angler of the Year' title 5 of the
last 9 years. The S.K.A. Tournaments are held weekly and attract from 100 -
1000 entrants with prize money in excess of $500,000. The Fountain fishing
teams winning records have given our sport fishing boats favorable exposure
to serious sport fishermen, in particular with respect to the superior
performance of Fountain's fishing boat line.
Sales Order Backlog.
The sales order backlog typically builds to approximately 150 boats
during the August-October Dealer allocation period having an estimated
sales value of $15,000,000. All of the backlog is generally shipped within
6 months. During the last year, the Company's performance boats
increased in sales value to a greater degree than fishing boats, which
increased the overall average unit boat price. In addition, the sale of
the first 65' SuperCruiser contributed to a substantial per boat increase.
The Company's Fall Dealer Allocation Program is designed to promote early
replenishment of the stock in dealer inventories depleted throughout the
prime spring and summer selling seasons.
7
Product Warranty.
The Company warrants its boats against defects in material and
workmanship for a period of three years. The engine manufacturer warrants
engines included in the boats. Warranty expenses of $869,979 or 1.51% of
sales were incurred in Fiscal 2000 and were charged-off against net income.
A reserve for warranty expenses estimated to be incurred in future years
had been recorded and amounted to $590,000 at June 30, 2000. For 1999,
warranty costs were $856,694 or 1.6 percent of sales. Warranty costs as a
percentage of sales are among the lowest in the marine industry thereby
reflecting the Company's superior construction of its boats.
Competition.
Competition within the powerboat manufacturing industry is intense.
While the high performance sports boat market comprises only a small
segment of all boats manufactured, the higher prices commanded by these
boats make it a significant market in terms of total dollars spent. The
manufacturers that compete directly with the Company in its market segment
include:
Wellcraft Division of Genmar Industries, Inc.
Formula, a Division of Thunderbird Products Corporation
Baja Boats, a Division of Brunswick Corporation
Cigarette Racing Team, Inc.
Donzi, American Marine Holdings
The Company believes that in its market segment, speed, performance,
quality, image, and safety are the main competitive factors, with styling
and price being somewhat lesser considerations.
The market for fishing boats is much larger than the one for sport
boats, but there are many more fishing boat manufacturers than there are
sport boat manufacturers.
The Company believes that its current owners, many of whom have
purchased multiple and increasingly larger boats from the Company
regenerate a ready waiting market for its expansion into the cruiser and
yacht market.
Employees.
As of September 1, 2000 the Company had 390 employees, of whom eleven
were executive and management personnel. Nineteen were engaged primarily
in administrative positions including accounting, personnel, marketing and
sales activities. None of the Company's employees are party to a
collective bargaining agreement. The Company considers its employee
relations to be satisfactory. The Company is an affirmative action, equal
opportunity employer.
Item 2. Properties.
The Company's executive offices and manufacturing facilities are
located on 66 acres along the Pamlico River in Beaufort County, North
Carolina. All of the land, buildings and improvements are owned by the
Company and are held as collateral on notes and mortgages payable having a
balance of $9,187,159 at June 30, 2000.
The operating facility contains buildings totaling 235,040 square feet
located on fifteen acres. The buildings consist of the following:
8
Approximate
Square Footage Principal Use
Building 1 13,200 Executive offices,
shipping and receiving,
and paint shop.
Building 2 7,200 Final prep shop.
Building 3 75,800 Lamination, upholstery,
final, assembly, inventory,
and cafeteria.
Building 4 14,250 Woodworking.
Building 5 26,800 Mating, small parts
lamination.
Building 6 23,800 Metal fabrication.
Building 7 15,720 Racing, service, and
warranty.
Building 8 8,750 Lamination extension
area.
Building 9 4,800 Mold storage.
Building 10 26,960 Fabrication, sportswear sales.
Building 11 12,000 Yacht manufacturing.
Building 12 5,760 Maintenance and storage.
-------
Total 235,040
=======
Over the last three years there have been heavy expenditures in
property, plant and equipment, which include additions to the plant, plus a
travellift bay, boat ramp and docking facilities along a 600-foot canal
leading to the Pamlico River. In addition, approximately 200,000 square
feet of concrete paving surrounding the buildings and providing employee
parking has been completed. The present site can accommodate an addition
of up to 300,000 square feet of manufacturing space.
Item 3. Legal Proceedings.
As of June 30, 2000, the Company's chief operating subsidiary was a
defendant in 2 product liability suits and 7 alleged breach of warranty
suits. In the Company's opinion these lawsuits are without merit and,
therefore, the Company intends to vigorously defend its interest in such
suits. The Company carries sufficient liability and product liability
insurance to cover attorney's fees and any losses that may occur from such
suits, over and above applicable insurance deductibles. Management of
Company believes that none of such current proceedings will have a material
adverse effect on Registrant.
The Company's subsidiary was notified by the United States
Environmental Protection Agency("EPA") and the North Carolina Department of
Environmental Health and Natural Resources that it had been identified as a
potential responsibility party in the remediation of contamination at two
clean up sites. The Group Administrator Counsel estimated the Company's
future share of remediation cost not to exceed approximately $40,000.
9
Item 4. Submission of Matters to a Vote of Security Holders.
None applicable
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The Company's common stock, $.01 per value, was listed and began
trading on the NASDAQ National Market System (under the symbol "FPWR") on
August 28,1996. Prior to that time the Company's common stock was traded
on the American Stock Exchange (under the symbol "FPI").
The following table contains certain historical high and low price
information related to the common stock for the past quarter indicated.
Amounts shown reflect high and low sales prices of the common stock on the
NASDAQ National Market System:
Quarter Ended High Low
September 30, 1997 14.88 9.00
December 31, 1997 15.38 8.88
March 31, 1998 12.75 8.50
June 30, 1998 13.00 8.93
September 30, 1998 11.13 4.38
December 31, 1998 6.72 3.88
March 31, 1999 7.00 4.50
June 30, 1999 5.00 3.97
September 30, 1999 4.19 2.00
December 31, 1999 2.94 2.50
March 31, 2000 3.19 3.00
June 30, 2000 3.25 2.94
The Company has not declared or paid any cash dividends since its
inception. Any decision as to the future payment of dividends will depend
on the Company's earning, financial position and such other factors, as the
Board of Directors deems relevant.
The number of shareholders of record for the Company's common stock as
of September 1, 2000 was approximately 133.
10
Item 6. Selected Financial Data
Fountain Powerboat Industries, Inc. and Subsidiary
Selected Financial Data
Fiscal Years 1996 through 2000
Year Ended June 30,
Operations Statement
Data: ----------------------------------------------------------------------
(Period
Ended) 2000 1999 1998 1997 1996
------------- ------------- ------------ ------------- -------------
Sales $ 57,532,461 $ 53,428,487 $ 50,652,037 $ 50,514,325 $ 41,598,051
Net
Income
(loss) $ 1,258,342 $ (1,255,791)$ 2,740,487 $ 1,239,951 $ 3,680,034
Income
(loss)
per
share $ .27 $ (.27)$ .58 $ .27 $ .81
Weighted
average
shares
outstanding 4,732,608 4,711,896 4,751,779 4,664,251 4,528,608
Diluted
earnings
(loss)
per
share $ .27 $ N/A $ .54 $ .24 $ .77
Diluted
weighted
average
shares
outstanding 4,732,651 N/A 5,110,090 5,093,289 4,573,153
Balance Sheet Data
(At Period End)
- ------------------
Current
assets $ 13,621,499 $ 14,084,888 $ 12,718,535 $ 10,997,133 $ 8,378,341
Total
Assets $ 33,431,084 $ 33,930,960 $ 32,497,393 $ 23,713,896 $ 18,498,104
Current
Liabilities
$ 12,144,123 $ 12,183,630 $ 10,289,985 $ 6,305,212 $ 6,180,476
Long-term
debt $ 8,215,486 $ 10,215,334 $ 9,499,895 $ 8,047,039 $ 5,433,184
Stockholders'
equity (1)
$ 11,890,658 $ 10,632,316 $ 11,780,706 $ 9,361,645 $ 6,884,444
(1) The Company has not paid any cash dividends since its inception.
11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
As described more fully below at "Business Environment",
more than half of the Company's shipments to dealers were
financed through so-called "100% floor plan arrangements" with
third-party lenders pursuant to which the Company may be required
to repurchase boats repossessed by the lenders if the dealer
defaults under his credit arrangement. The balance of shipments
was C.O.D. or payment prior to shipment.
The Company has developed criteria for determining whether a
shipment should be recorded as a sale or as a deferred sale (a
balance sheet liability). The criteria for recording a sale are
that the boat has been completed and shipped to a customer, that
title and all other incidents of ownership have passed to the
customer, and that there is no direct commitment to repurchase
the boat or to pay floor plan interest beyond the normal sales
program terms. This is the method of sales recognition believed
to be in use by most boat manufacturers.
At June 30, 2000, 1999, and 1998, there were no commitments
to dealers to pay the interest on floor plan financed boats in
excess of the time period specified in the Company's written
sales program and there were no direct repurchase agreements.
There were no deferred sales or cost of sales estimated at June
30, 2000, 1999, and 1998.
The Company has a contingent liability to repurchase boats
where it participates in the floor plan financing made available
to its dealers by third-party finance companies. Sales to
participating dealers are approved by the respective finance
companies. If a participating dealer does not satisfy its
obligation to the lender and the boat is subsequently repossessed
by the lender, then the Company may be required to repurchase the
boat. The Company had a contingent liability of approximately
$23,673,000 and $23,350,000 at June 30, 2000 and 1999 for the
shipment of boats, which remained uncollected by the finance
companies at those dates. Additionally, at June 30, 2000 and
1999, the Company had recorded reserves of $200,000 and $200,000,
which represent losses which may be reasonably expected to be
incurred on boat repurchases in future years.
Business Environment.
The Company's Sales have continued to increase each year.
Sales for 2000 were $57,532,461 up 7.7% from Fiscal 1999. The
sales volume increase for Fiscal 2000 was in line with the
overall recreational boating industry. Plant utilization stands
at about 80% until the 65' yacht and the new cruiser and fishboat
product lines are in full production.
Sales for Fiscal 1999 were $53,428,487, up more than 5% from
sales for Fiscal 1998. Sales for Fiscal 1998 were $50,652,037.
In Fiscal 2000, the Company continued to advertise and
market aggressively. Management believes that the Company's
advertising, marketing, racing, and tournament fishing programs,
as well as its reputation as the builder of the highest quality,
best performing, and safest high performance boats in the
industry, all contributed to maintaining our performance market
share.
Typically, each dealer's floor plan credit facilities are
secured by the dealer's inventory, and perhaps, other personal
and real property. In connection with the dealers' floor plan
arrangements, the Company (as well as substantially all other
major manufacturers) has agreed in most instances to repurchase,
under certain circumstances, any of its boats which a lender
repossesses from a dealer and returns to the Company. In the
event that a dealer defaults under its credit line, the lender
may invoke the manufacturers' repurchase agreements with respect
to that dealer. In that event, all repurchase
12
agreements of all manufacturers supplying a defaulting dealer are
generally invoked regardless of the boat or boats with respect to
which the dealer has defaulted.
Except where there is a direct repurchase agreement with the
customer, the Company is under no obligation to repurchase boats
from its dealers, although it will on occasion voluntarily assist
a dealer in selling a boat or it will repurchase a boat for the
convenience of a dealer.
No boats were repurchased in Fiscal 2000, 1999 and Fiscal
1998 in connection with floor plan arrangements. At June 30,
2000, 1999, and 1998, the Company had recorded a $200,000 reserve
for losses which may be reasonably expected to be incurred on
boat repurchases in future years.
Results of Operations.
For Fiscal 2000, the Company had a net income of $1,258,342
or $ .27 per share. This compares to a net loss of ($1,255,791)
or ($.27) per share in Fiscal 1999. The change in net income
from the prior year's net loss is primarily due to proceeds
received from the settlement of a lawsuit and insurance claims as
a result of damages sustained from Hurricanes "Dennis" and
"Floyd"; the restructuring charge in 1999; a drop in profit
margins in 2000 due to changes in the Company's sales mix; offset
by reduced operating expenses.
During April 2000, the Company received $1,313,224 and
recorded an extraordinary gain from the settlement of a class
action lawsuit alleging antitrust violations against a vendor of
the Company who is in the sterndrive and inboard engine business.
During September 1999, the Company experienced flooding and
the temporary closure of the production facility as a result of
Hurricanes "Dennis" and "Floyd" hitting Eastern North Carolina.
As a result of the hurricanes, the Company sustained damages of
approximately $277,172 to inventory and $389,063 to property,
plant and equipment, which includes $300,000 in damages to the
Company's yacht mold. The Company incurred $51,658 in additional
expenses. The Company has filed a business interruption claim for
damages due to loss revenues from the closure of the production
facility and inefficiencies due to storm preparation, cleanup and
work force shortages. As of June 30, 2000, the insurance
carriers have paid $1,058,618 for damages to the inventory,
property, plant, and equipment including the Yacht Mold and other
expenses. The Company has filed its claim for business
interruption and believed it complied with all aspects of its
policy. When a timely and reasonable resolution could not be
reached, the Company filed suit against its insurance carrier
resulting in the insurance carrier re-initiating meaningful
discussions to resolve the claim. As of June 30, 2000, the
insurance carrier has advanced $961,560 towards the business
interruption claim. The full effects of a business interruption
settlement cannot be reasonably estimated and will be recorded in
the future when collected. As of June 30, 2000 the Company has
recorded other income of $1,065,725 resulting from the gain on
insurance claims from the hurricanes.
During the second quarter of Fiscal 1999, the Company
designed and implemented a restructuring plan to aggressively
improve the Company's cost structure, refocus sales and marketing
expenditures and divest the Company of certain non-realizable
assets. In connection with the restructuring plan the Company
reviewed components of its business for possible improvement of
future profitability through reengineering or restructuring. As
part of this plan, the Company decided to eliminate its direct
racing program and reduce the yacht tooling cost (carrying
value), along with other discontinued unused tooling. The
carrying value of the assets held was reduced to fair value based
on estimated realizable value based on future cash flows from use
of the asset or sale of the related assets. The resulting pretax
adjustment of $2,440,000 was recorded as a strategic charge in
the statement of operations of the Company.
13
Operating income increased to $745,107 in Fiscal 2000. This
compares with a loss of ($1,620,941) in Fiscal 1999, primarily
due to restructuring charges. Operating income decreased from
$4,084,388 in Fiscal 1998, due to the less favorable sales mix
with fishboat sales increasing by over 30%, the initial year of
defense boats, yacht start up, and a commitment by the company to
maintain market share versus substantial price increases.
The Company's gross profit margin as a percentage of sales
decreased to 19.8% in Fiscal 2000 from 22.2% in Fiscal 1999 and
24.8% in Fiscal 1998. The change in the gross margin percentage
was due to the overall sales mix of boats.
Depreciation expense was $2,397,085 for Fiscal 2000,
$2,280,871 for Fiscal 1999, and $1,953,207 for Fiscal 1998.
Depreciation expense by asset category was as follows:
Fiscal Fiscal Fiscal
2000 1999 1998
Land improvements $ 116,350 $ 57,065 $ 29,504
Buildings $ 290,825 $ 256,205 $ 239,187
Molds & plugs $ 1,178,138 $ 1,236,027 $ 1,112,705
Machinery &
Equipment $ 481,074 $ 387,732 $ 353,102
Furniture & fixtures $ 57,677 $ 30,842 $ 15,238
Transportation
equipment $ 246,139 $ 194,627 $ 129,722
Racing Equipment $ 26,882 $ 118,373 $ 73,749
------------ ------------ ------------
Total $ 2,397,085 $ 2,280,871 $ 1,953,207
======== ========= =========
Following is a schedule of the net fixed asset additions
(deletions) during Fiscal 2000 and Fiscal 1999.
Fiscal 2000 Fiscal 1999
Buildings $ 543,707 $ 555,475
Land and Improvements $ 2,697 $ 804,226
Molds and plugs $ 404,360 $ 312,045
Construction in
Progress $ (81,276) $ 760,052
Machinery & equipment $ 1,151,897 $ 597,610
Furniture & fixtures $ 11,036 $ 217,123
Transportation equipment$ (73,159) $ 506,172
Racing equipment $ (482,806) $ -
--------------- ---------------
Total $ 1,476,456 $ 3,752,703
=============== ==============
14
Selling expenses were $7,370,319 for Fiscal 2000, $7,934,683
for Fiscal 1999, and $5,687,097 for Fiscal 1998. The Company
continued to promote its products primarily by magazine
advertising in Fiscal 2000. Advertising expense was $1,456,592
for Fiscal 2000, $1,411,883 in Fiscal 1999, and $1,166,633 for
Fiscal 1998. These advertising expenditures continue to promote
the Company's visibility in the recreational marine industry and
its boat sales. Management believes that advertising is
necessary in order to maintain the Company's sales volume and
dealer base. Additionally, in an effort to further promote its
products, the Company continued its offshore racing and
tournament fishing programs. These programs cost $2,424,918 in
Fiscal 2000, $2,503,699 in Fiscal 1999, and $953,928 in Fiscal
1998.
Selling expenses compared for the past three fiscal years
were as follows:
Fiscal 2000 Fiscal 1999 Fiscal 1998
Offshore racing and
tournament fishing $ 2,424,918 $ 2,503,699 $ 953,928
Advertising $ 1,456,592 $ 1,411,883 $ 1,166,633
Salaries &
commissions $ 788,108 $ 1,054,467 $ 939,541
Boat Shows $ 563,536 $ 494,832 $ 446,706
Dealer incentives $ 1,421,703 $ 1,612,415 $ 1,031,611
Other selling
expenses $ 715,462 $ 857,387 $ 1,148,678
------------- ------------- -------------
Total $ 7,370,319 $ 7,934,683 $ 5,687,097
============= ============= =============
General and administrative expenses include the finance,
accounting, legal, personnel, data processing, and administrative
operating expenses of the Company. These expenses were
$3,260,571 for Fiscal 2000, $3,127,029 for Fiscal 1999, and
$2,796,518 for Fiscal 1998.
Interest expense was $1,065,514 for Fiscal 2000, $1,023,727
for Fiscal 1999, and $833,932 for Fiscal 1998. The increase in
interest expense for Fiscal 2000 was primarily due to an overall
increase in prime rate throughout the fiscal year.
For Fiscal 2000, the Company received $106,239 in other
income and there was a loss of ($12,846) on the disposal of
assets. For Fiscal 2000, the Company recorded a gain of
$1,065,725 on insurance claims related to hurricane damage.
Liquidity and Financial Resources.
Net cash provided by operations in Fiscal 2000 amounted to
$3,989,220. Net income plus adjustments to reconcile net income
to net cash provided by operating activities including
depreciation expense of $2,397,085 and net non-cash items of
$12,846 provided net cash of $3,668,273 before changes in asset
and liability accounts. However, relatively large amounts were
needed to complete investment activities in purchasing property,
plant, equipment, inventory and molds. The ending cash balance
was $1,983,439.
15
Net cash provided by operations in Fiscal 1999 amounted to
$2,738,206. Net loss plus adjustments to reconcile net loss to
net cash provided by operating activities including depreciation
expense of $2,280,874, the strategic charge of $2,440,000 and
other net items of $20,900 provided net cash of $3,485,980 before
changes in asset and liability accounts. However, relatively
large amounts were needed to continue investment activities in
purchasing property, plant, equipment, inventory and molds. The
ending cash balance was $2,217,301.
Operations in Fiscal 1998 provided $3,869,619 in cash. Net
income plus depreciation expense provided cash amounting to
$4,693,694. However, relatively large amounts were needed to
finance investment activities in purchasing property, plant,
equipment, inventory and molds. In addition, the new yacht
construction with associated development costs added to the heavy
use of cash. The ending cash balance was $1,376,984.
Investing activities for Fiscal 2000 required $2,742,183,
including $1,678,236 for property, plant and equipment,
$1,154,908 for additional molds and plugs, $122,637 for payments
increasing the cash surrender value of life insurance policies
and proceeds of $555,230 from the sale of property and equipment.
Investing activities for Fiscal 1999 required $3,710,206,
including $2,477,520 for property, plant and equipment,
$1,275,183 for additional molds and plugs and $131,696 for
payments increasing the cash surrender value of life insurance
policies.
Investing activities for Fiscal 1998 required $8,218,341,
including expenditures for additional molds and plugs amounting
to $2,050,745, for property, plant and equipment for $6,745,936
and $124,396 for payments increasing the cash surrender value of
life insurance policies.
Financing activities for Fiscal 2000 used $1,822,534.
Included in this amount are proceeds from issuance of notes
payable and long-term debt to Northwestern Mutual Life Insurance
and General Electric Capital Corporation for $760,212 and debt
repayment in the amount of $2,582,746.
Financing activities for Fiscal 1999 provided $1,812,317.
Included in this amount are proceeds from issuance of notes
payable and long-term debt to Transamerica Business Credit
Corporation and General Electric Capital Corporation for
$4,000,000 along with total debt repayment of $2,574,637.
Financing activities for Fiscal 1998 provided $2,731,203.
Included in this amount are proceeds from issuance of notes
payable and long term-debt to G. E. Capital Corporation for
$3,362,137 and the retirement of previous long-term debt of
$738,434.
The net decrease in cash for Fiscal 2000 was $233,862,
primarily due to the investment in facilities, equipment, and
molds. The net increase in cash for Fiscal 1999 was $840,317,
primarily from a new $4,000,000 promissory note with Transamerica
Business Credit Corporation, which included restatement and
amendment of certain existing promissory notes with General
Electric Capital Corporation. The net decrease in cash for
Fiscal 1998 was $1,617,519, primarily due to the investment in
facilities, equipment and molds. During Fiscal 1998, the Company
borrowed the remaining $1,500,000 against the initial General
Electric Capital Corporation loan, bringing the balance to
$10,000,000, less the scheduled monthly principal reductions. For
Fiscal 2001, the Company anticipates that the $1,983,439
beginning cash balance along with the net projected increase in
cash provided from operations will be sufficient to meet most of
the Company's liquidity needs for the year. The Company intends
to concentrate on reducing capital expenditures and building its
cash reserves during Fiscal 2001.
16
Effects of Inflation.
The Company has not been materially affected by the moderate
inflation of recent years. Since most of the Company's plant and
its equipment are relatively new, expenditures for replacements
are not expected to be a factor in the near-term future.
When raw material costs increase because of inflation, the
Company attempts to minimize the effect of these increases by
using alternative, less costly materials, or by finding less
costly sources for the materials it uses. When the foregoing
measures are not possible, its selling prices are increased to
recover the cost increases.
The Company's products are targeted at the segment of the
powerboat market where retail purchasers are generally less
significantly affected by price or other economic conditions.
Consequently, management believes that the impact of inflation on
sales and the results of operations will not be material.
The Year 2000.
The "Y2K" Bug was expected to affect a large number of
computer systems and software during or after the year 1999. The
concern was that any computer function that requires a date
calculation might produce errors. The Company has taken the steps
necessary to prevent those errors from occurring. Management is
not presently aware of any Year 2000 issues that have been
encountered by any third party providers whose services are
critical to the Company, which could materially affect the
Company's operations. At present, the Company has spent
approximately $644,000 in upgrading some of its software and
hardware in order to avoid any problems resulting from the
Millennium bug. The Company does not expect to experience any
operational difficulties as a result of Year 2000 issues.
Cautionary Statement for Purposes of "Safe Harbor" Under the
Private Securities Reform Act of 1995.
The Company may from time to time make forward-looking
statements, including statements projecting, forecasting, or
estimating the Company's performance and industry trends. The
achievement of the projections, forecasts, or estimates contained
in these statements is subject to certain risks and
uncertainties, and actual results and events may differ
materially from those projected, forecast, or estimated.
The applicable risks and uncertainties include general
economic and industry conditions that affect all businesses, as
well as matters that are specific to the Company and the markets
it serves. For example, the achievement of projections,
forecasts, or estimates contained in the Company's forward-
looking statements may be impacted by national and international
economic conditions; compliance with governmental laws and
regulations; accidents and acts of God; and all of the general
risks associated with doing business.
Risks that are specific to the Company and its markets
include but are not limited to compliance with increasingly
stringent environmental laws and regulations; the cyclical nature
of the industry; competition in pricing and new product
development from larger companies with substantial resources; the
concentration of a substantial percentage of the Company's sales
with a few major customers, the loss of, or change in demand from
dealers, any of which could have a material impact upon the
Company; labor relations at the Company and at its customers and
suppliers; and the Company's single-source supply and just-in-
time inventory strategies for some critical boat components,
including high performance engines, which could adversely affect
production if a single-source supplier is unable for any reason
to meet the Company's requirements on a timely basis.
17
Item 8. Financial Statements and Supplementary Data.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Washington, North Carolina
We have audited the accompanying consolidated balance sheets of
Fountain Powerboat Industries, Inc. and Subsidiary as of June 30,
2000 and 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years
ended June 30, 2000, 1999 and 1998. 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 conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements audited by
us present fairly, in all material respects, the consolidated
financial position of Fountain Powerboat Industries, Inc. and
Subsidiary as of June 30, 2000 and 1999, and the consolidated
results of their operations and their cash flows for the years
ended June 30, 2000, 1999 and 1998 in conformity with generally
accepted accounting principles.
PRITCHETT, SILER & HARDY, P.C.
/s/PRITCHETT, SILER & HARDY, P.C.
July 27, 2000
Salt Lake City, Utah
18
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
___________________________
2000 1999
_____________ ____________
CURRENT ASSETS:
Cash & cash equivalents $ 1,983,439 $ 2,217,301
Accounts receivable, less allowance
for doubtful
accounts of $30,000 for 2000 and
1999 1,701,643 1,576,712
Inventories 7,880,136 7,307,890
Prepaid expenses 574,615 761,486
Current tax assets 1,481,666 2,221,499
_____________ ____________
Total Current Assets 13,621,499 14,084,888
PROPERTY, PLANT AND EQUIPMENT, net 18,933,251 19,065,270
CASH SURRENDER VALUE OF LIFE INSURANCE 742,839 620,202
OTHER ASSETS 133,495 160,599
_____________ ____________
$ 33,431,084 $ 33,930,960
_____________ ____________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 2,613,534 $ 2,464,535
Current maturities of capital lease 12,999 11,788
Accounts payable 4,993,717 3,961,516
Accrued expenses 2,504,603 2,231,061
Dealer territory service accrual 907,230 2,037,170
Customer deposits 322,040 687,560
Allowance for boat repurchases 200,000 200,000
Warranty reserve 590,000 590,000
_____________ ____________
Total Current Liabilities 12,144,123 12,183,630
LONG-TERM DEBT, less current maturities 8,151,546 10,138,395
CAPITAL LEASE, less current maturities 63,940 76,939
DEFERRED TAX LIABILITY 1,180,817 899,680
COMMITMENTS AND CONTINGENCIES (See Note 9) - -
_____________ ____________
Total Liabilities 21,540,426 23,298,644
_____________ ____________
STOCKHOLDERS' EQUITY
Common stock, $.01 par value,
200,000,000 shares authorized,
4,732,608 shares issued and
outstanding 47,326 47,326
Additional paid-in capital 10,303,640 10,303,640
Accumulated earnings 1,650,440 392,098
_____________ ____________
12,001,406 10,743,064
Less: Treasury Stock, at
cost, 15,000 shares (110,748) (110,748)
_____________ ____________
11,890,658 10,632,316
_____________ ____________
$ 33,431,084 $ 33,930,960
_____________ ____________
The accompanying notes are an integral part of these financial statements.
19
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended June 30,
________________________________________________
2000 1999 1998
______________ ________________ ______________
NET SALES $ 57,532,461 $ 53,428,487 $ 50,652,037
COST OF SALES 46,156,464 41,547,716 38,084,034
______________ ________________ ______________
Gross Profit 11,375,997 11,880,771 12,568,003
______________ ________________ ______________
EXPENSES:
Selling expense 7,370,319 7,934,683 5,687,097
General and
administrative 3,260,571 2,628,722 2,722,665
General and
administrative -
related parties - 498,307 73,853
Strategic Charge - 2,440,000 -
______________ ________________ ______________
Total expenses 10,630,890 13,501,712 8,483,615
______________ ________________ ______________
OPERATING INCOME (LOSS) 745,107 (1,620,941) 4,084,388
______________ ________________ ______________
NON-OPERATING INCOME
(EXPENSE):
Other income 106,239 130,118 252,967
Interest expense (1,065,514) (1,003,280) (807,423)
Interest expense -
related parties - (20,447) (26,509)
Gain (loss) on
disposal of assets (12,846) 69,100 4,637
Gain on insurance
claims from hurricane 1,065,725 - -
______________ ________________ ______________
Total non-operating
income (expense) 93,604 (824,509) (576,328)
______________ ________________ ______________
INCOME (LOSS) BEFORE
INCOME TAXES 838,711 (2,445,450) 3,508,060
CURRENT TAX EXPENSE - 1,057,640
DEFERRED TAX EXPENSE
(BENEFIT) 370,410 (1,189,659) 10,864
______________ ________________ ______________
INCOME (LOSS) FROM
CONTINUING
OPERATIONS BEFORE
EXTRAORDINARY
ITEMS 468,301 (1,255,791) 2,439,556
______________ ________________ ______________
DISCONTINUED OPERATIONS:
Income on disposal
of the operations of
Fountain Power, Inc.
and Mach Performance,
Inc. (Net of $282,512
income tax benefit) - - 300,931
______________ ________________ ______________
INCOME FROM DISCONTINUED
OPERATIONS - - 300,931
______________ ________________ ______________
EXTRAORDINARY ITEM:
Gain on settlement of
lawsuit (net of
$523,183 in income
taxes) 790,041 - -
______________ ________________ ______________
NET INCOME (LOSS) $ 1,258,342 $ (1,255,791) $ 2,740,487
______________ ________________ ______________
[Continued]
20
FOUNTAIN POWERBOAT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
[CONTINUED]
Year Ended June 30,
________________________________________________
2000 1999 1998
______________ ________________ ______________
BASIC EARNINGS (LOSS)
PER SHARE:
Continuing operations $ .10 $ (.27) $ .51
Discontinued operations - - .07
Extraordinary item .17 - -
______________ ________________ ______________
BASIC EARNINGS PER SHARE $ .27 $ (.27) $ .58
______________ ________________ ______________
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,732,608 4,711,896 4,751,779
______________ ________________ ______________
DILUTED EARNINGS PER SHARE:
Continuing operations $ .10 $ N/A $ .48
Discontinued operations - N/A .06
Extraordinary item .17 N/A -
______________ ________________ ______________
DILUTED EARNINGS PER
SHARE $ .27 $ N/A $ .54
______________ ________________ ______________
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 4,732,651 N/A 5,110,090
______________ ________________ ______________
The accompanying notes are an integral part of these financial statements.
21
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FROM JUNE 30, 1997 THROUGH JUNE 30, 2000
Common Stock Additional Treasury Stock Total
_________________ Paid-in Accumulated _____________ Stockholders'
Shares Amount Capital Earnings Shares Amount Equity
_________ _______ __________ __________ _______ ________ ___________
BALANCE,
June 30,
1997 4,725,108 47,251 10,517,740 (1,092,598) 15,000 110,748 9,361,645
Cancellation
of common
stock
previously
issued in
acquisition
of Mach
Performance
during
June 1998
at $8.17
per
share (52,500) (525) (428,400) - - - (428,925)
Issuance
of common
stock upon
exercise
of options
at $3.58
per share
by a director
of the
Company
during
July
1997. 30,000 300 107,200 - - - 107,500
Net income
for the
year ended
June 30,
1998 - - - 2,740,487 - - 2,740,487
_________ _______ __________ __________ _______ ________ ___________
BALANCE,
June 30,
1998 4,702,608 47,026 10,196,540 1,647,889 15,000 110,748 11,780,707
Issuance
of common
stock
upon
exercise
of options
at
approximately
$3.58 per
share by a
director of
the
Company 30,000 300 107,100 - - - 107,400
Net loss
for the
year ended
June 30,
1999 - - - (1,255,791) - - (1,255,791)
_________ _______ __________ __________ _______ ________ ___________
BALANCE,
June 30,
1999 4,732,608 47,326 10,303,640 392,098 15,000 110,748 10,632,316
Net income
for the
year ended
June 30,
2000 - - - 1,258,342 - - 1,258,342
_________ _______ __________ __________ _______ ________ ___________
BALANCE,
June 30,
2000 4,732,608 $47,326 $10,303,640 $1,650,440 15,000 $110,748 $11,890,658
_________ _______ __________ __________ _______ ________ ___________
The accompanying notes are an integral part of these financial statements.
22
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30,
________________________________________________
2000 1999 1998
______________ ________________ ______________
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 1,258,342 $ (1,255,791) $ 2,740,487
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Strategic charge - 2,440,000 -
Depreciation expense 2,397,085 2,280,871 1,953,207
(Gain) loss on disposal
of and equipment 12,846 (69,100) (4,637)
Warranty reserve - 90,000 -
Net effect of acquired
Subsidiary - - (525,095)
Change in assets and
liabilities:
(Increase) decrease
in accounts
receivable (124,931) 1,148,745 (848,007)
(Increase) decrease
in inventories (572,246) (959,172) (3,139,783)
(Increase) decrease
in prepaid
expenses 186,871 (281,492) 642,413
(Increase) in net
tax asset 1,020,970 (1,293,271) (132,160)
Increase in accounts
payable 1,032,201 370,027 1,603,982
Increase (decrease)
in accrued expenses 273,542 292,316 1,079,005
Increase (decrease)
in Dealer territory
service accrual (1,129,940) (1,520) 409,367
Increase (decrease)
in customer deposits (365,520) (23,407) 200,925
(Decrease) in net
liabilities of
discontinued
operations - - (110,085)
______________ ________________ ______________
Net Cash
Provided by
Operating
Activities $ 3,989,220 $ 2,738,206 $ 3,869,619
______________ ________________ ______________
CASH FLOWS FROM INVESTING
ACTIVITIES:
Increase in notes
receivable - related
party $ - $ (36,807) $ -
(Purchase) sale of
certificates of
deposits, net - - 696,155
Proceeds from sale
of equipment 555,232 211,000 6,581
Investment in molds
and related plugs (1,154,908) (1,275,183) (2,050,745)
Purchase of property,
plant and equipment (1,678,236) (2,477,520) (6,745,936)
Increase in cash
surrender value of
life Insurance (122,637) (131,696) (124,396)
______________ ________________ ______________
Net Cash (Used) by
Investing
Activities $ (2,440,549) $ (3,710,206) $ (8,218,341)
______________ ________________ ______________
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance
of common stock $ - $ 107,400 $ 107,500
Proceeds from notes
payable and long-term
debt 760,212 4,279,554 3,362,137
Payments of long-term
debt (2,570,958) (2,157,885) (738,434)
Payments on capital
lease (11,788) (931) -
Payments on related
party payable - (415,821) -
______________ ________________ ______________
Net Cash Provided by
Financing
Activities $ (1,822,534) $ 1,812,317 $ 2,731,203
______________ ________________ ______________
Net increase (decrease)
in cash & cash
equivalents $ (233,862) $ 840,317 $ (1,617,519)
Beginning cash & cash
equivalents balance 2,217,301 1,376,984 2,994,503
______________ ________________ ______________
Ending cash & cash
equivalents balance $ 1,983,439 $ 2,217,301 $ 1,376,984
______________ ________________ ______________
[Continued]
23
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
[CONTINUED]
Year Ended June 30,
________________________________________________
2000 1999 1998
______________ ________________ ______________
Supplemental Disclosures
of Cash Flow Information:
Cash paid during the
period for:
Interest:
Unrelated parties $ 1,088,857 $ 996,640 $ 767,867
Related parties - 20,447 26,509
______________ ________________ ______________
$ 1,088,857 $ 1,017,087 $ 794,376
______________ ________________ ______________
Income taxes $ - $ 263,345 $ 825,570
______________ ________________ ______________
Supplemental Schedule of
Non-cash Investing and Financing Activities:
For the year ended
June 30, 2000:
None
For the year ended June 30, 1999:
None
For the year ended June 30, 1998:
The Company entered into an agreement whereby 52,500 shares of
stock previously issued in the acquisition of Mach Performance
at $8.17 per share were returned for cancellation.
The Company purchased an airplane for $1,375,000 by assuming a
$959,179 loan and issuing a $415,821 note payable.
The Company borrowed $47,079 for the purchase of a vehicle.
The accompanying notes are an integral part on these financial statements.
24
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of the Business and Significant Accounting Policies.
Nature of the Business: Fountain Powerboat Industries, Inc. and
Subsidiary (the Company) manufactures high-performance deep water
sport boats, sport cruisers, sport fishing boats, custom offshore
racing boats and super cruiser yachts. These boats are sold to the
Company's worldwide network of approximately Forty dealers. The
Company's offices and manufacturing facilities are located in
Washington, North Carolina and the Company has been in business
since 1979. The Company employs approximately 400 people and is an
equal opportunity, affirmative action employer.
Principles of Consolidation: The consolidated financial statements
include the accounts of the Company and its wholly-owned
subsidiary, Fountain Powerboats, Inc. All significant inter-
company accounts and transactions have been eliminated in
consolidation. Fountain Power, Inc. was not active during Fiscal
1999 and was dissolved effective June 30, 1999. Also effective
October 1, 1997, Fountain Trucking, Inc. and Fountain Sportswear,
Inc. were dissolved and the operations transferred to Fountain
Powerboats, Inc. The operations of Fountain Power, Inc. and Mach
Performance, Inc. were discontinued effective as of June 30,
1997(See Note 13).
Fiscal Year: The Company's fiscal year-end is June 30th, which is
its natural business year-end.
Accounting Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosures of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimated by management.
Cash and Cash Equivalents: For purposes of the statement of cash
flows, the Company considers all highly liquid debt instruments
with a maturity of three months or less to be cash equivalents. At
June 30, 2000 and 1999, the Company had $1,843,964 and $2,040,605,
respectively, in excess of federally insured amounts held in cash.
Inventories: Inventories are stated at the lower of cost or market.
Cost is determined by the first-in, first-out method (See Note 2).
Property, Plant, and Equipment and Depreciation: Property, plant,
and equipment is carried at cost. Depreciation on property, plant,
and equipment is calculated using the straight-line method and is
based upon the estimated useful lives of the assets (See Note 3).
Fair Value of Financial Instruments: Management estimates the
carrying value of financial instruments on the consolidated
financial statements approximates their fair values.
Dealer Territory Service Accrual: The Company has established a
program to pay a service award to dealers for boat deliveries into
their market territory for which they will perform service. The
service award is a percentage of the purchase price of the boat
ranging from 0% to 7% based on the dealer's service performance
rating. The Company has accrued estimated dealer territory service
awards at June 30, 2000 and 1999 of $907,230 and $2,037,170,
respectively.
Allowance for Boat Repurchases: The Company provides an allowance
for boats, financed by dealers under floor plan finance
arrangements, that may be repurchased from finance companies under
certain circumstances where the Company has a repurchase agreement
with the lender. The amount of the allowance is based upon
probable future events which can be reasonably estimated (See Note
9).
Warranties: The Company warrants the entire deck and hull,
including its supporting bulkhead and stringer system, against
defects in materials and workmanship for a period of three years.
The Company has accrued a reserve for these anticipated future
warranty costs.
25
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of the Business and Significant Accounting Policies.
[Continued]
Revenue Recognition: The Company generally sells boats only to
authorized dealers and to the U.S. Government. A sale is recorded
when a boat is shipped to a dealer or to the Government, legal
title and all other incidents of ownership have passed from the
Company to the dealer or to the Government, and an account
receivable is recorded or payment is received from the dealer, from
the Government, or from the dealer's third-party commercial lender.
This is the method of sales recognition in use by most boat
manufacturers.
The Company has developed criteria for determining whether a
shipment should be recorded as a sale or as a deferred sale (a
balance sheet liability). The criteria for recording a sale are
that the boat has been completed and shipped to a dealer or to the
Government, that title and all other incidents of ownership have
passed to the dealer or to the Government, and that there is no
direct or indirect commitment to the dealer or to the Government to
repurchase the boat or to pay floor plan interest for the dealer
beyond the normal, published sales program terms.
The sales incentive floor plan interest expense for each individual
boat sale is accrued for the maximum six month (180 days) interest
payment period in the same fiscal accounting period that the
related boat sale is recorded. The entire six months' interest
expense is accrued at the time of the sale because the Company
considers it a selling expense (See Note 9). The amount of
interest accrued is subsequently adjusted to reflect the actual
number of days of remaining liability for floor plan interest for
each individual boat remaining in the dealer's inventory and on
floor plan.
Presently, the Company's normal sales program provides for the
payment of floor plan interest on behalf of its dealers for a
maximum of six months. The Company believes that this program is
currently competitive with the interest payment programs offered by
other boat manufacturers, but may from time to time adopt and
publish different programs as necessary in order to meet
competition.
Income Taxes: The Company accounts for income taxes in accordance
with issued Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes "(See Note 7).
Advertising Cost: Costs incurred in connection with advertising
and promotion of the Company's products are expensed as incurred.
Such costs amounted to $1,456,592, $1,411,883 and $1,166,633 for
the years ended 2000, 1999 and 1998.
Earnings Per Share: The Company accounts for earnings per share in
accordance with the Statement of Financial Accounting Standards
(SFAS) No. 128 "Earnings Per Share," which requires the Company to
present basic and diluted earnings per share. The computation of
basic earning per share is based on the weighted average number of
shares outstanding during the periods presented. The computation
of diluted earnings per shares is based on the weighted average
number of outstanding common shares during the year plus, when
their effect is dilutive, additional shares assuming the exercise
of certain vested and non-vested stock options and warrants,
reduced by the number of shares which could be purchased from the
proceeds. Prior period earnings per share and weighted average
shares have been restated to reflect the adoption of SFAS No. 128.
(See Note 14)
Stock Based Compensation: The Company accounts for its stock based
compensation in accordance with Statement of Financial Accounting
Standards (SFAS) No. 123 "Accounting for Stock-Based Compensation".
This statement establishes an accounting method based on the fair
value of equity instruments awarded to employees as compensation.
However, companies are permitted to continue applying previous
accounting standards in the determination of net income with
disclosure in the notes to the financial statements of the
differences between previous accounting measurements and those
formulated by the new accounting standard. The Company has adopted
the disclosure only provisions of SFAS No. 123; accordingly, the
Company has elected to determine net income using previous
accounting standards.
26
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of the Business and Significant Accounting Policies.
[Continued]
Internal Use Software: The Company accounts for the cost of
internal use software and development cost in accordance with the
Statement of Position (SOP) 98-1, "Accounting for Computer Software
Developed for or Obtained for Internal Use". The SOP requires the
capitalization of certain cost incurred in connection with
developing or obtaining software for internal use.
Reclassifications: The financial statements for years prior to
June 30, 2000 have been reclassified to conform with the headings
and classifications used in the June 30, 2000 financial statements.
Note 2. Inventories.
Inventories consist of the following:
June 30,
___________________________
2000 1999
_____________ ___________
Parts and supplies $ 3,402,176 $ 3,296,244
Work-in-process 3,743,713 3,208,982
Finished goods 884,247 922,664
_____________ ___________
8,030,136 7,427,890
Reserve for obsolescence (150,000) (120,000)
_____________ ___________
$ 7,880,136 $ 7,307,890
_____________ ___________
Note 3. Property, Plant, and Equipment.
Property, plant, and equipment consists of the following:
Estimated June 30,
Useful Lives ___________________________
in Years 2000 1999
____________ _____________ _____________
Land and related
improvements 10-30 $ 1,304,418 $ 1,416,429
Buildings and
related improvements 10-30 11,751,186 11,092,771
Construction-in-progress N/A 446,523 760,052
Production molds and
related plugs 8 15,163,821 14,527,208
Machinery and equipment 3-5 5,714,631 4,562,734
Furniture and fixtures 5 765,533 754,497
Transportation equipment 5 2,231,874 2,305,033
Racing boats N/A 308,054 790,860
_____________ _____________
37,686,040 36,209,584
Accumulated depreciation (18,752,789) (17,144,314)
_____________ _____________
$ 18,933,251 $ 19,065,270
_____________ _____________
Depreciation expense amounted to $2,397,085, $2,280,871, $1,953,207
for the years ended June 30, 2000, 1999 and 1998, respectively.
During December 1998, as part of a strategic restructuring the
Company wrote off assets totaling $2,440,000 (See Note 15).
27
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Property, Plant, and Equipment. [Continued]
The Company's airplane is collateral for loans with an aggregate
balance $1,017,257 and $754,014 at June 30, 2000 and 1999,
respectively.
Construction costs of production molds for new and existing product
lines are capitalized and depreciated over an estimated useful life
of eight years. Depreciation starts when the production mold is
placed in service to manufacture the product. The costs include
the direct materials, direct labor, and an overhead allocation
based on a percentage of direct labor. Production molds under
construction amounted to $223,144 and $80,123 at June 30, 2000 and
1999.
Note 4. Notes Payable - Related Party
The Company issued a 8.5%, $415,821 note payable to an officer and
director of the Company in connection with purchase of an airplane.
The Note was paid in full on March 31, 1999.
Note 5. Long-term Debt and Pledged Assets.
The following is a summary of long-term debt at June 30, 2000 and
1999:
2000 1999
___________ ____________
7.26% Loan payable to a financing
Corporation assumed in purchasing
an airplane from an officer and
director. Monthly payments of
$15,181. Matures August 1, 2004. $ 622,581 $ 754,014
Loan payable to a financing Corporation
for the rebuilding of engines for the
Company's plane. The loan has a fixed
interest rate of 8.12%. Monthly payments
of $9,296. Matures August 1, 2004. 394,676 -
6.30% loan payable to a financial
institution for the purchase of a
vehicle, monthly payment of $771
through December 2002,
secured by the vehicle purchased. 21,346 28,989
7.15% loan payable to a financial
institution for the purchase
of a vehicle, monthly payments of
$1,055 through October
2002, secured by the vehicle purchased. 26,664 37,475
6.30% loan payable to a financial
institution for the purchase of a
vehicle, president of the Company
pays the monthly payments
of $979 through December 2002,
secured by the vehicle. - 36,807
Amounts borrowed against the cash
surrender value of key-man
life insurance policies during
June 1998, fixed interest rate or 8%
on $274,060 and variable interest
rate of 7.39% at June 30, 1999
on the remaining $62,033, monthly
payments of $10,000. 512,654 336,093
$14,000,000 credit agreement with a
financial Corporation 9,187,159 11,409,551
___________ ____________
10,765,080 12,602,930
Less: Current maturities included
in current liabilities: (2,613,534) (2,464,535)
$ 8,151,546 $ 10,138,395
___________ ____________
28
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Long-term Debt and Pledged Assets. [Continued]
On December 31, 1996, the Company concluded a $10,000,000 credit
agreement with General Electric Capital Corporation. Under the
terms of the new credit agreement, the Company refinanced
substantially all of its interest bearing debts and had additional
funds made available to it for expansion. Initially, the Company
borrowed $7,500,000 to primarily refinance existing debts. All of
the Company's prior interest bearing debts to MetLife Capital
Corporation, Deutsche Financial Services, GE Capital Corporation,
Branch Bank & Trust Leasing Corp., and other smaller creditors were
paid off entirely. During 1998 and 1997 the Company borrowed the
additional $1,500,000 and $1,000,000, respectively, to fund plant
and equipment additions. The credit agreement has a fixed interest
7.02%. The agreement calls for monthly payments of $123,103 and
has a ten-year amortization with a five-year call. The credit
agreement is secured by all of the Company's real and personal
property and by the Company's assignment of a $1,000,000 key man
life insurance policy. The credit agreement was subsequently
amended and restated during 1999 to include an additional
$4,000,000 credit loan, with a fixed interest rate of 7.02%,
maturing January 2, 2002, monthly payments of $100,000, and a
prepayment penalty of $80,000 if paid prior to September 1, 2000 or
$40,000 if paid prior to September 1, 2001.
The estimated aggregate maturities required on long-term debt at
June 30, 2000 are as follows:
2001 $ 2,613,534
2002 2,104,135
2003 1,542,094
2004 1,509,023
2005 1,330,319
Thereafter 1,665,975
____________
$ 10,765,080
____________
Note 6. Common Stock, Options, and Treasury Stock.
Common Stock: During July 1998 the Company recovered and cancelled
52,500 shares of common stock previously issued in the acquisition
of Mach Performance, Inc. from a former director of the Company
(See Note 13).
Stock Options: During March 1999, the shareholders voted to adopt
the 1999 Employee Stock Option Plan (the Plan), which expires
January 11, 2009. Under the Plan, the board is empowered to grant
up to 120,000 stock options to employees, officers, directors and
consultants of the Company. Additionally, the Board will determine
at the time of granting the vesting provisions and whether the
options will qualify as Incentive Stock Options under Section 422
of the Internal Revenue Code (Section 422 provides certain tax
advantages to the employee recipients). The Plan was approved by
the shareholders of the Company during January 1999. During 1999,
the Company granted an officer of the Company 30,000 options under
the Plan. The options are exercisable at $5 per share and 5000
options vest quarterly beginning June 30, 1999. The Options expire
on January 11, 2004. As of June 30, 1999 none of the options have
been exercised. During 2000, the Company granted 10,000 options
under the Plan. The options are exercisable at $3.18 to $6.00 per
share and vested on issuance. The options expire through May 8,
2005. As of June 30, 2000 none of the options have been exercised.
29
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Common Stock, Options, and Treasury Stock. [Continued]
Under the terms of the Company's qualified 1986 employee incentive
stock option plan, which expired on December 5, 1996, options were
authorized to purchase up to 300,000 shares of the Company's common
stock at a price of no less than 100% of the fair market value on
the date of grant as determined by the Board of Directors. Options
can be exercised for a ten-year period from the date of grant.
During Fiscal 1995, 30,000 options each were granted to the former
Chief Executive Officer and to the Chief Financial Officer at $3.94
and $3.67 per share, respectively. During fiscal 1997 the former
Chief Financial Officer exercised his 30,000 options.
During June 1998, 30,000 options, issued to a former officer of the
Company in the acquisition of Mach Performance, Inc., were
cancelled in connection with the settlement agreement (See Note
13).
On June 21, 1995, the shareholders voted to adopt the 1995 stock
option plan. The plan allowed up to 450,000 common stock options
to be granted by the Board of Directors to employees or directors
of the Company. On August 4, 1995, the Board of Directors voted to
grant the 450,000 stock options to Mr. Reginald M. Fountain, Jr. at
$4.67 per share, exercisable for 10 years from the date granted, on
a non-qualified basis. As of June 30, 2000, none of these options
have been exercised.
Effective March 23, 1995, the Board of Directors authorized the
issuance of 30,000 stock options to each of the Company's four
outside directors at $3.58 per share on a non-qualified basis.
During the year ended 1999, a former director exercised 30,000
stock options for $107,400. During the year ended June 30, 1998, a
director exercised 30,000 stock options for $110,000. During
Fiscal 1997, a director exercised his options for 24,000 shares for
$86,000 and assigned, with the specific consent of the Company's
Board of Directors, the remaining 6,000 options to another party.
A summary of the status of the options granted under the Company's
stock option plans and other agreements at June 30, 2000, 1999 and
1998, and changes during the periods then ended is presented in the
table below:
2000 1999 1998
____________________ _________________ ____________________
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
___________ ________ _________ _________ __________ _________
Outstanding
at beginning
of period 546,000 $ 4.57 546,000 $ 4.50 606,000 $ 4.63
Granted 10,000 4.59 30,000 5.00 - -
Exercised - - (30,000) 3.58 (30,000) 3.58
Forfeited - - - - - -
Canceled (30,000) 3.94 - - (30,000) 8.17
___________ ________ _________ _________ __________ _________
Outstanding
at end
of period 526,000 $ 4.61 546,000 $ 4.57 546,000 $ 4.50
___________ ________ _________ _________ __________ _________
Exercisable
at end
of period 521,000 $ 4.61 522,000 $ 4.55 546,000 $ 4.50
___________ ________ _________ _________ __________ _________
Weighted
average fair
value of
options
granted 10,000 $ .28 30,000 $ .14 - $ -
___________ ________ _________ _________ __________ _________
30
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Common Stock, Options, and Treasury Stock. [Continued]
The fair value of each option granted is estimated on the date
granted using the Black-Scholes option pricing model with the
following weighted-average assumptions used for grants during the
years ended June 30, 2000 and 1999, respectively: risk-free
interest rates of 6.7% and 4.5%, respectively, expected dividend
yields of zero for all periods, expected lives of 5 years,
respectively, and expected volatility of 128% and 60%,
respectively. No options were granted during the year ended June
30, 1998.
A summary of the status of the options outstanding under the
Company's stock option plans and other agreements at June 30, 2000
is presented below:
Options Outstanding Options Exercisable
___________________________________ _______________________
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Excercise Number Exercise
Prices Outstanding Life Price Exercisable Price
_____________ ___________ ____________ ___________ ____________ __________
$3.19 - $3.58 36,000 4.9 years 3.71 36,000 3.71
$4.67 450,000 5.4 years 4.67 450,000 4.67
$5.00 - $6.00 40,000 3.6 years 5.14 35,000 5.29
The Company accounts for its option plans and other option
agreements under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related
interpretations. Accordingly, since all options granted were
granted with exercise prices at market value or above, no
compensation cost has been recognized in the accompanying financial
statements. Had compensation cost for these options been
determined based on the fair value at the grant dates for awards
under these plans and other option agreements consistent with the
method prescribed by Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation", the Company's
net income and earnings per common share would have been the
proforma amounts as indicated below:
Year Ended June 30,
________________________________________
2000 1999 1998
____________ ____________ _____________
Net Income(loss) As reported $ 1,258,342 $ (1,225,791) $ 2,740,487
Proforma $ 1,261,147 $ (1,256,233) $ 2,740,487
Earnings per share As reported $ .27 $ (.27) $ .58
Proforma $ .27 $ (.27) $ .58
Treasury Stock: The Company holds 15,000 shares of its common
stock. This common stock is accounted for as treasury stock at its
acquisition cost of $110,748 ($7.38 per share) in the accompanying
financial statements.
31
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Income Taxes.
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards (SFAS) No. 109. SFAS 109
requires the Company to provide a net deferred tax asset or
liability equal to the expected future tax benefit or expense of
temporary reporting differences between book and tax accounting and
any available operating loss or tax credit carryforwards.
At June 30, 2000 and 1999, the totals of all deferred tax assets
were $1,481,666 and $2,221,499, respectively. The totals of all
deferred tax liabilities were $1,180,817 and $899,680,
respectively. The amount of and ultimate realization of the
benefits from the deferred tax assets for income tax purposes is
dependent, in part, upon the tax laws in effect, the Company's
future earnings, and other future events, the effects of which
cannot be determined.
The Company has an unused state operating loss carryforwards at
June 30, 2000 of approximately $2,080,000, which expires in 2019.
The components of federal income tax expense from continuing
operations consist of the following:
Year Ended June 30,
________________________________________________
2000 1999 1998
______________ ________________ ______________
Current income tax
expense:
Federal $ - $ - $ 783,508
State - - 274,132
______________ ________________ ______________
Net current tax
expense $ - $ - $ 1,057,640
______________ ________________ ______________
Deferred tax expense
(benefit) resulted from:
Excess of tax
over financial
accounting
depreciation $ 197,521 $ (129,720) $ 303,782
Warranty reserves - (15,600) -
Accrued vacations (8,652) (2,317) (3,850)
Dealer incentive
reserves 46,534 (13,537) (293,662)
Bad debt reserves - 12,491 -
Accrued Dealer
incentive interest (34,000) (99,190) -
Excess contributions
carryforwards 1,059 (1,059) -
Inventory adjustment-
Sec.263A6 1,057 (13,170) (131,941)
Decrease in NOL
carryforwards 453,148 (805,261) 204,380
Decrease in
valuation
allowance - - (316,948)
Allowance for
obsolete
inventory (11,700) - (7,800)
Alternative
minimum tax
credits (153,882) 102,592 186,947
Investment tax
credits (81,545) - 86,294
Allowance for
boat repurchases - 18,972 -
Accrued executive
compensation (31,069) (8,472) (16,338)
Accrued dealer
incentives (17,751) (235,388) -
Health insurance
reserve (50,310) - -
______________ ________________ ______________
Net deferred tax
expense (benefit) $ 370,410 $ (1,189,659) $ 10,864
______________ ________________ ______________
32
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Income Taxes. [Continued]
Deferred income tax expense results primarily from the reversal of
temporary timing differences between tax and financial statement
income.
The reconciliation of income tax from continuing operations
computed at the U.S. federal statutory tax rate to the Company's
effective rate is as follows:
Year Ended June 30,
________________________________________________
2000 1999 1998
______________ ________________ ______________
Computed tax at
the expected
federal statutory
rate 34.00% 34.00% 34.00%
State income taxes,
net of federal
benefit 5.00 5.00 5.00
Compensation from
stock options - .87 (2.77)
(Increase) decrease
in NOL carryforwards 3.78 - 4.86
Officer's life insurance 1.03 (.38) .36
Valuation allowance - - (9.03)
Net effect of alternative
minimum taxes - (4.23) (.34)
Other 1.04 13.84 (1.62)
______________ ________________ ______________
Effective income tax
rates 44.85% 49.10% 30.46%
______________ ________________ ______________
The temporary differences gave rise to the following deferred tax
asset (liability):
June 30,
___________________________
2000 1999
______________ ___________
Excess of tax over financial
accounting depreciation $ (1,264,261) $(1,066,740)
Warranty reserve 230,100 230,100
Obsolete inventory reserve 58,500 46,800
Accrued vacations 62,883 54,230
Allowance for boat repurchases 78,000 78,000
Dealer incentive reserves 319,165 365,699
Bad debt reserve 10,858 10,858
Accrued Dealer incentive interest 133,190 99,190
Inventory adjustments - Sec. 253A 209,047 270,103
NOL carryforwards 20,596 805,262
Alternative minimum tax credits 83,444 167,060
Accrued executive compensation 55,879 24,810
Donations carryforwards - 1,059
Accrued dealer service incentives 253,138 235,388
Health insurance reserve 50,310 -
33
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Research and Development.
The Company expenses the costs of research and development for new
products and components as the costs are incurred. Research and
development costs are included in the cost of sales and amounted to
$926,486 for Fiscal 2000, $876,965 for Fiscal 1999, and $575,918
for Fiscal 1998.
Note 9. Commitments and Contingencies.
Employment Agreement: The Company entered into a one-year
employment agreement in 1989 with its Chairman, Mr. Reginald M.
Fountain, Jr. The agreement provides for automatic one-year
renewals at the end of each year subject to Mr. Fountain's
continued employment. During 1999, the Company entered into a
three year employment agreement with the Company's new Chief
Operating Officer and Executive Vice President.
Dealer Interest: The Company regularly pays a portion of dealers'
interest charges for floor plan financing for up to six months.
These interest charges amounted to $1,164,561 for Fiscal 2000,
$1,353,848 for Fiscal 1999, and $1,031,611 for Fiscal 1998. They
are included in the accompanying consolidated statements of
operations as part of selling expense. At June 30, 2000 and 1999
the estimated unpaid dealer incentive interest included in accrued
expenses amounted to $418,458 and $327,643 , respectively.
Manufacturer Repurchase Agreements: The Company makes available
through third-party finance companies floor plan financing for many
of its dealers. Sales to participating dealers are approved by the
respective finance companies. If a participating dealer does not
satisfy its obligations under the floor plan financing agreement,
in effect with its commercial lender(s) and boats are subsequently
repossessed by the lender(s), then under certain circumstances the
Company may be required to repurchase the repossessed boats if it
has executed a repurchase agreement with the lender(s). At June
30, 2000 and 1999, the Company had a contingent liability to
repurchase boats in the event of dealer defaults and if repossessed
by the commercial lenders amounting to approximately $23,673,000
and $23,350,000 . The Company has reserved for the future losses
it might incur upon the repossession and repurchase of boats from
commercial lenders. The amount of the reserve is based upon
probable future events which can be reasonably estimated. At June
30, 2000 and 1999, the allowance for boat repurchases was $200,000.
Product Liability and Other Litigation: There were various product
liability and warranty lawsuits brought against the Company at June
30, 2000. The Company intends to vigorously defend its interests
in these matters. The Company carries sufficient product liability
insurance to cover attorney's fees and any losses, which may occur
from these lawsuits over and above the insurance deductibles. The
Company is also involved from time to time in other litigation
through the normal course of its business. Management believes
there are no such undisclosed claims, which would have a material
effect on the financial position of the Company.
401 (k) Payroll Savings Plan: During Fiscal 1991, the Company
initiated a 401 (k) Payroll Savings Plan (the 401 (k) Plan) for all
employees. Eligible employees may elect to defer up to fifteen
percent of their salaries. The amounts deferred by the employees
are fully vested at all times. The Company currently matches fifty
percent of the employee's deferred salary amounts limited to a
maximum of six percent of their salaried amounts, or a maximum of
three percent of their salaries. Amounts contributed by the
Company vest at a rate of twenty percent per year of service. Mr.
Fountain, by his own election, does not participate in the 401 (k)
Plan. There are no post-retirement benefits plans in effect.
34
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Commitments and Contingencies. [Continued]
Environmental: The Company has been notified by the United States
Environmental Protection Agency (the EPA) and the North Carolina
Department of Environment, Health and Natural Resources (NCDEHNR)
that it has been identified as a potentially responsible party (a
PRP) and may incur, or may have incurred, liability for the
remediation of ground water contamination at the Spectron/Galaxy
Waste Disposal Site located in Elkton, Maryland and the Seaboard
Disposal Site, located in High Point, North Carolina, also referred
to as the Jamestown, North Carolina site, resulting from the
disposal of hazardous substances at those sites by a third party
contractor of the Company. The Company has been informed that the
EPA and NCDEHNR ultimately may identify a total of between 1,000
and 2,000, or more, PRP's with respect to each site. The amounts
of hazardous substances generated by the Company, which were
disposed of at both sites, are believed to be minimal in relation
to the total amount of hazardous substances disposed of by all
PRP's at the sites. At present, the environmental conditions at
the sites, to the Company's knowledge, have not been fully
determined by the EPA and NCDEHNR, respectively, and the Company is
not able to determine at this time the amount of any potential
liability it may have in connection with remediation at either
site. Without any acknowledgment or admission of liability, the
Company has made payments as a non-performing cash-out participant
in an EPA-supervised response and removal program at the Elkton,
Maryland site, and in a NCDEHNR-supervised removal and preliminary
assessment program at the Jamestown, North Carolina site. A cash-
out proposal for the next phase of the project is expected to be
forthcoming from the PRP Group for the Elkton, Maryland site.
According to the PRP Group, the Company's full cash-out amount is
estimated to be approximately $10,000 for the Elkton, Maryland
site, based upon an estimated 3,304 gallons of waste disposed of at
that site by the Company. A cash-out proposal in the approximate
amount of $30,000 based on an estimated 19,245 gallons of waste is
anticipated from the PRP Group for the Jamestown, North Carolina
site, according to the PRP Group administrator. Any such cash-out
agreement will be subject to approval by EPA and NCDEHNR,
respectively. The Company has accrued the estimated liability
related to these matters in the accompanying financial statements.
Note 10. Export Sales.
The Company had export sales of $1,755,412 for Fiscal 2000,
$3,717,373 for Fiscal 1999, and $4,583,542 for Fiscal 1998. Export
sales were to customers in the following geographic areas:
Year Ended June 30,
______________________________________________
2000 1999 1998
______________ ______________ _______________
Canada, Central and
South America $ 1,485,615 $ 2,495,048 $ 2,639,523
Asia - - 1,834,524
Middle East and Europe. 269,797 1,222,325 109,495
______________ ______________ _______________
$ 1,755,412 $ 3,717,373 $ 4,583,542
______________ ______________ _______________
35
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Transactions with Related Parties.
The Company paid or accrued the following amounts for services
rendered or for interest on indebtedness to Mr. Reginald M.
Fountain, Jr., the Company's Chairman, President, Chief Executive
Officer, and Chief Operating Officer, or to entities owned or
controlled by him:
Year Ended June 30,
___________________________________________
2000 1999 1998
____________ ______________ _____________
Apartments rentals $ 9,880 $ 19,731 $ 6,716
R.M. Fountain, Jr.
- airplane rentals - - 107,312
R.M. Fountain, Jr.
- interest on loans - 20,447 26,509
____________ ______________ _____________
$ 9,880 $ 40,178 $ 140,538
____________ ______________ _____________
During the year ended June 30, 1998 the Company purchased an
airplane from Mr. Fountain for $1,375,000 by assuming the loan on
the airplane from GE Capital Services for $959,179, (See Note 5)
and issuing a note to Mr. Fountain in the amount of $415,821 (See
Note 4).
As of June 30, 2000 and 1999 the Company had receivables and
advances from employees of the Company amounting to $9,001and
$39,658, respectively which includes $1,000 and $36,808 ,
respectively from Mr. Fountain.
The Company paid $345,049, $478,576 and $288,915 for the year ended
June 30, 2000, 1999 and 1998 for advertising and public relations
services from an entity owned by a director of the Company.
Prior to June 30, 1997, the Company received consulting fees
pursuant to a consulting agreement with a vendor of the Company.
Mr. Fountain has assigned these consulting fees to the Company.
Included in other non-operating income are consulting fees earned
by the Company amounting to $498,307 for Fiscal 1998. The
consulting agreement expired on June 30, 1997 and has not been re-
negotiated.
During 1998, the Company's President purchased a vehicle in
the name of the Company. All
payments on the vehicle are being paid by the President. The
transaction has been recorded in the accompanying financial
statements as a receivable from the president equal to the
remaining amount owed on the vehicle (See Note 5).
Note 12. Concentration of Credit Risk.
Concentration of credit risk arises due to the Company operating in
the marine industry, particularly in the United States. For Fiscal
2000 one dealer accounted for 7.4% of sales, one dealer accounted
for 6.1% of sales and one dealer accounted for 5.7% of sales. For
Fiscal 1999 one dealer accounted for 6.8% of sales and two dealers
each accounted for 6.7% of sales. For Fiscal 1998 one dealer
accounted for 6.7% of sales, another for 6.3%, and one other dealer
for 5% of sales.
36
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13. Discontinued Operations.
During June, 1997, the Company adopted a plan to discontinue the
operations of Mach Performance Inc. and Fountain Power, Inc. The
accompanying financial statements have been reclassified to
segregate the discontinued operations from continuing operations.
Included in the operating losses from the discontinued operations
for June 30, 1997 is the write down of $395,761 of remaining
goodwill and $461,422 of propeller inventory which management
believes is not saleable. The Company also reclassified $539,457
in fixed assets to net liabilities of discontinued operations and
accrued a $440,401 for estimated future losses expected to be
incurred in the disposition. During the year ended June 30, 1998,
the Company adjusted it estimates for loss on disposal resulting in
a gain on the disposal of discontinued operations of $290,512 (net
of a tax benefit of $272,093). The gain was a result of the
return of 52,500 shares of common stock, valued at $428,925, from
former officer and director, his wife, Mach, Inc., and Mach
Performance, Inc., less associated legal fees of approximately
$486,399 plus adjustments to the estimated loss on disposal of
approximately $75,893.
The following is a condensed proforma statement of operations that
reflects what the presentation would have been for the years ended
June 30, 1998 without the reclassifications required by
"discontinued operations" accounting principles:
1998
_____________
Net sales $ 50,652,037
Cost of goods sold (38,084,034)
Other operating expenses (8,894,121)
Other income (expense) (147,403)
Provision for taxes (785,992)
_____________
Net income $ 2,740,487
_____________
Earnings per share $ .58
_____________
37
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14. - Earnings Per Share.
The following data show the amounts used in computing earnings per
share and the effect on income and the weighted average number of
shares of potential dilutive common stock for the years ended
June 30, 2000, 1999 and 1998:
2000 1999 1998
_____________ ___________ ______________
Income from continuing
operations available to
common stockholders $ 468,301 $(1,255,791)$ 2,439,556
_____________ ___________ ______________
Discontinued operations $ - $ - $ 300,931
_____________ ___________ ______________
Extraordinary item $ 790,041 $ - $ -
_____________ ___________ ______________
Weighted average number of
common shares outstanding
used in basic earnings
per share 4,732,608 4,711,896 4,751,779
Effect of dilutive stock
options 43 - 358,311
_____________ ___________ ______________
Weighted number of common
shares and potential
dilutive common shares
outstanding used in
dilutive earning per
share 4,732,651 4,711,896 5,110,090
_____________ ___________ ______________
The Company had at June 30, 2000 options to purchase 526,000 shares
of common stock at prices ranging from $3.19 to $6.00 per share
that were not included in the computation of earning per share
because their effect was anti-dilutive.
Note 15. Strategic Charge.
During December 1998, The Company designed and implemented a
restructuring plan to aggressively improve the Company's Cost
Structure, refocus sales and marketing expenditures and divest the
Company of certain non-realizable assets. In connection with the
restructuring plan the Company reviewed components of its business
for possible improvement of future profitability through
reengineering or restructuring. The Company decided in the plan to
eliminate its racing program, to write-off excess yacht tooling
costs along with other discontinued unused tooling. The Company
completed these actions during the third and fourth quarters of
Fiscal 1999. The carrying value of the assets held was reduced to
their estimated realizable fair value based on future cash flows
from use of the assets or sale of the related assets. The resulting
adjustment of $2,440,000 was recorded as a strategic charge in the
statement of operations of the Company.
Note 16. Extraordinary Item / Gain on Settlement of Lawsuit
During April 2000, the Company received proceeds of $1,313,224 and
recorded an extraordinary net of tax gain of $790,041 from the
settlement of a class action lawsuit alleging antitrust violations
against a vender of the Company who is in the sterndrive and
inboard engine business.
38
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17. Capital Lease.
The Company is the lessee of equipment under a capital lease
expiring in May 2004. The assets and liabilities under the capital
leases were recorded at the lower of the present value of the
minimum lease payments or the fair value of the assets at the time
of purchase. Equipment at June 30, 2000 and 1999 under capital
lease obligations is as follows:
2000 1999
____________ __________
Equipment $ 83,067 $ 83,067
Less: Accumulated amortization (13,844) (-)
____________ __________
$ 69,223 $ 83,067
____________ __________
Total future minimum lease payments, executory costs and current
portion of capital lease obligations are as follows:
Future minimum lease payments for the years ended June 30:
Year ending June 30, Lease Payments
2001 39,552
2002 39,552
2003 39,552
2004 54,140
__________
Total future minimum lease payments $ 172,796
Less: amounts representing
maintenance and usage fee, interest
and executory costs (95,857)
__________
Present value of the future minimum
lease payments 76,939
Less: Lease current portion (12,999)
__________
Capital lease obligations -
long term $ 63,940
__________
Note 18. Gain on Insurance Claims from Hurricanes.
During September 1999, the Company experienced flooding and the
temporary closure of the production facility as a result of
Hurricanes "Dennis" and "Floyd" hitting Eastern North Carolina. As
a result of the hurricanes, the Company sustained damages of
approximately $277,172 to inventory and $389,063 to property, plant
and equipment, which includes $300,000 in damages to the Company's
yacht mold and $51,658 in additional expenses. The Company has
filed a business interruption claim for damages due to lost
revenues from the closure of the production facility and
inefficiencies due to storm preparation, cleanup and work force
shortages. As of June 30, 2000, the insurance carriers have paid
$1,058,618 for damages to the inventory, property, plant, and
equipment including the Yacht Mold and other expenses. The Company
has filed its claim for business interruption and believed it
complied with all aspects of its policy. When a timely and
reasonable resolution could not be reached, the Company filed suit
against its insurance carrier. As of June 30, 2000, the insurance
carrier has advanced $961,560 towards the business interruption
claim. The full effects of a business interruption settlement
cannot be reasonably estimated and will be recorded in the future
when collected. As of June 30, 2000 the Company has recorded a
gain on insurance claims from the hurricanes of $1,065,725.
39
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
There were no changes in or disagreements with the independent
auditors on accounting and financial disclosure matters.
Part III
Item 10. Directors and Executive Officers of Registrant.
The Current directors and executive officers of Registrant and its
Subsidiary are as follows:
REGINALD M. FOUNTAIN, JR., age 60, founded the Company's Subsidiary
during 1979 and has served as its Chief Executive Officer from its
organization. He became a director and President of the Company upon
its acquisition of the Subsidiary in August, 1986. Mr. Fountain
presently serves as Chairman, President and Chief Executive Officer of
the Company and its Subsidiary. From 1971 to 1979, Mr. Fountain was a
world class race boat driver, and was the Unlimited Class World
Champion in 1976 and 1978.
ANTHONY J. ROMERSA, age 55, Executive Vice President and Chief
Operating Officer, became a director of the Company on March 2, 1999.
Mr. Romersa joined the Company following a 28 year business career in
a number of senior management positions with the Brunswick Corporation
and its Mercury Marine Consumer and Vapor Divisions. As the corporate
director of Brunswick's Marine Operations Planning since 1986, he was
actively involved in Brunswick's acquisition of Bayliner and Sea Ray
and was responsible to the Vice President of Corporate Planning and
Development for the strategic performance of global marine operations.
DARRYL M. DIAMOND, M. D., age 64, is a retired physician. From 1984
to 1986, Dr. Diamond served as a director of the Company's subsidiary.
GEORGE L. DEICHMANN, III, age 56, is the President and owner of Trent
Olds/Cadillac/Buick/GMC, an automobile dealership located in New Bern,
North Carolina.
CRAIG F. GOESS, age 46, is the President and General Manager of
Greenville Toyota, an automobile dealership located in Greenville,
North Carolina.
GUY C. HECKER, JR., age 67, is the President of Stafford, Burke &
Hecker, Inc., a high technology consultant firm in Alexandria,
Virginia. General Hecker also serves as a director of 8 X 8, Inc., a
public company headquartered in Santa Clara, CA, which develops,
manufactures, and markets telecommunications equipment.
FEDERICO PIGNATELLI, age 47, became a director of the Company on April
8, 1992. From 1989 to April, 1992, he was a Managing Director at
Gruntal & Company, an investment banking firm. From 1988 to 1989,
he was General Manager of Euromobiliar Ltd., a subsidiary of
Euromobiliare, SpA, a publicly held investment and merchant bank in
Italy and Senior Vice President of New York and Foreign Securities
Corporation, an institutional brokerage firm in New York. From 1986 to
1988, he was Managing Director at Ladenburg, Thalmann & Co., an
investment banking firm. From 1980 to 1986, he was Assistant Vice
President of E. F. Jutton International. Prior to 1980, he was a
financial journalist.
40
Mr. Pignatelli also serves as chairman of BioLase Technology, Inc.,
a company which produces medical and dental lasers and endodontic
products.
MARK SPENCER, age 44, became a director on February 26, 1992. He
founded Spencer Communications Inc., an advertising public relations
firm specializing in the marine industry, in 1987. Previously, Mr.
Spencer began his journalism career at Powerboat Magazine in 1976. He
was named Executive Editor of Powerboat Magazine in 1981 and served in
that capacity until 1987. During the last seven years Mr. Spencer has
served as on-camera expert commentator for ESPN covering the boating
industry.
DAVID A. SIMMONS, age 62, was appointed to serve as Chief Financial
Officer of Registrant during September 2000. He previously served as
Chief Financial Officer of Century Boat Company (boat manufacturer)
from 1993 through 1997, and as Chief Financial Officer of Loe's
Highport, Inc. (marina and retail boat sales) since 1998. Mr. Simmons
was previously employed by the Registrant as Vice President and Chief
Financial Officer from 1989 through 1991 and as Controller from 1997
through 1998. He has a total of 20 years experience in the boating
industry.
Section 16(a) Beneficial Ownership Reporting Compliance. Registrant's
directors and executive officers are required by Section 16(a) of the
Securities Exchange Act of 1934, as amended, to file reports with the
Securities and Exchange Commission regarding the amount of and changes
in their beneficial ownership of Registrant's common stock. Based on
its review of copies of those reports, Registrant is required each
year to disclose failures to report shares beneficially owned or
changes in such beneficial ownership, and failures to timely file
required reports, during the previous fiscal year. It has come to
Registrant's attention that, during Registrant's fiscal year ended
June 30, 2000, two of its directors filed reports after their due
dates. Mr. Fedrico Pignatelli made a timely filing to report two
purchase transactions but, due to errors in information supplied by
his broker, the report described transactions other than those he had
actually effected. Upon discovery of the error, Mr. Pignatelli's
report was amended to accurately describe his purchases. However,
because his transactions were not accurately reported until the
amended report was filed (approximately one week following the due
date of the original report), Mr. Pignatelli may be deemed to have
filed a late report. George L. Deichmann III inadvertently failed to
report one purchase transaction. Upon discovery of the omission, his
report was filed approximately one month following its due date.
41
Item 11. Executive Compensation.
The following table contains information regarding cash and
certain other compensation paid to or deferred by certain of
Registrant's executive officers for the fiscal years listed.
Registrant's executive officers also serve and are compensated as
officers and employees of Fountain, and no additional compensation is
paid to any officer for his or her service as an officer of
Registrant.
SUMMARY COMPENSATION TABLE
Annual compensation Long-term compensation
Other Restricted Securities All
Name and Fiscal annual stock underlying other
Principal year Salary (1) Bonus Compensation awards options(#) compensation
(2)
_________ ____ _________ _______ ___________ ______ __________ ___________
Reginald M.
Fountain 2000 $ 361,330 $81,438 $ -0- $ -0- -0- $ -0-
President
and Chief 1999 350,000 -0- -0- -0- -0- -0-
Executive
Officer 1998 350,000 192,023 -0- -0- -0- -0-
Anthony J.2000 184,347 16,288 -0- -0- -0- 5,771(3)
Romersa
Executive
Vice 1999 131,731 -0- -0- -0- 30,000 1,477(3)
President
and Chief
Operating 1998 - - - - - -
Officer
(1) Includes amounts deferred at Mr. Romersa's election pursuant to
Fountain's Section 401(k) plan. Mr. Fountain does not
participate in that plan.
(2) In addition to compensation paid in cash, Fountain's executive
officers receive certain personal benefits. The value of such
benefits received by each executive officer each year did not
exceed 10% of his cash compensation for that year.
(3) Consists of Fountain's contributions to the Section 401(k) plan
for Mr. Romersa's account.
Employment Contracts and Termination of Employment and Change-in-
Control Arrangements.
Mr. Fountain is employed as an officer of Fountain pursuant to an
employment agreement entered into during 1989 which provides for a
base term of one year and for automatic renewal at the end of each
year for an additional one-year period until terminated as provided
therein. Pursuant to the agreement, Mr. Fountain receives base
salary in an amount approved by the Board of Directors (but not less
than $104,000), an annual cash bonus in an amount equal to 5% of
Registrant's consolidated net income (calculated after deductions of
profit sharing contributions and before deductions for income taxes,
but not more than $250,000), and certain other benefits.
Mr. Romersa is employed as an officer of Fountain pursuant to an
employment agreement entered into during 1998, which provides for a
term ending August 23, 2001. Pursuant to the agreement, Mr. Romersa
receives base salary in an amount approved by the Board of Directors
(but not less than $160,000), an annual cash bonus equal to 1% of
Fountain's net profits before taxes and before the deduction of
bonuses paid to other officers, and certain other benefits. In the
event (i) Mr. Romersa's employment is terminated within 24 months
following a "change in control" (as defined in the agreement) of
Registrant or Fountain (other than a termination for "Cause,"
retirement, death or disability), or (ii) following any Change in
Control, and without his consent, Mr. Romersa's job location is
transferred an unreasonable distance from Washington, NC, he is not
paid salary or bonus at the rates described in the agreement, other
employee benefits are reduced or eliminated in a manner that does not
apply proportionately to all salaried employees, or he is assigned
duties inconsistent with his position,
42
duties or status at the time of the Change in Control, then he will be
entitled to receive (or, in the case of (ii), he may terminate his own
employment and be entitled to receive) from Fountain all compensation
he would have been entitled to receive under the agreement and which
then remains unpaid (not to exceed the amount of his then current base
salary for two years). The agreement may be terminated by Fountain for
"Cause" (as defined in the agreement).
Employee Stock Options.
The following table contains information regarding all options to
purchase shares of Registrant's common stock held at June 30, 2000, by
Registrant's executive officers named in the Summary Compensation
Table above:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION
VALUES
Number of securities Value of unexercised
Underlying unexercised in-the-money options
Shares Options at FY-end at FY-end
Acquired on Value
Name exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Reginald
M.
Fountain,
Jr. (1) (1) 450,000(2) -0- (4) --
Anthony
J.
Romersa (1) (1) 25,000(3) 5,000 (3) (4) (4)
(1) No options were exercised during fiscal 2000.
(2) Includes options to purchase 450,000 shares at a price of $4.67
per share which expire on August 4, 2005.
(3) Includes options to purchase an aggregate of 30,000 shares at a
price of $5.00 per share which become exercisable as to 5,000 shares
each calendar quarter-end, beginning June 30, 1999, and, which expire
on January 11, 2004. At June 30, 2000, the options had become
exercisable as to an aggregate of 25,000 shares and remained
unexercisable as to 5,000 shares.
(4) The options had no value on June 30, 2000, since, on that date,
the aggregate exercise price of the options exceeded the aggregate
market value of the underlying shares (based on the $3.25 closing sale
price of Registrant's common stock on that date).
Director Compensation.
Registrant's directors currently do not receive any fees or other
compensation for their services as directors, but they are reimbursed
for travel and other out-of-pocket expenses incurred in connection
with their attendance at meetings of the Board of Directors.
43
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Principal Shareholders. The following table reflects as of
September 15, 2000, the beneficial ownership of Registrant's common
stock by shareholders known to Registrant to beneficially own more
than 5% of Registrant's common stock.
Name and address Amount and nature of Percent of
of beneficial owner Beneficial Ownership Class (1)
Reginald M. Fountain, Jr.
P.O. Drawer 457
Whichard's Beach Road
Washington, N.C. 27889 2,588,372 (3) 50.08%
Triglova Finanz, A.G.
Edificio Torre Swiss Bank
Piso 16, Apartado Postal 1824
Panama 1, Republica de Panama 266,500 (3) 5.65%
(1) Percentages are calculated based on 4,732,608 total outstanding
shares, minus 15,000 treasury shares held by the Company, plus,
in the case of Mr. Fountain, the number of additional shares that
he could purchase upon the exercise of stock options.
(2) Includes 450,000 shares which could be purchased by Mr. Fountain
from Registrant upon the exercise of stock options and as to
which shares he may be deemed to have sole investment power only.
(3) Based on information contained in filings with the Securities and
Exchange Commission and other information available to the
registrant.
Management Ownership.
The following table reflects as of September 15, 2000, the
beneficial ownership of Registrant's common stock by its current
directors and certain executive officers, individually, and by all
current directors and executive officers of Registrant as a group.
Name and address Amount and nature of Percent of
of beneficial owner Beneficial Ownership(1) Class (2)
Reginald Mr. Fountain,Jr. 2,588,372 (3) 50.08%
Darryl M. Diamond, M. D. -0- --
George L. Deichmann, III 7,100 *
Craig F. Goess -0- --
Guy L. Hecker, Jr. -0- --
Federico Pignatelli 30,000 *
Anthony J. Romersa 30,000 (4) *
Mark L. Spencer 33,525 (5) *
All current directors and
executive officers as a
group (9 persons) 2,688,997 (6) 51.49%
44
(1) Except as otherwise noted below, the named individuals and
persons included in the group exercise sole voting and investment
power with respect to all shares.
(2) Percentages are calculated based on 4,732,608 total outstanding
shares, minus 15,000 shares held by Fountain, plus, in the case
of each individual and the group, the number of additional shares
(if any) that could be purchased by that individual or by persons
included in the group upon the exercise of stock options. An
asterisk indicates less than 1.0%.
(3) Includes 450,000 shares which could be purchased by Mr. Fountain
from Registrant upon the exercise of stock options and with respect to
which shares he may be deemed to have sole investment power only.
(4) Includes 25,000 shares which could be purchased by Mr. Romersa
from Registrant upon the exercise of stock options and with respect to
which shares he may be deemed to have sole investment power only. Mr.
Romersa holds options to purchase 5,000 additional shares which have
not yet become exercisable.
(5) Includes 30,000 shares which could be purchased by Mr. Spencer
from Registrant upon the exercise of stock options and with respect to
which shares he may be deemed to have sole investment power only.
(6) Includes an aggregate of 505,000 shares which could be purchased
by persons included in the group from Registrant upon the exercise of
stock options and as to which shares such persons may be deemed to
have sole investment power only.
Item 13. Certain Relationships and Related-Party Transactions.
The following is a schedule of related party transactions for
Fiscal 2000, 1999, and1998. The Company has paid rentals at what it
believes to be their fair market values during the last three fiscal
years to Mr. Fountain or to entities owned by him as follows:
Fiscal Fiscal Fiscal
2000 1999 1998
Apartment Rentals.......... $ 9,880 $ 19,731 $ 6,717
R. M. Fountain, Jr.
- airplane rentals ....... $ -0- $ -0- $ 107,312
- interest .............. $ -0- $ 20,447 $ 26,509
---------- ---------- -----------
$ 9,880 $ 40,178 $ 140,538
========== ========= ==========
The rentals paid to Eastbrook Apartments and Village Green
Apartments are primarily for temporary lodging for relocating and
transient Company personnel and visitors. The rental paid for the
airplane is based upon the actual hours that the airplane was used for
Company business plus a monthly stand-by charge for the exclusive use
of the airplane. The airplane rental ended in September 1997. During
the first quarter of Fiscal 1998 the Company purchased an airplane
from Mr. Fountain for $1,375,000. Principal financing for the
airplane is through General Electric Capital Corporation. A second
note payable to Mr. Fountain for $415,821 was paid off during Fiscal
year 1999.
Mr. Mark L. Spencer is a director of the Company and the
President and sole shareholder of Spencer Communications, Inc. which
has been retained by Fountain to provide it with advertising and
public relations services. Pursuant to their arrangement, Fountain
pays $12,000 per month for the services of Mr. Spencer's company,
together with additional amounts for printing and productions costs
and other associated expenses. Fountain paid Spencer Communications
$345,049 in Fiscal 2000, $478,576 in Fiscal 1999, and $288,915 in
Fiscal 1998.
45
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8 and Form 8-K.
(a) Documents filed with Report:
(1)Financial Statements. The following consolidated financial
statements of Registrant are contained in Item 8 of this Report.
Independent auditor's report
Consolidated balance sheets at June 30, 2000 and 1999
Consolidated statements of operations for the years ended June
30, 2000, 1999 and 1998
Consolidated statements of stockholder's equity for the years
ended June 30, 2000, 1999 and 1998
Consolidated statements of cash flows for the years ended June
30, 2000, 1999 and 1998
Notes to consolidated financial statements
(2)Financial Statement Schedules.
Not applicable.
(3)Exhibits. The following exhibits are filed herewith or
incorporated herein by reference as part of this Report.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
3.1 Registrant's Articles of Incorporation, as amended(filed herewith)
3.2 Registrant's Bylaws, as amended (filed herewith)
4.1 Form of stock certificate (incorporated herein by reference to
exhibits to Registrant's Annual Report on Form 10-K for the fiscal
year ended October 1, 1989)
10.1* Employment Agreement dated March 31, 1989, between Reginald M.
Fountain, Jr. and Fountain Powerboats, Inc. (incorporated herein by
reference from Exhibits to Registrant's Annual Report on Form
10-K for the fiscal year ended October 1, 1989)
10.2* Employment Agreement dated August 24, 1998, between Fountain
Powerboats, Inc. and Anthony J. Romersa (incorporated herein
by reference from exhibits to Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1999)
10.3* Stock Option Agreement dated August 4, 1995, between
Registrant and Reginald M. Fountain, Jr. (filed herewith)
46
10.4* 1999 Employee Stock Option Plan (incorporated herein by
reference to exhibits to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1999)
10.5 * Stock Option Agreement dated January 12, 1999,between
Registrant and Anthony J. Romersa (incorporated herein by
reference from Exhibits to Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1999)
10.6* Stock Option Agreement dated March 17, 1995, between Registrant
and Mark L. Spencer (filed herewith)
27 Financial data schedule
_________________________________
* Denotes a management compensation plan or compensatory plan or
arrangement.
(b) Reports on Form 8-K. During the last quarter of the period
covered by this Report, no Current Reports on Form 8-K were filed by
Registrant.
47
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.
FOUNTAIN POWERBOAT INDUSTRIES, INC.
By: /s/Reginald M. Fountain, Jr. September 26, 2000
Chairman, President, and Chief Executive Officer
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.
/s/Reginald M. Fountain, Jr. September 26, 2000
Reginald M. Fountain, Jr.
Chairman, President, and Chief Executive Officer
(Principal Executive Officer)
/s/Anthony J. Romersa September 26, 2000
Anthony J. Romersa
Executive Vice President, and
Chief Operating Officer
/s/Darryl M. Diamond, M.D. September 26, 2000
Darryl M. Diamond, M. D.
Director
/s/George L. Deichmann, III September 26, 2000
George L. Deichmann, III
Director
/s/Craig F. Geoss September 26, 2000
Craig F. Geoss
Director
/s/Guy C. Hecker, Jr. September 26, 2000
Guy C. Hecker, Jr.
Director
48
/s/Federico Pignatelli September 26, 2000
Federico Pignatelli
Director
/s/Mark L. Spencer September 26, 2000
Mark L. Spencer
Director
/s/David A. Simmons September 26, 2000
David A. Simmons
Chief Financial Officer
(Principal Accounting and Financial Officer)
49