Join Date: Sep 2004 Location: Atlanta/Savannah
Posts: 3,724
|  RE: Fountain in the News Again
I always find it helpful to read a company's regulatory filings to determine it's financial health as opposed to relying on rumors and innuendos made on internet forums. It looks like Fountain has taken very significant measures to adjust it's expenses in the last fiscal year.
Here is a section of the 10k the company posted a few days ago.
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Outlook
The fiberglass recreational boat market decline has continued through the retail buying season of 2008. Generally, marine dealer inventories remain high and retail sales are low, thus dealers may be cautious about increasing their inventories during the off season months. Market analysts are forecasting that the industry may not see a significant improvement through 2009.
The Company's Sales and Marketing staffs will continue a targeted boat show, advertising and promotion campaign and increase its internet marketing program for the Fountain and Baja product lines.
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The Company is developing production processes for the Baja boat models to be compatible with the Fountain production processes, and it expects to have most of the models in full production in the second quarter of Fiscal 2009. Baja dealer inventories are being depleted and they are ready to receive the Baja by Fountain products.
The Company's retail subsidiary, Fountain Dealers' Factory Superstore, Inc., had a very successful first year of operation in Fiscal 2008 with approximately $9 million in sales, and is expected to be a positive contributor of revenue in 2009.
International sales grew in Fiscal 2008 by 28% and was 17% of total sales for the Company. The international market has continued to grow while the domestic market has been in a decline. The Company expects international sales to be a positive source of revenue in 2009.
The Company's fiscal plan for 2009 is based on revenue of $62 million to $65 million. Cost and expense reduction programs have been implemented to produce positive results at that level of revenue.
Results of Operations.
Net sales for Fiscal 2008 were $68,202,620, approximately the same revenue as compared to net sales of $68,829,987 for Fiscal 2007. Maintaining the same revenue level during a declining market was primarily the result of focused sales activities and promotions guided by specific goals and objectives.
Net Sales by product line for the Fiscal years of 2008, 2007 and 2006 are:
Fiscal 2008 % of Fiscal 2007 % of Fiscal 2006 % of
Net Sales Sales Net Sales Sales Net Sales Sales
Product Line
Sport boats $ 25,086,667 37 % $ 28,055,276 40 % $ 31,799,204 40 %
Express cruisers 11,457,756 17 % 9,399,064 14 % 15,760,240 20 %
Sport fishing boats 28,169,615 41 % 29,629,864 43 % 29,194,785 37 %
Other 3,488,582 5 % 1,745,783 3 % 2,471,995 3 %
Net sales total $ 68,202,620 $ 68,829,987 $ 79,226,224
Gross profit on sales for Fiscal 2008 was $9,402,572, 13.8 % of net sales, as compared to $9,108,088, 13.2 % of net sales, for Fiscal 2007. Gross profit for Fiscal 2006 was $13,073,800, 16.5 % of net sales. Production efficiency improvements in Fiscal 2008 were partially offset by increased material costs and low fixed cost absorption. The decrease of 3.3 percentage points from 2006 to 2007 was primarily attributable to production inefficiencies due to lower production volumes, reduced fixed cost absorption from production cuts and promotional program pricing in the first half of the year.
Operating loss was ($1,101,310) for Fiscal 2008, as compared to a loss of ($2,745,878) in Fiscal 2007 and a profit of $2,275,355 in Fiscal 2006. The operating loss for Fiscal 2008 was an improvement of ($1,644,568), or 60 percent, as compared to Fiscal 2007, and the improvement was primarily the result of reduced selling expense. Operating loss for Fiscal 2007 was affected by the circumstances outlined above in the gross margin discussion of this report and increased selling expenses, detailed below.
Net loss in Fiscal 2008 for the Company was ($2,199,828), or ($.48) per share as compared to a net loss of ($5,046,286) or ($1.05) per share for Fiscal 2007, of which ($1,283,728) or ($.27) per share was a tax adjustment. This compares to a net income of $2,404,912 or $.49 per diluted share for Fiscal 2006. The tax adjustment for Fiscal 2007 arose from the establishment of a valuation allowance to completely offset the Company's Deferred Tax Assets which was established in Fiscal 2006 (see Note 7 to the consolidated financial statements).
Depreciation expense was $2,406,502 for Fiscal 2008, $2,313,807 for Fiscal 2007, and $2,020,860 for Fiscal 2006.
Overall selling and general and administrative expense for Fiscal 2008 was $10,503,882, a $1,350,084 reduction when compared to $11,853,966 for Fiscal 2007. Fiscal 2007 was a $1,055,520 increase from $10,798,445 in Fiscal 2006.
Selling expenses were $6,704,422 for Fiscal 2008, $8,040,083 for Fiscal 2007 and $6,765,871 for Fiscal 2006. The reduction of $1,335,661 in selling expense for Fiscal 2008, as compared to Fiscal 2007, resulted from reductions in all selling expense categories, except boat shows, with reduction in offshore racing expenses being the most significant. The increase in selling expense in Fiscal 2007, as compared to Fiscal 2006, was primarily from an increase in advertising expenses, including an expanded international advertising program, increased salaries and commissions and increased expenses for the Company's support of offshore racing and fishing tournament programs.
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Major selling expenses for the past three fiscal years were as follows:
2008 2007 2006
Fishing $ 479,233 $ 548,693 $ 444,328
Racing 1,007,269 1,776,198 1,474,270
Advertising 1,854,660 2,013,740 1,412,435
Salaries & commissions 1,168,435 1,345,709 1,098,662
Boat shows 888,511 691,633 526,381
Dealer support 166,950 456,802 550,138
Other selling expenses 1,139,364 1,207,308 1,259,657
Total $ 6,704,422 $ 8,040,083 $ 6,765,871
General and administrative expenses include the executive, finance, human resources, information technology, legal and administrative operating expenses of the Company. These expenses were $3,799,460 for Fiscal 2008, $3,813,883 for Fiscal 2007, and $4,032,574 for Fiscal 2006. The decrease in administrative expenses for 2007 was primarily attributable to reduced legal expenses.
Interest expense net of amounts capitalized was $976,853 for Fiscal 2008, $966,784 for Fiscal 2007, and $1,132,584 for Fiscal 2006. Interest expense decreased in Fiscal 2007 due to Fiscal 2006 having an expense of $229,801 of capitalized loan costs from the previous Bank of America loan when it was refinanced by the new $16,500,000 loan from Regions Bank.
Current tax provision is $0 for the year ending June 30, 2008, 1,283,728 for the year ending June 30, 2007, and ($1,283,746) for the year ending June 30, 2006. The current tax provision of $0 for Fiscal 2008 is the natural consequence of the net loss incurred by the Company. Deferred tax (benefit)/provision is ($790,589) for the year ended June 30, 2008, ($1,417,122) for the year ended June 30, 2007 and $460,258 for the year ended June 30, 2006. Deferred taxes arise from temporary differences between financial and income tax reporting regarding the recognition of certain items.
As of June 30, 2008 the Company had net deferred tax assets of $3,491,439 that were fully offset by a valuation allowance because, as of that date, it was management's conclusion that there continued to be doubt as to whether those deferred tax assets were more likely than not to be realized in the future. The deferred tax assets principally relate to the potential future benefits of tax net operating loss carryforwards, most of which had been generated during the years ended June 30, 2002, 2007 and 2008 when the Company generated substantial net losses. During the year ended June 30, 2008 the Company performed an evaluation, in accordance with Statement of Financial Accounting Standard No. 109, Accounting for Income Taxes, of the likelihood of realization of its deferred tax assets. The evaluation resulted in the continued application of a valuation allowance.
The Company has available federal and state operating loss carry forwards at June 30, 2008 and June 30, 2007 of approximately $9,616,438 and $9,085,379, respectively, which expire at various dates through 2028. The ultimate realization of the benefits from the deferred tax assets is dependent upon the Company's future earnings, the future tax laws in effect, and other unknown factors; all of which are uncertain. In recent years the Company elected to provide for a tax asset valuation allowance of $3,491,439 at June 30, 2008, $2,700,850 at June 30, 2007, and $0 at June 30, 2006.
Liquidity and Financial Resources.
As disclosed in the Condensed Consolidated Statement of Cash Flows, the cash balance decreased by $934,113 during the Fiscal Year ended June 30, 2008. By comparison, during the previous Fiscal Year the cash balance decreased $2,095,169.
Cash used by operations was $1,158,962 in Fiscal 2008 and resulted primarily from:
? The net loss of $2,199,828 incurred is the most significant use of cash and is discussed elsewhere in this document.
? Non-cash provisions adjustments, including depreciation expense of $2,406,502, added back $1,971,132.
? Decreases in Prepaid Expenses and Other Assets provided $161,257. Increases in Accounts Payable and Accrued Expenses provided $2,116,721.
? Increases in the asset accounts of Accounts Receivable and Inventories used $1,910,440. Decreases in the liability accounts of Dealer Incentives and Customer Deposits used $1,297,804.
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Cash used for investing activities during Fiscal 2008 was $5,295,527 and resulted primarily from:
? As is typically the case, the largest investment made was in creation of plugs and molds. Plugs are wooden forms constructed for the purpose of creating molds. Molds are used to replicate hulls, decks and various other fiberglass parts for boats. $799,198 was invested in plugs and molds for Fountain boats during Fiscal 2008. The Company also acquired molds and tooling for certain models of Baja boats at a total value of $4,000,000.
? $501,309 was spent on property, plant and equipment.
Financing activities provided $5,295,527 during Fiscal 2008.
? Boats in inventory for the retail subsidiary were financed on the "Floor Plan" for $3,075,606. (See Note 5, in the Notes to Consolidated Financial Statements).
? The Company borrowed $4,000,000 from Brunswick Corporation under a promissory note to acquire certain assets of Baja Marine Corporation.
? The Company repaid $799,333 that had been borrowed under the "Credit Facility" (See Note 5, in the Notes to Consolidated Financial Statements).
? The Company borrowed $1,400,000 of the Cash Surrender Value of the Key Man Life Insurance Policies it owns on the life of the Company's founder, Chairman and CEO.
? The Company repaid $1,240,297 of the principal of the "Loan" as per the terms of that loan (see Note 5, in the Notes to Consolidated Financial Statements).
? The Company purchased 453,091 shares of its stock for $870,475 as Treasury Stock.
Management is of the opinion that cash flows will be sufficient to satisfy its current and future liquidity demands because Management has realigned operating costs and expenses for the reduced level of production and returned the Company to profitability in the fourth quarter of Fiscal 2008 and is expecting to continue to operate profitably through Fiscal 2009.
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