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Fountain Powerboat Industries 10-K 2007 Documents found in this filing:SECURITIES
REPORT PURSUANT TO SECTION 13 or 15(d)
fiscal year ended June 30, 2007
File Number: 0-14712
name of registrant as specified in its charter)
Office Drawer 457, Whichard's Beach Road, Washington, NC 27889
of principal executive offices) (Zip Code)
telephone number, including area code:
registered pursuant to Section 12 (b) of the Act:
by check mark if the registrant is a well known, seasoned issuer, as defined
Rule 405 of the Securities Act.: ¨ Yes x No
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. ¨ Yes x No
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 past 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 days. x Yes ¨ No
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
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
Form 10-K. x
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (as defined
in Rule 12b-2 of the Act): Large accelerated
filer ¨ Accelerated
filer ¨
Non-accelerated filer x
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). ¨ Yes x No
December 31, 2006 the aggregate market value of the Registrant's voting common
equity held by non-affiliates was $9,227,467.
September 27, 2007, the number of outstanding shares of Registrant's Common
Stock (excluding shares treated as treasury shares) was 4,829,275.
of the Registrant's definitive proxy statement to be distributed in connection
with its next Annual Meeting of Shareholders are incorporated by reference
Part III of this Report.
Item 1.
Powerboat Industries, Inc. (the "Company"), through its wholly owned subsidiary,
Fountain Powerboats, Inc. (the "Subsidiary"), designs, manufactures and sells
internationally recognized recreational offshore sport boats, sport fishing
boats and sport cruisers that target a segment of the recreational powerboat
market where speed, performance, quality and safety are the primary purchase
criteria. The Company sells its boats and ancillary products through a worldwide
network of 32 domestic and 24 international dealers.
Powerboats, based upon an innovative, award-winning design, are well branded
within the boating industry. The Company markets the celebrity of its Chairman,
Chief Executive Officer and founder, Reginald M. Fountain Jr., an
internationally recognized designer, engineer and builder of high speed
powerboats and holder of three world titles and seven national racing
continuously incorporates new and improved designs in its boats. The Company
believes that the best boats come from combining an intuitive management team
with hardcore experience gained by boat racing in offshore conditions. Each
is tested in the Pamlico River, located alongside the factory, before it is
shipped to its new owner. This testing is unique to Fountain Powerboats, as
boat manufacturers are not located on or near the water.
maintains that its boats, with their innovative design and unitized
construction, are among the fastest, smoothest, safest and best-handling boats
of their kind. The expansive product line of sport cruisers, sport fishing
sport boats is based upon a deep V-shaped fiberglass hull for speed and fuel
efficiency that uses less horse power. For superb handling and performance,
boats are designed with a notched transom and pad keel running surface and
engineered with an innovative step-bottom design.
Company has twenty different models that fall into three categories — express
cruisers, sport fishing boats and sport boats. Initially known for its sport
boats, Fountain Powerboats has evolved into a company with a wide variety of
boats for the most discriminating boater.
Powerboats has captured market share approaching 50 percent of the high
performance sport boat market and offers eight different sport boat models
ranging from the 29' Fever to the 47' Lightning. These V-bottom boats carve
turns at all speeds, even when being propelled at over 100 MPH by twin or triple
Mercury 525 engines.
Powerboats has become well known for its upscale, high performance and elegant
Express Cruisers which redefine the term "performance cruiser". The cruiser
market had been growing as the populace ages and begins to look for not only
speed but luxurious amenities for the entire family. Fountain Powerboats, with
its 38' and 48' Express Cruisers is poised with the right products to capitalize
on the niche of this market that desires high performance.
established water sport is continuing to grow in popularity – tournament
fishing. With the advent of popular sport fishing television shows and two
quality sport fishing competition programs, the American Striper Association
Tournaments and the Southern Kingfish Association Tournaments, the Company
significantly expanded its line of sport fishing boats, building a competitive
edge in this fast growing market.
for Fountain sport fish boats is on the increase. These boats are designed
the fishing aficionado who demands speed and superb amenities for his family
friends. Entering the tournament fishing market in the late 1980's, and now
considered "the boat to beat", the Company's fish boat product line boasts nine
different models ranging from the 23' Center Console ("CC") to the 38' Sport
Fish Cruiser outboard.
participates in Poker Run events, which is an increasingly popular sporting
event that involves large numbers of recreational boat owners. These events
sponsored by local organizations, generally including one of the Company's
dealers, and present a great opportunity to showcase its boats to an affluent
Fiscal 2007, the Company introduced a redesigned 35' sport boat model and a new
38' outboard cruiser fish boat model at the Company's annual dealer meeting in
October 2006 and delivered a redesigned 38' sport boat cabin in late
35' sport boat was totally redesigned, including a staggered engine
configuration that significantly improved performance to speeds in excess of
MPH. The 35' and 38' sport boats were outfitted with a new cabin layout that
will be standard in all of the Company's sport boats. The new cabin will be
installed in the 42' and 47' sport boats during Fiscal 2008. The 38' sport boat
captured the coveted Powerboat Magazine "Offshore Boat of the Year" award in
Fiscal 2007.
new 38'
sport fish cruiser outboard boat was introduced at the dealer meeting in
October, 2006. It is a versatile boat that can be used as a fish boat or for
family cruising, with triple 275HP Verado engines it will run at speeds up
to 64
MPH and cruises at 40MPH at a fuel efficient 1.4 MPG.
sport fish cruiser outboard hull will be redesigned in Fiscal 2008 to provide
that model an even smoother and more stable ride in all types of water
conditions, at all speeds, and with twin outboard Mercury Verado engines to
match the performance of the 38' sport fish cruiser outboard.
new 32'
sport boat model will be launched during Fiscal 2008, complete with the
redesigned Lightning series interior and Mercury 425HP stern drives engines.
will perform at speeds approaching 90 MPH.
2008 the 48' express cruiser will be available with twin Cummins diesel engines.
This option will reduce the overall cost of the boat and operating costs while
maintaining high performance operating speeds.
below shows the number of boats completed and shipped during the last three
fiscal years by product line.
June 30, 2007 Fountain Powerboats had a backlog of firm orders for 76
boats, totaling sales of $16.8 million, all of which are expected to be
completed during Fiscal 2008. At June 30, 2006, the sales backlog was 200
boats, totaling $43 million.
and Development.
ahead of its competition, Fountain's employees conduct ongoing research and
development pertaining to the design of its boats' hulls and decks and its small
parts production. The Company invested approximately $1 million on the
development of new plugs and molds during Fiscal 2007. Over the past three
fiscal years, the investments into product development were as follows:
fiscal 2008, design, research and development planned expenses are estimated
be $792,000, and plug and mold construction expenditures are estimated to be
$900,000. Primarily, these expenditures will go to upgrading the Company's line
of sport boats in an effort to maintain its market share and enhancing its
of sport fish cruisers to continue to expand its presence in that profitable
more stable market.
capacity of the facility can accommodate 40 to 45 boats in various stages of
construction at any one time. Construction time is approximately three to eight
weeks, dependent on the product mix.
result of manufacturing productivity improvements and the restructuring of
production work force to be compatible with our reduced production rate our
total headcount was reduced by 120 employees, primarily from attrition, during
Fiscal 2007. The Company currently has the capacity to manufacture approximately
350 sport and fish boats, and 60 cruisers per year of a comparable product
as was manufactured in fiscal 2007.
manufacturing process is labor intensive and requires seasoned craftsmen. The
process for manufacturing the hull and deck of a Fountain Powerboat is done
hand. Vinylester resins and high quality stitched, bi-directional and
quad-directional fiberglass is hand laid over a foam core in molds designed
constructed by the Company's engineers and tooling department. This artisan
method creates a composite structure with strong outer and inner skins and
thicker, lighter core in between, resulting in superior strength and a finer
appearance, compared to mechanically blown, chopped fiberglass used by other
used to bind the composite structure is vinylester, which is stronger, better
bonding, blister resistent and more flexible than the polyester resins used
most fiberglass boat manufacturers. Decks are bonded to the hull using a
combination of bonding agents, rivets, screws and fiberglass to achieve a strong
unitized construction. This manufacturing process was developed and improved
upon as a result of the Company's many years of racing experience. When a
Fountain Powerboat is traveling at 177 MPH through the water, this manufacturing
process provides the speed and safety the Company's boats are known for.
one of
the most highly integrated manufacturers in the marine industry, Fountain
manufactures many metal, plexiglass, plastic, and small parts (such as fuel
tanks, seat frames, instrument panels, bow rails, brackets, T-tops and
windscreens) to assure that its rigid quality standards are met and, if a design
change is needed to improve a boat, it can be made immediately.
Company also manufactures all of its upholstery to its own custom specifications
and benefits from receiving these 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
discounts. The Company purchases certain supplies and materials from a limited
number of suppliers in order to obtain the benefit of volume discounts.
powerboats must be certified by the manufacturer to meet U.S. Coast Guard
specifications. 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. Boats manufactured for sale in the
European Community must meet CE Certification Standards.
Company warrants the boat hull and deck structure against defects in material
and workmanship for a period of six years. Warranty costs, if any, on other
components of the boats are generally absorbed by the original component
manufacturer. Warranty costs can vary depending on the size and number of
components in the boats sold. The Company focuses on high quality manufacturing
programs and processes, including actively monitoring the quality of our
component suppliers and managing the dealer and customer warranty experience
reimbursements. Our estimated warranty obligation is based upon the warranty
terms, the enforcement of those terms over time, defects, repair costs, and
volume and mix of boats sold. The estimate of warranty costs is regularly
analyzed and is adjusted based on several factors including the actual claims
that occur by model and model year. The following is a table of the Company
warranty expense for fiscal years 2007 and 2006:
and Marketing.
Company sells its products through a worldwide network of 32 domestic dealers
and 24 international dealers. While most of these dealers are not exclusive,
Company uses discretion in locating new dealers in an effort to protect the
interests of its existing dealer network. To attract and keep the highest
producing dealers, Fountain Powerboats offers a sales training program through
its Fountain University.
Fountain University program trains the Company's dealers' salespersons on: How
to Apply Features and Benefits, Selling in Today's Environment, How to Overcome
Objections and Close the Sale, and How to Properly Deliver a Boat. The program
also includes in-water, high performance boat training for the salespersons.
following is a table of sales by geographic area for the last three fiscal
Powerboats targets a significant portion of revenue for its branding and
advertising programs in the U.S. and internationally. The Company continues
expand its dealer network into Europe, South America and the Middle East. The
Company's International sales were $8,818,987 for fiscal 2007 and $8,291,640 for
fiscal 2006. The Company requires payment in full or an irrevocable letter
credit from a domestic bank before it will ship a boat out of the U.S.
2007, one dealer accounted for 13.6 percent of sales, one accounted for 9
percent of sales and four each accounted for 5.0 to 5.5 percent of sales. In
fiscal 2006, one dealer accounted for 10.9 percent of sales, one accounted
8.5 percent of sales and four each accounted for 5.8 to 6.3 percent of sales.
fiscal 2005, one dealer accounted for 10.5 percent of sales, one accounted
for 6
percent of sales and three each accounted for 5.4 percent of sales.
loss of any particular dealer could have an adverse affect on sales, the Company
believes it could find other dealers within the same geographical area to
replace a lost dealer. Sales continue to grow through existing dealers and
Company continues to add new dealers with the goal of reducing the concentration
risk in its distribution channel.
Company has a strategically located team of sales representatives supporting
existing dealer locations and developing new dealers in targeted locations.
sales team, headed up by the President, is responsible for developing a dealer
organization for sport boats, sport fishing boats and express cruisers. The
product line is extremely diverse and requires specialized sales training and
service and support, so the Company's strategy is to develop individual dealers
for each of its product lines.
Powerboats does not manufacture to inventory, as its boats are pre-sold to
dealers before entering the production line. The Company can ship to dealers
a cash-on-delivery basis or through floor plan financing programs in which
Company participates on behalf of its dealers. For Fiscal years 2007, 2006
2005, the Company has paid the interest on the floor plan, for a certain period
of time, as a sales promotion program.
dealer's responsibility is to establish a line of credit with one or more
third-party lenders for the purchase of its showroom inventory. When a dealer
purchases a boat utilizing the floor plan arrangement, it draws against its
of credit and the lender pays the invoice for the boat directly to Fountain
Powerboats, typically within five business days. When the boat is sold to the
retail customer, the dealer repays the lender, restoring his credit line. The
Company, along with most major boat manufacturers, will repurchase its boats
from a lender who has repossessed them from a dealer, if the lender returns
boats to Fountain Powerboats in a new or like-new condition. The Company has
material obligation to repurchase boats from its dealers.
marketing of boats to retail customers is the responsibility of the dealer,
whose efforts are complemented by Fountain Powerboats' advertising in boating
magazines, participating in boat shows and its Sales Service Bureau responding
to and tracking leads from advertisements, boat shows and internet inquiries.
assist in brand recognition, the Company has developed racing programs to
participate in the major classes of offshore powerboat races in which many
Fountain's single and twin engine racing boats continue to hold their respective
world speed records. Fountain Powerboats founder and CEO Reggie Fountain, who
has won numerous races in both factory and customer owned boats and has set
numerous world speed records in both, in August 2004 set a V-bottom World Speed
Record with a phenomenal 171.883 MPH on a Fountain 42' Lightning.
enhance brand recognition, Fountain Powerboats sponsors outstanding sport
fishermen who own Fountain boats and fish in tournaments organized by the
Southern Kingfish Association (SKA) and the American Striper Association (ASA).
The Company's fishing teams of the SKA and ASA are captained by world class
anglers who can afford to purchase any boat, but choose to run a Fountain
Powerboat. The Company supports the ASA tournaments held throughout the
Northeast in areas ranging from Virginia to Maine, and the SKA tournaments
throughout the South and Southwest, from North Carolina to Texas. The Fountain
team's winning records have given its sport fishing boats favorable exposure to
serious sport fishermen looking for superior performance.
within the powerboat manufacturing industry is intense. The high performance
sports, fish and cruiser boat markets, which comprises only a small segment
all boats manufactured, are significant markets in terms of total dollars spent.
The manufacturers who compete with the Company in these market segments include:
Company believes that in its market segments buyers select boats based on speed,
performance, quality, image and safety, with style and price being secondary
demographics and industry experts indicate the fish boat market offers the
growth potential within the boating industry. Fountain Powerboats continues
expand its family of fish boats to meet the rising demand in this significant
high-growth market. The Company introduced a new model in 2007 and plans to
upgrade one of its existing models in 2008.
Company had experienced strong demand for its higher priced cruisers prior
Fiscal 2007. This is due in part to a populace that not only wants speed but
requires the additional space to bring along the family. The Company believes
that a large number of current product owners, many of whom have purchased
multiple and increasingly larger boats from the Company, provide a target market
for the fast-growing cruiser segment. Sales of this product line were weak
during the first three quarters of 2007 but made a revival in the fourth
June 30, 2007, the Company had 328 employees, of which eight were executive
and management personnel. Twenty-two were engaged primarily in administrative
positions, such as accounting, human resources, marketing and sales. None of
Company's employees are party to a collective bargaining agreement. The Company
considers its employee relations to be excellent. The Company is an equal
opportunity employer.
Item 1A.
Risk Factors.
economic conditions in the United States may adversely affect the Company's
results. The
Company's revenues may be affected by U. S. and international market conditions
and consumer confidence. Any substantial deterioration in general economic
conditions which diminishes consumer confidence in any of the regions where
Company competes could reduce the Company's sales and adversely affect its
business and financial results.
Company's profitability may suffer as a result of competitive product offerings
and pricing pressures.
introduction of lower-priced competitive products by other companies can hurt
the Company's competitive position. Such competitive pricing may limit the
Company's ability to increase prices in response to raw material and other cost
Company's financial results may be adversely affected if the Company is unable
to maintain effective distribution.
Company's products are sold through dealers and the financial health of these
dealers is critical to the Company's continued success. The Company's results
can be negatively affected if dealers experience higher operating costs that
result from rising interest rates, higher rents, labor costs and taxes, and
compliance with regulations.
adjustments by the Company's major dealers adversely affects the Company's
operating margins.
If the
Company's dealers adjust their inventories downward in response to weakness in
retail demand, wholesale demand for the Company's product diminishes. In turn,
the Company must reduce production, which results in lower rates of absorption
of fixed costs and thus lower margins.
weather conditions can have a negative impact on revenues.
conditions can have a significant impact on the Company's operating and
financial results. Sales of the Company's products are generally stronger just
before and during spring and summer, and favorable weather during these months
generally has a positive effect on consumer demand. Conversely, unseasonably
cool weather, excessive rainfall or drought conditions during these periods
reduce demand. Hurricanes and other storms can result in the disruption of
Company's manufacturing operations and its distribution channel.
energy costs can adversely affect the Company's results and can hurt demand for
the Company's products.
energy costs increase the Company's operating costs at its manufacturing
facility and the cost of shipping its products to dealers. In addition, the
Company's products are powered by gasoline and diesel engines and any increase
in the price of petroleum-based fuel, or the imposition of taxes or an
interruption of supply, could reduce the demand for the Company's
interest rates can reduce demand.
Purchases of the Company's products are often financed. Rising interest rates
can have an adverse effect on dealers' and consumers' ability to finance boat
of deliveries from the Company's single-source suppliers can adversely affect
production and revenues.
Company's single-source supply and just-in-time inventory strategies of some
critical boat components, including high performance marine engines, could
adversely affect production if a single-source supplier is unable for any reason
to meet the Company's requirements on a timely basis.
Item 1B.
Unresolved Staff Comments.
Item 2.
Company's executive offices and manufacturing facilities are located on 65 acres
along the Pamlico River in Beaufort County, North Carolina. All of the land,
buildings and improvements are owned by the Company and were held as collateral
on notes and mortgages payable outstanding at June 30, 2007. (See Note 5 to
the Company's consolidated financial statements contained in Item 8 of this
Report). The operating facility contains buildings totaling 237,360 square
located on fifteen acres. The buildings consist of the following:
last several years there have been significant expenditures for property, plant
and equipment, which include plant additions, a travel lift bay, a boat ramp,
and docking facilities along a 600-foot canal leading to the Pamlico River.
addition, the Company has approximately 200,000 square feet of concrete paving
surrounding the buildings and providing guest or employee parking. The present
plant site can accommodate an addition of up to 300,000 square feet of
manufacturing space.
Item 3.
Legal Proceedings.
June 30, 2007, the Company's only operating subsidiary was a defendant in
lawsuits arising in the ordinary course of its business, including five alleged
breach of warranty or product liability 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
product liability insurance to cover attorney's fees and any losses that may
occur from a product liability or breach of contract suit, over and above
applicable insurance deductibles. The management of the Company believes that
none of such current proceedings will have a material adverse effect.
Company's subsidiary was notified by the United States Environmental Protection
Agency ("EPA") that it had been identified as a potentially responsible party
("PRP") in the remediation of contamination at a clean up site. The Group
administrator estimated the Company's share of future remediation cost to be
$28,105. The Company is eligible for a de
Settlement Agreement, which is expected to be finalized in 2007.
Item 4.
Submission of Matters to a Vote of Security Holders.
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
Company's common stock, $.01 par value, trades on the American Stock Exchange
(under the symbol "FPB"). The following table lists the high and low closing
prices for the Company's common stock as reported on the American Stock Exchange
for each calendar quarter during its fiscal years ended June 30, 2006 and
Company has not declared or paid any cash dividends on its common stock since
first began operations. In the future, any declaration and payment of cash
dividends will be subject to the Board of Directors' evaluation of the Company's
operating results, financial condition, future growth plans, general business
and economic conditions, and other relevant considerations. Management of the
Company expects that, for the foreseeable future, profits generated by the
Company will be retained as additional capital to support the Company's
operations and that the Company will not pay any cash dividends.
June 30, 2007 there were 208 holders of record for the Company's common
Fiscal 2007, the Company sold 10,000 shares of its common stock for a
consideration of $16,000 to an employee of the Company and its subsidiary upon
their exercise of stock options and without registration in reliance upon the
exemption from registration under Section 4(2) of the Securities Act of 1933.
Graph. The
following line graphs compare the cumulative total shareholder return (the
"CTSR") on the Company's common stock during the previous five fiscal years with
the CTSR over the same measurement period of the S&P 500 Index and the
S&P Leisure Time (Products) Index. Each line graph assumes that $100 was
invested on June 30, 2000, and that any dividends were reinvested in additional
shares. We have not paid dividends on the Company's common stock during the
previous five fiscal years, so no reinvestment is included in the calculation
the CTSR on the Company's common stock.
following information is being furnished for purposes of Rule 14a-3. It is
deemed to be filed with
Securities and Exchange Commission or to be incorporated by reference into
filing under
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
Company specifically incorporates it by reference into such a
6. Selected Financial Data.
Years 2003 through 2007
ended June 30
Statement Data
Sheet Data
(1) The
Company has not paid any cash dividends since its inception
7. Management's Discussion and Analysis of Financial Condition and Results of
statements in Management's Discussion and Analysis are forward-looking as
defined in the Private Securities Litigation Reform Act of 1995. These
statements are based on current expectations that are subject to risks and
uncertainties. Actual results may differ materially from expectations as of
date of this filing because of factors discussed in Item
1A. Risk Factors
in this
Annual Report.
Company's criteria for recording a C.O.D. sale, or payments prior to shipment
sale or sale financed through third-party floor plan arrangements, are that
boat has been completed and that title has passed to the dealer or to the
Government, and that there is no direct commitment to repurchase the boat or
pay floor plan interest beyond the sales program terms. As described more fully
below at "Business Environment", most of the Company's shipments to dealers were
financed through floor plan arrangements with third-party lenders pursuant
which the Company is subject, for a limited time, to repurchase boats
repossessed by the third-party lenders if the dealer defaults under his credit
arrangement. The Company has no repurchase liability for the balance of
shipments. This is the method of sales recognition believed to be in use by
boat manufacturers.
June 30, 2007, 2006, and 2005, 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, 2007, 2006, and 2005.
Company has a contingent liability to repurchase boats where it participates
the floor plan financing made available to its dealers by third-party finance
companies, aggregating to $24,375,708 and
$35,212,412 at
June 30, 2007 and 2006, respectively. Sales to participating dealers are
approved by the respective finance companies. If a participating dealer does
satisfy its obligation to the lender and the boat is subsequently repossessed
the lender, then the Company may be required to repurchase the boat.
boating is a discretionary expenditure and many purchasing decisions are
influenced by interest rates, fuel prices, insurance rates, weather, general
economic factors, and other socioeconomic and environmental
overall marine industry began to soften in 2005 for small fiberglass (30 feet
and less) and the downturn expanded into the larger fiberglass boat segment
2006. Demand for sport fishing boats and cruisers weakened in 2007. Attendance
at major boat shows, e.g. Fort Lauderdale, New York, Chicago, Miami, in late
2006 and early 2007 were lower than the prior year.
the marine industry reported dealer inventories were higher at the end of the
2006 retail season as sales for the season had fallen short of expectations.
Market analysts were reporting consumer confidence being down and a "tightening"
of consumer credit. Dealers kept their orders for inventory modest going into
the off season and asked boat builders for more promotions and better financing.
The small boat segment sales leveled out somewhat for 2007 after the decline
through 2006 and 25-50 foot fiberglass boats sales were weak in 2007 with the
upper end of the cruiser market being the softest of all boat segments for
reported industry analysts.
Company entered Fiscal 2007 with approximately $43 million backlog of orders;
however as orders were reconfirmed with dealers for production some dealers
not have available floor plan credit and some dealers declined to reconfirm
orders as they were cautious about increasing their inventory during the off
season. The Company's sales for the second and third quarters of Fiscal 2007 in
total were 20 percent lower than a total of the comparable quarters of Fiscal
attendance of the 2007 season boat shows was lower than the prior year. The
Company increased its participation with its dealers at regional and national
boat shows with much success. At the Miami International Boat Show in February
2007 the Company recorded approximately $20 million in orders for new boats
boats from dealers' inventory, the highest in the history of the
Fiscal 2007 the Company applied "lean manufacturing" principles and methods to
its manufacturing processes, utilizing the Toyota Production System (TPS) as
model to improve production labor efficiency. Total production headcount was
reduced by 27 percent as a result of improved productivity and reorganizing
work force for alignment with reduced production levels.
Company implemented cost and expense reduction programs in Fiscal 2007 that
expected to reduce overhead costs by $2.5 million to $3 million annually. These
programs, described below, had a positive effect on the results in the fourth
quarter of Fiscal 2007 and will continue to do so in Fiscal 2008.
Company's revenue was $68,829,987 for Fiscal 2007, down 13 percent from revenue
of $79,226,224 for Fiscal 2006. Revenue for the fish boat product line remained
flat while the sport boat product line declined by 20 percent and the cruiser
product line declined by 40 percent.
for the fourth quarter of Fiscal 2007, ended June 30, 2007, was $19,907,660,
compared to $23,332,063 for the fourth quarter of Fiscal 2006, a decrease of
14.7 percent. Operating profit for the fourth quarter was $568,004, as compared
to $183,300 operating profit for the fourth quarter of Fiscal 2006. The increase
in profit was primarily attributable to an adjustment made to net sales to
remedy the over accrual of a newly established year end dealer incentive award.
This new dealer incentive award was over accrued because the rate of accrual,
established at the beginning of the year, was based upon projected annual dealer
sales, the actual volume of which was not known until the fourth quarter of
Fiscal 2007.
boats were repurchased in Fiscal 2007, from finance companies under contingent
repurchase obligations for a dealer that failed to meet its obligations to
finance companies, for a total repurchase amount of $809,347. All five boats
were re-sold to other dealers with a total reduction in profit of $51,394.
boats were repurchased in Fiscal 2006 or Fiscal 2005 in connection with floor
plan arrangements. At June 30, 2007, the Company had recorded a $64,124
reserve for losses which may be reasonably expected to be incurred on boat
repurchases in future years. At June 30, 2006 the reserve was $15,459 and
at June 30, 2005 the reserve was $75,000.
are forecasting that boat sales will continue to be down through the first
of calendar 2008, and at this point they are not forecasting a turn around
the 2008 season.
Company's fiscal plan for 2008 is based on the same revenue level as 2007,
approximately $68 million. Upgraded and new boat models will be introduced
all three product lines to boost sales. The Company's Sales and Marketing
personnel will again take a very active role with the dealers at boat shows
promotional events and increase participation in the retail sales cycle. The
Company has established a subsidiary (see Note 14) to sell Fountain boats at
retail in a territory that can be serviced from the Company's location and to
provide retails sales support and training for its dealers.
cost reduction programs are underway that will have positive effect on results
for Fiscal 2008:
of Operations.
for Fiscal 2007 were $68,829,987, down 13 percent as compared to net sales
$79,226,224 for Fiscal 2006. The decrease in net sales is a result of the
general decline in the marine industry that affected the segments of the market
in which the Company's boats are sold. Net sales of the Express Cruiser product
line also suffered due to issues with the engines which were installed early
during Fiscal 2007. The Company has since migrated to installing engines from
different manufacturer in our Express Cruisers.
by product line for the Fiscal years of 2007, 2006 and 2005 are:
profit on sales for Fiscal 2007 was $9,108,088, 13.2 percent of net sales,
compared to $13,073,800, 16.5% of net sales, for Fiscal 2006. Gross profit
Fiscal 2005 was $10,910,563, 15.3% of net sales. 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. The increase
in gross margin from 2005 to 2006 was the result of improvements in productivity
and labor efficiency.
loss was ($2,745,878) for Fiscal 2007, as compared to a profit of $2,275,355
2006 and $1,766,347 in Fiscal 2005. Operating profit for Fiscal 2007 was
affected by the circumstances outlined above in the gross margin discussion
this report and increased selling expenses, detailed below.
2007 net loss for the Company was ($5,046,286) or ($1.05) per share, of which
($1,283,728) or ($.27) per share was a tax adjustment. This compares to a net
income of $2,404,912 or $.50 per share for Fiscal 2006 and net income of
$756,212 or $.16 per share for Fiscal 2005. The tax adjustment for Fiscal 2007
arose from the establishment of a valuation allowance to completely offset
Company's Deferred Tax Assets (see Note 7 to the consolidated financial
statements, appearing on page 32 of this report).
expense was $2,313,807 for Fiscal 2007, $2,020,860 for Fiscal 2006, and
$1,840,168 for Fiscal 2005.
selling and general and administrative expense for Fiscal 2007 was $11,853,966,
a $1,055,520 increase from $10,798,445 in Fiscal 2006.
expenses were $8,040,083 for Fiscal 2007, $6,765,871 for Fiscal 2006 and
$5,726,283 for Fiscal 2005. The increase in selling expense 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.
selling expenses for the past three fiscal years were as follows:
and administrative expenses include the executive, finance, human resources,
information technology, legal and administrative operating expenses of the
Company. These expenses were $3,813,883 for Fiscal 2007, $4,032,574 for Fiscal
2006, and $3,417,933 for Fiscal 2005. The decrease in administrative expenses
for 2007 was primarily attributable to reduced legal expenses. Increased
administrative expenses for 2006 were generally attributable to expenses related
to the restatement of 2004 and 2005 financial statements, legal expenses related
to breach of warranty suits, of which the more costly suits have been settled,
and consulting services for preparation of internal controls and procedures
comply with Sarbanes-Oxley Act: Section 404, all of which were non-recurring
expense net of amounts capitalized was $966,784 for Fiscal 2007, $1,132,584
Fiscal 2006, and $1,011,860 for Fiscal 2005. Interest expense decreased in
Fiscal 2007 due to Fiscal 2006 having an expense of $229,801 of capitalized
costs from the previous Bank of America loan when it was refinanced by the
$16,500,000 loan from Regions Bank. The increase in interest expenses from
Fiscal 2005 to Fiscal 2006 was also caused primarily due to the write-off of
$229,801 unamortized loan expenses.
tax provision is $1,283,728 for the year ending June 30, 2007, ($1,283,746)
for the year ending June 30, 2006, and ($21,232) for the year ended June
30, 2005. The current tax provision of $0 for Fiscal 2007 is the natural
consequence of the net loss incurred by the Company. Deferred tax
(benefit)/provision is ($1,417,122) for the year ended June 30, 2007, $460,258
for the year ended June 30, 2006 and $355,590 for the year ended 2005.
Deferred taxes arise from temporary differences between financial and income
reporting regarding the recognition of certain items.
June 30, 2007 the Company had net deferred tax assets of $2,700,850 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.
deferred tax assets principally relate to the potential future benefits of
net operating loss carryforwards, most of which had been generated during the
years ended June 30, 2002 and June 30, 2007 when the Company generated
substantial net losses. During the year ended June 30, 2007 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
the application of a valuation allowance.
Company has available federal and state operating loss carry forwards at
June 30, 2007 of approximately $8,208,000 and $7,449,000, respectively,
which expire at various dates through 2027.
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 $2,700,850 at June 30,
2007, $0 at June 30, 2006 and $1,709,951 at June 30, 2005.
and Financial Resources.
disclosed in the Condensed Consolidated Statement of Cash Flows, the cash
balance decreased by $2,095,169 during the Fiscal Year ended June 30, 2007.
comparison, during the previous Fiscal Year the cash balance increased
by operations was $2,063,315 in Fiscal 2007 and resulted primarily
required for Investing activities during Fiscal 2007 was $1,635,200. 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
our boats. $1,045,057 was invested in plugs and molds during Fiscal 2007.
Another $593,518 was spent on other property, plant and equipment.
activities provided $1,603,346 during Fiscal 2007.
is of the opinion that cash flows will be sufficient to satisfy its current
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 2007 and is expecting to continue
to operate profitably through Fiscal 2008.
of Inflation.
Company has not been materially affected by the inflation of recent years.
Materials that are petroleum-based (e.g. resin, gel coat, foam) have been
subject to price increases, and fuel surcharges have increased freight costs.
The Company has been able to minimize the effect of material price increases
negotiating favorable purchase agreements with suppliers, using alternative,
less costly materials, by finding less costly sources for materials and
increasing selling prices of its products to recover the cost
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.
following table sets forth a summary of the Company's contractual cash
obligations as of June 30, 2007:
Company has an agreement with Mercury Marine, a division of Brunswick
Corporation, that the Company will purchase from Mercury all of the Company's
requirements for marine engines and other power components that Mercury
manufactures. The term of this agreement is through June 30, 2012.
Sheet Arrangements.
Based on historical experience and current facts and circumstances, and in
accordance with Financial Accounting Standards Board (FASB) Interpretation
No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others — An
Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB
Interpretation No. 34," the Company has reserves to cover potential losses
associated with guarantees and repurchase obligations. Historical cash
requirements and losses associated with these obligations have not been
significant. See Note 8, Commitments and Contingencies, in the Notes to
Consolidated Financial Statements, for a description of these arrangements.
Company does not believe that compliance with federal, state, and local
environmental laws will have a material adverse effect on the Company's
competitive position.
Accounting Policies.
preparation of the consolidated financial statements in accordance with
accounting principles generally accepted in the United States requires
management to make certain estimates and assumptions that affect the amount
reported assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and revenues
and expenses during the periods reported. Actual results may differ from those
estimates. The Company discussed the development and selection of the critical
accounting policies with the Audit Committee of the Board of Directors and
believes the following are the most critical accounting policies that could
an effect on the Company's reported results.
Recognition and Sales Incentives. The Company's revenue is derived primarily
from the sale of boats. Revenue is recognized in accordance with the contracted
terms of the sale, upon completion and legal title and all other incidents
ownership have passed to dealers or the Government, and the ability to collect
is assured. The Company offers discounts and sales incentives. The estimated
liability for sales incentives is recorded at the later of the time of program
communication to the customer or at the time of sale in accordance with Emerging
Issues Task Force (EITF) No. 01-9, "Accounting for Consideration Given by a
Vendor to a Customer (Including a Reseller of a Vendor's Products)" and EITF No.
00-22, "Accounting for Points and Certain Other Time-Based or Volume-Based Sales
Incentive Offers, and Offers for Free Products or Services to be Delivered
the Future." The liability is estimated based on the costs for the incentive
program, the planned duration of the program and historical experience. If
actual costs are different from estimated costs, the recorded value of the
liability would be adjusted.
for Doubtful Accounts. The Company records an allowance for uncollectible trade
receivables based upon currently known bad debt risks and provides reserves
based on past loss history, customer payment practices and economic conditions.
Actual collection experience may differ from the current estimate of reserves.
Changes to the allowance for doubtful accounts may be required if a future
or other circumstance results in a change in the estimate of the ultimate
ability to collect a specific account or invoice.
for Obsolete Inventories. The Company records a reserve for obsolete inventories
in order to ensure inventories are carried at the lower of cost or fair market
value. Fair market value can be affected by assumptions about market demand
conditions, historical usage rates, model changes and new product introductions.
If model changes or new product introductions create more or less than favorable
market conditions, the reserve for obsolete inventories may need to be adjusted.
Refer to Note 1, Nature of the Business and Significant Accounting Policies,
the Notes to Consolidated Financial Statements for further discussion on the
basis of accounting for inventories.
Reserves. The Company records a liability for standard product warranties.
liability is recorded using historical warranty experience to estimate projected
warranty costs. If necessary, the Company adjusts its liability for specific
warranty matters when they become known and are reasonably estimable. The
Company's warranty reserves are affected by product failure rates and material
usage and labor costs incurred in correcting a product failure. If these
estimated costs differ from actual product failure rates, and actual material
usage and labor costs, a revision to the warranty reserve would be required.
Taxes. Deferred taxes are recognized for the future tax effects of temporary
differences between financial and income tax reporting using tax rates in effect
for the years in which the differences are expected to reverse. The Company
estimates its probable tax obligations based on historical experience and
current tax laws and litigation. The judgments made at any point in time may
change based on the outcome of tax audits and settlements of tax litigation,
well as changes due to new tax laws and regulations and the Company's
interpretations of those laws and regulations. These factors may cause the
rate for the Company to increase or decrease. As of June 30, 2007 the Company
had net deferred tax assets of $2,700,850 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
related to the potential future benefits of tax net operating loss
carryforwards, most of which had been generated during the years ended June
2002 and June 30, 2007 when the Company generated substantial net losses. During
the year ended June 30, 2007 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
the application of a valuation allowance.
Company has available federal and state operating loss carry forwards at
June 30, 2007 of approximately $8,208,000 and $7,449,000, respectively,
which expire at various dates through 2027.
Statement for Purposes of "Safe Harbor" Under the Private Securities Reform Act
of 1995.
statements in this Annual Report are forward-looking as defined in the Private
Securities Litigation Reform Act of 1995. Forward-looking statements in this
Annual Report may include words such as "expect", "anticipate", "believe",
"may", "should", "could" or "estimate". These statements involve certain risks
and uncertainties that may cause actual results to differ materially from
expectations as of the date of this filing. These risks include, but are not
limited to, those set forth under Item
1A – Risk
should be taken not to place undue reliance on the Company's forward-looking
statements, which represent the Company's views only as of the date this report
is filed. The Company undertakes no obligation to update publicly or revise
forward-looking statement, whether as a result of new information, future events
or otherwise.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
Company is exposed to market risk from changes in interest rates. The Company
enters into hedging transactions to mitigate this risk in accordance with
guidelines established by the Company's management. A description of the
Company's interest rate hedging activities is presented in Note 1. to the
consolidated financial statements. The Company does not use financial
instruments for trading or speculative purposes.
Company uses an interest rate swap agreement to mitigate the effect that changes
in interest rates have on the fair market value of the Company's debt and to
lower the Company's borrowing costs on long term debt. The Company's net
exposure to interest rate risk is primarily attributable to the term loan with
Regions Bank, which bears interest at a floating-rate. Interest rate risk
management is accomplished through the use of a floating-to-fixed interest
swap. Both the loan and the swap are benchmarked to short-term money market
interest rates.
Item 8.
Financial Statements and Supplementary Data.
Stockholders and the Board of Directors
Powerboat Industries, Inc.
North Carolina
audited the accompanying consolidated balance sheets of Fountain Powerboat
Industries, Inc. and subsidiary as of June 30, 2007 and 2006, and the
related consolidated statements of operations, stockholders' equity, cash flows
and the schedule of valuation and qualifying accounts for each of the years
the three-year period ended June 30, 2007. These consolidated financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform
audit of the Company's internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Fountain Powerboat
Industries, Inc. and subsidiary at June 30, 2007 and 2006 and the results
of their operations and their cash flows for each of the years in the three-year
period ended June 30, 2007 in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the related
financial statement schedules, when considered in relation to the 2005, 2006
2007 basic consolidated financial statements taken as a whole, present fairly
all material respects the information set forth therein.
North Carolina
26, 2007
accompanying notes are an integral part of these consolidated financial
accompanying notes are an integral part of these consolidated financial
accompanying notes are an integral part of these consolidated financial
accompanying notes are an integral part of these consolidated financial
accompanying notes are an integral part of these consolidated financial
1. Nature of the Business and Significant Accounting Policies.
of the Business:
Powerboat Industries, Inc. and Subsidiary (the Company) manufacture
high-performance sport boats, sport cruisers, sport fishing boats, and custom
offshore racing boats. These boats are sold worldwide to a network of 32
domestic and 24 international 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 328 people.
of Consolidation:
consolidated financial statements include the accounts of Fountain Powerboat
Industries, Inc. and its wholly owned subsidiary, Fountain Powerboats, Inc.
significant inter-company accounts and transactions have been eliminated in
Company's fiscal year-end is June 30th, which is its natural business
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimated
management. These estimates affect:
in these consolidated financial statements include, but are not limited to:
and Cash Equivalents:
purposes of the statement of cash flows, the Company considers all highly liquid
debt instruments purchased with a maturity of three months or less to be cash
equivalents. At June 30, 2007 and 2006, the Company had $2,379,383 and
$4,474,552 respectively, held in cash.
Receivable are customer obligations due under normal trade terms requiring
payment within 7 days from the invoice date for boat sales and within 30 days
for all other sales. The carrying amount of accounts receivable is reduced
by an
allowance that reflects management's best estimate of the amounts that will not
be collected. Management reviews each accounts receivable balance that exceeds
90 days from the invoice date and based on an assessment of the current
creditworthiness, estimates the portion, if any, of the balance that will not
Inventories are stated at the lower of cost or market. Cost is determined by
first-in, first-out method (See Note 3). The Company records a reserve for
obsolete inventories in order to ensure inventories are carried at the lower
cost or fair market value. Fair market value can be affected by assumptions
about market demand and conditions, historical usage rates, model changes and
new product introductions. If model changes or new product introductions create
more or less than favorable market conditions, the reserve for obsolete
inventories may need to be adjusted.
Plant, and Equipment and Depreciation:
Property, plant, and equipment are 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. The Company continually evaluates
whether events and circumstances have occurred that indicate the remaining
estimated useful lives of its long-lived assets may warrant revision or that
remaining balance of such assets may not be recoverable.
Note 4)
Value of Financial Instruments:
Management estimates of the carrying value of financial instruments on the
consolidated financial statements approximate fair values. The carrying values
of the Company's short term financial instruments, including cash and cash
equivalents, accounts receivable, and debt approximate their fair values because
of the short maturity of these instruments and the variability of the associated
interest rates.
Incentive Accruals:
Company has established sales programs to pay service and/or other awards to
dealers for boat deliveries into their market territory for which they will
perform service or based upon sales of boats from their locations. These
programs are based in part on the model of the boat sold, a factor for the
dealer's service performance rating, the dollar value of the sale and other
factors, including total sales volume to dealers. The Company has accrued dealer
incentives of $6,342,467 and $6,367,229 at June 30, 2007 and 2006,
respectively. Dealer incentive accruals are recorded as a reduction to net
sales. These amounts also include an accrual for dealer interest as discussed
Note 8, "Commitments and Contingencies".
for Boat Repurchases:
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 determined based upon the current
financial status of the Company's dealers. The Company has accrued allowance for
boat repurchases of $64,124 and $15,459 at June 30, 2007 and June 30, 2006
Company generally sells boats only to authorized dealers and to the U.S.
Government. A sale is recorded when legal title and all other incidents of
ownership have passed to the dealer or to the Government. Prior to the sale
the dealer or the Government, the Company must have received a signed Sales
Order Acknowledgement from the dealer or the Government specifying the terms
the sale, including the sales price. All boat sales are Cash on Delivery basis,
or with prior approval of the buyer's third party commercial lender, thus
assuring the ability to collect.
addition to other dealer incentives, the Company offers a sales incentive
plan whereby floor plan interest is paid by the Company up to six months (180
days) or until the boat is sold by the dealer. Each month the Company calculates
an amount equal to the estimated potential floor plan interest payment for
remainder of the 180 day period beginning on the invoice date for each boat
still in floor plan inventory. The sum of these individual calculations is
accrued as a liability and recorded as a selling expense. (See Note 8) As the
number of boats and the time remaining in the free floor plan interest period
varies from month to month, the variation is reflected in floor plan interest
Company accounts for income taxes in accordance with issued Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes" (See Note 7).
incurred in connection with advertising and promotion of the Company's products
is expensed as incurred. Such costs amounted to $2,013,740, $1,412,435 and
$1,264,368 for the years ended 2007, 2006 and 2005, respectively.
Per Share:
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
warrants, reduced by the number of shares which could be purchased from the
proceeds (See Note 12).
Company warrants the entire deck and hull, including its supporting bulkhead
stringer system, against defects in materials and workmanship for a period
six years. The Company has accrued a reserve for these anticipated future
warranty costs.
consolidated financial statements and notes for years prior to the year ended
June 30, 2007 have been reclassified to conform with headings and
classifications used in the June 30, 2007 financial statements. The
reclassifications had no effect on net income or shareholder's equity as
previously reported.
Surrender Value of life insurance policies: -
June 30, 2007 and 2006, the Company owns six life insurance policies on
Reginald M. Fountain, Jr., the Company's Chairman and Chief Executive Officer
for a total of $8,091,411 and $7,780,253 in coverage and $2,951,010 and
$2,552,682 cash value, respectively. At June 30, 2007 the Company has
borrowed $1,500,000 against the policies, which is shown in long term debt
the consolidated balance sheet. At June 30, 2006, the Company had no outstanding
loans against the policies.
and Development:
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 $757,186 for Fiscal 2007, $780,520
for Fiscal 2006, and $786,129 for Fiscal 2005.
Financial Instruments:
Company uses derivative financial instruments for the purpose of reducing its
exposure to adverse fluctuations in interest rates. While these hedging
instruments are subject to fluctuations in value, such fluctuations are
generally offset by the value of the underlying exposures being hedged. The
Company has determined that the hedges' ineffectiveness is not material and
accounts for these derivative financial instruments as an effective cash flow
hedge under the provisions of Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The Company is not a party to leveraged derivatives and does not hold or issue
financial instruments for speculative purposes.
Company utilizes an interest rate swap agreement to hedge exposure to
fluctuations in market interest rates. Under United States GAAP, an interest
rate swap agreement is considered a derivative financial instrument. Due to
nature of the derivative and the intended use by the Company, the derivative
qualifies as a Cash Flow Hedge. As such, SFAS No. 133 requires that the value
the derivative be "marked-to-market" periodically and any change in the market
value of the swap be reflected in the financial statements of the Company.
market value of the derivative is calculated as of the last day of the period
and any change since the end of the previous period is reflected, net of tax,
an adjustment to Stockholders' Equity in the Consolidated Balance
Enacted Accounting Standards:
2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections - a replacement of APB Opinion No. 20 and FASB Statement
No. 3" (SFAS No. 154). SFAS No. 154 replaces APB Opinion
No. 20, "Accounting Changes" (Opinion 20), and SFAS No. 3, "Reporting
Accounting Changes in Interim Financial Statements," changes the requirements
for the accounting for and reporting of a change in accounting principle.
Opinion 20 previously required that most voluntary changes in accounting
principle be recognized by including in net income of the period of the change
the cumulative effect of changing to the new accounting principle. SFAS
No. 154 requires retrospective application to prior periods' financial
statements of changes in accounting principle. SFAS No. 154 defines
retrospective application as the application of a different accounting principle
to prior accounting periods as if that principle had always been used or as
adjustment of previously issued financial statements to reflect a change in
reporting entity. SFAS No. 154 also requires that a change in depreciation,
amortization, or depletion method for long-lived, non-financial assets be
accounted for as a change in accounting estimate effected by a change in
accounting principle. We adopted the provisions of SFAS No. 154 during the
fiscal year beginning July 1, 2006. The adoption of SFAS No. 154 did
not significantly impact our consolidated financial statements.
February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments, an amendment of FASB statements No. 133 and 140"
(SFAS 155). SFAS No. 155 allows financial instruments that have embedded
derivatives to be accounted for as a whole (eliminating the need to bifurcate
the derivative from its host) as long as the entire instrument is valued on
fair value basis. The statement also resolves and clarifies other specific
No. 133 and SFAS No. 140 related issues. SFAS No. 155 is
effective for all financial instruments acquired or issued after the beginning
of an entity's first fiscal year that begins after September 15, 2006. We
will be required to adopt SFAS No. 155 on July 1, 2007 and do not
expect that it will have a material effect on our consolidated financial
2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109"
(FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes
by prescribing a two-step method of first, evaluating whether a tax position
met a more-likely-than-not recognition threshold, and second, measuring that
position to determine the amount of benefit to be recognized in the financial
statements. FIN 48 provides guidance on the presentation of such positions
within a classified statement of financial position as well as on derecognition,
interest and penalties, accounting in interim periods, disclosure and
transition. FIN 48 is effective for the Company beginning July 1,
2007. Compliance is not expected to significantly impact our consolidated
financial statements.
September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157). FAS 157 enhances existing
guidance for measuring assets and liabilities using fair value. Prior to the
issuance of FAS 157, guidance for applying fair value was incorporated in
several accounting pronouncements. FAS 157 provides a single definition of
value, together with a framework for measuring it, and requires additional
disclosure about the use of fair value to measure assets and liabilities. FAS
157 also emphasizes that fair value is a market-based measurement, not an
entity-specific measurement, and sets out a fair value hierarchy with the
highest priority being quoted prices in active markets. Under FAS 157, fair
value measurements are disclosed by level within that hierarchy. While FAS
does not add any new fair value measurements, it does change current practice.
Changes to practice include: (1) a requirement for an entity to include its
own credit standing in the measurement of its liabilities; (2) a
modification of the transaction price presumption; (3) a prohibition on the
use of block discounts when valuing large blocks of securities for
broker-dealers and investment companies; and (4) a requirement to adjust
the value of restricted stock for the effect of the restriction even if the
restriction lapses within one year. FAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. The Company has not determined the
impact of adopting FAS 157 on its consolidated financial statements.
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities", (SFAS 159). SFAS 159 allows
entities to measure financial instruments and certain other items at fair value
that are not currently required to be measured at fair value. Unrealized gains
and losses on items for which the fair value option has been elected must be
reported in earnings at each subsequent reporting date. The fair value option
can be applied instrument by instrument, however the election is irrevocable.
SFAS No. 159 is effective for fiscal years beginning after November 15, 2007.
The Company does not expect the statement to have an effect on its financial
position, results of operations or cash flows.
September 2006, the SEC issued Staff Accounting Bulletin No.108 ("SAB 108"),
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements." SAB 108 was issued in order
to eliminate the diversity of practice surrounding how public companies quantify
financial statement misstatements. Traditionally, there have been two
widely-recognized methods for quantifying the effects of financial statement
misstatements: the "roll-over" method and the "iron curtain" method. The
roll-over method focuses primarily on the impact of a misstatement on the income
statement—including the reversing effect of prior year misstatements—but its use
can lead to the accumulation of misstatements in the balance sheet. The iron
curtain method focuses primarily on the effect of correcting the period-end
balance sheet with less emphasis on the reversing effects of prior year's errors
on the income statement. We have previously used the roll-over method for
quantifying identified financial statement misstatements.
establishes an approach that requires quantification of financial statement
misstatements based on the effects of the misstatements on each of the Company's
consolidated financial statements and the related financial statement
disclosures. This model is commonly referred to as a "dual approach" because it
requires quantification of errors under both the iron curtain and the roll-over
methods. SAB 108 permits public companies to initially apply its provisions
either by (i) restating prior financial statements as if the "dual
approach" had always been applied or (ii) recording the cumulative effect
of initially applying the "dual approach" as adjustments to the carrying values
of assets and liabilities as of July 1, 2006 with an offsetting adjustment
recorded to the opening balance of retained earnings.
adopted SAB 108 during the quarter ended June 30, 2007 and elected to use the
cumulative effect transition method in connection with the preparation of our
financial statements. The following table summarizes the effects of applying
guidance in SAB 108:
the Emerging Issues Task Force issued EITF Issue 06-4 "Accounting for Deferred
Compensation and Postretirement Benefits Aspects of Endorsement Split-Dollar
Life Insurance Arrangements" requires the recognition of a liability related to
the postretirement benefits covered by an endorsement split-dollar life
insurance arrangement. The employer (who is also the policyholder) has a
liability for the benefit it is providing to its employee. As such, if the
policyholder has agreed to maintain the insurance policy in force for the
employee's benefit during his or her retirement, then the liability recognized
during the employee's active service period should be based on the future cost
of insurance to be incurred during the employee's retirement. Alternatively, if
the policyholder has agreed to provide the employee with a death benefit, then
the liability for the future death benefit should be recognized by following
guidance in Statement 106 or Opinion 12, as appropriate. This issue is
applicable for interim or annual reporting periods beginning after
December 15, 2007. The Company is currently evaluating the impact that this
pronouncement will have on the consolidated financial statements.
2007, the FASB ratified the consensuses reached by the EITF relating to EITF
06-10, "Accounting for Collateral Assignment Split-Dollar Life Insurance
Arrangements." EITF 06-10 established that an employer should recognize a
liability for the postretirement benefit related to a collateral assignment
split-dollar life insurance arrangement in accordance with either SFAS No.
or APB No. 12 if the employer has agreed to maintain a life insurance policy
during the employee's retirement or provide the employee with a death benefit
based on the substantive arrangement with the employee. EITF 06-10 is effective
for fiscal years beginning after December 15, 2007 and is not expected to have
material affect on the Company's financial position, results of operations or
cash flows.
Income (Loss)
- The
Company reports as comprehensive income changes in stockholders' equity during
the year from sources other than shareholders. Other comprehensive income (loss)
refers to all components (revenues, expenses, gains, and losses) of
comprehensive income (loss) that are excluded from net income (loss). The
Company's only component of other comprehensive income (loss) is unrealized
gains and losses related to interest rate swap agreements. For the years ended
June 30, 2007, 2006 and 2005, the Company's other comprehensive income
(loss) was ($98,811), $149,997, and $19,184, respectively, resulting in total
comprehensive income (loss) of ($5,145,097), $2,554,909, and $775,396
respectively for those years.
Based Compensation
- The
Company has stock incentive plans that provide for stock-based employee
compensation, including the granting of stock options, to certain key employees
and other individuals. The plans are more fully described in Note 6. Prior
the year ended June 30, 2006 the Company accounted for stock options issued
employee, officers and directors under the stock incentive plan in accordance
with the recognition and measurement principles of APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations. Under
this method, compensation expense is recorded on the date of grant only if
current market price of the underlying stock exceeded the exercise price. Under
the Company's stock incentive plan, stock options are granted at exercise prices
that equal or exceed the market value of the underlying common stock on the
of grant. Therefore, no compensation expense related to stock options is
recorded in the Consolidated Statements of Income for the year ended June 30,
December 2004, the FASB issued SFAS No. 123(R), "Accounting for Stock-Based
Compensation" (SFAS No. 123(R)). SFAS No. 123(R) establishes standards
for the accounting for transactions in which an entity exchanges its equity
instruments for goods and services. The Statement focuses primarily on
accounting for transactions in which an entity obtains employee services in
share-based payment transactions. SFAS No. 123(R) requires that the fair
value of such equity instruments be recognized as an expense in the historical
financial statements as services are performed. Prior to SFAS No. 123(R),
only certain pro forma disclosures of fair value were required. The provisions
of this Statement are effective for the fiscal year that begins after
June 15, 2005. Accordingly, we adopted SFAS No. 123(R) on July 1, 2005
and it had no effect on net income for Fiscal 2007 or 2006 because all
outstanding options vested fully prior to July 1, 2005.
compensation cost for stock options issued to employees under the Company's
stock option plans and agreements been determined based on the fair value at
grant date for awards prior to July 1, 2005 consistent with the provisions
SFAS No. 123, the Company's net earnings before taxes and earnings per
share would have been reduced to the pro forma amounts indicated below:
2. Accounts Receivable
Receivable consists of the following:
3. Inventories.
consist of the following:
the inventory is owned by the Company and pledged as collateral on notes and
mortgages payable at June 30, 2007.
4. Property, Plant and Equipment.
plant and equipment consists of the following:
expense by asset category was as follows:
the land, buildings and improvements are owned by the Company and are held
collateral on notes payable and long term debt at June 30, 2007.
costs of production molds for new and existing product lines are capitalized
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.
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," the Company continually evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful lives
of its long-lived assets may warrant revision or that the remaining balance
such assets may not be recoverable. During 2007 and 2006, the Company reviewed
its long-lived asset balances for impairment and no adjustments were recorded
a result of those reviews.
5. Long-term Debt and Pledged Assets.
September 19, 2005, the Company entered into a $16,500,000 term loan
agreement (the "Loan") with Regions Bank. The proceeds from the Loan were used
to repay, and concurrently cancel, the long-term loan with Bank of America.
Upon cancellation of the Bank of America loan, the Company expensed that
portion of the deferred costs paid to acquire the loan which had not been
amortized during the term of the loan. The amount of the deferred loan costs
expensed in Fiscal 2006 is $229,801. The Loan with Regions Bank matures
September 19, 2010 and is secured by accounts receivable, inventories,
property, plant and equipment, death proceeds under certain life insurance
policies, and common stock. Principal payments, beginning at approximately
$55,000 and escalating over time, are due monthly, commencing September 30,
2005, with a final principal payment of $12,646,733 due September 19, 2010.
Interest is payable monthly. The Loan includes $4,125,000 that bears interest,
at the Company's option, under one of two available methods. The first available
interest computation method provides for interest at the higher of the Prime
Rate or the Federal Funds rate plus 1/2%. The second available interest
computation method provides for interest at the sum of (i) the one month
LIBOR rate divided by 1.0 minus the Eurodollar Reserve Percentage, and
(ii) 1.75%. The Company may select either of the two interest rate
methodologies by providing written notification to Regions Bank. The balance
the Loan ($12,375,000 at inception) bears interest that has been set at a fixed
annual rate of 6.45% through the use of an interest rate swap. The fixed annual
rate of 6.45% is a blended rate that combines the 1.75% premium over one month
LIBOR listed above with a fixed interest rate of 4.70% paid by the Company
the counterparty under the terms of our interest rate swap agreement, described
Company utilizes interest rate swap agreements to hedge exposure to fluctuations
in market interest rates. Under United States GAAP, an interest rate swap
agreement is considered a derivative financial instrument. Due to the nature
the derivative and the intended use by the Company, the derivative qualifies
a Cash Flow Hedge. As such, SFAS No. 133,"Accounting
for Derivative Instruments and Hedging Activities",
requires that the value of the derivative be "marked-to-market" periodically and
any change in the market value of the swap be reflected in the financial
statements of the Company. The market value of the derivative is calculated
of the last day of the period and any change since the end of the previous
period is reflected in an adjustment to Stockholders' Equity in the Consolidated
Balance Sheet. During the quarter ended September 30, 2005, the Company
terminated a then extant interest rate swap agreement with Bank of America
related to the Bank of America loan, which was repaid during the period. At
termination, that swap agreement with Bank of America resulted in a gain to
Company of $84,524. The Company entered into a new interest rate swap agreement
(the "Swap") with Regions Bank related to the new Regions Bank loan, taken
during the period. The Swap with Regions Banks has a notional amount of
$12,375,000, a term of five years and a fixed annual rate of 4.70% due to
Regions Bank. The Swap has a floating interest rate due to the Company which
based on LIBOR and is reset monthly. As of June 30, 2007 and 2006 the market
value adjustment for the Swap results in an unrealized gain totaling $209,809
and $370,585 respectively. SFAS No. 133 also requires periodic assessment of
effectiveness of any instrument designated as a hedge. If the assessment
indicates the hedge is less than highly effective in offsetting the gains or
losses incurred by the hedged transaction, the ineffective portion of the hedge
must be reported currently in the Company's Consolidated Statement of
Operations. The results of the assessment as of June 30, 2007 indicate that
hedge is highly effective, and we have determined that the ineffective portion
is immaterial.
contains certain restrictive covenants setting forth earnings before interest,
taxes and depreciation (EBITDA) and capital expenditures, which were
restructured by Regions Bank on June 27, 2007. These covenants also include
number of other limitations, including restrictions on capital expenditures,
mergers or consolidations, disposal of assets, investments, incurrence of other
indebtedness and payment of dividends. The Company expects to maintain
compliance with these restrictive covenants, and believes that these
restrictions will not have a material effect on the Company's ability to
maintain and improve its facilities and compete with other companies in the
boating industry. As of June 30, 2007 the Company was in compliance with all
12, 2006, the Company entered into an Agreement (the "Credit Facility"),
referenced in the consolidated balance sheet as notes payable, with Regions
that provides for a secured, non-revolving line of credit under which the
Company may obtain up to an aggregate of $5 million in loans from the lender
during the one-year term of the agreement. The Company will use loans it obtains
under the Credit Facility to finance its production of boats for display or
demonstration at dealer meetings, boat shows, performance trials and factory
demonstrations and that are of a configuration that are not available from
dealer's stock. Boats financed with loans under the Credit Facility will be sold
to dealers after they are no longer needed by the Company. At June 30, 2007
there was one loan outstanding under the Credit Facility in the amount of
$799,333. That loan has been repaid subsequent to June 30, 2007.
under the Credit Facility will be repayable in full one year following the
date or, if earlier, upon the sale or transfer of the boat that secures that
loan. The Company may obtain a six (6) month extension of the maturity of any
loan upon repayment of at least 20 percent (20%) of the outstanding loan amount
prior to the loan maturity date. The Company has fully and unconditionally
guaranteed all obligations under the Credit Facility.
Company's option, and subject to the terms and conditions of the Credit
Facility, each loan will bear interest from the loan date on its unpaid balance
at a rate equal to (1) the higher of the federal funds rate, as in effect from
time to time, plus one-half of one percent per annum, or the lender's prime
lending rate as in effect from time to time, or (2) a rate calculated as
provided in the Loan Agreement based on LIBOR.
Company's obligations in connection with each loan under the Credit Facility
will be secured by a lien on the boat for which that loan was obtained.
Additionally, collateral documents that the Company entered into with the lender
on September 19, 2005 to secure the Company's obligations under a $16,500,000
term loan agreement, the Loan, (including a (1) Deed of Trust, Assignment of
Rents, Security Agreement and Financing Statement, (2) Security Agreement,
(3) Pledge Agreement), have been amended to also secure loans under the Credit
Facility as well. As a result, the Company's obligations under the Credit
Facility are secured by all real estate and all furniture, fixtures and
equipment owned by the Company and associated with its manufacturing facilities,
all of the Company's accounts receivable, inventory and other assets, and all
shares of Fountain Powerboats, Inc. (the subsidiary) capital stock that the
Company owns.
is a summary of long-term debt at June 30, 2007:
estimated aggregate maturities required on the long-term debt for each of the
years ending June 30 are as follows:
6. Stock Options.
July 1, 2005 the Company adopted SFAS No. 123 (revised 2004), "Share-Based
No. 123R") which was issued by the FASB in December 2004. SFAS No. 123R revised
SFAS 123 "Accounting
for Stock Based Compensation"
supersedes APB No. 25, "Accounting
for Stock Issued to Employees,"
No. 25) and its related interpretations. SFAS No. 123R requires recognition
the cost of employee services received in exchange for an award of equity
instruments in the financial statements over the period the employee is required
to perform the services in exchange for the award (presumptively the vesting
period). SFAS No. 123R also requires measurement of the cost of employee
services received in exchange for an award based on the grant-date fair value
the award. SFAS No. 123R also amends SFAS No. 95 "Statement of Cash Flows" to
require that excess tax benefits be reported as financing cash inflows, rather
than as a reduction of taxes paid, which is included within operating cash
Company adopted SFAS No. 123R using the modified prospective application as
permitted under SFAS No. 123R. Accordingly, prior period amounts have not been
restated. Under this application, the Company is required to record compensation
expense for all awards granted after the date of adoption and for the unvested
portion of previously granted awards that remain outstanding at the date of
the adoption of SFAS No. 123R, the Company used the intrinsic value method
prescribed by APB No. 25 and thus recognized no compensation expense for option
granted with exercise prices equal to the fair market value of the Company's
common stock on the date of grant.
Company has two stock option plans in effect at June 30, 2007. All options
outstanding as of June 30, 2006 were fully vested and no new options were issued
during the year ended June 30, 2007, therefore no option related compensation
cost has been charged against income for the years ended June 30, 2007 and
June 21, 1995, the shareholders voted to adopt the 1995 stock option plan.
The plan provided 450,000 options to purchase the common stock to be granted
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. On
November 9, 2004, the shareholders of Fountain Powerboats, Inc. approved an
amendment to this plan to permit the Board of Directors to extend the term
this plan to August 4, 2008. As of June 30, 2007, none of these
options have been exercised.
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 options to purchase up to 120,000 shares of common stock
employees, officers, directors and consultants of the Company. Additionally,
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). During the Company's November 19, 2002 Annual Meeting
the shareholders approved amendment of the 1999 Employee Stock Option Plan
increase the number of shares available for issuance under that plan from
120,000 to 175,000 shares. As of June 30, 2007, 88,333 options are
available for grant under the plan.
market value of each option award is estimated on the date of grant using the
Black-Scholes option pricing model. No options were granted during the years
ended June 30, 2007 and 2006.
free rate is based upon a U.S. Treasury instrument with a life that is similar
to the expected life of the option grant. Expected volatility is based upon
historical volatility of the price of the Company's common stock for a period
consistent with the anticipated life of the option granted. The expected term
the options is based upon the average life of previously issued stock options.
The expected dividend yield is based upon current yield on date of grant. No
post-vesting restrictions exist for these options.
of the status of the options granted under the Company's 1995 and 1999 stock
option plans and other agreements at June 30, 2007, 2006 and 2005, and
changes during the periods then ended is presented in the table below:


text:
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GOPAC searches for answers at 30
Republicans became America's majority party for 12 years beginning in the mid-1990s with aid from the intellectual firepower of GOPAC and the candidates it helped the party field.
It's a legacy the group will try to recapture as GOPAC leaders gather in Washington Tuesday to celebrate its 30th annual summit, but not without grappling with questions about its mission.
The political action committee linked to Newt Gingrich's "Republican Revolution" finds itself attached to a minority party that can't always agree on what the problems are, let alone how to solve them.
Take global warming.
Mr. Gingrich, the former House speaker who headed GOPAC in its heyday, and Republican presidential candidate Sen. John McCain believe global warming is an important political issue.
Mr. Gingrich cut a TV ad with House Speaker Nancy Pelosi, California Democrat, urging action on the climate.
"We don't always see eye to eye, do we, Newt?" Mrs. Pelosi asks in the ad. "No," Mr. Gingrich replies. "But we do agree our country must take action to address climate change."
Not so fast, says former Delaware Gov. Pete du Pont, who 30 years ago founded GOPAC to recruit good candidates and show them how to win the war of ideas at the ballot box.
He thinks warming isn't even a problem, because it isn't occurring globally.
"It has warmed one-twentieth of one degree in 10 years," he said. "Global-warming advocates want to see international control of business, and climate is a nice way to get to that."
But as GOPAC's three-day summit convenes at the Key Bridge Marriott, the agenda will focus on helping to reignite Republicans' electoral prospects heading into what is expected to be another strong year for Democrats.
GOPAC Chairman Michael S. Steele said his organization became less relevant to Republican Party and conservative politics after the 1994 GOP "revolution" because "it strayed from the message and mission that made it great - away from the programs that it had been known for. Nor was it creating new programs to support the election of state and local candidates."
Mr. Steele, Maryland's former lieutenant governor, said GOPAC is refocusing on how to help Republicans win by distributing information packets that will help candidates and prospects focus and develop a message, target voters and raise funds.
"GOPAC was deeply involved in helping me and others win our first congressional races," said South Carolina Gov. Mark Sanford, a McCain close friend and possible running mate. "I still remember reading [GOPAC director] Joe Gaylord's 'Flying Upside Down,' and the incredibly pertinent and astute advice it had for running a challenger race."
Mr. Sanford says the group "still plays a key role in helping build a ready bench of conservative candidates and in helping grow and strengthen our grass-roots network of conservative activists, both of which are things our party needs now more than ever."
This week, Mr. Gingrich, former Virginia Sen. George Allen and former Republican National Committee Chairman Ed Gillespie, now counselor to President Bush, will join Mr. Steele at the three-day, 30th-anniversary celebration of an organization that, like the Republican Party, is struggling to find its way back.
"GOPAC has now had a 30-year history of significance in recruiting, supporting and educating Republican candidates at the local level," said Mr. Gingrich told The Washington Times. "It has been the farm team for a generation of federal candidates."
About the Author
Ralph Z. Hallow
Chief political writer Ralph Z. Hallow served on the Chicago Tribune, Pittsburgh Post-Gazette, Washington Times editorial boards, was Ford Foundation Fellow in Urban Journalism at Northwestern University, resident at Columbia University Editorial-Page Editors Seminar and has filed from Berlin, Bonn, London, Paris, Geneva, Vienna, Amman, Beirut, Cairo, Damascus, Jerusalem, Tel Aviv, Belgrade, Bucharest, Panama and Guatemala.
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subset: commoncrawl


text:
San Francisco, CAUSA 94102
September 9, 2009
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