Redid the bathrooms in the main office and they look better. Getting through inventory now. One thing that will change next winter. The late warm weather pushed back requests for winterization so much that we ended up on the dead run from November the 15th on. Most of these boats were sportboats too, and never went out after November 1st anyway. As a result our shrink wraps started later and we made some people upset.

Next year look for me to require a given type of checklist be returned by a certain date, for ASAP winterization. It's the only way to be fair. The other thing it avoids is people bringing in their trailered boats for winterization in December already busted! I hate doing that kind of work.

Troubles at OMC

Outboard Marine Corporation, the parent company of Chris Craft, Four Winns, SeaSwirl, Hydrosport, Javelin, Stratos, Princecraft, Lowe, Johnson, and Evinrude has filed for Chapter 11 and is seeking buyers for it's various brands.

What Happened?

In 1998 OMC was purchased by a company called GreenMarine, a financing group put together by George Soros, one of the richest men in the world, for the express purpose of buying OMC. GreenMarine purchased OMC for the wrong reasons. It had a 10% stake in the company already, as OMC was at that time traded on the NYSE. Another company owned by Roger Penske had agreed to buy OMC at what GreenMarine felt was too low a price, $15 per share. GreenMarine offered $18 per share without any marine background and without performing any due diligence. Therefore GreenMarine paid 20% too much for the company. Much of this debt was financed with bonds that had a rating just above junk, the rest with Soros' cash.

In spite of all that GreenMarine did well at first. It hired a proven marine industry executive to run the company. He in turn did an excellent job of eliminating unnecessary brands and refocusing the remaining brands. As a result all of the boat brands except 1 or 2 fishing boat lines were turning a good profit by July 2000.

Unfortunately GreenMarine and the leadership of OMC banked on bringing a fuel injection technology called FICHT to market earlier than they should have, hoping to gain market dominance for it's Johnson and Evinrude outboard brands and license the FICHT technology to other industries and uses: snowmobiles, lawn mowers, PWC's, etc. The early FICHT motors were unreliable. Even worse, OMC decided to out source production of outboard components. The outsourced plants failed to produce reliable product with the result that few outboards were shipped in the spring of 2000.

OMC still might have righted itself but it was quickly going through cash and 2 things happened to kill additional sources of money:
Mr. Soros was dealt a heavy blow in the big tech sell off of 2000. He provided hundreds of millions of dollars of venture capital that was wiped out.
The bond market was drying up and interest rates in that market are rising quickly, making it impossible for OMC to roll over bonds that came due December 31st at the same terms they previously had or to acquire more capital.

As a result OMC had no choice but to file for protection under Chapter 11 of the US Bankruptcy Code. No one was interested in buying the whole company at the price OMC was asking. Had OMC attempted to sell parts of the company there would have been huge lawsuits on behalf of it's outstanding creditors accusing OMC of giving sweetheart deals had they subsequently filed for Chapter 11. We feel because of the engine division OMC as a whole was undesirable.

At this point all parties interested in buying individual brands are to sign letters of intent showing that they have the financial wherewithal to make a bid, and they are to put that bid in writing. On January the 26th the bids will be opened. All due diligence must be performed by then. The highest bid for each brand will become the opening bid for an auction that will happen on January 31st, 2001. Only those parties that have letters of intent on file and have already placed a bid will be allowed to participate in the final auctions. Once the auctions are finished it will only remain for the court to approve the high bidders on February 8th. At that time the sales can be closed.

How is Hoffmaster's reacting to this situation?

Hoffmaster's sells one OMC Brand, Chris Craft, and one non-OMC brand, Chaparral. As a Chaparral dealer Hoffmaster's Marina recognizes that the marine industry needs all of OMC's brands to remain healthy. All of the OMC's brands are in the top 20 in their market segment and OMC motors represent 33% of the market. Losing these brands would only hurt everyone. For that reason we simply wish the brands success and point out that purchasing any of these brands right now is safe because the new owners will warranty the product.

As a Chris Craft dealer our advice is the same. The boats we have on order for our retail sold customers and the boats we have in stock will be warranted by the new owners of Chris Craft, the various component manufacturers such as Kohler generators and Cruisair air conditioning, and the engine company Volvo Penta for the power trains. Chris Crafts will continue to carry a standard 2 year warranty on the power train from Volvo vs. the 1 year offered by Mercruiser.

Delivered boats that are still under the 1 year Chris Craft warranty will simply be serviced by Hoffmaster's Marina and the jobs that should be covered by factory warranty but aren't will be covered by Hoffmaster's, just as they were when Chris Craft's parent company filed Chapter 11 back in 1988. We still sell Chris Craft because it's a compelling product, and of course there will always be a Chris Craft. The boats we had in stock in 1988 have demonstrated better resale value than that of Chris Craft's competitors of the time such as Sea Ray and Wellcraft, and we have had resales of boats from 17' to 50' in the last year to prove it.

Hoffmaster's position has remained the same for decades: find the boat that fits your needs, find a long standing stable and service-centered dealership, and buy the boat.

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