A SHORT HISTORY OF

CARIBBEAN SAILING YACHTS LTD (CSY, LTD.)

and the

CSY YACHT CORPORATION (CSY, INC.)

   

We have preceded this with a history of CSY Ltd.

 

CSY Ltd, has become known for the largest charter organization in the world with plans for franchising its operation word-wide.

CSY Ltd. has grown from an annual profit of $75,000 in 1975 to $815,000 in the first half of 1979, with three marinas and 140 boats.  It has a lease with an option to buy a 51-berth marina in Marathon, which is already under its management, and plans to be operational with 45 boats for charter for the 1980 - 1981 season.

CSY Inc, was inaugurated in the present plant in September 1, 1976, just a little over three years ago,

This cam about because CSY Ltd. had designated the Irwin Yacht Corp. of Pinellas County, to build a fleet of 75, 44-foot yachts, which CSY had designed carefully specified.

Through CSY Ltd, a notice was sent out that Irwin was to build these boats for lease back by CSY Ltd.

CSY Ltd. had placed its mm inspector on the job. The first five hulls were found to be so defective that we could not accept them for our program, After a showdown with Irwin, in August, 1976, it became clear that Irwin either did not intend to perform to specifications or was unable to.

It was then that we notified the prospective owners of our decision and proposed to start on our own manufacturing facility.  Pieter Stoeken, who had been our manager in St, Vincent and our inspector at the Irwin plant was put in charge of the new operation - CSY Yacht Corporation.

Six days later an injunction was made against CSY Inc, restraining them from building boats for the prospectus owners CSY had obtained for Irwin to build the boats. Each of the owners declined to have Irwin build the boats.  Even though Irwin closed his shop; CSY Inc. was not allowed to build the boats.  Thus, we had to seek others to sell the boats to.

The injunction was not lifted until August of 1977.  At that point we negotiated with a committee of the owners to build the 53 boats for the former Irwin owners, which was to be at cost, It took until April of 1979 to build the last of these boats - all at a substantial loss as the costs rose and the price remained fixed.  Similar contracts had been made with other owners at the time of the lifting of the injunction for advance delivery at prices which turned out to be below our costs. Only recently have the last of these been built.

All during this three-year period, we had to develop other models if we were to stay in business.  The CSY 44 charter boat just didn't have a large enough appeal.  Thus, we developed the CSY 44 Pilot House Ketch version on the 44 hull.  Then we designed and made the tooling for the CSY 37 in a charter model, (A model), and a one stateroom model,(B Model). Then we produced the CSY 33, which began production early this year.  The new CSY 44 Walk-Through is now in tooling and some 20 orders are on the books, sold from plans. We are planning to start two lines of this model early next year. All during this time we were developing a sales and marketing program, which has become generally recognized as the most effective in the industry.  This, plus the 12 year reputation of CSY Ltd, has made CSY Inc., in three short years, generally recognized by yachtsmen as the Cadillac of the industry.  In dollar volume, the CSY Yacht Corporation remains among the top three.

 

CAUSE OF LOSSES

This has been primarily due to the long lead-time of orders and not anticipating the rise in costs in pricing.  This period is now behind us, as is evidenced by the cash flow projections which follow.

Until May of 1978, production was built up to a consistent 8-9 CSY 44's per month.  At that point mismanagement set in, wherein the CSY 44 Pilot House Ketch was put into production before it had been engineered properly, which completely disrupted production, and, of course, cash flow.  By November, only four boats were produced during the month.

The last of the first ten Ketches were finished in March of 1979.

In March, the Dr., Van Ost closed his practice and came to Tampa to assume the overall direct management of the Company.

He found the following:

1. Labor turnover was at an all-time high, Over one third of employees turned over in January alone.  By March half the work force was new.  This meant that unemployment and Workmen’s Compensation costs were skyrocketing. overtime was at an all time high.  An organized movement had been presented to management to unionize the plant, which had been authorized by the National Labor Relations,

2. Production was back up to nine boats or ten boats per month but with an increased work force.  Quality Control had run amuck, Boats could not be delivered for lack of parts and purchasing was completely disorganized.

3. Our payables had gotten out of hand.

4. The management of the sales department, the accounting dept and production were not talking to each other,

5. The manager of the plant had lost contact with what was going on in the plant and had insulated himself with three layers of management between himself and the guys building the boats.

Dr. Van Ost proceeded as follows:

1. Contacted all suppliers and exchanged payables of over 30 days

for 12 month notes paying 1% per month interest.

2. Set up plan to centralize administrative offices making way for two lunch rooms and badly needed toilet facilities.

3. Held personal meetings with everyone in the plant in groups of ten. Introduced a new benefits package - a uniform wage policy - restore to the Personnel Manager the necessary authority to hire and fire - made up new employment handbook - Introduced monthly beer parties as monthly quotas are met.

4. Fired old personnel manager - replaced sales coordinator - dismissed production manager and didn’t replace him, but put Pieter Stoeken back in direct management of production.

5. Raised number of employees, which increased production from ten boats per month to sixteen boats per month - went from a 5 day cycle to a 4 day cycle.  All but cut out overtime

6. Stabilized turnover - cut down on number of crew chiefs and line supervisors.

7. Built a new building to build Pilot House Ketch so as not to interrupt production on the line and to provide space for prototyping and customizing.

8. Dismissed XXXXXXX who was found to be a divisive force.

9. Dismissed Controller and replaced his replacement shortly thereafter and hi-red Cost Accountant.  Now have control of income and outgo.  The present controller is fully knowledgeable of all operations in the plant, having worked his way up.

10. Efforts with labor rewarded by Union being defeated by more than two to one.

11. Continuing to cut back on work force as efficiency is built up.

12. Introduced a four-stage quality control program which is responsible for our quality continuing to improve.

13. In July, hired Peter Schmitt, our naval architect, as V.P. in charge of engineering and design.  He has developed a complete engineering and drafting department which has smoothed out problems on the line, and his research and development program is designed to continue to improve the product.

14. Recently the machine shop has been moved to a building that

Dr, Van Ost owns on Interbay Avenue, so we can have the capability of building all our spars and stainless steel parts.

15. A new tooling department has cut down on our problem in the

glass department.

16. The sales department has been recently reorganized so it is

more directly accountable to Dr. Van Ost .

 

17. A new sliding pricing policy was adopted last spring which raises the price of our yachts l 1/2% per month, so that we cannot get into the fixed price contracts which have so badly affected the company.

18. The purchasing department has been completely reorganized and a new numbering system set up so that we have better control of purchasing and a more accurate procedure for taking inventory, which had never been properly accounted for.

This sum up in the seven months since Dr. Van Ost has been at the plant:

1. The work force has been stabilized and is being made more

efficient everyday.

 

2. The whole of top management has been replaced and is working

in harmony.

 

3. A realistic pricing policy has been instituted which will

return a profit to the company and at the same time remain competitive.

The sales of the combined companies will be 20 million this year,, and 25 million next year.  It is anticipated that these profits will put the company in a very healthy state in a short time.

The reason for the increased losses with the increased sales over the last few months is that since each boat was under-priced, increased production equaled increased losses. However, that is now behind us, and the projection which accompanies this report is realistic and based on prices for which the contracts have been made, or for prices now in effect.  These prices are now under constant review and adjusted as indicated.

Our present backlog of fifty plus boats added to a twenty boat order from Abaco Charters and forty five boats CSY will need in Marathon leaves only one third of our production to be sold for next year, which is only five boats per month which will be exceeded no matter what the economic climate.

In summary, the strength of the CSY Yacht Corporation lies not only in its already formidable reputation for building the best boats in the business, but it also lies in its merger with CSY Ltd., which took place in September, which buttresses its cash flow and provides a market for its boats as well.

Chartering continues to grow at 50% per annum, as it has from the beginning. This tied with the now mature yacht building, provides the kind of strength which no other yacht company can claim.

It is clear the major problems of a new company are now behind us and there is no way to go but up.

With kindest personal regards,

 

John R. Van Ost, President

CSY Yacht Corporation

JRVO/bsh