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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
--
OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year Ended September 30, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-20757
TRAVIS BOATS & MOTORS, INC.
(Exact name of registrant as specified in its charter)
TEXAS
(State or other jurisdiction of
incorporation or organization)
74-2024798
(I.R.S. Employer
Identification Number)
5000 Plaza on the Lake, Suite 250, Austin, Texas 78746
(Address of principal executive offices)
Registrant's telephone number, including area code: (512) 347-8787
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g)
of the Act:
Common Stock, $.01 Par Value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Report on Form 10-K or
any amendment to this Report on Form 10-K. ________
The aggregate market value of the voting stock (which consists solely
of shares of Common Stock) held by non-affiliates of the Registrant as of
December 28, 2000, (based upon the last reported price of $3.00 per share) was
approximately $8,940,615 on such date.
The number of shares of the issuer's Common Stock, par value $.01 per
share, outstanding as of December 28, 2000 was 4,381,027, of which 2,980,205
shares were held by non-affiliates.
Documents Incorporated by Reference: Portions of Registrant's Proxy
Statement relating to the 2001 Annual Meeting of Shareholders to be held in
February 2001, have been incorporated by reference herein (Part III).
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
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PART I .......................................................................................................... 6
Item 1. Business..............................................................................................6
Item 2. Properties...........................................................................................12
Item 3. Legal Proceedings....................................................................................14
Item 4. Submission of Matters to a Vote of Security Holders..................................................14
PART II ........................................................................................................14
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.................................14
Item 6. Selected Financial Data..............................................................................15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................16
Item 7A Quantitative and Qualitative Disclosures About Market Risk...........................................25
Item 8. Financial Statements.................................................................................25
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................25
PART III ....................................................................................................... 26
Item 10. Directors and Executive Officers....................................................................26
Item 11. Executive Compensation..............................................................................26
Item 12. Security Ownership of Certain Beneficial Owners and Management......................................26
Item 13. Certain Relationships and Related Transactions......................................................26
PART IV ........................................................................................................ 26
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....................................26
Travis Boats & Motors, Inc. and Subsidiaries Consolidated Financial Statements............................F-1
Report of Independent Auditors............................................................................F-2
Travis Boats & Motors, Inc. and Subsidiaries Consolidated Balance Sheets..................................F-3
Travis Boats & Motors, Inc. and Subsidiaries Consolidated Statements of Income............................F-5
Travis Boats & Motors, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity..............F-6
Travis Boats & Motors, Inc. and Subsidiaries Consolidated Statements of Cash Flows........................F-7
Travis Boats & Motors, Inc. and Subsidiaries Consolidated Statements of Cash Flows (continued)............F-8
Travis Boats & Motors, Inc. and Subsidiaries Notes to Consolidated Financial Statements................F-9-23
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Risk Factors
Some of the information in this Report on Form 10-K contains
forward-looking statements that involve substantial risks and uncertainties. You
can identify these statements by forward-looking words such as "may," "will,"
"expect," "anticipate," "believe," "estimate," and "continue" or similar words.
You should read statements that contain these words carefully because they (1)
discuss our future expectations; (2) contain projections of our future results
of operations or of our future financial condition; or (3) state other
"forward-looking" information. We believe it is important to communicate our
expectations to people that may be interested. However, unexpected events may
arise in the future that we are not able to predict or control. The risk factors
that we describe in this section, as well as any other cautionary language in
this Report on Form 10-K, give examples of the types of uncertainties that may
cause our actual performance to differ materially from the expectations we
describe in our forward-looking statements. You should know that if the events
described in this section and elsewhere in this Report on Form 10-K occur, they
could have a material adverse effect on our business, operating results and
financial condition.
We Depend on Strong Sales in the First Half of the Year. Our business,
and the recreational boating industry in general, is very seasonal. Our
strongest sales period begins in January, because many boat and recreation shows
are held in that month. Strong sales demand continues from January through the
summer months. Of our average annual net sales over the last three fiscal years,
over 25% occurred in the quarter ending March 31 and over 40% occurred in the
quarter ending June 30. With the exception of our store locations in Florida,
our sales are generally much lower in the quarter ending December 31. Because
the overall sales level in the December quarter are much less than in the months
with warmer weather, we generally do not make a profit in the quarter ending
December 31. Because of the difference in sales in the warm spring and summer
months versus the cold fall and winter months, if our sales in the months of
January through June are significantly lower than we expect, we may not earn
profits or we may lose money and have a net loss. This experience may lead to a
material adverse effect on our business, our operating results and our financial
condition. See "Our Sales Depend on Good Weather" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Our Sales Depend on Good Weather. Our business also depends on
favorable weather conditions. For example, too much or too little rain, either
of which may result in dangerous or inconvenient boating conditions, can force
boating areas to close and severely limit our sales. A long winter can also
reduce our selling season. Hurricanes and other storms could result in the
disruption of our operations or result in damage to our inventories and
facilities. We purchase insurance for storm damage, but the amount of insurance
purchased or coverages we purchase may not repay us for all weather related
damages or disruptions to our operations. Bad weather conditions in the future
may decrease customer demand for our boats, which may decrease our sales and
could significantly lower the trading price of our common stock.
General Economic Conditions in the United States and in the Areas Where
We Have Stores Affect Our Sales. Our industry, like many other retail
industries, depends on the local, regional and national economy. High interest
rates, unfavorable economic developments, volatility or declines in the stock
market, changes to the tax law such as the imposition of a luxury tax, or a
major employer's decision to leave a certain city can all significantly decrease
the amount of money consumers are willing to spend. When these situations arise,
consumers often decide not to purchase relatively expensive, "luxury" items like
recreational boats. For example, from 1988 to 1990, our business suffered
dramatically because of the declines in the financial, oil and gas and real
estate markets in Texas. If similar downturns in the national or in local
economies arise in the future, we may suffer significant operating losses. Also,
changes in federal and state tax laws, such as the imposition of luxury taxes on
new boat purchases also could influence consumers' decisions to purchase
products we sell and could have a negative effect on our sales. For example,
during 1991 and 1992 the federal government imposed a luxury tax on new
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recreational boats with sales prices in excess of $100,000. This luxury tax
coincided with a sharp decline in boating industry sales from a high of $17.9
billion in the late 1980s to a low of $10.3 billion in 1992.
Our Growth Depends on Our Ability to Acquire and Open New Stores. We
have grown primarily through the acquisition of recreational boat dealerships.
Our growth strategy involves significant risks. We began with one store in Texas
in 1979 and, since then, have opened or acquired 38 new stores in Alabama,
Arkansas, Florida, Georgia, Louisiana, Mississippi, Oklahoma, Tennessee and
Texas. Stores that we acquired or opened since we went public in June of 1996
have accounted for 46.0% of our net sales in fiscal year 1998, 60.2% of our net
sales in fiscal year 1999 and 66.6% of our net sales in fiscal year 2000. By
comparison, our comparable store sales (which are sales in stores that are open
in the same location for two consecutive years) have increased 6.6% in fiscal
year 1998, 1.9% in fiscal year 1999 and decreased by 1.1% in fiscal 2000. We
expect our comparable store sales to fluctuate from the impact of (i) when and
where we acquire new store locations, (ii) the number of store locations that we
remodel or relocate to superstores, and (iii) the market conditions in the areas
or cities in which our stores are located. Although we expect our existing
stores to have sales growth and to remain profitable, most of our sales growth
is from newly added store locations and we may not be able to continue to grow
or purchase new store locations at the same rapid pace or on terms and
conditions favorable to us.
We may continue to make acquisitions depending upon, among other
things, the availability of suitable acquisition opportunities and our ability
to finance these transactions. Our success in these acquisitions will depend on
our financial strength at the time of acquisition, our ability to hire and
retain qualified employees and our ability to identify markets in which we can
successfully sell our products. In addition, once we identify a store that meets
our criteria, our success will depend on our ability to sell the store's
remaining inventory, to convert the store to a Travis Boating Center and to
attract new customers to the store after the conversion. Our inability to meet
our planned growth potential will severely impact our business, operating
results and financial condition.
Besides acquiring existing stores and converting them into Travis
Boating Centers, we plan to build new stores in certain cities or towns that do
not have other boat retailers that we can purchase or would like to purchase.
Our success in building and operating new facilities will depend on whether we
obtain reliable information about each potential market, such as how many and
what type of boats have previously been sold in the market. We must then be
certain that the prices of our boats are competitive with other boat dealers
that sell boats in the market so that we can sell enough boats to operate our
store profitably. We cannot promise or be certain that we will be able to open
and operate new stores in a time frame that we are expected to by our
shareholders or that we can operate stores on a profitable basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations. "
Our Success Will Depend on How Well We Manage Our Growth. We have
undergone a period of rapid growth and, consequently, we have spent much time
and effort in acquiring and opening new stores. Although we believe that our
systems, procedures and controls are adequate to support our growth, we cannot
assure that this is the case. In addition, our growth will impose substantial
added responsibilities on our existing senior management including the need to
identify, recruit and integrate new senior level managers. Management may not be
able to oversee the growth efficiently or to implement effectively our growth
and operating strategies. Our inability to manage our growth would result in a
significant and severe financial impact on our business, operating results and
financial condition.
We Completed Installation of a New MIS System in Each of Our Stores,
Which May Not Operate Effectively. During the 1999 and 2000 fiscal years, we
completed the installation of a new management information system to monitor and
manage our geographically dispersed stores. This system is now operational in
each of our locations. We believe that our company is among the first to install
this management information system on a large scale, fully centralized network
architecture. Accordingly, we are testing the continued application of the
system in a large scale multiple user network that will accommodate future
growth in the number of store locations we operate. Any faults, defects or
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networking limitations in this system could harm our ability to operate our
stores and would result in a significant impact on our business, operating
results and financial condition.
Our Suppliers Could Increase the Prices They Charge Us or Could Decide
Not Sell to Us. We have entered into non-exclusive dealer agreements with our
key manufacturers. Most of these agreements are renewable each year and contain
other conditions that are standard in the industry. Because of our relationship
with these manufacturers and the volumes we purchase, we receive volume price
discounts and other favorable terms; however, the manufacturers may change the
prices they charge us for any reason at any time or could decide not to sell
their products to us. A change in manufacturer's prices or changes in industry
regulations could have a material adverse effect on our business, financial
conditions and results of operations.
We Rely on Two Key Manufacturers for Almost All of our Outboard Motor
Purchases and One of the Manufacturers has filed for Voluntary Bankruptcy under
Chapter 11. Our success depends to a significant extent on the continued quality
and popularity of the products of our manufacturers. We have purchased almost
all of our outboard motors from two manufacturers. In fiscal year 1998, we
purchased nearly all of the outboard motors we use on our Travis Edition line of
recreational boats from Outboard Marine Corporation ("OMC"), which makes Johnson
outboard motors. In fiscal years 1999 and 2000 we also purchased outboard motors
from Brunswick Corporation, which makes Mercury outboard motors.
On December 22, 2000, OMC filed for relief with the United States
Bankruptcy Court under Chapter 11 bankruptcy. The bankruptcy filing has
terminated our master agreement under which we purchased outboard motors from
OMC, which otherwise would have expired on June 30, 2001. OMC has indicated that
it is trying to locate buyers for its assets, but at the date of this Report on
Form 10-K, none had been obtained. We have not received notification from the
Bankruptcy Court as to any terms of the bankruptcy, including, but not limited
to, whether OMC warranty obligations will be honored or when, if at all,
production and shipment of outboard engines or parts and accessories for the
engines will resume. As of September 30, 2000, we had approximately $6.9 million
of OMC outboard engines in stock. If we cannot find alternative sources of
outboard engines at similar quality and prices, we would experience inventory
shortfalls which, if severe enough, could cause significant disruptions and
delays in our sales and, therefore, harm our financial condition. Also, if OMC
or we are unable to secure warranty coverage for the outboard engines, we may
experience reduced demand for the OMC outboard engines which could cause
significant disruptions and delays in our sales and, therefore, harm our
financial condition.
Our agreement with OMC included a provision that OMC would be
responsible for and pay interest expense on certain of our outboard motors for
the months generally from August through June of each year. OMC also had certain
obligations with our lenders that required them to help re-market, or in some
cases including if we were insolvent or bankrupt, to repurchase these outboard
engines. As of September 30, 2000, we had approximately $3.3 million in
qualifying OMC outboard engines that OMC was paying interest expense, on our
behalf, directly to our lenders as part of this program. If OMC were to
discontinue this program with our lenders it could result in higher interest
expense incurred by us or reduce our ability to borrow money against these OMC
outboard engines and therefore harm our financial position.
We also purchase outboard engines from Brunswick Corporation. The
purchases of outboard engines from this supplier are made based on the volume
price discounts and other terms of a master agreement expiring in June of 2001.
The agreement may be canceled, however, if we do not buy certain minimum
quantities or if the manufacturer cannot supply the quantity we need. If the
agreement were cancelled, modified or not renewed with similar terms, it could
result in a material adverse effect on our business, financial condition and
results of operations. See "Part I - Operations, Purchasing" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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We Rely on Several Key Manufacturers for Almost All of our Boat
Purchases
We also buy much of our boat inventory from Genmar Industries, Inc., or
"Genmar". For example, in fiscal year 1998 we purchased 17.7% of our inventory
from Genmar, in fiscal year 1999 we purchased 12.0%, and in fiscal year 2000 we
purchased 32.7% from Genmar. The purchases of boats from this supplier are made
based on the volume price discounts and other terms of a master agreement
expiring in dates ranging from July 2001 to July 2003. In addition, we purchase
a large percentage of the annual production of several other boat manufacturers.
See "Part I - Operations, Purchasing" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
If our sales increase, these key manufacturers may need to increase
their production or we may need to locate other sources to purchase outboard
motors or boats. If our suppliers cannot produce more or decide not to renew
their contracts with us, and we cannot find alternative sources at similar
quality and prices, we would experience inventory shortfalls which, if severe
enough, could cause significant disruptions and delays in our sales and,
therefore, harm our financial condition. In addition the timing, structure, and
amount of manufacturer sales incentives could impact the timing and
profitability of our sales.
Certain Laws and Contracts May Keep Us From Entering New Markets. We
may be required to obtain the permission of manufacturers to sell their product
before we enter new markets. We received permission from some key manufacturers,
including Outboard Marine Corporation, to sell their product in the areas where
we have recently expanded. We have not, however, received universal approval to
sell all of our products in all new markets. If our manufacturers do not give us
permission to sell their products in markets where we plan to expand, we will be
forced to find alternative supply sources. Besides these manufacturers'
restrictions, there are also legal restrictions on our business. For example,
the state of Oklahoma has adopted laws that restrict the locations of competing
boat dealers. While these types of laws are not common, they could have a
significant effect on our industry if other states pass similar restrictions.
We May Not Be Able To Respond Effectively To The Significant
Competition We Face. We operate in very competitive conditions. We must compete
generally with other businesses trying to sell discretionary consumer products
and also face intense competition from other recreational boat dealers for
customers, quality products, store locations and boat show space. We rely
heavily on boat shows to generate sales. If we are limited in or prevented from
participating in boat shows in our markets or in markets we are targeting, this
limited participation could have a negative effect on our business, financial
condition and results of operation.
Within our industry, our main competitors are single location boat
dealers. We compete with other dealers based on the quality of available
products, the price and value of the products and customer service. To a lesser
extent, we also compete with national specialty marine stores, catalog
retailers, sporting good stores and mass merchants, especially with respect to
parts and accessories. We face significant competition in the markets where we
currently operate and in the markets we plan to enter. We believe that the trend
in the boating industry is for manufacturers to include more features as
standard equipment on boats and for other dealers to offer packages comparable
to our packages. Some of our competitors, especially those that sell boating
accessories, are large national or regional chains that have substantially
greater financial, marketing and other resources than we do. We cannot give any
assurances that we will be able to effectively compete in the retail boating
industry in the future.
Our Substantial Indebtedness Could Restrict Our Operations and Make Us
More Vulnerable to Adverse Economic Conditions. We have had and will continue to
have a significant amount of indebtedness. Our growth strategy may require us to
secure significant additional capital. Our future capital requirements will
depend upon the size, timing and the structure of future acquisitions and our
working capital. Any borrowings to finance future operations, asset purchases or
acquisitions could make us more vulnerable to a downturn in our operating
results, a downturn in economic conditions or increases in interest rates on
portions of debt that have variable interest rates.
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Our ability to make payments on our indebtedness depends on our ability
to generate cash flow in the future. If our cash flow from operations is
insufficient to meet our debt service requirements, we could be required to sell
additional equity securities, refinance our obligations or dispose of assets in
order to meet our debt service requirements. In addition, our credit
arrangements generally contain financial and operational covenants and other
restrictions with which we must comply. Adequate financing may not be available
if and when we need it or may not be available on terms acceptable to us. Our
failure to achieve required financial and other covenants or to obtain
sufficient financing on favorable terms and conditions could have a material
adverse effect on our business, financial condition and results of operations
and prospects.
We May Issue Additional Securities That Will Dilute Our Current
Shareholders and Impact our Earnings Per Share. If we choose to raise additional
equity capital or to finance future acquisitions in whole or in part through the
issuance of common stock or debt instruments convertible into our common stock,
our existing shareholders would experience dilution and our earnings per share
could also be impacted by the issuance of additional shares of capital stock.
Much Of Our Income Is from Financing, Insurance and Extended Service
Contracts, Which Is Dependent On Third Party Lenders and Insurance Companies. We
receive a substantial part of our income from the fees we receive from banks and
other lending companies. We call this type of income Finance and Insurance
income, or F&I income. If our customers desire to borrow money to finance the
purchase of their boat, we help the customers obtain the financing by referring
them to certain banks that have offered to provide financing for boat purchases.
The bank or other lending company pays a fee to our company for each loan that
they are able to provide as a result of our referral.
When we sell boats we also offer our customers the opportunity to
purchase (i) a Service Contract that generally provides up to four years of
additional warranty coverage on their boat's motor after the manufacturer's
original warranty expires, and (ii) various types of insurance policies that
will provide money to pay a customer's boat loan if the customer dies or is
physically disabled. We sell these products as a broker for unrelated companies
that specialize in these type of issues, and we are paid a fee for each product
that we sell. Since we only broker these products on behalf of unrelated third
parties, our responsibility and/or financial risk for paying claims or expenses
that are eligible to be insured by these Service Contracts or other insurance
policies is limited.
F&I income was 3.8% and 4.3% of our net sales in fiscal years 2000 and
1999, respectively. This arrangement carries several potential risks. For
example, the lenders we arrange financing through may decide to lend to our
customers directly rather than to work through us. If the customer goes directly
to the bank to apply for a loan to purchase their boat we would not receive a
fee for referral. Second, the lenders we currently refer customers to may change
the amount of fees paid or the criteria they use to make loan decisions, which
could reduce the number of customers that we can refer. Also, our customers may
use the Internet or other electronic methods to find financing alternatives. If
either of these events occur, we would lose a significant portion of our income
and profit.
Our Success Depends on Our Management Team. Our company depends greatly
on our key management, including Mark T. Walton, Chairman of the Board and
President; Ronnie L. Spradling, Executive Vice President-New Store Development;
Michael B. Perrine, Chief Financial Officer, Secretary and Treasurer; and other
key employees. We have bought and are the beneficiary of key-man life insurance
policies on Mr. Walton and Mr. Perrine in the amount of $1,000,000, each, and on
Mr. Spradling in the amount of $500,000. However, if any of these employees or
other key employees died, became disabled or left Travis Boats for other
reasons, their loss could have a significant negative effect on our operations
and our financial performance.
If Our Products are Defective, We Could be Sued. Because we sell,
service and custom package boats, motors and other boating equipment, we may be
exposed to lawsuits for personal injury and property damage if any of our
products are defective and cause personal injuries or property damage.
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Manufacturers that we purchase product from generally maintain product and
general liability insurance and we carry third party product liability
insurance. We have avoided any significant liability for these risks in the
past. However, if a situation arises in which a claim is not covered under our
insurance policy or is covered under our policy but exceeds the policy limits,
it could have a significant and material adverse effect on our financial
condition.
Our Stock Price May be Volatile. The price of our common stock may be
highly volatile for several reasons. First, a limited number of shares of our
stock are owned by the public. This may effect trading patterns which generally
occur when a greater number of shares are traded. Second, the quarterly
variations in our operating results, as discussed previously, may result in the
increase or decrease of our stock price. Third, independent parties may release
information regarding pending legislation, analysts' estimates or general
economic or market conditions that effect the price of our stock. Also, our
stock price may be effected by the demand and the overall market performance of
small capitalization stocks. Any of these situations may have a significant
effect on the price of our common stock or our ability to raise additional
equity. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
If We Issue More Stock, Our Stock Price May Decline. The sale of a
large number of shares of our common stock in the public market could have a
material adverse effect on the market price of the common stock. As of December
28, 2000, we own or control, together with our officers and directors and large
shareholders, approximately 1,400,822 shares of common stock. Our sale of a
large portion of these shares may decrease the price of our common stock.
Our Corporate Documents May Prevent or Inhibit a Takeover of the
Company. Our Articles of Incorporation permit us to issue up to 1,000,000 shares
of preferred stock, either all at once or in a series of issuances. Our Board of
Directors has the power to set the terms of this preferred stock. If we issued
this preferred stock, it could delay or prevent a change in control of the
company. Also, our Articles of Incorporation permit the Board of Directors to
determine the number of directors and do not specify a maximum or minimum
number. Our Bylaws currently provide that the Board of Directors is divided into
three classes with staggered terms. This arrangement could delay shareholders
from replacing current board members and could delay or prevent a takeover that
you may consider to be in your best interest.
PART I
Some of the information in this Report on Form 10-K, including
statements in "Item 1. Business," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contain forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate," and "continue" or similar words. You should
read statements that contain these words carefully because they (1) discuss our
future expectations; (2) contain projections of our future results of operations
or of our future financial condition; (3) state other "forward-looking"
information. We believe it is important to communicate our expectations to
people that may be interested. However, unexpected events may arise in the
future that we are not able to predict or control. Among the factors that could
cause actual results to differ materially are: general economic conditions,
competition and government regulations, as well as the risks and uncertainties
discussed in this Report on Form 10-K, and the uncertainties set forth from time
to time in the Company's other public reports, filings and public statements.
All forward-looking statements in this Report on Form 10-K are expressly
qualified in their entirety by the cautionary statements in this paragraph.
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Item 1. Business
General
Travis Boats & Motors, Inc. ("Travis Boats", the "Company" or "we") is
a leading multi-state superstore retailer of recreational boats, motors,
trailers and related marine accessories in the southern United States. Our
Company, which currently operates 39 stores under the name Travis Boating Center
in Texas, Arkansas, Louisiana, Alabama, Tennessee, Mississippi, Florida, Georgia
and Oklahoma, seeks to differentiate itself from competitors by providing
customers a unique superstore shopping experience that showcases a broad
selection of high quality boats, motors, trailers and related marine accessories
at firm, clearly posted low prices. Each superstore also offers complete
customer service and support, including in-house financing programs and
full-service repair facilities staffed by factory-trained mechanics.
History
Travis Boats was incorporated as a Texas corporation in 1979. As used
herein and unless otherwise required by the context, the terms "Travis Boats",
the "Company" and "we" shall mean Travis Boats & Motors, Inc. and its direct and
indirect subsidiaries.
Since its founding in 1979 as a single retail store in Austin, Texas,
we have grown both through acquisitions and the opening of new "start-up" store
locations. During the 1980s, we expanded into San Antonio, Texas, purchased land
and built a new store facility. After this, we purchased additional boat
retailers that operated stores in the Texas markets of Midland, Dallas and
Abilene. It was during this early period of store growth that we began
developing the systems necessary to manage a multi-store operation and
maximizing our inventory purchases to obtain increased volume discounts. Our
success in operating numerous stores and maximizing volume discounts on
inventory purchases led to the introduction of our own proprietary Travis
Edition packaging concept and our philosophy of clearly posting price signs on
each of our boats held for sale. Since 1990, we have opened or acquired 34
additional store locations in the following states: Texas (3), Arkansas (4),
Louisiana (4), Alabama (2), Tennessee (5), Mississippi (1), Florida (13),
Georgia (1) and Oklahoma (1).
We sell approximately 75 different types of Travis Edition models of
brand-name fishing, water-skiing and general recreational boats, such as family
ski boats, off-shore fishing boats, personal watercraft, cabin cruisers and
yachts up to approximately 60 feet in length. We also sell motors, trailers,
accessories and related equipment. Although we sell pleasure boats at many
different retail prices, we attempt to price our product to maintain a
consistent gross profit percentage for each of our Travis Edition models. See
"Business Strategy - Travis Edition Concept."
During fiscal 2000, substantially all of the boat units sold range in
size from 16 to 25 feet at prices ranging from $7,500 to $25,000.
We study sales trends from the cities and states where we operate store
locations. We use the information from this data to custom design and
pre-package combinations of popular brand-name boats, such as Larson, Wellcraft,
Scarab, Bayliner, Trophy, Sprint, Sea Ark, Fishmaster and Ranger with outboard
motors generally manufactured by Outboard Marine Corporation or Brunswick
Corporation, along with trailers and numerous accessories, under our own
proprietary Travis Edition label. These signature Travis Edition packages, which
account for the vast majority of total new boat sales, have been designed and
developed in coordination with the manufacturers and often include
distinguishing features and accessories that have historically been unavailable
to, or listed as optional by, many competitors. We also sell yachts, such as
Carver, Martinique, Cruisers and Luhrs that range in length from 25 feet to over
50 feet. By providing many different types of boats with many types of standard
features, we attempt to offer the customer an exceptional boat at a competitive
price that is ready for immediate use and enjoyment.
We believe that our Company offers a selection of boat, motor and
trailer packages that fall within the price range of the majority of all boats,
motors and trailers sold in the United States. Our product line generally
consists of boat packages priced from $7,500 to $45,000 with approximate even
7
distribution within this price range. While our sales have historically been
concentrated on boats with retail sales prices below $25,000, we believe that as
the Company continues to operate in Florida and enters other markets along the
Gulf of Mexico or other new coastal areas, that the number of off-shore fishing
boats, cabin cruisers and yachts will continue to increase as a percentage of
our net sales. Our management believes that by combining flexible financing
arrangements with many types of boats having broad price ranges, that we are
able to offer boat packages to customers with different purchasing budgets and
varying income levels.
Business Strategy
We have developed a multi-state, chain superstore strategy to
merchandise a wide selection of recreational boats and accessories . Our
objective is to continue to grow as one of the dominant retailers of
recreational boats, motors, trailers and marine accessories in the southern
United States. Therefore, our strategy includes increasing the number and size
of our store locations in the southern United States while also maintaining a
focus on possible cities in other regions to which we may desire to expand. Our
merchandising strategy is based on offering customers a comprehensive selection
of quality, brand name boats and boating products in a comfortable superstore
environment. We intend to continue to build brand identity by placing our Travis
Edition name on the many types of boating packages that we sell. We also use
advertising , open houses and other types of marketing events to increase our
name recognition and our market share. Our business operations emphasize the
following key elements of our business strategy:
Travis Boating Center superstore. Travis Boating Center superstores
have a distinctive and stylish trade dress accented with deep blue awnings, a
nautical neon building decoration, expansive glass storefronts and brightly lit
interiors. The stores range in size from approximately 2,000 (temporary store
locations) to over 33,000 square feet and management estimates the average store
size at approximately 21,000 square feet. The superstore locations present
customers with a broad array of boats and often over 9,000 parts and accessories
in a clean, well-stocked, air-conditioned shopping environment. All boats are
typically displayed fully rigged with motor, trailer and a complete accessory
package allowing for the customer's immediate use and enjoyment.
Professionally-trained mechanics operate service bays, providing customers with
complete maintenance and repair services.
Travis Edition concept. We gather and use extensive market research,
combined with the design resources of our manufacturers, to develop custom
Travis Edition boating packages. Our significant purchasing power and consequent
ability to coordinate designs with manufacturers has enabled us to obtain
products directly from the factory at low prices, along with favorable delivery
schedules and with distinguishing features and accessories that have
historically been unavailable to, or listed for sale as options requiring
additional charges by many competitors. At our store locations we often also add
certain additional features after receipt of the product to enhance our Travis
Edition packages. Each Travis Edition is a complete, full-feature package,
including the boat, motor, trailer and numerous additional accessories and
design features often not found on competitors' products, thus providing
customers with superior value. These features often may include enhanced styling
such as additional exterior colors, complete instrumentation in dashboards,
transoms warranted for life, canopy tops, trolling motors, upgraded interiors
with stereos, wood grain dashboards, in-dash depth finders, stainless steel
motor propellers and enhanced hull design not available on other models. Each of
our Travis Edition boats is generally identified by the Company's attractive
private label logo as well as the respective manufacturer's logo.
Unlike most recreational boat dealers, we place firm sales prices on
each of our Travis Edition packages and generally maintain that same price for
the entire season. Prices are advertised and clearly posted on each of our boats
so that the customer receives the same price at any Travis Boating Center. This
selling philosophy is designed to reduce customer anxiety associated with
bargaining or negotiation and to offer our customer's prices at or below prices
that they generally might receive from competitors. We believe this pricing
strategy and low-pressure sales style provides the customer with the comfort and
8
confidence of having received a better boat with more features at a lower price
than may have been obtained through negotiations at competitive stores. Our
management believes, this approach has promoted good customer relationships and
enhanced our reputation in the industry as a leading provider of quality and
value.
Acquisitions. We completed various acquisitions during fiscal 1999 and
1998. We did not have any acquisitions in fiscal 2000. All of the acquisitions
were asset purchases (except for Shelby Marine, which was a stock purchase) and
have been accounted for using the purchase method of accounting. The operating
results of the companies acquired have been included in the consolidated
financial statements from the respective date of acquisition. In the
acquisitions we purchased selected assets which generally included boat, motor
and trailer inventory, parts and accessories inventory and to a lesser extent,
property and equipment. A summary of our acquisitions during fiscal 1999 and
1998 follows (in thousands):
Non-compete
Date of Purchase Tangible Agreements Cash Liabilities Notes Stock
Name of Company Acquisition Price Net Assets and Goodwill Paid Assumed Issued Issued
--------------- ----------- -------- ---------- ------------- ---- ----------- ------ ------
Fiscal 1999
- -----------
Amlin, Inc. dba Magic 01/99 $1,639 $6,019 $1,090 $1,639 $5,470 $--- $ ---
Marine
Sportsman's Haven 01/99 1,748 2,624 514 1,098 1,390 650 ---
Pier 68 Marina 02/99 738 2,218 562 408 2,043 329 ---
DSA Marine Sales & 04/99 2,147 4,798 1,597 2,147 4,248 --- ---
Service dba The Boatworks
Shelby Marine, Inc. 06/99 1,334 3,426 1,050 809 3,142 --- 525
The New 3 Seas, Inc. 09/99 1,103 1,419 1,100 --- 1,416 --- 1,100
Fiscal 1998
- -----------
Southeastern Marine 11/97 1,730 $1,390 $ 280 $1,606 $ --- $124 $ ---
Worthen Marine 12/97 287 142 145 287 --- --- ---
HnR Marine 04/98 359 359 -0- 359 --- --- ---
Moore's Marine 05/98 777 376 401 777 --- --- ---
Rodgers Marine 09/98 677 2,093 350 327 1,766 --- 350
Boat Show Participation. We also participate in numerous boat shows,
typically held in January through March, in each of the markets that we operate
store locations and in additional certain market areas of close proximity. These
shows are normally held at convention centers, with all area dealers purchasing
space to display their respective product offerings. We believe that Boat shows
and other offsite promotions generate a significant amount of interest in our
Travis Edition products and often have an immediate impact on sales at a nominal
incremental cost. Although total boat show sales are difficult to assess,
management attributes a significant portion of the second fiscal quarter's net
sales to such shows.
F&I Products. In addition to our Travis Edition boat packages, we offer
our customers the ability to purchase extended service contracts and insurance
coverages, including credit life and accident/disability coverages (collectively
"F&I Products"). The extended service contracts provide customers with coverage
for mechanical engine breakdown for a period (usually 36 or 48 months) beginning
after the stated warranty term of the original manufacturer expires. The
insurance coverages provide the customer with funds to repay a portion or all of
their boat loan in the event of death, disability or other covered event.
Since we have business relationships with numerous financial lenders we
also offer to assist our customers in obtaining financing for their boat
purchase. If the customer purchases F&I Products or utilizes financing we have
helped arrange, we earn commissions based upon our total volume of sales or the
amount of mark-up we charge over the cost of the products. F&I Products account
for a substantial portion of the our income, the most significant component of
which is the income resulting from our assisting customers in obtaining
financing for their purchases. Each of the F&I Products and the financial
9
assistance is done on behalf of unrelated third parties which generally include
large financial institutions and insurance companies.
Operations
Purchasing. It is our belief that we are among the largest volume
buyers of outboard motors in the United States. Until fiscal year 1999, we
purchased substantially all of our outboard motors from Outboard Marine
Corporation ("OMC"), which is the manufacturer of Johnson and Evinrude outboard
motors. Beginning with the 1999 fiscal year, we chose to decrease our reliance
on OMC and to further diversify the selection of outboard motors offered for
sale on our Travis Edition boats. Accordingly, we entered into an agreement to
purchase Mercury outboard motors from Brunswick Corporation ("Brunswick"). We
are also among the largest domestic volume buyer of boats from many of the boat
manufacturers that we represent. As a result, we have built close relationships
with our manufacturers. Our relationships have allowed us to have substantial
input into the design process for the new boats that are introduced in our
markets each year by these manufacturers. This design input and coordination
with our manufacturers is a primary factor in the pricing, selection and types
of the Travis Edition boating packages that we offer for sale in our store
locations.
We typically deal with each of our manufacturers pursuant to a
non-exclusive dealer agreement. These dealer agreements are usually for one (1)
year in term and they typically do not contain any contractual provisions
concerning product pricing or purchasing levels. The wholesale prices charged to
us by our manufacturers are generally set each year for the entire model year
(usually summer to summer), but may be changed at the manufacturer's sole
discretion. Unlike most of our other dealer agreements, we have a multi-year
term agreement expiring in June, 2001 with Brunswick to purchase outboard
motors, and we have agreements expiring in dates ranging from July 2001 to July
2003 with Genmar Industries, Inc. ("Genmar") to purchase boats. The current
agreements with these manufacturers include volume discounts from the then
prevailing dealer net price over the entire term of each respective agreement.
Although these dealer agreements have multi-year terms, each agreement generally
may be canceled by either party for various reasons including our failure to
purchase a certain amount of product or the failure by the manufacturer to
provide a certain amount of product that we desire to purchase.
Approximately 32.7% and 12% of our net purchases in fiscal years 2000
and 1999, respectively, were products manufactured by boat manufacturers owned
by Genmar. The increase in purchases from Genmar was primarily related to the
additional store locations that we opened or acquired in Florida which sell
Genmar's Wellcraft and Carver products. Other Genmar boat lines that we purchase
include the brands Larson, AquaSport, Scarab, Logic, and Ranger. OMC supplied
products that represented approximately $17.0 million, or 10.8%, and $13.3
million, or 14.0%, of our net purchases during fiscal years 2000 and 1999,
respectively. Brunswick supplied Mercury outboard motors that represented
approximately $17.6 million, or 11.2% and $20.3 million, or 21.4%, of our net
purchases during fiscal years 2000 and 1999, respectively. The reductions in
purchases of outboard motors from OMC and Mercury have been the result of our
arranging just in time deliveries of outboard motors in an effort to lower
overall inventory levels and decrease the number of days on hand that inventory
is held.
The Company's right to display, advertise or sell some product lines in
certain markets, including the Internet, may be restricted by arrangements with
certain manufacturers. (See Risk Factors - We Rely on Two Key Manufacturers for
Almost All of our Outboard Motor Purchases and One of the Manufacturers has
filed for Voluntary Bankruptcy under Chapter 11).
Floor plan and other short term financing. We purchase most of our
inventory by borrowing money from floor plan and other financing agreements. The
seasonal nature of the recreational boating industry impacts the production
schedules of the manufacturer's that produce marine products. During the fall
and winter months, retail sales of recreational boats diminish significantly as
compared to sales during the warm spring and summer months. To provide
recreational boating retailers, such as Travis Boats, extra incentive to
purchase boating products in the "off-season," manufacturer's typically offer
10
product for sale at a price that includes an interest subsidy. Since retail boat
dealers typically utilize floor plan financing to provide working capital to
purchase inventory, the interest subsidy is intended to assist the retail dealer
in stocking the product until the selling season. The terms of the interest
subsidy or assistance vary by manufacturer, with virtually all manufacturers in
the marine industry offering such programs. Management believes that the types
of financing arrangements we utilize are standard within the industry. As of
September 30, 2000, the Company and its subsidiaries owed an aggregate of
approximately $73.3 million to our lenders for our floor plan and other short
term financing agreements.
Competition. We operate in a highly competitive environment. In
addition to facing competition generally from many other businesses seeking to
attract discretionary spending dollars, the recreational boat industry itself is
highly fragmented, resulting in intense competition for customers, access to
quality products, access to boat show space in new markets and access to
suitable store locations. Our Company relies heavily on boat shows to generate
sales. If, for any reason, we were unable to participate in boat shows in our
existing or targeted markets, it could have a material adverse effect on our
business, financial condition and results of operations.
Our primary competition is from boat dealers operating a single
location or several locations in a single state and, to a lesser degree, with
national specialty marine stores, catalog retailers, sporting goods stores and
mass merchants, particularly with respect to parts and accessories. Dealer
competition, which includes one other publicly traded multi-state retailer of
recreational boats, continues to increase based on the quality of available
products, the price and value of the products and heightened attention levels to
customer service. There is significant competition both within markets currently
being served by the Company and in new markets into which we plan to enter.
While we generally compete in each of our markets with retailers of brands of
boats not sold by the Company in that market, it is common for other competitive
retailers to sell the same brands of outboard motors. Management believes that a
trend in the industry is for independent dealers to attempt to form alliances or
buyer's groups, for manufacturers to include more features as standard equipment
on boats and consequently, and for competitive dealers to offer packages
comparable to those that we offer as our Travis Edition lines. In addition,
several of our competitors, especially those selling boating accessories, are
large national or regional chains that may have substantially greater financial,
marketing and other resources than we may deploy. There can be no assurance that
we will be able to compete successfully in the retail marine industry in the
future.
Impact of Environmental and Other Regulatory Issues. On October 31,
1994, the U.S. Environmental Protection Agency ("EPA") announced proposed
emissions regulations for outboard marine motors. The proposed regulations would
require a 75% average reduction in hydrocarbon emissions for outboard motors and
set standards for carbon monoxide and nitrogen oxide emissions as well. Under
the proposed regulations, manufacturers began phasing in low emission models in
1998 and had approximately nine years to achieve full compliance. Certain
states, such as California, are proposing and adopting legislation that would
require low emission outboards and other engines on certain bodies of water or
more aggressive phase-in schedules than the EPA. Based on these regulations and
public demand for cleaner burning motors, our primary outboard motor suppliers,
Outboard Marine Corporation ("OMC") and Brunswick each have begun the phase-in
process for the new EPA compliant outboard motors. However, in fiscal 2000 and
1999, we only purchased minimal quantities of the new EPA compliant outboard
motors as a result of a lack of supply of the new product since these
manufacturers are still in the initial stages of the new product's release. The
boat models we sold with the new EPA compliant outboards in fiscal 2000 and 1999
generally were priced approximately $2,000 higher than those with traditional
outboard motors. Management anticipates retail prices to generally be from $500
to $1,500 higher for the new EPA compliant outboards depending on the motor's
horsepower. Management, based upon discussions with OMC and Brunswick, believes
that the higher retail costs will be offset by enhanced fuel efficiency and
acceleration speed, as well as reduced maintenance costs of the new EPA
compliant outboard motors. Costs of comparable new models, if materially more
expensive than previous models, or the manufacturer's inability to deliver
responsive, fuel efficient outboard motors that comply with EPA requirements,
could have a material adverse effect on our business, financial condition and
results of operations.
11
In the ordinary course of our business, we are required to dispose of
certain waste products that are regulated by state or federal agencies. These
products include waste motor oil, tires, batteries and certain paints. It is our
policy to use appropriately licensed waste disposal firms to handle this refuse.
If there were improper disposal of these products, it could result in us facing
potential liability, fees, fines or other penalties. Although we do not own or
operate any underground petroleum storage tanks, we currently lease several
properties containing above-ground tanks, which are subject to registration,
testing and governmental regulation.
Additionally, certain states have required or are considering requiring
a license in order to operate a recreational boat or personal watercraft. While
such licensing requirements are not expected to be unduly restrictive,
regulations may discourage potential first-time buyers, thereby limiting future
sales, which could have a material adverse effect on our business, financial
condition and results of operations.
Trademarks and service marks. We have received a registered federal
trademark for our corporate logo, which includes the name Travis Boating Center.
We also have trademark applications pending with the U.S. Patent and Trademark
Office for the names "Travis Edition" and for the overall appearance and trade
dress of our Travis Boating Center superstore. There can be no assurance that
any of these applications will be granted. However, based on a number of years
of use, we believe that we have certain common law rights to these marks at
least in our current market areas. Notwithstanding the foregoing, we have
entered into an agreement with a marine dealership operating in Knoxville,
Tennessee not to use the names "Travis," "Travis Boating Center" or "Travis
Edition" in certain types of uses or situations within Knoxville, Tennessee and
a 50 mile radius therefrom.
Web site. We operate a Web site under the name
"travisboatingcenter.com" and own the URL for this name, the name
"boatorder.com" and numerous derivations of these names.
Employees. As of September 30, 2000, our staff consisted of 701
employees, 665 of whom are full time. The full-time employees include 39 in
store level management and 48 in corporate administration and management. The
Company is not a party to any collective bargaining agreements and is not aware
of any efforts to unionize its employees. We consider the relations with our
employees to be good.
Item 2. Properties
We lease our corporate offices which are located at 5000 Plaza on the
Lake, Suite 250, Austin, Texas. We also own numerous other Travis Boating Center
locations. The remaining facilities are leased under leases with original lease
terms generally ranging from five to ten years with additional multi-year
renewal options. Our leases typically call for payment of a fixed rent and in
most of the leases we are also responsible for the payment of real estate taxes,
insurance, repairs and maintenance.
12
The chart below reflects the status and approximate size of the various
Travis Boating Center locations operated as of December 28, 2000.
Building
Square Land Owned or Year of Market
Location Footage* Acreage* Leased Entry
-------- -------- -------- -------- --------------
Austin, Texas(1).................. 20,000 3.5 Owned 1979
San Antonio, Texas(1)............. 34,500 6.5 Owned 1999
Midland, Texas(1)................. 18,750 3.8 Owned 1982
Dallas, Texas(1).................. 20,000 4.2 Owned 1983
Abilene, Texas(2)................. 24,250 3.7 Owned 1989
Houston, Texas(2)................. 15,100 3.0 Leased 1991
Baton Rouge, Louisiana(2)......... 33,200 7.5 Owned 1992
Beaumont, Texas(2)................ 25,500 6.5 Owned 1994
Arlington, Texas(2)............... 31,000 6.0 Leased 1995
Heber Springs, Arkansas(2)........ 26,000 9.0 Leased 1995
Hot Springs, Arkansas(2).......... 20,510 3.0 Owned 1995
New Iberia, Louisiana(4).......... 24,000 3.3 Leased 1995
Florence, Alabama(2).............. 22,500 6.0 Leased 1996
Huntsville, Alabama(3)............ 2,000 3.0 Leased 1996
Winchester, Tennessee(2).......... 28,000 3.5 Leased 1996
St. Rose, Louisiana(2)............ 30,000 3.5 Leased 1997
Pascagoula, Mississippi(2)........ 28,000 4.1 Owned 1997
Key Largo, Florida(4)............. 3,000 4.2 Owned 1997
Key Largo, Florida(4)............. 3,000 2.4 Owned 1999
Ft. Walton Beach Fl. - Sales(4)... 7,000 2.9 Leased 1997
Ft. Walton Beach Fl. - Sales(4)... 7,000 2.9 Leased 1999
Ft. Walton Beach Fl.- Service(4).. 7,500 2.0 Leased 1997
Hendersonville, Tennessee(2)...... 31,320 3.6 Leased 1997
Gwinnett, Georgia (1)............. 25,000 5.0 Owned 1997
Claremore, Oklahoma (4)........... 15,000 2.0 Owned 1998
Bossier City, Louisiana(2)........ 30,000 8.6 Owned 1998
Knoxville, Tennessee(2)........... 30,000 6.5 Leased 1998
Little Rock, Arkansas(4).......... 16,400 3.0 Owned 1999
Pine Bluff, Arkansas(4)........... 16,812 2.91 Leased 1999
Longwood, Florida(4).............. 10,000 3.1 Leased 1999
Clearwater, Florida(2)............ 21,000 5.0 Owned 1999
Clearwater, Florida(4)............ 9,000 3.7 Leased 1999
Jacksonville, Florida(4).......... 8,000 1.5 Leased 1999
Miami, Florida(3)................. 12,000 1.0 Leased 1999
Bradenton, Florida(4)............. 20,000 5.0 Leased 1999
Englewood, Florida(4)............. 3,000 4.5 Leased 1999
Memphis, Tennessee(2)............. 24,000 4.3 Leased 1999
Pickwick Dam, Tennessee(2)........ 48,000 5.0 Leased 1999
Ft. Myers, Florida(4)............. 6,000 4.0 Leased 1999
Stuart, Florida(2)................ 29,000 4.0 Leased 2000
Pompano, Florida(4)............... 6,000 1.0 Leased 2000
- --------------------------
* Square footage and acreage are approximate.
(1) Newly constructed store.
(2) Facility acquired/leased and converted to superstore.
(3) Temporary facility. To be relocated.
(4) Acquired/leased facility
13
Item 3. Legal Proceedings
The Company is not a party to any material legal proceedings. We are,
however, involved in various legal proceedings arising out of our operations in
the ordinary course of business. We believe that the outcome of all such
proceedings, even if determined adversely, would not have a material adverse
effect on our business, financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders of the Company
during the fourth quarter of the fiscal year ended September 30, 2000.
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters
Our common stock trades on the Nasdaq Stock Market under the symbol:
TRVS. As of December 28, 2000, we believe our shares are beneficially owned by
more than 400 shareholders. On December 28, 2000, the last reported sales price
of the common stock on the NASDAQ National Market System was $3.00 per share.
The following table sets forth for the period indicated, on a per share
basis, the range of high and low sales prices for our common stock during fiscal
years 2000 and 1999 as quoted by the NASDAQ. These price quotations reflect
inter-dealer prices, without adjustment for retail mark-ups, mark-downs or
commissions and may not necessarily represent actual transactions:
Fiscal 2000 Sales Price Fiscal 1999 Sales Price
----------------------- -----------------------
Quarter Ended High Low Ending High Low Ending
------------- ---- --- ------ ---- --- ------
December 31.................... $12.00 $8.75 $12.00 $20.50 $12.25 $20.50
March 31....................... $13.50 $9.375 $13.25 $23.00 $16.50 $18.00
June 30........................ $12.6875 $5.125 $ 5.50 $18.00 $14.00 $14.50
September 30................... $ 5.5625 $3.50 $ 3.6875 $16.25 $ 9.625 $ 9.625
We have never declared or paid cash dividends on our Common Stock and
presently have no plans to do so. Any change in our dividend policy will be at
the sole discretion of the Board of Directors and will depend on our
profitability, financial condition, capital needs, future loan covenants,
general economic conditions, future prospects and other factors deemed relevant
by the Board of Directors. We currently intend to retain earnings for use in the
operation and expansion of our business and do not anticipate paying cash
dividends in the foreseeable future. Certain covenants contained in our loan
agreements also effectively restrict the payment of any dividends without the
lender's prior consent.
14
Item 6. Selected Financial Data
The following selected consolidated financial information should be
read in conjunction with and is qualified in its entirety by reference to the
consolidated financial statements of the Company and the notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, included elsewhere in this Report on Form 10-K:
FISCAL YEAR ENDED SEPTEMBER 30,
1996(1)(5) 1997(1)(5) 1998(1)(5) 1999(1)(5) 2000(1)(5)
---------- ---------- ---------- ---------- ----------
(in thousands, except store, per store and per share data)
Consolidated Statement of
Operations Data:
Net sales.......................... $ 64,555 $ 91,309 $ 131,740 $ 182,259 $ 217,718
Gross profit....................... 16,483 23,955 34,901 46,634 53,309
Selling, general and
Administrative expense.......... 10,857 15,562 22,630 30,978 42,326
Operating income................... 5,061 7,480 11,011 13,689 8,338
Interest expense................... 1,289 1,354 2,310 3,808 6,848
Net income......................... 2,383 3,982 5,563 6,573 897
Basic earnings per share........... $ 0.78 $ 0.96 $ 1.31 $ 1.53 $ .20
Diluted earnings per share......... $ 0.78 $ 0.94 $ 1.26 $ 1.49 $ .20
Weighted avg. common
shares outstanding - basic...... 3,043 4,137 4,250 4,291 4,403
Weighted avg. common
shares outstanding - diluted.... 3,043 4,252 4,417 4,409 4,446
Store Data:
Stores open at period end.......... 12 19 24 38 39
Average sales per store(2)......... $ 5,617 $ 5,775 $ 6,383 $ 6,055 $ 5,630
Percentage increase (decrease) in
comparable store sales(3).......... 4.3% 5.7% 6.6% 1.9% (1.1%)
SEPTEMBER 30,
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(In Thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents............ $ 1,533 $ 5,816 $ 4,618 $ 4,125 $ 2,971
Working capital(4)................... 15,263 14,806 16,392 12,117 10,948
Total assets......................... 31,350 59,121 69,116 125,931 129,647
Short-term debt, including current
maturities of notes payable........ 4,661 21,447 26,105 69,547 77,895
Notes payable less current maturities. 4,334 5,145 4,980 6,897 6,015
Stockholders' equity................. 18,598 24,058 30,433 37,592 39,552
(1) The Consolidated Statement of Operations Data and the Consolidated Balance
Sheet Data for the fiscal years ended September 30, 1996, 1997, 1998, 1999
and 2000 has been derived from the audited consolidated financial
statements of the Company. Store data has been derived from the Company's
internal operating statements.
(2) Includes only those stores open for the entire preceding 12-month period.
(3) New stores or upgraded facilities are included in the comparable store base
at the beginning of the store's thirteenth complete month of operations.
(4) Included in the current liabilities, which reduce working capital, are
balloon payments due pursuant to the terms of two real estate loans, with
one payment of approximately $3.0 million due in November, 2000 and one
payment of $597,000 due in June, 2001 (see Subsequent Events in the
consolidated financial statements of the Company and notes thereto included
elsewhere in this Report on Form 10-K).
(5) Includes the operations of acquired store locations from each respective
date of acquisition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
15
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto included
elsewhere in this Report on Form 10-K. The discussion in this section of this
Report on Form 10-K contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section, those
discussed in "Risk Factors" and those discussed elsewhere in this Report on Form
10-K.
Overview
The following discussion compares fiscal years 2000 and 1999 and fiscal
years 1999 and 1998, which reflects the inclusion of the audited consolidated
financial statements for the fiscal years ended September 30, 2000, 1999 and
1998, respectively. The results of the acquisitions listed in the chart below,
from their respective dates of acquisition, are included in the discussion below
of the fiscal year in which such acquisition occurred. There were no
acquisitions in fiscal 2000.
A summary of the Company's acquisitions follows (in thousands):
Tangible Non-compete
Date of Purchase Net Agreements Cash Liabilities Notes Stock
Name of Company Acquisition Price Assets and Goodwill Paid Assumed Issued Issued
--------------- ----------- -------- -------- ------------ ---- ----------- ------ ------
Fiscal 1999
- -----------
Amlin, Inc. dba Magic 01/99 $1,639 $6,019 $1,090 $1,639 $5,470 $ -- $ --
Marine
Sportsman's Haven 01/99 1,748 2,624 514 1,098 1,390 650 --
Pier 68 Marina 02/99 738 2,218 562 408 2,043 329 --
DSA Marine Sales & 04/99 2,147 4,798 1,597 2,147 4,248 -- --
Service dba The Boatworks
Shelby Marine, Inc. 06/99 1,334 3,426 1,050 809 3,142 -- 525
The New 3 Seas, Inc. 09/99 1,103 1,419 1,100 -0- 1,416 -- 1,100
Fiscal 1998
- -----------
Southeastern Marine 11/97 $1,730 $1,390 $ 280 $1,606 $ -- $124 $ --
Worthen Marine 12/97 287 142 145 287 -- -- --
HnR Marine 04/98 359 359 -- 359 -- -- --
Moore's Marine 05/98 777 376 401 777 -- -- --
Rodgers Marine 09/98 677 2,093 350 327 1,766 -- 350
16
The following table sets forth for the periods indicated certain financial data
as a percentage of net sales:
FISCAL YEAR ENDED SEPTEMBER 30,
1998 1999 2000
---- ---- ----
Net sales...................... 100.0% 100.0% 100.0%
Costs of goods sold............ 73.5 74.4 75.5
----- ----- -----
Gross profit................... 26.5 25.6 24.5
Selling, general and
Administrative expenses..... 17.2 17.0 19.4
Operating income............... 8.4 7.5 3.8
Interest expense............... 1.8 2.1 3.1
Other income (expense)......... 0.1 0.3 0.0
----- ----- -----
Income before income taxes..... 6.7 5.7 0.7
Income tax expense............. 2.5 2.1 0.3
----- ----- -----
Net income..................... 4.2% 3.6% 0.4%
===== ===== =====
17
Results of Operations
Fiscal Year Ended September 30, 2000 Compared to the Fiscal Year Ended September
30, 1999
Net sales. Net sales increased by 19.4% to $217.7 million in fiscal
2000 from $182.3 million in fiscal 1999. The primary component of the increase
in net sales during the 2000 fiscal year has been the result of the Ft. Myers
store location which was opened in September, 1999 and the two newly opened
store locations in Pompano and Stuart, Florida during the 2000 fiscal year.
Accordingly, of the increase in net sales of $35.4 million during fiscal 2000,
$17.0 million, or 48.0%, is related to these three recent store locations.
During fiscal 2000, the increase in net sales included incremental
revenues related to sales of parts/accessories, service labor and used boats, as
a result of newly added or expanded parts/accessory and service departments in
various store locations and the increased number of store locations in
operation. Parts/accessory sales increased to $18.0 million, or 8.3% of net
sales, from $15.6 million, or 8.6% of net sales, in fiscal years 2000 and 1999,
respectively. Service labor sales increased to $8.8 million, or 4.0% of net
sales, from $6.9 million, or 3.8% of net sales, in fiscal years 2000 and 1999,
respectively. Used boat sales increased to $13.9 million, or 6.4% of net sales
in fiscal 2000, from $11.1 million, or 6.1% of net sales in fiscal 1999.
Included in the used boat sales for fiscal 2000 are approximately $4.1 million
in wholesale transactions, some of which were related to the Company's planned
reduction in overall inventory levels primarily occurring during the fiscal
quarter ended September 30, 2000.
During fiscal 2000, comparable store sales decreased by 1.1%, or $1.2
million, (18 stores in base) versus an increase of 1.9%, or $1.5 million, (14
stores in base) during fiscal 1999. Management believes that the comparable
store sales decrease was related to various factors including poor weather,
higher overall interest rates, erratic levels of consumer confidence and the
number of stores eligible for inclusion in the comparable store base
calculations. The Company relocated or renovated six stores and opened or
acquired an additional 15 stores during fiscal years 2000 and 1999 rendering
such locations to be excluded from the comparable store base. The Company's
planned acquisition strategy and subsequent renovation of stores to superstore
standards is expected to continue to negatively impact the number of stores
eligible in comparable store base calculations in relationship to the total
number of store locations operated. See "Risk Factors--Our Growth Depends on Our
Ability to Acquire and Open New Stores." As such, comparable store performance
is expected to remain unstable until a greater number of store locations is
eligible in the comparable store base calculations and factors potentially
influencing consumer demand (such as weather and consumer confidence) trend
favorably within our market areas.
Included within net sales is revenue that the Company earns related to
F&I Products. The Company, through relationships with various national and local
lenders, is able to place financing for its customers' boating purchases. These
lenders allow the Company to "sell" the loan at a rate higher than a minimum
rate established by each such lender, and the Company earns fees based on the
percentage increase in the loan rate over the lender's minimum rate (the rate
"spread"). The Company sells these loans without recourse, except that in
certain instances the Company must return the fees earned if the customer repays
the loan or defaults in the first 120-180 days. The Company also sells, as a
broker, certain types of insurance (property/casualty, credit life, disability)
and extended service contracts. The Company may also sell these products at
amounts over a minimum established cost and earn income based upon the profit
over the minimum established cost.
Net sales attributable to F&I Products increased by 6.4% to
approximately $8.3 million in fiscal 2000 from $7.8 million in fiscal 1999. In
fiscal 2000, F&I income as a percentage of net sales decreased to 3.8% from 4.3%
in fiscal 1999 due primarily to lower overall yields paid by lenders for
originating customer finance contracts and competitive pressures on finance
rates (which resulted in lower net spreads achieved in the placement of customer
financing). Decreases in the percentage of customers buying these products
(which is referred to as "sell-through"), particularly by purchasers of the
larger, more expensive boats and reduced customer demand for certain insurance
products have also been limiting factors.
18
Gross profit. Gross profit increased by 14.4% to approximately $53.3
million in fiscal 2000 from $46.6 million in fiscal 1999. Gross profit as a
percent of sales decreased to 24.5% in fiscal 2000 from 25.6% in fiscal 1999.
The Company generally seeks to maintain a gross profit margin of 21% to 23% on
its boating packages and to further leverage the margin through sales of
parts/accessories, service labor and F&I Products, all of which generally
produce gross profit margins in excess of 25%. During the 2000 fiscal year, the
gross profit margin was negatively impacted by certain events including the
establishment of reserve allowances on inventory in the amount of approximately
$1.3 million, including a reserve of approximately $443,000 related to an
alleged theft and other fraudulent activities of a single former store manager.
The Company also undertook a summer sales campaign to reduce overall inventory
levels to improve inventory turn and reduce carrying costs. Management estimates
the incremental expense to the gross profit to facilitate these sales promotions
and retail price reductions on inventory sold to be approximately $1.2 million.
Net sales attributable to F&I Products, which have a significant impact
on the gross profit margin, contributed $8.3 million, or 15.6%, of total gross
profit in fiscal 2000, as compared to $7.8 million, or 16.7%, of total gross
profit for fiscal 1999. Net sales attributable to F&I Products are reported on a
net basis and therefore all of such sales contribute directly to the Company's
gross profit. The costs associated with the sale of F&I Products are included in
selling, general and administrative expenses.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 36.5% to $42.3 million in fiscal 2000 from
$31.0 million for fiscal 1999. Selling, general and administrative expenses, as
a percent of net sales, increased to 19.4% in fiscal 2000 from 17.0% for fiscal
1999. The increase, both in terms of absolute dollars and as a percent of net
sales, was primarily attributable to increased lease and other expenses
associated with the operation of a larger store network, growth in the
corporate-office staffing infrastructure and increased advertising and insurance
costs associated with introducing Travis stores into new geographically diverse
regions.
Interest expense. Interest expense, in absolute dollars, increased by
81.6% to $6.9 million in fiscal 2000 from $3.8 million in fiscal 1999. Interest
expense as a percent of net sales, increased to 3.1% in fiscal 2000 from 2.1% in
fiscal 1999. The Company's capital expenditures and growth in operating assets
(primarily inventory) have been financed with borrowings from various commercial
banks and finance companies. The growth in assets is the result of the Company's
larger store network, continued implementation of its management information
system, the construction of new superstore facilities in Atlanta, Georgia and
San Antonio, Texas and renovations of other store locations to conform with its
superstore standards. The higher debt levels and significantly higher short term
borrowing rates (relative to the increases in the prime rate during fiscal 2000)
have also negatively impacted interest expense. The Company's weighted average
interest rate on its inventory financing was approximately 6.9% and 5.5% in
fiscal years 2000 and 1999, respectively. The Company anticipates continuing to
utilize third party financing sources to support the growth in assets necessary
to operate a larger store network and accordingly, the resulting increases in
interest expense associated with such borrowings. See "Risk Factors--Our
Substantial Indebtedness Could Restrict Our Operations and Make Us More
Vulnerable to Adverse Economic Conditions" and "Quantitative and Qualitative
Disclosures About Market Risk."
Net income. Net income decreased by 86.4% to approximately $897,000 in
fiscal 2000 from $6.6 million in fiscal 1999. While the Company experienced an
increase in net sales during fiscal 2000, the reduction in gross profit margins,
higher levels of S,G,A expenses and the increase in interest expense negatively
impacted net income.
Fiscal Year Ended September 30, 1999 Compared to the Fiscal Year Ended September
30, 1998
Net sales. Net sales increased by 38.4% to $182.3 million in fiscal
1999 from $131.7 million in fiscal 1998. The primary component of the increase
in net sales during the 1999 and 1998 fiscal years has been the result of
newly-opened or acquired store locations. Accordingly, of the fiscal 1999
increase in net sales, $39.7 million, or 78.5%, is related to the 14 store
19
locations that were newly opened or acquired. The Company also benefited from
growth in comparable store sales. During fiscal year 1999, comparable store
sales increased by 1.9%, or $1.5 million, (14 stores in base) versus 6.6%, or
$3.7 million, (9 stores in base) during fiscal 1998. See "Risk Factors - Our
Growth Depends on Our Ability to Acquire and Open New Stores."
Growth in overall sales volume resulted, in part, from additional new
Travis Edition boating packages introduced during fiscal 1999 and 1998. These
new additions included the Pro-Line and Polar brand boats in 1998 and Wellcraft,
Bayliner and Fishmaster boat models in fiscal 1999, as well as Mercury Motors in
November 1999.
During fiscal 1999, the Company experienced increased parts/accessories
and service labor sales of 38% and 45%, respectively, primarily through an
increased store network. Parts/accessory sales increased to $15.6 million, or
8.6% of net sales, from $11.3 million, or 8.6% of net sales, in fiscal years
1999 and 1998, respectively. Service labor sales increased to $6.9 million, or
3.8% of net sales, from $4.7 million, or 3.6% of net sales, in fiscal years 1999
and 1998, respectively. Net sales also benefited from increased used boat sales
in both dollars and as a percentage of sales. Used boat sales increased by 52.5%
to $11.1 million (6.1% of total sales) in fiscal 1999, from $7.3 million (5.5%
of total sales) in fiscal 1998.
Net sales from comparable stores in fiscal 1999 and 1998, which had 14
and 9 stores respectively, included in the base for calculation, increased by
1.9% and 6.6% in fiscal 1999 and 1998, respectively. The Company relocated or
renovated three stores and opened or acquired an additional 12 stores during
fiscal years 1999 and 1998 rendering such locations to be excluded from the
comparable store base. The Company's planned acquisition strategy and subsequent
renovation of stores to superstore standards is expected to continue to
negatively impact the number of stores includable in comparable store base
calculations in relationship to the total number of store locations operated.
See "Risk Factors--Our Growth Depends on Our Ability to Acquire and Open New
Stores." As such, comparable store performance is expected to remain unstable.
Included within net sales is revenue that the Company earns related to
F&I Products. The Company, through relationships with various national and local
lenders, is able to place financing for its customers' boating purchases. These
lenders allow the Company to "sell" the loan at a rate higher than a minimum
rate established by each such lender, and the Company earns fees based on the
percentage increase in the loan rate over the lender's minimum rate. The Company
sells these loans without recourse, except that in certain instances the Company
must return the fees earned if the customer repays the loan or defaults in the
first 120-180 days. The Company also sells, as a broker, certain types of
insurance (property/casualty, credit life, disability) and extended service
contracts. The Company may also sell these products at amounts over a minimum
established cost and earn income based upon the profit over the minimum
established cost.
Net sales attributable to F&I Products increased by 9.2% to
approximately $7.8 million in fiscal 1999 from $7.1 million in fiscal 1998, In
fiscal 1999, F&I income as a percentage of net sales decreased from 5.4% in
fiscal 1998 to 4.3% in fiscal 1999 due to competitive pressures on finance rates
(which resulted in lower net spreads achieved in the placement of customer
financing), as well as overall decreases in the percentage of customers buying
these products (which is referred to as "sell-through"), and a reduced demand in
certain insurance products.
Gross profit. Gross profit increased by 33.6% to approximately $46.6
million in fiscal 1999 from $34.9 million in fiscal 1998. Gross profit as a
percent of sales decreased to 25.6% in fiscal 1999 from 26.5% in fiscal 1998.
The Company generally seeks to maintain a gross profit margin of 21% to 23% on
its boating packages and is able to further leverage the margin through sales of
parts/accessories, service labor and F&I Products, all of which generally
produce gross profit margins in excess of 25%. During fiscal 1999, the Company's
gross profit margin was negatively impacted by a temporary reduced revenue mix
in its boating package margins as a result of acquisition boat inventory that
liquidated at below Company standard margins, thus, driving the Company's new
boating package margins down to 20.7% and used margins down to 13.4% (Company
20
standard of 18-20%). This, combined with the 110 basis point reduction in high
yielding F&I income, as a percentage of net sales, caused the 90 basis point
drop in gross profit margin as a percentage of sales.
Net sales attributable to F&I Products, which have a significant impact
on the gross profit margin, contributed $7.8 million, or 16.7%, of total gross
profit in fiscal 1999, as compared to $7.1 million, or 20.3%, of total gross
profit for fiscal 1998. Net sales attributable to F&I Products are reported on a
net basis and therefore all of such sales contribute directly to the Company's
gross profit. The costs associated with the sale of F&I Products are included in
selling, general and administrative expenses.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 36.9% to $31.0 million in fiscal 1999 from
$22.6 million for fiscal 1998. Selling, general and administrative expenses as a
percent of net sales decreased by 18 basis points to 17.00% in fiscal 1999 from
17.18% for fiscal 1998. In absolute dollars, the increase in selling, general
and administrative expenses was primarily attributable to increased expenses
associated with the operation of a larger store network, growth in the
corporate-office staffing infrastructure and increased advertising and insurance
costs associated with introducing Travis stores into new geographically diverse
regions.
Interest expense. Interest expense, in absolute dollars, increased by
64.9% to $3.8 million in fiscal 1999 from $2.3 million in fiscal 1998. Interest
expense as a percent of net sales, increased to 2.1% in fiscal 1999 from 1.8% in
fiscal 1998. Subsequent to the Company's Initial Public Offering in June of
1996, capital expenditures and growth in operating assets (primarily inventory)
have been financed with borrowings from various commercial banks and finance
companies. The growth in assets is the result of the Company's larger store
network, continued implementation of its management information system and its
planned renovation of store locations to conform with its superstore standards.
The higher debt levels have resulted in the increase in interest expense in
actual dollars and as a percentage of sales in fiscal years 1999 and 1998. The
Company anticipates continuing to utilize bank financing to support the growth
in assets necessary to operate a larger store network and accordingly, the
resulting increases in interest expense associated with such borrowings. See
"Risk Factors--Our Substantial Indebtedness Could Restrict Our Operations and
Make Us More Vulnerable to Adverse Economic Conditions" and "Quantitative and
Qualitative Disclosures About Market Risk."
Net income. Net income increased by 18.1% to approximately $6.6 million
in fiscal 1999 from $5.6 million in fiscal 1998. While the Company continued to
benefit from increased sales and controlled SG&A expenses in fiscal 1999,
reduced margins, as a percentage of sales, and the increase in interest expense
both in actual dollars and as a percent of net sales resulted in net income as a
percent of sales decreasing to 3.6% from 4.2% during the same periods.
Quarterly Data and Seasonality
The following table sets forth certain unaudited quarterly financial
data for each of the Company's last eight quarters and such data expressed as a
percentage of the Company's net sales for the respective quarters. The
information has been derived from unaudited financial statements that, in the
opinion of management, reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such quarterly
information. The operating results for any quarter are not necessarily
indicative of the results to be expected for any future period.
21
Quarter Ended
--------------------------------------------------------------------
Fiscal Year 1999 Fiscal Year 2000
Dec. 31 March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept.30
------- -------- ------- -------- ------- -------- ------- -------
(In thousands)
Net sales................... $12,097 $43,965 $74,890 $51,307 $23,627 $57,385 $82,872 $53,904
Gross profit................ 2,941 11,359 18,909 13,425 5,974 14,836 20,810 11,689
Selling, general and
administrative expenses. 4,505 7,252 10,129 9,092 7,651 10,567 12,942 11,166
Operating income (loss)..... (1,979) 3,703 8,202 3,763 (2,301) 3,640 7,176 (177)
Interest expense............ 555 948 1,170 1,135 1,374 1,768 1,902 1,804
Net income (loss)........... (1,600) 1,777 4,459 1,936 (2,323) 1,190 3,343 (1,314)
Basic earnings (loss) per (.37) .41 1.04 .45 (.53) .27 .76 (.30)
share.......................
Diluted earnings (loss) (.37) .40 1.01 .44 (.53) .27 .75 (.30)
per share..................
Wtd. Avg. common shares 4,286 4,288 4,290 4,300 4,377 4,412 4,414 4,410
outstanding - basic......
Wtd. Avg. common shares
outstanding - diluted.... 4,286 4,430 4,402 4,391 4,377 4,487 4,451 4,410
As a Percentage of Net Sales
-------------------------------------------------------------------
Net sales................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit................ 24.3 25.8 25.3 26.2 25.3 25.8 25.1 21.7
Selling, general and
administrative expenses.. 37.2 16.5 13.5 17.7 32.4 18.4 15.6 20.7
Operating income (loss)..... (16.4) 8.4 11.0 7.3 (9.8) 6.3 8.7 (0.3)
Interest expense............ 4.6 2.2 1.6 2.2 5.8 3.1 2.3 3.4
Net income (loss)........... (13.2) 4.0 6.0 3.8 (9.8) 2.1 4.0 (2.4)
The Company's business, as well as the sales demand for various types
of boats, tends to be highly seasonal. Strong sales typically begin in January
with the onset of the public boat and recreation shows, and continue through
July. Over the previous three fiscal years, the average annual net sales for the
quarterly periods ended March 31 and June 30 represented in excess of 25% and
40%, respectively, of the Company's annual net sales. With regard to net income,
the Company historically generates profits in three of its fiscal quarters and
experiences operating losses in the quarter ended December 31 due to a broad
seasonal slowdown in sales. During the quarter ended September 30, inventory
typically reaches its lowest levels and accumulated cash reserves reach the
highest levels. During the quarter ended December 31, the Company generally
builds inventory levels in preparation for the upcoming selling season which
begins with boat and recreation shows occurring during January through March in
certain market areas in which the Company conducts business. Travis Boats'
operating results would be materially and adversely affected if net sales were
to fall significantly below historical levels during the months of January
through June.
The Company's business is also significantly affected by weather
patterns. Weather conditions that are unseasonable or unusual may adversely
affect the Company's results of operations. For example, drought conditions or
merely reduced rainfall levels, as well as excessive rain, may affect the
Company's sale of boating packages and related products and accessories. See
"Risk Factors -We Depend on Strong Sales in the First Half of the Year" and "Our
Sales Depend on Good Weather."
Quarterly results may fluctuate as a result of the expenses associated
with new store openings or acquisitions. The Company, prior to fiscal 1997, had
attempted to concentrate expansion during the seasonal slowdown generally
occurring in the quarter ending December 31. During fiscal 1997, the Company
modified its acquisition strategy to acquire store locations through-out the
fiscal year. This was done to allow the Company the opportunity to derive
in-season sales from the acquisitions as well as to provide a longer period in
which to integrate the acquired store's operations. Accordingly, the results for
any quarterly period may not be indicative of the expected results for any other
quarterly period.
22
The results for the quarter ended June 30, 2000 were negatively
impacted by certain events including the establishment of a reserve of
approximately $443,000 related to an alleged theft and other fraudulent
activities of a single former store manager. In addition to this reserve amount,
the gross profit margin for the quarter ended June 30, 2000 was negatively
impacted by sales at the same store location which were transacted at amounts
equal to or below the Company's actual cost of such products. The Company
believes these sales to have occurred as part of the same alleged activities.
The results for the quarter ended September 30, 2000 were negatively
impacted by certain events including the establishment of reserve allowances on
inventory in the amount of approximately $750,000 and the expenses of a summer
sales campaign to reduce overall inventory levels, improve inventory turn and
reduce carrying costs. Management estimates the incremental expense to the gross
profit to facilitate these sales promotions and retail price reductions on
inventory sold during the quarter to be approximately $1.2 million.
Liquidity and Capital Resources
The Company's short-term cash needs are primarily for working capital
to support operations, including inventory requirements, off-season liquidity
and store expansion. These short-term cash needs have historically been financed
with cash from operations and borrowings under the Company's floor plan and
revolving credit lines (collectively the "borrowing agreements"). At September
30, 2000, the Company had approximately $3.0 million in cash, $11.6 million in
accounts receivable (primarily contracts in transit from sales, manufacturer
rebates receivable and other amounts due from manufacturers) and $78.1 million
in inventories. Contracts in transit are amounts receivable from a customer or a
customer's financial institution related to that customer's purchase of a boat.
These asset balances were offset by approximately $6.2 million of accounts
payable and accrued liabilities, $73.3 million outstanding under its borrowing
agreements and $4.6 million in other current liabilities and short-term
indebtedness including current maturities of notes payable. Included within the
current maturities of notes payable are balloon payments due pursuant to the
terms of two real estate loans, with one payment of approximately $3.0 million
due in November, 2000 and one payment of $597,000 due in June, 2001 (see
Subsequent Events in the consolidated audited financial statements of the
Company and notes thereto included elsewhere in this Report on Form 10-K). As of
September 30, 2000, the aggregate maximum borrowing limits under its borrowing
agreements was $110.0 million.
At September 30, 2000 the Company had working capital of approximately
$11.0 million. Working capital, as of September 30, 2000, was reduced by the
aforementioned balloon payments of approximately $3.6 million, which pending the
refinances thereof are classified as a current liability (see Subsequent Events
in the consolidated audited financial statements of the Company and notes
thereto included elsewhere in this Report on Form 10-K).
In fiscal 2000, operating activities utilized cash flows of $2.8
million due primarily to an increase of $2.4 million in inventories and a net
decrease in accounts payable, accrued liabilities and income taxes in the
aggregate of $4.9 million. These amounts were offset partially by net income,
before depreciation and amortization, of $3.5 million, decreases in accounts
receivable and prepaid expenses of $1.0 million, in the aggregate.
In fiscal 1999, operating activities utilized cash flows of $13.3
million due primarily to an increase of $18.0 million and $7.3 million in
inventories and accounts receivable, respectively. These amounts were offset
partially by net income, before depreciation and amortization, of $8.5 million,
an increase in accrued liabilities of $456,000 and an increase in income tax
payables of $3.2 million.
Investing activities utilized cash flows of $5.8 million due primarily
to the 2 new store locations, newly opened in fiscal 2000, plus the construction
of a new superstore facilities in Atlanta, Georgia and San Antonio, Texas. These
activities were funded through the Company's borrowing agreements, mortgage debt
and internal cash flows.
23
Financing activities in fiscal 2000 provided $7.4 million of cash flows
primarily from additional borrowings under the Company's borrowing agreements.
The borrowing agreements include, include borrowing agreements entered into in
January, 2000 with Transamerica Distribution Finance ("TDF") and Deutsche
Financial Services ("DFS") in the principal amounts of $50.0 million and $60.0
million, respectively. The borrowing agreements, which contain substantially
similar terms and have maturity dates of January 2003, provide for a combined
borrowing at various sub-prime based or LIBOR based interest rates. Borrowings
are pursuant to a borrowing base formula and are used primarily to finance
inventory purchases and for general working capital requirements. Substantially
all inventory, accounts receivable and intangible assets collateralize these
borrowing agreements. The terms of the borrowing agreements also provide for:
(i) fees for administrative monitoring, (ii) fees for unused portions of
available credit, and (iii) pre-payment fees in the event of the Company's
termination of such floor plans prior to their stated maturity dates in January,
2003. The borrowing agreements also include restrictive loan agreements
containing various loan covenants and borrowing restrictions, including minimum
financial ratios (governing net worth, current assets, debt to worth percentages
and cash flow coverage requirements based upon interest expense and monthly
principal and interest payments on debts). The payment of dividends or
repurchases of the Company's common stock are also substantially limited.
Effective with the company's financial results for the period ended
September 30, 2000, the Company was in violation of several financial ratio
covenants with TDF and DFS. However, on January 16, 2001, the Company received
written waivers from each lender, and, accordingly amended and restated the
borrowing agreements to provide for modified ratio levels for each quarterly
period through and including September 30, 2001. The amended borrowing
agreements, which mature in January 2003, continue to provide for a total of
$110 million in inventory floor plan financing and working capital borrowings.
Interest on the borrowing agreements ranges from the lender's prime rate minus
0.25% to LIBOR plus 3.0%. The Company believes that the financial covenants
established in the amended borrowing agreements will be achieved based upon the
Company's current and anticipated performance. Based upon management's Fiscal
2001 operating plan, including the sale/leaseback or refinancing of certain
assets, if necessary, and availability under the borrowing agreements, the
Company believes that there is adequate liquidity to fund the Company's
operations and to make required principal payments under the two borrowing
agreements and other outstanding debt. However, material shortfalls or variances
from anticipated performance could require the Company to seek further amendment
to the amended borrowing agreements or alternate sources of financing.
Management believes the Company to be in compliance with all other
terms and conditions of its loan agreements and all proposed terms and
conditions established pursuant to the aforementioned waivers of financial
covenants.
As of December 19, 2000, $91.3 million was drawn on the borrowing
agreements and the Company could borrow an additional $18.7 million, of which
approximately $2.9 million was immediately available for borrowing based upon
the borrowing formula. As the Company purchases inventory, the amount purchased
increases the borrowing base availability and typically the Company makes a
determination to borrow depending upon anticipated working capital requirements.
Various manufacturers provide the Company interest expense assistance under the
borrowing agreements in order to subsidize the carrying cost of inventory.
Accordingly, no interest expense is recorded during portions of the year
(generally August through May) for certain borrowings under these arrangements.
At September 30, 2000 and 1999, the Company had non-interest bearing borrowings
of $5,795,000 and $9,896,000 under these arrangements. Discontinuance of these
agreements could result in an increase to interest expense. (See Risk Factors -
We Rely on Two Key Manufacturers for Almost All of our Outboard Motor Purchases
and One of the Manufacturers has filed for Voluntary Bankruptcy under Chapter
11).
Merchandise inventories were $78.1 million and $75.7 million as of
September 30, 2000 and 1999, respectively. Accounts receivable decreased by
approximately $800,000 to $11.6 million at the end of fiscal 2000 from a year
earlier. Costs in excess of net assets acquired decreased by approximately
$300,000 to $11.3 million in fiscal 2000 due to the scheduled amortization of
this asset.
The Company had capital expenditures of approximately $4.8 million in
fiscal 2000 and approximately $7.7 million in fiscal 1999. Capital expenditures
during fiscal 2000 and 1999 included the acquisitions of the store locations
discussed previously in the section Overview, the renovation of several
facilities to the Company's superstore standards and expenditures related to the
roll-out of the Company's management information systems in certain store
locations. The Company also acquired real estate in San Antonio, Texas, Key
Largo, Florida, Clearwater, Florida and completed the construction of a new
superstores in Atlanta, Georgia and San Antonio, Texas. These capital
expenditures were funded through the Company's borrowing agreements, mortgage
debt and internal cash flows.
24
The Company's borrowing agreements and internally generated working
capital should be sufficient to meet the Company's cash requirements in the near
future.
New Accounting Standards
In September 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. Because of the Company's minimal use of derivative financial
instruments, management does not anticipate that the adoption of SFAS No. 133
will have a material impact on the Company's consolidated results of operations,
financial position or cash flows.
In December 1999, the SEC staff issued Staff Accounting Bulletin 101 "Revenue
Recognition in Financial Statements" which provides guidance on revenue
recognition issues. The Company is required to implement SAB 101 in fiscal 2001,
but management does not believe the adoption of SAB 101 will have a material
impact on the Company's financial position or results of operations.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation", which further clarifies APB Opinion
No. 25, "Accounting for Stock Issued to Employees". This interpretation did not
have a material impact on the Company's financial position or its results of
operations.
Inflation
The Company believes that inflation generally has not had a material
impact on its operations or liquidity to date.
Item 7A. Quantitative And Qualitative Disclosures About Market Risk
At September 30, 2000, approximately 92.4% of the Company's notes
payable and other short term obligations bear interest at variable rates,
generally tied to a reference rate such as the prime rate of interest of certain
banks. During the fiscal year ended September 30, 2000, the average rate of
interest of such variable rates was 6.93%. Increases in the variable interest
rates result in increased interest expense and decreased earnings and cashflow.
Assuming the same level of borrowings for the year ended September 30, 2000,
which averaged approximately $94,700,000, an increase of 2% in the average rate
of interest would result in an increase in fiscal 2000 interest expense of
approximately $1,900,000 and a decrease in fiscal 2000 net income and after-tax
cashflow of approximately $1,200,000. Similarly, a decrease in the average rate
of interest would result in a decrease in interest expense and an increase in
net income and after-tax cashflow.
Item 8. Financial Statements
For the financial statements and supplementary data required by this
Item 8, see the Index to Consolidated Financial Statements and Schedules.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
25
PART III
Item 10. Directors and Executive Officers
There is incorporated herein by reference that portion of the Company's
proxy statement for the 2001 Annual Meeting of Shareholders which appears
therein under the captions "Item 1: Election of Directors" and "Information
Concerning Directors."
Item 11. Executive Compensation
There is incorporated in this Item 11 by reference that portion of the
Company's definitive proxy statement for the 2001 Annual Meeting of Shareholders
which appears under the caption "Executive Compensation."
Item 12. Security Ownership of Certain Beneficial Owners and Management
There is incorporated in this Item 12 by reference that portion of the
Company's definitive proxy statement for the 2001 Annual Meeting of Shareholders
which appears under the caption "Securities Holdings of Principal Shareholders,
Directors, Nominees and Officers."
Item 13. Certain Relationships and Related Transactions
There is incorporated in this Item 13 by reference that portion of the
Company's definitive proxy statement for the 2001 Annual Meeting of Shareholders
which appears under the captions "Certain Relationships and Related
Transactions" and "Compensation Committee Interlocks and Insider Participation."
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
The following consolidated financial statements of the Company are
included following the Index to Consolidated Financial Statements and Schedules
on page F-1 of this Report.
Report of Independent Auditors.................... F-2
Consolidated Balance Sheets....................... F-3
Consolidated Statements of Income................. F-5
Consolidated Statements of Stockholder's Equity... F-6
Consolidated Statements of Cash Flows............. F-7
Notes to Consolidated Financial Statements........ F-9
26
(a) 2. Financial Statement Schedules
All schedules have been omitted because they are not applicable, not
required under the instructions, or the information requested is set forth in
the consolidated financial statements or related notes thereto.
(a) 3. Exhibits
The following Exhibits are incorporated by reference to the filing or
are included following the Index to Exhibits.
INDEX TO EXHIBITS
(a) Exhibits:
3.1 --Restated Articles of Incorporation of the Registrant, as
amended.(1)
3.2 --Restated Bylaws of the Registrant, as amended.(1)
10.2(a) --[Intentionally left blank]
10.2(b) --Dealer Agreement dated as of October 13, 1995, between the
Company and Outboard Marine Corporation.(1)
10.3 --[Intentionally left blank]
10.4 --[Intentionally left blank]
10.5(a) --[Intentionally left blank]
10.5(b) --[Intentionally left blank]
10.6(a) --[Intentionally left blank]
10.6(b) --[Intentionally left blank]
10.7(a) --[Intentionally left blank]
10.7(b) --[Intentionally left blank]
10.8(a) --[Intentionally left blank]
10.8(b) --[Intentionally left blank]
10.8(c) --[Intentionally left blank]
10.8(d) --[Intentionally left blank]
10.8(e) --[Intentionally left blank]
10.8(f) --[Intentionally left blank]
10.8(g) --[Intentionally left blank]
10.8(h) --[Intentionally left blank]
27
10.8(i) --[Intentionally left blank]
10.9(a) --[Intentionally left blank]
10.9(b) --[Intentionally left blank]
10.9(c) --[Intentionally left blank]
10.10(a)--[Intentionally left blank]
10.10(b)--[Intentionally left blank]
10.11 --[Intentionally left blank]
10.12 --[Intentionally left blank]
10.13 --[Intentionally left blank]
10.14 --[Intentionally left blank]
10.15--Asset Purchase Agreement dated as of September 20, 1995, by
and among Red River Marine, Inc., Red River Marine, Inc. #2, and
TBC Arkansas, Inc.(1)
10.16--Promissory Note dated September 20, 1995, in the original
principal amount of $800,000, Payable by TBC Arkansas, Inc. to
Benny Hargrove.(1)
10.17(a) --Promissory Note dated as of September 20, 1995, in the
original principal amount of $462,145.53, payable by TBC
Arkansas, Inc. to Red River Marine, Inc. #2.(1)
10.17(b) --Mortgage With Power of Sale (Realty) dated September 20,
1995, from TBC Arkansas, Inc. to Red River Marine, Inc. #2.(1)
10.18--Promissory Note dated September 20, 1995, in the original
principal amount of $230,177.16, payable by TBC Arkansas, Inc. to
Red River Marine, Inc. and Red River Marine, Inc. #2.(1)
10.19--Promissory Note dated September 20, 1995, in the original
principal amount of $108,750, Payable by TBC Arkansas, Inc. to
Red River Marine, Inc. and Red River Marine, Inc. #2.(1)
10.20 --Travis Boats and Motors, Inc. 1995 Incentive Plan.(1)
10.21 ----[Intentionally left blank]
10.22--Form of Option Agreement dated May 17, 1995, between the
Company and Michael B. Perrine, Ronnie L. Spradling and Mark T.
Walton.(1)
10.23--Form of Indemnification Agreement for Directors and Officers
of the Company.(1)
10.24--Management Agreement dated December 14, 1995, by and among TBC
Management, Ltd., the Company and its
subsidiaries.(1)
10.25 --[Intentionally left blank]
10.26(a) --[Intentionally left blank]
10.26(c) --[Intentionally left blank]
10.27(a) --Second Modification and Extension Agreement dated April 26,
1994, between the Company and NationsBank of Texas, N.A.(1)
10.27(b) --"504" Note dated April 28, 1994, in the original principal
amount of $454,000, payable by the Company to Cen-Tex Certified
Development Corporation.(1)
10.27(c) --[Intentionally left blank]
10.27(d) --Deed of Trust dated April 28, 1994, from the Company to Wm.
H. Harrison, Jr., Trustee.(1)
10.28--[Intentionally left blank]
28
10.29(a) --[Intentionally left blank]
10.29(b) --[Intentionally left blank]
10.29(c) --[Intentionally left blank]
10.29(d) --[Intentionally left blank]
10.30--Asset Purchase Agreement dated as of November 1, 1996 between
Travis Boating Center Tennessee, Inc. and Tri-Lakes Marine,
Inc.(2)
10.31--Asset Purchase Agreement dated as of November 1, 1996 between
Travis Boating Center Alabama, Inc. and Tri-Lakes Marine, Inc.(2)
10.32--Asset Purchase Agreement dated as of February 19, 1997 between
Travis Boating Center Louisiana, Inc. and Bent's Marine, Inc.(3)
10.33--Asset Purchase Agreement dated as of August 1, 1997 between
Travis Boating Center Mississippi, Inc. and McLeod Marine,
Inc.(4)
10.34--Stock Purchase Agreement dated as of September 30, 1997 among
Travis Boating Center Florida, Inc. and Frederic D. Pace and John
W. Reinhold providing for the purchase of 100% of the common
stock of Adventure Boat Brokerage, Inc. (4)
10.35--Stock Purchase Agreement dated as of September 30, 1997 among
Travis Boating Center Florida, Inc. and John W. Reinhold
providing for the purchase of 100% of the common stock of
Adventure Marine & Outdoors, Inc.(4)
10.36--Stock Purchase Agreement dated as of September 30, 1997 among
Travis Boating Center Florida, Inc. and Frederic D. Pace and John
W. Reinhold providing for the purchase of 100% of the common
stock of Adventure Marine South, Inc.(4)
10.37--[Intentionally left blank]
10.38--Asset Purchase Agreement dated as of November 20, 1997 between
Travis Boating Center Tennessee, Inc. and Southeastern Marine
Group, Inc.(4)
10.39 --Travis Boats & Motors, Inc. 1995 Incentive Plan.(5)
10.40--Employment Agreement dated November 16, 1999 between TBC
Management, Ltd. and Mark T. Walton.(7)
10.41--Employment Agreement dated November 16, 1999 between TBC
Management, Ltd. and Michael B. Perrine.(7)
10.42--Employment Agreement dated November 16, 1999 between TBC
Management, Ltd. and Ronald L. Spradling.(7)
10.43--Wellcraft Master Dealer Agreement effective September 29. 1998
between the Company and Wellcraft Marine Corp. (7)
10.44--Aquasport Master Dealer Agreement effective September 29, 1998
between the Company and Aquasport, a division of Wellcraft Marine
Corp. (7)
10.45--Outboard Marine Corporation Private Label/Retail Store
Agreement dated November 13, 1998 between the Company and
Outboard Marine Corporation.(7)
10.46--Product Supply Agreement dated June 29, 1999 between the
Company, its subsidiaries and Mercury Marine, a division of
Brunswick Corporation. (7)
10.47--Larson Master Dealer Agreement effective September 29, 1999
between the Company and Larson/Glastron Boats, Inc. (7)
10.48--Loan and Security Agreement, dated as of January 31, 2000,
between Travis Boats & Motors, Inc., along with certain of its
subsidiaries, and Deutsche Financial Services corporation related
to a Credit Facility of up to $60,000,000.00. (6)
29
10.49--Loan and Security Agreement dated as of January 31, 2000, by
and between Transamerica Commercial Finance Corporation along
with certain of its subsidiaries, and Transamerica Commercial
Finance Corporation related to a line of credit with a maximum
credit amount of $50,000,000.00 (6)
10.50--First Amendment to Loan and Security Agreement, dated January
31, 2000, by and between Deutsche Financial Services Corporation
and Travis Boats & Motors, Inc., along with certain of its
subsidiaries. (6)
10.51--Letter, dated December 29, 2000, to TBC Management, Inc. from
Transamerica Commercial Finance Corporation. (6)
21.1 --List of Subsidiaries of Registrant.(7)
23.1 --Consent of Independent Auditors of Registrant, dated January
22, 2000.
27.1 --Financial Data Schedule
- ---------------------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 effective June 26, 1996 (File No. 333-03283).
(2) Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Commission on December 31, 1996 (File No. 000-20757).
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
filed May 15, 1997 (File No. 000-20757).
(4) Incorporated by reference to the Company's Annual Report on Form 10-K filed
December 29, 1997 (File No. 000-20757).
(5) Incorporated by reference to the Company Registration Statement on Form S-8
(File No. 333- 41981).
(6) Portions of this exhibit have been omitted and are subject to an
application for confidential treatment filed separately with the
Commission.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K/A
filed with the Commission on January 13, 2000 (File No. 600-20757).
No annual report or proxy material has been sent to security holders as
of the date of this Form 10-K; however, the Company anticipates sending the
annual report and proxy materials on or before any applicable deadlines. When
such a report and proxy materials are furnished, the Registrant will furnish
copies of such materials to the Commission.
[THIS SPACE INTENTIONALLY LEFT BLANK]
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TRAVIS BOATS &
MOTORS, INC.
Date: January 23, 2001. By: /s/ Mark T. Walton
---------------------------
Mark T. Walton
Chairman of the Board
And President
POWER OF ATTORNEY TO SIGN AMENDMENTS
KNOW ALL BY THESE PRESENTS, that each person whose signature appears
below does hereby constitute and appoint Mark T. Walton his true and lawful
attorney-in-fact and agent for him and in his name, place and stead, in any and
all capacities, to sign any or all amendments to the Travis Boats & Motors, Inc.
Annual Report on Form 10-K for the year ending September 30, 2000, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
in order to effectuate the same as fully, to all intents and purposes, as they
or he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents, or any of them, may lawfully do or cause to be done
by virtue hereof. This Power of Attorney been signed below by the following
persons in the capacities and on the dates indicated.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date Signed
- ---- ----- ------------
/s/ Mark T. Walton Chairman of the Board, President and January 23, 2001
- -------------------------- Director (Principal Executive Officer)
Mark T. Walton
/s/ Michael B. Perrine Chief Financial Officer, Secretary and January 23, 2001
- -------------------------- Treasurer (Principal Financial and
Michael B. Perrine Accounting Officer)
/s/ Ronnie L. Spradling Executive Vice President-New Store January 23, 2001
- -------------------------- Development Director
Ronnie L. Spradling
Director January ____, 2001
- --------------------------
Steven W. Gurasich, Jr.
Director January ____, 2001
- --------------------------
Zach McClendon, Jr.
/s/ Robert C. Siddons Director January 23, 2001
- --------------------------
Robert C. Siddons
/s/ Joseph E. Simpson Director January 23, 2001
- --------------------------
Joseph E. Simpson
31
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Financial Statements
Years ended September 30, 2000, 1999 and 1998
Contents
Report of Independent Auditors...............................................F-2
Audited Consolidated Financial Statements
Consolidated Balance Sheets..................................................F-3
Consolidated Statements of Income............................................F-5
Consolidated Statements of Stockholders' Equity..............................F-6
Consolidated Statements of Cash Flows........................................F-7
Notes to Consolidated Financial Statements...................................F-9
F-1
Report of Independent Auditors
The Board of Directors
Travis Boats & Motors, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Travis Boats &
Motors, Inc. and Subsidiaries as of September 30, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended September 30, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Travis Boats &
Motors, Inc. and Subsidiaries as of September 30, 2000 and 1999 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 2000, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
November 29, 2000, except for Notes 2 and 10 as to which the date is
January 16, 2001
F-2
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
September 30,
2000 1999
-----------------------------------
Assets
Current assets:
Cash and cash equivalents $ 2,971 $ 4,125
Accounts receivable, net of allowance for doubtful accounts of $278
in 2000 and $247 in 1999 11,616 12,421
Prepaid expenses 923 1,177
Income taxes recoverable 1,368 ---
Inventories 78,079 75,700
Deferred tax asset 71 136
-----------------------------------
Total current assets 95,028 93,559
Property and equipment:
Land 5,819 5,819
Buildings and improvements 14,713 11,069
Furniture, fixtures and equipment 8,262 8,056
-----------------------------------
28,794 24,944
Less accumulated depreciation (5,878) (4,529)
-----------------------------------
22,916 20,415
Deferred tax asset 204 121
Goodwill, net of accumulated amortization of $986 in 2000 and $591 in
1999 9,185 9,110
Noncompete agreements, net of accumulated amortization of $1,162 in
2000 and $703 in 1999 2,068 2,527
Other assets 246 199
-----------------------------------
Total assets $ 129,647 $ 125,931
===================================
F-3
September 30,
2000 1999
-----------------------------------
Liabilities
Current liabilities:
Accounts payable $ 4,359 $ 3,613
Accrued liabilities 1,826 3,328
Amounts due for purchase of businesses --- 2,134
Income taxes payable --- 2,820
Floor plan and revolving line of credit payable 73,282 68,558
Current portion of notes payable and other short-term obligations 4,613 989
-----------------------------------
Total current liabilities 84,080 81,442
Notes payable, less current portion 6,015 6,897
Stockholders' equity:
Serial preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares issued or outstanding - -
Common stock, $.01 par value, 50,000,000 shares authorized,
4,399,027 and 4,326,022 shares issued and outstanding at
September 30, 2000 and 1999, respectively
44 43
Paid-in capital 15,464 14,402
Retained earnings 24,044 23,147
-----------------------------------
Total stockholders' equity 39,552 37,592
-----------------------------------
Total liabilities and stockholders' equity $ 129,647 $ 125,931
===================================
See accompanying notes.
F-4
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except share data)
Year ended September 30,
2000 1999 1998
----------------------------------------------------------
Net sales $ 217,718 $ 182,259 $ 131,740
Cost of sales 164,409 135,625 96,839
----------------------------------------------------------
Gross profit 53,309 46,634 34,901
Selling, general and administrative expenses 42,326 30,978 22,630
Depreciation and amortization 2,645 1,967 1,260
----------------------------------------------------------
44,971 32,945 23,890
Operating income 8,338 13,689 11,011
Interest expense (6,848) (3,808) (2,310)
Gain on sale of asset --- 457 ---
Other income (expense) (26) 81 80
----------------------------------------------------------
Income before income taxes 1,464 10,419 8,781
Income taxes 567 3,846 3,218
----------------------------------------------------------
Net income $ 897 $ 6,573 $ 5,563
==========================================================
Earnings per share:
Basic $ .20 $ 1.53 $ 1.31
==========================================================
Diluted $ .20 $ 1.49 $ 1.26
==========================================================
See accompanying notes.
F-5
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(in thousands)
Common Stock Paid-in Retained
--------------
Shares Amount Capital Earnings Total
------------------------------------------------------------------------
Balance at September 30, 1997 4,225 $ 42 $ 13,004 $ 11,011 $ 24,057
Issuance of common stock 40 1 462 - 463
Issuance of common stock in purchase of
business 20 - 350 - 350
Net income - - - 5,563 5,563
------------------------------------------------------------------------
Balance at September 30, 1998 4,285 43 13,816 16,574 30,433
Issuance of common stock 5 - 61 - 61
Issuance of common stock in purchase of
business 36 _ 525 - 525
Net income - - - 6,573 6,573
------------------------------------------------------------------------
Balance at September 30, 1999 4,326 43 14,402 23,147 37,592
Issuance of common stock 2 - 22 - 22
Issuance of common stock in purchase of
business 86 1 1,099 - 1,100
Repurchase and cancellation of common
Stock (15) - (59) - (59)
Net income - - - 897 897
------------------------------------------------------------------------
Balance at September 30, 2000 4,399 $ 44 $ 15,464 $ 24,044 $ 39,552
========================================================================
See accompanying notes.
F-6
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Year ended September 30,
2000 1999 1998
----------------------------------------------------
Operating activities
Net income $ 897 $ 6,573 $ 5,563
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 1,791 1,359 807
Amortization 854 608 453
Deferred income taxes (18) 19 17
Changes in operating assets and
liabilities:
Accounts receivable 805 (7,315) (978)
Prepaid expenses 254 (132) (674)
Inventories (2,379) (17,990) (416)
Other assets (47) (123) 105
Accounts payable 746 925 (570)
Accrued liabilities (1,502) (456) 61
Income taxes recoverable/ income tax
payable (4,188) 3,245 (1,506)
----------------------------------------------------------
Net cash provided by (used in) operating
activities (2,787) (13,287) 2,862
Investing activities
Purchase of businesses (1,034) (6,101) (4,522)
Purchase of property and equipment (4,762) (7,725) (4,301)
----------------------------------------------------------
Net cash used in investing activities (5,796) (13,826) (8,823)
F-7
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Year ended September 30,
2000 1999 1998
----------------------------------------------------------
Financing activities
Net increase in notes payable and other
short-term obligations $ 7,466 $ 26,559 $ 4,300
Net proceeds (payments) from issuance
(repurchase) of common stock (37) 61 463
----------------------------------------------------------
Net cash provided by financing activities 7,429 26,620 4,763
Change in cash and cash equivalents (1,154) (493) (1,198)
Cash and cash equivalents, beginning of year
4,125 4,618 5,816
----------------------------------------------------------
Cash and cash equivalents, end of year $ 2,971 $ 4,125 $ 4,618
==========================================================
Supplemental Disclosure of Debt and Stock Issued in Purchase of Businesses
- --------------------------------------------------------------------------
Year ended September 30,
2000 1999 1998
----------------------------------------------------------
Debt issued in purchase of businesses $ --- $ 2,082 $ 124
Stock issued in purchase of
Businesses 1,100 525 350
See accompanying notes.
F-8
Travis Boats & Motors, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Description of Business and Consolidation
Travis Boats & Motors, Inc. (the "Company") based in Austin, Texas, is a
retailer of boats, motors, trailers and related watersport accessories. The
Company operates, in one reportable segment, at locations in the southern region
of the United States. The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
The Company records revenue on sales of boats, motors, trailers, and related
watersport parts and accessories upon delivery to or acceptance by the customer
at the closing of the transaction. The Company records revenues from service
operations at the time repair or service work is completed.
The Company refers customers to various financial institutions to assist the
customers in obtaining financing for their boat purchase. For each loan the
financial institutions are able to fund as a result of the referral, the Company
receives a fee. Revenue earned by the Company for financing referrals is
recognized when the related boat sale is recognized. The fee amount is generally
based on the loan amount and the term. Generally, the Company must return a
portion of the fee amount received if the customer repays the loan or defaults
on the loan within a period of up to 180 days from the initial loan date. The
Company records such refunds, which are not significant, in the month in which
they occur.
Revenues from insurance and extended service agreements are recorded at the time
such agreements are executed which generally coincides with the date the boat,
motor and trailer is delivered. Such revenues are not deferred and amortized
over the life of the insurance or extended service agreement policies, because
the Company sells such policies on behalf of third party vendors or
administrators. At the time of sale, the Company records a fee for insurance and
extended service agreements net of the related fee that is paid to the
third-party vendors or administrators. Since its inception, the Company has
incurred no additional costs related to insurance or extended service agreements
beyond the fees paid to the third party vendors at the time of sale.
Cash and Cash Equivalents
The Company considers all investments with maturities of ninety days or less
when purchased to be cash equivalents.
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, including cash and
cash equivalents, accounts receivable, accounts payable and notes payable
approximates fair value.
F-9
Accounts Receivable
Accounts receivable potentially expose the Company to concentrations of credit
risk, as defined by the Statement of Financial Accounting Standards No. 105,
Disclosure of Information about Financial Instruments with Off-Balance Sheet
Risk and Financial Instruments with Concentrations of Credit Risk. Accounts
receivable consist primarily of amounts due from financial institutions upon
sales contract funding and amounts due from vendors under rebate programs.
F-10
1. Summary of Significant Accounting Policies (continued)
The accounts receivable balances consisted of the following as of September 30,
2000 and 1999 (in thousands):
2000 1999
------------- -------------
Trade receivables.................... $ 5,540 $ 7,654
Amounts due from manufacturers....... 5,511 4,593
Other receivables.................... 843 421
Allowance for doubtful accounts...... (278) (247)
------------- -------------
$ 11,616 $ 12,421
============= =============
Activity in the Company's allowance for doubtful accounts is as follows (in
thousands):
Balance at September 30, 1997....... $ -0-
Additions charged to costs
and expenses........... -0-
Write-offs of uncollectible
accounts............... -0-
--------------------------------------
Balance at September 30, 1998....... -0-
Additions charged to costs
and expenses.......... 247
Write-offs of uncollectible
accounts............... -0-
--------------------------------------
Balance at September 30, 1999........ 247
Additions charged to costs
and expenses........... 187
Write-offs of uncollectible
accounts............... (156)
--------------------------------------
Balance at September 30, 2000........ $ 278
======================================
Inventories
Inventories consist of boats, motors, trailers and related watersport parts and
accessories. Inventories are carried at the lower of cost or market. Cost for
boats, motors and trailers is determined using the specific identification
method. Cost for parts and accessories is determined using the first-in,
first-out method.
Inventories consisted of the following as of September 30, 2000 and 1999 (in
thousands):
2000 1999
------------- -------------
New boats, motors and trailers....... $ 65,333 $ 63,874
Used boats, motors and trailers...... 5,653 4,932
Parts, accessories and other......... 7,510 7,273
Valuation allowance.................. (417) (379)
------------- -------------
$ 78,079 $ 75,700
============= =============
F-11
1. Summary of Significant Accounting Policies (continued)
Activity in the Company's inventory valuation allowance is as follows (in
thousands):
Balance at September 30, 1997....... $ 74
Additions charged to costs
and expenses.......... 199
Inventory write-offs....... -0-
--------------------------------------
Balance at September 30, 1998....... 273
Additions charged to costs
and expenses.......... 106
Inventory write-offs.. -0-
--------------------------------------
Balance at September 30, 1999....... 379
Additions charged to costs
and expenses.......... 38
Inventory write-offs.. -0-
--------------------------------------
Balance at September 30, 2000....... $ 417
======================================
Property and Equipment
Property and equipment are stated at cost. Provisions for depreciation are
determined using the double-declining balance and straight-line methods. The
Company uses estimated useful lives of 5 - 20 years for buildings and
improvements and 5 - 10 years for furniture, fixtures and equipment.
Income Taxes
In accordance with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, deferred income taxes are provided for temporary
differences between the basis of assets and liabilities for financial reporting
purposes and for income tax return purposes.
Intangible Assets
Amounts assigned to intangible assets are amortized over the respective
estimated useful lives using the straight-line method as follows:
Noncompete agreements 5 to 7 years
Goodwill 15 to 25 years
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of,"
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset in
question may not be recoverable. The Company groups long-lived assets by store
location for purposes of assessing the recoverability of carrying value and
measuring potential impairment. To date, the Company has not experienced any
events or changes in circumstances that indicate that the recoverability of the
carrying amount of an individual store should be assessed.
Goodwill and other intangible assets are recorded at the lower of unamortized
cost or fair value. Management reviews the valuation and amortization of
intangible assets on a periodic basis, taking into consideration any events or
circumstances which might result in diminished fair value. If this review
indicates goodwill will not be recoverable, as determined by the undiscounted
cash flows of the entity acquired over the remaining amortization period, the
carrying value of the goodwill is reduced by the estimated shortfall of
discounted cash flows.
F-12
1. Summary of Significant Accounting Policies (continued)
Pre-opening Costs
Pre-opening costs related to new store locations are expensed as incurred.
Significant Suppliers
The Company purchased substantially all of its new outboard motors for use on
its Travis Edition boat packages from two outboard motor manufacturers, Outboard
Marine Corporation and the Brunswick Corporation, in fiscal 2000 and 1999, and
from a single outboard motor manufacturer, Outboard Marine Corporation, in
fiscal year 1998.
Approximately 33%, 12% and 18% of the Company's net purchases (including product
purchased in acquisitions) in fiscal 2000, 1999 and 1998, respectively, were
manufactured by boat suppliers with common ownership.
Advertising Costs
Advertising costs are expensed as incurred and were approximately $2,618,000,
$1,192,000 and $643,000 during the fiscal years ended September 30, 2000, 1999
and 1998, respectively.
Reclassifications
Certain amounts in the 1999 and 1998 financial statements have been reclassified
to conform with the classifications in the 2000 financial statements with no
effect on previously reported net income or stockholders' equity
Net Income Per Common Share
Year Ended September 30,
2000 1999 1998
------------- ------------- -------------
(in thousands, except per share data)
Numerator:
Net income $ 897 $ 6,573 $ 5,563
============= ============= =============
Denominator:
Denominator for basic earnings per share - weighted average
shares 4,403 4,291 4,250
Effect of dilutive securities:
Employee stock options 43 118 168
------------- ------------- -------------
Denominator for diluted earnings per share - adjusted weighted
average shares and assumed conversions 4,446 4,409 4,418
============= ============= =============
Basic earnings per share $ .20 $ 1.53 $ 1.31
Diluted earnings per share $ .20 $ 1.49 $ 1.26
F-13
Options to purchase the following shares of common stock were excluded from the
computation of diluted EPS for the periods ended September 30, since the
exercise price of the options was greater than the average market price of the
Company's common stock during the respective fiscal year.
- ------------------------------------------------------------------------------
Weighted Avg.
Weighted Avg. Contractual Life
Fiscal Year Excluded Options Exercises Prices in Years
- ------------------------------------------------------------------------------
2000 164,766 $14.40 6.93
1999 97,500 $21.18 7.79
1998 0 n/a n/a
F-14
2. Notes Payable and Other Short-Term Obligations
In January 2000, the Company executed new borrowing agreements with two
commercial finance companies providing for inventory floor plan financing and
working capital borrowings. The agreements, which contain substantially similar
terms and have maturity dates of January 2003, provide for a combined borrowing
availability of $110 million at various sub-prime based or LIBOR based interest
rates (varying from 8.13% to 8.43% at September 30, 2000). Borrowings under the
agreements are pursuant to a borrowing base formula and are used primarily to
finance inventory purchases and for general working capital requirements.
Substantially all inventory, accounts receivable and intangible assets
collateralize these borrowing agreements. The terms of the borrowing agreements
also provide for: (i) fees for administrative monitoring, (ii) fees for unused
portions of available credit, and (iii) pre-payment fees in the event of the
Company's termination of such floor plans prior to their stated maturity dates
in January 2003. The borrowing agreements also contain various loan covenants
and borrowing restrictions, including minimum ratios and a substantial
limitation as to payment of dividends or repurchases of the Company's common
stock. Effective with the company's financial results for the period ended
September 30, 2000, the Company was in violation of several financial ratio
covenants with TDF and DFS. However, on January 16, 2001, the Company received
written waivers from each lender and, accordingly amended and restated the
borrowing agreements to provide for modified ratio levels for each quarterly
period through and including September 30, 2001. The amended borrinw
gagreements, which mature in January 2003, continue to provide for a total of
$110 million in inventory floor plan financing anad working capital borrowings.
Interest on the borrowing agreements ranges from the lender's prime rate minus
0.25% to LIBOR plus 3.0%. The Company believes that the financial covenants
established in the amended borrowing agreements will be achieved based upon the
Company's current and anticipated performance. Based upon manangement's Fiscal
2001 operating plan, including the sale/leaseback or refinancing of certain
assets, if necessary, and availability under the borrowing agreements, the
Company believes that there is adequate liquidity to fund the Company's
operations and to make required principal payments under the two borrowing
agreements and other outstanding debt. However, material shortfalls or variances
from anaticipated performance could require the Company to seek further
amendment to the amended borrowing agreements or alternate sources of financing.
Various manufacturers provide the Company interest expense assistance under the
borrowing agreements in order to subsidize the carrying cost of inventory.
Accordingly, no interest expense is recorded during portions of the year (August
through May) for certain borrowings under these arrangements. At September 30,
2000 and 1999, the Company had non-interest bearing borrowings of $5,795,000 and
$9,896,000 under these arrangements. Discontinuance of these agreements could
result in an increase to interest expense.
Notes payable and other short-term obligations consist of the following (in
thousands):
September 30,
2000 1999
-----------------------------------
(in thousands)
Notes payable to commercial finance companies under revolving
and floor plan line of credit agreements with interest
ranging from 0% to prime minus .75% with a stated maturity
date of January 31, 2003. $ 73,282 ---
Floor plans payable to commercial finance companies under
revolving line of credit agreements. Repaid January 2000. --- 35,408
Note payable to bank under a $55 million revolving line of
credit agreement. Repaid January, 2000. --- 33,150
Notes payable (see terms below) 10,628 7,886
-----------------------------------
Total notes payable and other short-term obligations 83,910 76,444
Less current portion (77,895) (69,547)
-----------------------------------
Total notes payable, less current portion $6,015 $6,897
===================================
The weighted average interest rate on the borrowing arrangements and the floor
plan payables outstanding as of September 30, 2000 and 1999 was 6.9% and 5.5%,
respectively.
F-15
2. Notes Payable and Other Short-Term Obligations (continued)
Notes Payable consist of the following: September 30,
2000 1999
-----------------------------------
(in thousands)
Mortgage notes payable to various banks, organizations and
individuals secured by deeds of trust with interest
ranging from 6.0% to prime plus .25%, floating, due in
monthly principal and interest installments ranging from
$1,899 to $10,289, maturing beginning in January 2002. $ 5,410 $6,045
Mortgage notes payable to various banks under deeds of trust
with balloon payments due in November 2000 of $2,987,000
and June 2001 of $597,000 with interest ranging from prime
to prime plus .75%, floating. 3,584 --
Notes payable to various banks and a corporation secured by
vehicles, equipment and leasehold improvements with
interest ranging from 7.5% to 11.0%, due in monthly
principal and interest installments ranging from $362 to
$3,106, maturing beginning in June 2004. 233 757
Acquisition related notes payable to individuals and
corporations with interest ranging from 8.0% to 9.5%,
due in monthly principal and interest installments
ranging from $291 to $12,770, maturing beginning in
February 2002. These notes are unsecured. 1,401 1,084
-----------------------------------
Total notes payable $10,628 $7,886
===================================
Certain notes payable are secured by assets of the Company including equipment,
leasehold improvements, vehicles, land and buildings.
At September 30, 2000 and 1999, approximately 92.4% and 84.5% respectively of
the Company's notes payable and other short-term obligations bear interest at
variable rates, generally tied to a reference rate such as the prime rate of
interest of certain banks. Accordingly, the Company believes that the carrying
amount of the notes payables and other short term obligations approximates their
fair value.
Interest paid approximates interest expense during 2000, 1999 and 1998.
Aggregate annual maturities required on notes payable at September 30, 2000 are
as follows (in thousands):
Year ending
September 30
2001 $ 4,613
2002 1,441
2003 440
2004 1331
2005 309
Thereafter 2,494
------------------
$ 10,628
==================
F-16
3. Leases
The Company leases various facilities, vehicles, and computer software under
third party operating leases. In October 1999, the Company entered into a sale
leaseback transaction with a leasing company covering substantially all of its
motor vehicle fleet. Vehicle leases generally range from 24 to 60 months in term
and provide for various residual balances of approximately 20% of the initial
lease amount. Lease expense was $3,524,000 in 2000, $2,031,000 in 1999 and
$1,188,000 in 1998.
Future minimum payments under non-cancelable operating leases at September 30,
2000 are as follows for each of the years ending September 30 (in thousands):
2001 $ 3,189
2002 2,509
2003 1,887
2004 1,287
2005 690
Thereafter 1,486
-----------------
$ 11,048
=================
Generally, the leases for facilities provide for renewals for various periods at
stipulated rates.
4. Acquisitions
The Company made various acquisitions during fiscal 1999 and 1998. All of the
acquisitions were asset purchases (except for Shelby Marine which was a stock
purchase) and have been accounted for using the purchase method of accounting.
The operating results of the companies acquired have been included in the
consolidated financial statements from the respective date of acquisition. The
assets acquired generally include boat, motor and trailer inventory, parts and
accessories inventory and to a lesser extent, property and equipment.
A summary of the Company's acquisitions follows (in thousands):
Non-compete
Date of Purchase Tangible Agreements Caah Liabilities Notes Stock
Name of Company Acquisition Price Net Assets and Goodwill Paid Assumed Issued Issued
- --------------------------- ----------- ---------- ---------- ------------- -------- ---------- ------- ---------
Fiscal 1999
Amlin, Inc. dba Magic 01/99 $1,639 $6,019 $1,090 $1,639 $5,470 $--- $ ---
Marine
Sportsman's Haven 01/99 1,748 2,624 514 1,098 1,390 650 ---
Pier 68 Marina 02/99 738 2,218 562 408 2,043 329 ---
DSA Marine Sales & 04/99 2,147 4,798 1,597 2,147 4,248 -- ---
Service dba The Boatworks
Shelby Marine, Inc. 06/99 1,334 3,426 1,050 809 3,142 -- 525
The New 3 Seas, Inc. 09/99 1,103 1,419 1,100 3 1,416 -- 1,100
Fiscal 1998
- -----------
Southeastern Marine 11/97 $1,730 $1,390 $ 280 $1,606 $ - $124 $ ---
Worthen Marine 12/97 287 142 145 287 - - -
HnR Marine 04/98 359 359 - 359 - - -
Moore's Marine 05/98 777 376 401 777 - - -
Rodgers Marine 09/98 677 2,093 350 327 1,766 - 350
F-17
4. Acquisitions (continued)
Pursuant to the purchase terms of The New 3 Three Seas acquisition, the Company
agreed to issue 86,005 shares of its common stock valued at approximately $1.1
million upon the registration of such shares with the Securities and Exchange
Commission pursuant to the Securities Act of 1933. At September 30, 1999, the
value of this stock was accrued as a payable on the balance sheet. The shares of
common stock were registered in November 1999 and accordingly issuance of these
shares has been reflected in fiscal 2000.
The Company determined the valuation of the securities issued in its purchase
transactions in accordance with Emerging Issues Task Force 95-19.
The Company's unaudited consolidated results of operations assuming all
acquisitions accounted for under the purchase method of accounting had occurred
on October 1, 1997 are as follows for the fiscal years ended September 30, 1999
and 1998:
Year Ended September 30,
1999 1998
---- ----
Net Sales $206,994,000 $197,365,000
Net Income 7,668,000 7,183,000
Diluted earnings per share 1.74 1.63
The unaudited pro forma results of operations are presented for informational
purposes only pursuant to APB 16 and may not necessarily reflect the future
results of operations of the Company or what results of operations would have
been had the Company owned and operated the business as of October 1, 1997.
5. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows (in thousands):
September 30,
2000 1999
-----------------------------------
-----------------------------------
Deferred tax assets:
Book over tax depreciation $ 204 $ 121
Accrued salaries and wages 71 136
-----------------------------------
Total deferred tax assets 275 257
Valuation allowance for deferred tax assets - -
-----------------------------------
Net deferred tax assets $ 275 $ 257
===================================
F-18
5. Income Taxes (continued)
Significant components of the provisions for income taxes are as follows (in thousands):
Year ended September 30,
2000 1999 1998
----------------------------------------------------------
Current expense:
Federal $507 $3,424 $2,791
State 79 403 410
----------------------------------------------------------
Total current expense 586 3,827 3,201
Deferred expense (benefit):
Federal (19) 19 17
State - - -
----------------------------------------------------------
Total deferred expense (benefit) (19) 19 17
----------------------------------------------------------
Total provision for income taxes $567 $3,846 $3,218
==========================================================
The differences between the effective tax rate and the U.S. federal statutory
rate of 34% are reconciled as follows (in thousands):
Year ended September 30,
2000 1999 1998
----------------------------------------------------------
Income tax expense at the federal statutory rate
$498 $3,542 $2,986
State income taxes 79 403 410
Other (10) (99) (178)
----------------------------------------------------------
$567 $3,846 $3,218
==========================================================
Income taxes paid were approximately $1,850,000; $1,563,000 and $4,207,000 in
the fiscal years ended September 30, 2000, 1999 and 1998, respectively.
6. Stockholders' Equity
The Company has an Incentive Stock Option Plan (the "Plan") which originally
provided for the issuance of up to 200,000 shares of the Company's common stock.
The Plan provides for the granting of options (incentive stock options or
non-statutory), stock appreciation rights and restricted shares to officers, key
employees, non-employee directors and consultants to purchase shares of the
Company's common stock. No stock appreciation rights or restricted shares have
been issued under the Plan. Options vest generally over a five year period and
expire in ten years from the date of grant.
In March 1998, the Company amended the Plan to provide that the aggregate number
of shares of common stock that may be issued or transferred pursuant to awards
under the Plan shall increase automatically effective on April 1 of each
calendar year for the duration of the Plan so that the aggregate number of
shares of common stock that may be issued or transferred pursuant to awards
under the Plan is equal to 10% of the total number of shares of common stock
issued and outstanding on April 1 of that year. Notwithstanding this provision,
the amendment provides that (i) the aggregate number of shares of common stock
that may be issued or transferred pursuant to awards under the Plan shall not be
reduced in the event the total number of shares issued and outstanding decreases
in any year, or (ii) the aggregate number of shares of common stock that may be
F-19
issued or transferred pursuant to awards under the Plan shall not exceed
1,000,000 shares of common stock over the life of the Plan.
Total option activity for the years ended September 30, 2000, 1999 and 1998:
Weighted
Range of Exercise Average
Number of Shares Prices Exercise Price
-----------------------------------------------------
Outstanding at September 30, 1997 265,033 $ 5.25 - $17.00 $ 7.58
Granted 100,750 $15.00 - $22.50 $20.83
Exercised (36,200) $ 5.25 - $13.125 $ 6.42
Forfeited (6,300) $ 9.00 - $13.125 $12.76
------------------
Outstanding at September 30, 1998 323,281 $ 5.25 - $22.50 $11.75
Granted 7,500 $14.50 - $20.00 $18.60
Exercised (5,000) $9.00 $ 9.00
Forfeited (6,500) $13.125- $19.00 $17.93
------------------
Outstanding at September 30, 1999 319,281 $ 5.25 - $22.50 $11.84
Granted 161,900 $3.1825- $9.375 $ 6.22
Exercised (2,000) $9.00 $ 9.00
Forfeited (88,050) $ 4.00 - $22.50 $13.19
------------------
Outstanding at September 30, 2000 391,131 $3.8125- $22.50 $ 9.20
==================
Exercisable at September 30, 2000 190,398 $ 5.25 - $22.50 $ 8.72
==================
Options available for grant at September 30, 2000 50,072
==================
Common stock reserved for issuance at September 30,
2000 441,203
==================
The weighted-average remaining contractual life of options at September 30, 2000
and 1999 is approximately 7.08 and 6.94 years, respectively.
Options outstanding at September 30, 2000, are comprised of the following:
Outstanding Exercisable
----------------------------------- -------------------
Weighted Avg.
Range of Exercises Weighted Avg. Contractual Life Number of Options Weighted Avg.
Options Prices Exercises Prices in Years Exercise Price
- ------------------------------------------------------------------------------------------------------------------
226,365 $3.8125 - $ 5.75 $ 5.36 7.20 108,865 $ 5.25
86,266 $ 8.875 - $10.50 $ 9.10 6.69 49,233 $ 9.11
11,000 $11.50 - $15.00 $12.59 6.70 5,800 $12.28
67,500 $20.00 - $22.50 $21.48 7.26 26,500 $21.50
- ------------------------------------------------------------------------------------------------------------------
391,131 $3.8125 - $22.50 $ 9.20 7.08 190,398 $ 8.72
==================================================================================================================
The Company has elected to follow Accounting Principles Board No. 25, Accounting
for Stock Issued to Employees (APB 25), and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation (Statement 123), requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
F-20
6. Stockholders' Equity (continued)
The assumptions used by the Company to determine the pro forma information
regarding net income and earnings per share required by Statement No. 123 are as
follows using the Black-Scholes model:
Year Ended September 30,
2000 1999 1998
--------------- ---------------- ----------------
Risk-free interest rate 6.50% 6.00% 6.00%
Dividend yield 0% 0% 0%
Expected life 5 years 5 years 5 years
Volatility 64.5% 39.3% 39.3%
The pro forma amounts under Statement No. 123 are as follows:
Year Ended September 30,
2000 1999 1998
----------- ----------- -----------
Net income as reported (000's) $897 $6,572 $5,563
Pro forma net income (000's) $738 $6,467 $5,467
Diluted EPS - as reported $0.20 $1.49 $1.26
Pro forma - Diluted EPS $0.17 $1.47 $1.24
The compensation expense associated with the fair value of the options
calculated in 2000, 1999 and 1998 is not necessarily representative of the
potential effects on reported net income in future years.
During fiscal 2000, the Company established a program to repurchase outstanding
shares of its common stock in the open market from time to time. The Company has
made purchases of its common stock pursuant to this program and has retired all
such common shares repurchased. Repurchased shares of common stock consisted of
the following for the years ended September 30:
Year Ended September 30,
2000 1999 1998
----------- ------------ -----------
Shares Repurchased (000's) 15 - 0 - - 0 -
Total Purchase Price (000's) $59 n/a n/a
Average Price per Share $3.92 n/a n/a
7. Commitments and Contingencies
The Company is currently involved in several matters regarding pending or
threatened litigation in the normal course of business. Management does not
expect the ultimate resolution of these matters to have a material adverse
effect on the Company's consolidated financial statements.
F-23
8. Benefit Plan
The Company has a 401(k) retirement plan which is available to all full-time
employees. The Company may, in its discretion, make matching contributions into
the plan. Expenses related to the plan were not significant in the years ended
September 30, 2000, 1999 and 1998.
9. New Accounting Pronouncements
In September 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. Because of the
Company's minimal use of derivative financial instruments, the adoption of SFAS
No. 133 is not expected to have a material impact on the Company's consolidated
results of operations, financial position or cash flows.
In December 1999, the SEC staff issued Staff Accounting Bulletin 101 "Revenue
Recognition in Financial Statements" which provides guidance on revenue
recognition issues. The Company is required to implement SAB 101 in fiscal 2001,
but management does not believe the adoption of SAB 101 will have a material
impact on the Company's financial position or results of operations.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation", which further clarifies APB Opinion
No. 25, "Accounting for Stock Issued to Employees". This interpretation did not
have a material impact on the Company's financial position or its results of
operations.
10. Subsequent Events
Loan Transactions
- -----------------
Effective December 15, 2000 the Company entered into a loan transaction in the
amount of $641,250 with a commercial bank. The loan is secured by certain real
estate and improvements in Midland, Texas and has monthly payments of principal
and interest of approximately $6,447. The loan has a fixed interest rate of
8.85% and matures in December, 2005.
Effective December 26, 2000 the Company entered into a loan transaction in the
amount of $4,450,000 with a commercial bank. The loan is secured by certain real
estate and improvements in Atlanta, Georgia, Dallas, Texas and San Antonio,
Texas. The loan has monthly payments of principal and interest of approximately
$39,745.15. The loan has a variable interest rate initially set at 9.654% and
matures in December, 2005. The proceeds of this loan were used, in part, to
repay in full the mortgage note payable to bank with a balloon payment due in
November, 2000 of $2,987,000. See Footnote #2 "Notes Payable and Other Short
Term Obligations".
The chart below reflecting the aggregate annual maturities required on notes
payable has been revised to reflect the impact of the two aforementioned loans
(in thousands):
F-22
Year ending
September 30 - Proforma to Reflect effect of Subsequent Loan
transactions
2001 $ 1,153
2002 1,630
2003 629
2004 1,539
2005 537
Thereafter 7,244
------------------
$ 12,732
==================
10. Subsequent Events (continued)
Business Matters
- ----------------
On December 22, 2000, one of the Company's primary supplier's of outboard
motors, Outboard Marine Corporation ("OMC") filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code. The Company, in the ordinary
course of its operations, has certain amounts due from and due to OMC. The
Company believes that it has the benefit of certain rights of "off-set" that
when implemented will result in the elimination of such amounts without a
detrimental effect on its financial operations.
The Company also maintains a contract with an alternative supplier of outboard
engines, Brunswick Corporation, covering the terms for the purchase of Mercury
outboard motors.
F-23