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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, 2001
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 X No
--- ---
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, 2001, (based upon the last reported price of $2.00 per share) was
approximately $5,879,410 on such date.
The number of shares of the issuer's Common Stock, par value $.01 per
share, outstanding as of December 28, 2001 was 4,350,527, of which 2,939,705
shares were held by non-affiliates.
Documents Incorporated by Reference: Portions of Registrant's Proxy
Statement relating to the 2002 Annual Meeting of Shareholders to be held in
February 2002, have been incorporated by reference herein (Part III).
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
PART I .......................................................................................................... 7
Item 1. Business..............................................................................................7
Item 2. Properties...........................................................................................13
Item 3. Legal Proceedings....................................................................................14
Item 4. Submission of Matters to a Vote of Security Holders..................................................15
PART II ........................................................................................................15
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.................................15
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.................................................................................27
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................27
PART III ....................................................................................................... 27
Item 10. Directors and Executive Officers....................................................................27
Item 11. Executive Compensation..............................................................................27
Item 12. Security Ownership of Certain Beneficial Owners and Management......................................27
Item 13. Certain Relationships and Related Transactions......................................................27
PART IV ........................................................................................................ 28
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....................................28
PART V ..........................................................................................................32
Item 15. Exhibit 23.1, Consent of Independent Auditors.......................................................32
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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 26% occurred in the quarter ending March 31 and over 38% 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 levels (in the various stores) 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 Risk Factors - "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
shorten 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 weather related damages
or disruptions to our sales levels or store 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, high fuel prices, unfavorable economic developments, volatility or
declines in the stock market or consumer confidence levels, changes to the tax
law such as the imposition of a luxury tax, or (with respect to a specific
region) a major employer's decision to reduce its workforce can all
significantly decrease the amount of money consumers are willing to spend on
discretionary activities. When these situations arise, consumers often decide
not to purchase relatively expensive, "luxury" items like recreational boats.
For example, our Company's sales levels declined and our Company posted a
significant net loss during the 2001 fiscal year due in part to the United
States experiencing weak economic conditions (such as rising unemployment
levels, reduced consumer confidence and volatile stock markets). From 1988 to
1990, our business also suffered dramatically
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because of the declines in the financial, oil and gas and real estate markets in
Texas. If the current economic downturn continues or if similar downturns in the
national or in local economies arise in the future, we may suffer significant
operating losses.
Changes in federal and state tax laws, such as the imposition of luxury
or excise 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
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.
We have not opened New Stores Recently and Much of our Past Growth has
been the result of Acquiring and Opening New Stores. We have grown primarily
through the acquisition of recreational boat dealerships. We began with one
store in Texas in 1979 and, from that date through March 2000 we opened or
acquired new stores in Alabama, Arkansas, Florida, Georgia, Louisiana,
Mississippi, Oklahoma, Tennessee and Texas. However, we have not opened or
acquired any new store locations since March 2000. As of December 2001, we
operate 37 store locations compared to 39 store locations as of December 2000.
During the summer of 2001, we decided to close certain store locations in Miami,
Florida and Huntsville, Alabama because the stores had weak sales, expiring
leases and overlapping sales territories with other store locations that we
operate.
Our comparable store sales (which are sales in stores that are open in
the same location for at least two consecutive years) increased 1.9% in fiscal
year 1999 and decreased by 1.1% and 11.6% in fiscal 2000 and 2001, respectively.
We expect our comparable store sales to continue to fluctuate from the unstable
market conditions which impacted the United States and the marine industry
during our 2001 fiscal year. See Risk Factors - "General Economic Conditions in
the United States and in the Areas Where We Have Stores Affect Our Sales."
Our borrowing agreements also require us to receive approvals from
certain of our lenders prior to opening or acquiring new store locations.
Therefore, we may continue to make acquisitions depending upon, among other
things, our financial strength at the time of a proposed acquisition and our
ability to finance these transactions within the terms of our borrowing
agreements. In the event that we complete acquisitions or open new store
locations, our success will depend on our financial strength, our ability to
hire and retain qualified employees and our ability to identify markets in which
we can successfully sell our products. Our success will also depend on our
ability to liquidate the acquired store's remaining inventory, to convert the
store facility to a Travis Boating Center superstore and to attract new
customers to the store after the conversion. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity."
Besides acquiring existing stores and converting them into Travis
Boating Centers, we may build new stores in 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 we when will open or acquire new stores or that
we will receive approval from our lenders. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity. "
Our Success Will Depend on How Well We Manage Our Inventory and Product
Growth. We have previously completed a period of rapid growth and, consequently,
we have spent much time and effort in developing new systems and procedures to
monitor and control our inventory levels. We have developed consolidated
purchase orders and a business plan for inventory that we call our Master
Business Plan. These procedures were designed to closely regulate and coordinate
our inventory levels and to improve inventory turns. Although we believe that
our systems, procedures and controls are adequate to support this process, we
cannot assure that this is the case. Our inability to manage our inventory would
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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 EffectiveDuring 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 continue to test the application of the system in
a large scale multiple user network configuration that will accommodate future
growth in the number of store locations we operate. Any faults, defects or
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 dealer agreements with our key
manufacturers. Most of these agreements are renewable each year, are
non-exclusive and contain other conditions that are standard in the industry.
Because of our relationship with these manufacturers and the significant amount
of product 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, their decisions not to sell to us or changes in industry
regulations could have a material adverse effect on our business, financial
conditions and results of operations.
We Rely on a Few Manufacturers for Almost All of our Outboard Motor
Purchases and One of the Manufacturers has filed Bankruptcy and Liquidated. Our
success depends to a significant extent on the continued quality and popularity
of the products we sell. We have historically purchased almost all of our
outboard motors from two manufacturers. In fiscal years 2000 and 2001, we
purchased nearly all of the outboard motors we use on our Travis Edition line of
recreational boats from Brunswick Corporation ("Brunswick"), which makes Mercury
outboard motors. In fiscal year 1999, we also purchased outboard motors from the
former Outboard Marine Corporation ("OMC"), which then manufactured Johnson and
Evinrude outboard motors.
In December 2000, OMC filed for relief with the United States
Bankruptcy Court under Chapter 11 bankruptcy. The bankruptcy filing terminated
our master agreement (which otherwise would have expired on June 30, 2001) under
which we purchased outboard motors from OMC. Certain of the former OMC engine
brands, including the Johnson and Evinrude lines, were purchased from the U.S.
Bankruptcy court by Bombardier Corporation. Bombardier is active in the marine
industry and is the manufacturer of the Sea Doo line of personal watercraft. As
of September 30, 2001, we have not purchased a material amount of Johnson or
Evinrude product from Bombardier. Also, we have "offset" certain amounts that
were owed to the Company from OMC against certain amounts that the Company had
payable to OMC. However, as of the date of this Report on Form 10-K the OMC
Bankruptcy has been converted to Chapter 7 ("liquidation") and the case has not
been finalized by the courts. Until the case is finalized, an unfavorable ruling
could result in the Company's failure to collect, through offset, amounts owed
by OMC and therefore, harm our financial condition.
Our purchases of outboard engines from Brunswick have been based on the
volume price discounts and other terms of a master agreement which expired in
October 2001. The Company and Brunswick are negotiating terms of a new
agreement. However, if the agreement is not renewed or extended with similar
terms, or 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, 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."
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 1999 we purchased 12.0% of our
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inventory from Genmar, in fiscal year 2000 we purchased 32.7%, and in fiscal
year 2001 we purchased 41.6% from Genmar. The purchases of boats from this
supplier are based on the volume price discounts and other terms of various
agreements expiring on dates within our 2002 and 2003 fiscal years. 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, decide not to renew their
contracts with us or decide to stop production 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 or
Selling New Products. We may be required to obtain the permission of
manufacturers to sell their product before we enter new markets or before we
sell new products in our existing markets. If our manufacturers do not give us
permission to sell their products in markets where we operate or plan to
operate, we may be forced to find alternative supply sources or to abandon our
plan. 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, it could have a negative effect on our business,
financial condition and results of operations.
Within our industry, our competitors include many single location boat
dealers and several large dealer groups. We compete based on the quality of
available products, the price and value of the products we sell and our 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 Travis Edition boat 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 general working capital needs and
borrowing agreement covenants (such as maximum debt/worth ratio's and minimum
net worth levels) may require us to secure significant additional capital. Any
borrowings to finance future working capital requirements, capital expenditures
or acquisitions could make us more vulnerable to a sustained downturn in our
operating results, a sustained downturn in economic conditions or increases in
interest rates on portions of our debt that have variable interest rates.
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 or working capital requirements, we could
be required to sell additional equity or debt securities, refinance our
obligations or dispose of assets in order to meet our debt service requirements.
4
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 in our borrowing agreements 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.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity."
We May Issue Securities That Will Dilute Our Current Shareholders and
Impact our Earnings Per Share. On December 14, 2001, we entered into
Subordinated Convertible loan transactions totaling $4,300,000. The loans are
unsecured with a term of 36 months and have interest rates ranging from prime +
2%, adjusted quarterly, to 10.75%, fixed. The principal and interest amounts
payable on the loans is subordinated, in most circumstances, to the Company's
borrowing agreements with certain of its lenders. The loans are redeemable by
the Company, and if not redeemed may be converted by the holders into the
Company's common stock at a conversion price of approximately $2.46 per share.
If we choose to raise additional equity capital or to finance future
working capital requirements, 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 would 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,
other lending companies, insurance companies and vendors providing extended
service contracts. 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 3.3% and 3.8% of our net sales in fiscal years 2001 and
2000, 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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Our Success Depends on Our Management Team. Our company depends greatly
on our 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 purchased 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
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other reasons, their loss could have a significant negative effect on our
operations and our financial performance.
In addition, we have identified opportunities to recruit and integrate
additional senior managers in sales management, inventory management and store
level operations. Our inability to recruit individuals with necessary skills or
to successfully integrate these individuals could have a significant and
material adverse effect on our financial condition.
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.
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, 2001, we own or control, together with our officers and directors and
certain founding shareholders, approximately 1,410,822 shares of common stock,
excluding shares which would be convertible into common stock pursuant to the
transaction discussed above. Our sale of a large portion of these shares may
decrease the price of our common stock. (See Risk Factors - "We May Issue
Additional Securities That Will Dilute Our Current Shareholders and Impact our
Earnings Per Share")
We Must Evaluate our Goodwill for Impairment. Goodwill in an intangible
asset that represents the difference between the aggregate purchase price for
the net assets acquired and the amount of such purchase price allocated to such
net assets for purposes of our balance sheet. Through our fiscal year ended
September 30, 2001, we were required to amortize goodwill from acquisitions
accounted for as purchases over a period of time, with the amount amortized in a
particular period constituting an expense that reduced our earning for that
period. As of September 30, 2001, our acquisitions that have been accounted for
as purchases have a remaining goodwill balance of approximately $8.8 million,
which we have been amortizing over a period of 25 years.
In June 2001, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 142 "Goodwill and Other Intangible Assets". SFAS 142
provides that goodwill and certain intangibles will no longer be amortized, but
instead will be tested for impairment at least annually. SFAS 142 is required to
be applied starting with fiscal years beginning after December 15, 2001, with
early application permitted in certain circumstances. However, the Company has
not yet determined whether it will early adopt the new rules beginning in the
first quarter of fiscal 2002 as allowed by the SFAS 142. In the year of
adoption, we will perform the first of the required impairment tests of goodwill
and indefinite lived intangible assets as of the beginning of that fiscal year
and therefore we have not yet determined what the effect of these tests will be
on the results of operations and financial position of the Company.
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Reductions in earning resulting from the impairment of goodwill
resulting from SFAS 142 may have an adverse impact upon the market price of our
common stock. Also, the impairment of our goodwill or regulatory action that
changes the impairment testing procedures, requires other types of amortization,
or a write-off of goodwill may materially and adversely affect the financial
position of our Company.
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.
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, currently operates 37 stores under the name Travis Boating Center
in Texas (8), Arkansas (4), Louisiana (4), Alabama (1), Tennessee (5),
Mississippi (1), Florida (12), Georgia (1) and Oklahoma (1).
We seek to differentiate ourselves 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 our 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
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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 Travis Edition boats held for sale.
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 exceeding 50 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."
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, Sea Ark, Fishmaster and Ranger with outboard motors
generally manufactured by 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 of our
competitors. We also sell yachts, such as Carver and Martinique 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 Travis Edition product line
generally consists of boat packages priced from $7,500 to $45,000 with
approximate even distribution within this price range. Our yachts can have
prices above $500,000. While most of our sales have historically been
concentrated on boats with retail sales prices from $7,500 to $45,000, 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 offer for sale 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 sales and
profits at existing store locations and further expansion of 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, our web site and other types of marketing events to
increase our name recognition and our market share. See Risk Factors - "We have
not opened New Stores Recently and Much of our Past Growth has been the result
of Acquiring and Opening New Stores".
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 34,000 square feet and management estimates the average store
8
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 purchase 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 our 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 as optional 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 our customers with superior value. These features often
may include enhanced styling such as additional exterior colors, complete
instrumentation in dashboards, transoms warrantied 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. We
believe this selling philosophy reduces customer anxiety associated with
bargaining or negotiation and offers our customer's prices at or below prices
that they generally might receive from our competitors. We believe this pricing
strategy and low-pressure sales style provides the customer with the comfort and
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. We
did not have any acquisitions in fiscal years 2001 or 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 each 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
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 Marine 01/99 $1,639 $6,019 $ 1,090 $ 1,639 5,470 $ --- $ ---
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
9
Boat Show Participation. We also participate in numerous boat shows,
typically held in January through March, in each of the markets in which we
operate and in certain other markets near our stores. These shows are normally
held at convention centers on at on the water locations, 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 fees earned assisting our customers in
obtaining financing for their purchases. Each of the F&I Products and the
financial 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 the former Outboard
Marine Corporation ("OMC"), which then manufactured Johnson and Evinrude
outboards.
Beginning with the 1999 fiscal year 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 utilized a multi-year
term agreement with Brunswick to purchase outboard motors. Our agreement with
Brunswick expired in November 2001 and we are currently negotiating a new
contract. We also have agreements to purchase boats with Genmar Industries, Inc.
expiring on dates within our 2002 and 2003 fiscal years. The agreements with
these manufacturers generally 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
10
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 41.6% and 32.7% of our net purchases in fiscal years 2001
and 2000, respectively, were products manufactured by boat manufacturers owned
by Genmar. The increase in purchases from Genmar is primarily related to the
store locations that we operate in Florida which sell Genmar's Wellcraft and
Carver products. Other Genmar boat lines that we purchase include the brands
Larson, AquaSport, Scarab, Triumph, and Ranger. Brunswick supplied Mercury
outboard motors that represented approximately $22.9 million or 20.5% and $17.6
million, or 11.2%, of our net purchases during fiscal years 2001 and 2000,
respectively.
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 Few Manufacturers for
Almost All of our Outboard Motor Purchases and One of the Manufacturers has
filed Bankruptcy and Liquidated" and "We Rely on Several Key Manufacturers for
Almost All of our Boat Purchases").
Floor plan financing. We purchase most of our inventory by borrowing
money from floor plan and other borrowing 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 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,
2001, the Company and its subsidiaries owed an aggregate of approximately $58.9
million to our lenders under our floor plan financing agreements. At September
30, 2001 and 2000, the Company had non-interest bearing borrowings of
approximately $5,370,000 and $5,795,000 under these arrangements.
11
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. Private sales of used boats
also represent a source of competition. There can be no assurance that we will
be able to compete successfully in the retail marine industry in the future. See
Risk Factors - "We May Not Be Able To Respond Effectively To The Significant
Competition We Face".
Impact of Environmental and Other Regulatory Issues. Our operations are
subject to regulation, reporting and licensing by various federal, state and
local governmental agencies and we are subject to their respective statutes,
ordinances and regulations. The failure to satisfy these requirements could have
a material adverse effect on our business, financial condition and results of
operations.
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,
outboard motor manufacturers, such as Brunswick, have begun the phase-in process
for the new EPA compliant outboard motors. However, in fiscal 2001 and 2000, 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 2001 and 2000 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 Brunswick, believes that the higher
retail costs will be somewhat offset by enhanced fuel efficiency and
acceleration speed, as well as possible reductions of 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.
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
12
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, 2001, our staff consisted of 623
employees, 594 of whom are full time. The full-time employees include 35 in
store level management and 47 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.
13
The chart below reflects the status and approximate size of the various
Travis Boating Center locations operated as of December 28, 2001.
Building Land Owned or Year of Market
Location Square Footage* Acreage* Leased Entry
Austin, Texas(1)................. 20,000 3.5 Owned 1979
San Antonio, Texas(1)............ 34,500 6.5 Owned 1982
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
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(3)............ 3,000 4.2 Owned 1997
Key Largo, Florida(3)............ 3,000 2.4 Owned 1999
Ft. Walton Beach Fl. - Sales(3) 7,000 2.9 Leased 1997
Ft. Walton Beach Fl. - Sales(3) 7,000 2.9 Leased 1999
Ft. Walton Beach Fl.- Service(3) 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 (3).......... 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(3)......... 16,400 3.0 Owned 1999
Pine Bluff, Arkansas(3).......... 16,812 2.91 Leased 1999
Longwood, Florida(3)............. 10,000 3.1 Leased 1999
Clearwater, Florida(2)........... 21,000 5.0 Owned 1999
Clearwater, Florida(3)........... 9,000 3.7 Leased 1999
Jacksonville, Florida(3)......... 8,000 1.5 Leased 1999
Bradenton, Florida(3)............ 20,000 5.0 Leased 1999
Englewood, Florida(3)............ 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(3)............ 6,000 4.0 Leased 1999
Stuart, Florida(2)............... 29,000 4.0 Leased 2000
Pompano, Florida(3).............. 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) Acquired/leased facility
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
14
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, 2001.
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, 2001, we believe our shares are beneficially owned by
more than 400 shareholders. On December 28, 2001, the last reported sales price
of the common stock on the NASDAQ National Market System was $2.00 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 2001 and 2000 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 2001 Sales Price Fiscal 2000 Sales Price
----------------------- -----------------------
Quarter Ended High Low Ending High Low Ending
------------- ------- ----- -------- ------ ----- -------
December 31.................... $3.75 $2.50 $2.75 $12.00 $8.75 $12.00
March 31....................... $4.125 $2.375 $3.375 $13.50 $9.375 $13.25
June 30........................ $3.50 $2.16 $2.70 $12.6875 $5.125 $5.50
September 30................... $2.90 $1.96 $2.20 $5.5625 $3.50 $3.6875
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.
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
15
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,
1997(1)(6) 1998(1)(6) 1999(1)(6) 2000(1)(6) 2001(1)(6)
---------- ---------- ---------- ---------- ----------
(in thousands, except store, per store and per share data)
Consolidated Statement of
Operations Data:
Net sales......................$91,309 $ 131,740 $ 182,259 $ 217,718 $ 198,539
Gross profit................... 23,955 34,901 46,634 53,309 46,379
Selling, general and
Administrative expense...... 15,562 22,630 30,978 42,326 41,492
Store Closing Costs............ - - - - 321
Operating income............... 7,480 11,011 13,689 8,338 1,660
Interest expense............... 1,354 2,310 3,808 6,848 6,533
Net income/(loss).............. 3,982 5,563 6,573 897 (3,281)
Basic earnings/(loss) per
share.........................$ .96 $ 1.31 $ 1.53 $ .20 $ (.75)
Diluted earnings/(loss) per
shares........................$ .94 $ 1.26 $ 1.49 $ .20 $ (.75)
Weighted avg. common
Shares outstanding -
basic......................... 4,137 4,250 4,291 4,403 4,375
Weighted avg. common
Shares outstanding
-diluted...................... 4,252 4,417 4,409 4,446 4,375
Store Data:
Stores open at period end...... 19 24 38 39 37
Average sales per store(2).....$ 5,775 $ 6,383 $ 6,055 $ 5,630 $ 5,252
Percentage increase
(decrease) in comparable
store sales(3).............. 5.7% 6.6% 1.9% (1.1%) (11.6%)
SEPTEMBER 30,
1997 1998 1999 2000 (4) 2001 (5)
-------- ---------- --------- --------- ---------
(In Thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents............ $ 5,816 $ 4,618 $ 4,125 $ 2,971 $ 1,388
Working capital...................... 14,806 16,392 12,117 10,948 11,958
Total assets......................... 59,121 69,116 125,931 129,647 113,680
Short-term debt, including current
maturities of notes payable........ 21,447 26,105 69,547 77,895 61,078
Notes payable less current maturities 5,145 4,980 6,897 6,015 9,375
Stockholders' equity................. 24,058 30,433 37,592 39,552 36,149
(1) The Consolidated Statement of Operations Data and the Consolidated Balance
Sheet Data for the fiscal years ended September 30, 1997, 1998, 1999, 2000
and 2001 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.
(5) 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 $577,000 due in December, 2001 and one payment
of $584,000 due in January, 2002.
(6) 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."
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
16
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 2001 and 2000
and fiscal years 2000 and 1999, which reflects the inclusion of the audited
consolidated financial statements for the fiscal years ended September 30, 2001,
2000 and 1999, 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. The
Company did not have acquisitions in fiscal years 2001 or 2000.
A summary of the Company's acquisitions 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 Marine 01/99 $1,639 $6,019 $1,090 $1,639 $5,470 $ -- $ --
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
The following table sets forth for the periods indicated certain financial data
as a percentage of net sales:
FISCAL YEAR ENDED SEPTEMBER 30,
1999 2000 2001
------ ---- ----
Net sales......................... 100.0% 100.0% 100.0%
Costs of goods sold............... 74.4 75.5 76.6
------ ------ ------
Gross profit...................... 25.6 24.5 23.4
Selling, general and
Administrative expenses........ 17.0 19.4 20.9
Operating income.................. 7.5 3.8 0.8
Interest expense.................. 2.1 3.1 3.3
Other income/ (expense)........... 0.3 0.0 0.0
------ ------ -------
Income/(loss) before income taxes. 5.7 0.7 (2.4)
Income tax expense/(benefit)...... 2.1 0.3 (0.8)
------ ------ -------
Net income/(loss)................. 3.6 0.4 (1.7%)
====== ====== =======
17
Fiscal Year Ended
September 30, 2001 Compared to the Fiscal Year Ended September 30, 2000
Net sales. Net sales for the fiscal year ended September 30, 2001 were $198.5
million, a decrease of approximately $19.2 million or 8.8% from the net sales of
$217.7 million for the fiscal year ended September 30, 2000.
Comparable store sales declined by 11.6% (32 stores in base) for the fiscal year
ended September 30, 2001 compared to a decrease of 1.1% (18 stores in base)
during the prior fiscal year. Management believes the decline in net sales and
the decrease in comparable store sales was related to various factors including,
but not limited to, erratic levels of consumer confidence, persistent weak
economic and industry conditions and high fuel prices. In certain markets these
factors have been exaggerated by weather conditions related to the severe impact
of tropical storm Allison along the Texas and Louisiana coastlines. Net sales
were also impacted by (i) a significant percentage decline in net sales
specifically during the month of September 2001 and (ii) the closing of store
locations in Miami, Florida and Huntsville, Alabama during the Company's fourth
quarter of fiscal 2001. Prior to their closing, the Miami and Huntsville store
locations had combined sales of approximately $4.2 million during fiscal 2001
compared to net sales of $7.5 million in the prior fiscal year. In reviewing
these store locations, the Company determined that each store had a sales
overlap with certain other Travis Boating Center locations and that the Company
could likely more cost effectively serve its customers through such alternate
store locations.
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 decreased by 20.5% to
approximately $6.6 million in fiscal 2001 from $8.3 million in fiscal 2000. In
fiscal 2001, F&I income as a percentage of net sales also decreased to 3.3% from
3.8% in fiscal 2000 due primarily to (i) lower overall net sales, (ii)
reductions in overall yields paid by lenders for originating customer finance
contracts, (iii) competitive pressures on finance rates (which resulted in lower
net spreads achieved in the placement of customer financing) and (iv) with
regard to our store locations in Arkansas, certain "caps" or limits on interest
rates allowed to be charged by lenders in Arkansas. 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.
Based on these circumstances and recent attempts by certain manufacturers to
enhance certain manufacturer warranty products, the Company believes that net
sales of F&I products may continue to decline somewhat prior to ultimately
stabilizing.
Gross profit. For the fiscal year ended, September 30, 2001, gross profit
decreased 13.0% to $46.4 million from $53.3 million in the prior fiscal year.
Gross profit, as a percent of sales, decreased to 24.5% from 23.4% during the
same period.
The decrease in gross profit, both in actual dollars and as a percent of net
sales, was primarily related to the Company and certain of its manufacturers
offering additional incentives and rebates on various models of boats and
outboard engines. The manufacturer incentives and rebates were developed by the
manufacturers as part of an effort to stimulate sales due to overall weak
industry sales performance. Additionally, the Company developed other incentives
18
as part of its ongoing inventory reduction plan implemented previously during
the summer of the prior 2000 fiscal year. Management believes that these
programs or similar levels of additional incentives and rebates will continue
for at least the first and second quarters of fiscal 2002 or until economic and
industry conditions improve. While these programs have impacted gross profit,
the Company has been successful in reducing overall inventory levels. The
Company's inventory levels were approximately $65.2 million as of September 30,
2001 versus $78.1 million as of September 30, 2000. See "Liquidity and Capital
Resources."
The decline in net sales attributable to F&I Products has also impacted
the gross profit margin. Net sales of these F&I Products, which have a
significant impact on the gross profit margin, contributed $6.6 million, or
14.2%, of total gross profit in fiscal 2001, as compared to $8.3 million, or
15.6%, of total gross profit for fiscal 2000. 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 decreased to $41.5 million in fiscal 2001 from $42.3
million in the prior fiscal year. During fiscal 2001 the Company also had
expenses of approximately $321,000 related to closing of the store locations in
Miami, Florida and Huntsville, Alabama. Selling, general and administrative
expenses, as a percent of net sales, were 20.9% in fiscal 2001, compared to
19.4% in fiscal 2000.
The decrease in selling, general and administrative expenses in actual dollars
for the fiscal year ended September 30, 2001 versus the prior fiscal year was
primarily attributable to the reduction in wages, commissions and
travel/entertainment expenses. The Company has reduced headcount primarily
through attrition and selective position consolidation. The reduction in overall
expenses was offset by increases in certain expenses such as utilities,
insurance, fuel costs, rent/lease expense and bad debt expense related to
reserves on certain accounts receivable.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses increased to $2.9 million in fiscal 2001 from $2.6 million for the
prior fiscal year. Depreciation and amortization expenses, as a percent of net
sales, increased to 1.5% in fiscal 2001 from 1.2% for prior fiscal year.
The increase in depreciation and amortization expenses, both in actual dollars
and as a percent of net sales, was primarily attributable to the depreciation
expenses of the Company's recently completed superstore location in San Antonio,
Texas, substantial renovations to the Clearwater, Florida store location and
other improvements to its asset infrastructure.
Interest expense. Interest expense decreased to $6.5 million in fiscal
2001 from $6.8 million in the prior fiscal year. However, interest expense
increased to 3.3% from 3.1% of net sales in fiscal years 2001 and fiscal 2000,
respectively, primarily as a result of the overall decline in net sales for the
2001 fiscal year.
Interest expense, in actual dollars, was positively impacted by decreases in the
Company's short term borrowing rates and inventory debt levels relative to the
prior fiscal year. The decrease in interest expense was somewhat offset by the
incremental interest expense incurred on the additional long term debt related
to the Company's new superstore in San Antonio, Texas and other real estate
holdings.
The Company anticipates continuing to utilize significant amounts of third party
financing sources to support its inventories and other assets. Accordingly, the
Company is subject to the impact of increases in interest expenses and other
costs 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."
19
Net income/(loss). The Company posted a net loss of approximately $3.3 million
for fiscal 2001 versus a net income of approximately $897,000 in fiscal 2000
primarily due to the above described declines in net sales and total gross
profit margins.
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 was the result of the Ft. Myers store
location opened in September, 1999 and store locations in Pompano and Stuart,
Florida opened 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 store locations opened during the discussed periods.
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.
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.
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
20
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.
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 2000 Fiscal Year 2001
Dec. 31 March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept.30
------- -------- ------- -------- ------- -------- ------- -------
(In thousands)
Net sales................... $23,627 $57,385 $82,872 $53,904 $24,084 $57,521 $73,455 $ 543,479
Gross profit................ 5,974 14,836 20,810 11,689 5,778 13,998 17,620 8,983
Selling, general and
administrative expenses. 7,651 10,567 12,942 11,166 8,379 10,264 11,984 10,865
Operating income (loss)..... (2,301) 3,640 7,176 (177) (3,301) 3,010 4,916 (2,965)
Interest expense............ 1,374 1,768 1,902 1,804 1,847 1,926 1,619 1,141
Net income (loss)........... (2,323) 1,190 3,343 (1,314) (3,256) 790 2,096 (2,911)
Basic earnings (loss) per
share....................... (.53) .27 .76 (.30) (.74) .18 .48 (.67)
Diluted earnings (loss)
per share.................. (.53) .27 .75 (.30) (.74) .18 .48 (.67)
Wtd. Avg. common shares
outstanding - basic...... 4,377 4,412 4,414 4,410 4,387 4,378 4,371 4,363
Wtd. Avg. common shares
outstanding diluted...... 4,377 4,487 4,451 4,410 4,387 4,378 4,373 4,363
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................ 25.3 25.8 25.1 21.7 24.0 24.3 24.0 20.7
Selling, general and
administrative expense... 32.4 18.4 15.6 20.7 34.8 17.8 16.3 25.0
Operating income (loss)..... (9.8) 6.3 8.7 (0.3) (13.7) 5.2 6.7 (6.8)
Interest expense............ 5.8 3.1 2.3 3.4 7.7 3.3 2.2 2.6
Net income (loss)........... (9.8) 2.1 4.0 (2.4) (13.5) 1.4 2.9 (6.7)
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 26% and
38%, 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."
22
Quarterly results may fluctuate due to many factors. Some of these
factors include, weather conditions, timing of special events such as boat
shows, availability of product and the opening or closing of store locations.
Accordingly, the results for any quarterly period may not be indicative of the
expected results for any other quarterly period.
The results for the quarter ended September 30, 2001 were negatively
impacted by certain events including the expenses related to the closing of two
(2) store locations and the establishment of reserve allowances on certain
inventories and accounts receivable. Management estimates the expenses
associated with these to be approximately $1.3 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 infrastructure. These short-term cash needs have historically been
financed with cash from operations and further supplemented by borrowings under
the Company's floor plan and revolving credit lines (collectively the "borrowing
agreements"). At September 30, 2001, the Company had approximately $1.4 million
in cash, $11.4 million in accounts receivable (primarily contracts in transit
from sales, manufacturer rebates receivable and other amounts due from
manufacturers) and $65.2 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 $7.1 million of accounts payable and accrued liabilities, $58.9
million outstanding under its borrowing agreements and $2.2 million in
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
$577,000 due in December, 2001 and one payment of $584,000 due in January, 2002.
As of September 30, 2001 and December 14, 2001, the aggregate maximum borrowing
limits under its borrowing agreements was $110.0 million and $90.0 million,
respectively (see Subsequent Events in the consolidated audited financial
statements of the Company and notes thereto included elsewhere in this Report on
Form 10-K).
At September 30, 2001 the Company had working capital of approximately
$12.0 million. Working capital, as of September 30, 2001, was reduced by the
Company's net loss and the aforementioned balloon payments of approximately $1.2
million, which pending the refinances thereof are classified as a current
liability.
In fiscal 2001, operating activities provided cash flows of $13.5
million due primarily to the decrease of $12.9 million in inventories (as a
result of the Company's inventory reduction strategies) and net increases in
accounts payable and the collection of the income taxes recoverable. These
amounts were offset partially by the net loss of $3.3 million, decreases in
accrued liabilities and prepaid expenses.
23
In fiscal 2000, operating activities utilized cash flows of $2.8
million due primarily to an increase of $2.4 million and $4.2 million in
inventories and income taxes payable, respectively. These amounts were offset
partially by net income of $897,000.
Investing activities utilized cash flows of $1.5 million due primarily
to the purchase and replacement of assets used in operations of the store
locations. These activities were primarily funded through the Company's
borrowing agreements and internal cash flows.
Financing activities in fiscal 2001 utilized cash flows of $13.6
million primarily from the repayment of amounts outstanding under the Company's
borrowing agreements. These repayments were generally from the proceeds of the
Company's net reduction in overall inventory levels during the period. The
Company finances substantially all of its inventory and working capital
requirements pursuant to borrowing agreements entered into in January 2000 with
two commercial finance companies -- Transamerica Distribution Finance ("TDF")
and Deutsche Financial Services ("DFS"). The agreements, which have maturity
dates of January 2003, contain substantially similar terms and financial ratio
based covenant requirements. The maximum aggregate borrowing availability as of
September 30, 2001 was limited to a maximum credit limit of $110 million at
various sub-prime based or LIBOR based interest rates (varying from 5.75% to
7.0% at September 30, 2001). 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 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). Acquisitions, the payment of dividends or repurchases of the Company's
common stock are also substantially limited without prior consent. As of
September 30, 2001, the Company was in violation of several financial ratio
covenants. However, the Company has entered into amended loan agreements with
both lenders dated as of December 14, 2001. Concurrent with execution of the
amended loan agreements, the Company received waivers on all financial covenants
that were then in non-compliance with the prior agreements. The amended loan
agreements also provide for certain revisions to (i) future financial ratio's
and (ii) the maximum amount which the Company may borrow from the initial amount
of $110 million to varying reduced amounts through July of 2002 when such
maximum amount will be established at $70 million until the expiration of the
borrowing agreements in January of 2003 (see Subsequent Events in the
consolidated audited financial statements of the Company and notes thereto
included elsewhere in this Report on Form 10-K).
Effective December 14, 2001 the Company entered into Subordinated
Convertible loan transactions in the aggregate amount of $4,300,000. The loans
are unsecured with a term of 36 months and have rates ranging from prime + 2%,
adjusted quarterly, to 10.75%, fixed. The principal and interest amounts payable
pursuant to the loans is subordinated, in substantially all respects, to the
Company's borrowing agreements with TDF and DFS providing inventory and working
capital financing for the Company. The loans are redeemable by the Company, and
if not redeemed may be converted by the holders into the Company's common stock
at a conversion price of approximately $2.46 per share (see Subsequent Events in
the consolidated audited financial statements of the Company and notes thereto
included elsewhere in this Report on Form 10-K).
Based upon management's Fiscal 2002 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.
24
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 21, 2001, $65.7 million was drawn on the borrowing
agreements and the Company could borrow (i) zero for general working capital
purposes, and (ii) an additional $24.3 million solely for additional
inventories. As the Company purchases inventory, the amount purchased increases
the borrowing base availability and typically the Company makes a determination
to borrow. 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, 2001 and 2000, the Company had non-interest
bearing borrowings of $ 5,370,000 and $5,795,000 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 $65.2 million and $78.1 million as of
September 30, 2001 and 2000, respectively. Accounts receivable, on a net basis,
decreased by approximately $265,000 to $11.4 million at the end of fiscal 2001
from a year earlier. Costs in excess of net assets acquired decreased by
approximately $837,000 to $10.4 million in fiscal 2001 due to the scheduled
amortization of this asset.
The Company had capital expenditures of approximately $1.5 million in
fiscal 2001 and approximately $4.8 million in fiscal 2000. Capital expenditures
during fiscal 2001 were primarily used for the purchase and replacement of
assets used in operations of the store locations. Capital expenditures in the
prior 2000 fiscal year included expenditures related to 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.
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 June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets", effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill and intangible assets deemed to have indefinite lives will
no longer be amortized but will be subject to annual impairment tests in
accordance with the Statements. Other intangible assets will continue to be
amortized over their useful lives. The Company must apply the new rules on
accounting for goodwill and other intangible assets beginning in the first
quarter of fiscal 2003. However, the Company has not yet determined whether it
will early adopt the new rules beginning in the first quarter of fiscal 2002 as
allowed by the Statement. Application of the nonamortization provisions of the
Statement is expected to result in an increase in net income of approximately
$265,000 in the year of adoption. In the year of adoption, the Company will
perform the first of the required impairment tests of goodwill and indefinite
lived intangible assets as of the beginning of the fiscal year and has not yet
determined what the effect of these tests will be on the results of operations
and financial position of the Company.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS 143 establishes accounting standards for recognition and
measurement of a liability for an asset retirement obligation and the associated
asset retirement cost. SFAS 143 is effective for financial statements relating
25
to fiscal years beginning after June 15, 2002. Management does not expect SFAS
143 to have a material effect on the Company's financial statements.
In September 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS No. 144 addresses the financial
accounting and reporting for the impairment of long-lived assets. SFAS 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001. Management has not yet determined what the effect of SFAS 144
will be on the results of operations and financial position of the Company.
Inflation
The Company believes that inflation generally has not had a material
impact on its operations or liquidity to date.
26
Item 7A. Quantitative And Qualitative Disclosures About Market Risk
At September 30, 2001, approximately 91.4% 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, 2001, the average rate of
interest of such variable rates was 6.79%. 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, 2001,
which averaged approximately $87,685,000, an increase of 2% in the average rate
of interest would result in an increase in fiscal 2001 interest expense of
approximately $1,753,700 and an increase in fiscal 2001 net loss and after-tax
cashflow of approximately $1,107,600. 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.
PART III
Item 10. Directors and Executive Officers
There is incorporated herein by reference that portion of the Company's
proxy statement for the 2002 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 2002 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 2002 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 2002 Annual Meeting of Shareholders
which appears under the captions "Certain Relationships and Related
Transactions" and "Compensation Committee Interlocks and Insider Participation."
27
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 Operations..............F-5
Consolidated Statements of Stockholders' Equity....F-6
Consolidated Statements of Cash Flows..............F-7
Notes to Consolidated Financial Statements.........F-9
(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,b) --[Intentionally left blank]
10.6(a,b) --[Intentionally left blank]
10.7(a,b) --[Intentionally left blank]
10.8(a - i) --[Intentionally left blank]
10.9(a,b,c) --[Intentionally left blank]
10.10(a,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)
28
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,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]
10.29(a - 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)
29
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)
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)
10.52 --TBC Management Ltd. Part I Amendment to Employment Agreement with Mark T. Walton.(8)
10.53 --TBC Management Ltd. Part I Amendment to Employment Agreement with Ronnie L. Spradling.(8)
10.54 --TBC Management Ltd. Part I Amendment to Employment Agreement with Michael B. Perrine.(8)
10.55 --Consent and Waiver by and between Travis Boats & Motors, Inc. and Brunswick Corporation
(Re: Deutsche Financial Services Corporation), dated as of December 14, 2001.
10.56 --Consent and Waiver by and between Travis Boats & Motors, Inc. and Brunswick Corporation
(Re: Transamerica Commercial Finance Corporation), dated as of December 14, 2001.
10.57 --Amended and Restated Loan and Security Agreement between Travis Boats & Motors, Inc. and
Deutsche Financial Services Corporation, dated as of December 10, 2001.
10.58 --Amendment No. 2 to Travis Boats & Motors, Inc. Loan and Security Agreement by and
between the Company and Transamerica Commercial Finance
Corporation, dated as of December 14, 2001.
10.59 --Subordination Agreement - Travis Boats & Motors, Inc. Indebtedness to Brunswick
Corporation by and between those parties (Re: Transamerica Commercial Finance
Corporation), dated as of December 14, 2001.
10.60 --Subordination Agreement - Travis Boats & Motors, Inc. Indebtedness to Brunswick
Corporation by and between those parties (Re: Deutsche
Financial Corporation), dated as of December 14, 2001.
10.61 --Subordination Agreement - Travis Boats & Motors, Inc. Indebtedness to Shareholder
Purchasers by and between those parties (Re: Brunswick
Corporation), dated as of December 14, 2001.
10.62 --Subordination Agreement - Travis Boats & Motors, Inc. Indebtedness to Shareholder
Purchasers by and between those parties (Re: Transamerica Commercial Finance
Corporation), dated as of December 14, 2001.
10.63 --Subordination Agreement - Travis Boats & Motors, Inc. Indebtedness to Shareholder
Purchasers by and between those parties (Re: Deutsche Financial Services Corporation),
dated as of December 14, 2001.
10.64 --Convertible Subordinated Promissory Note by and between those parties (Travis Boats &
Motors, Inc. to Brunswick Corporation), dated as of December 14, 2001.
10.65 --Travis Boats & Motors, Inc. Subordinated Note Purchase Agreement between Travis Boats &
Motors, Inc. and Brunswick Corporation, dated as of December 14, 2001.
10.66 --Travis Boats & Motors, Inc. Subordinated Note Purchase Agreement between Travis Boats &
Motors, Inc. and Shareholder Purchasers, dated as of December 14, 2001.
10.67 --Form of Convertible Subordinated Promissory Note (Travis Boats & Motors, Inc. to
Shareholder Purchaser), dated as of December 14, 2001.
21.1 --List of Subsidiaries of Registrant.(7)
23.1 --Consent of Independent Auditors.
- -------------------------------------
(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).
(8) Incorporated by reference to the Company's Annual Report on Form 10-Q
filed with the Commission on August 14, 2001 (File No. 000-20757).
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.
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: December 28, 2001 By: /s/ MARK T. WALTON
-------------------------------
Mark T. Walton
Chairman of the Board and
President
30
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, 2001, 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 December 28, 2001
- ------------------ Director (Principal Executive Officer)
Mark T. Walton
/S/ MICHAEL B. PERRINE Chief Financial Officer, Secretary and December 28, 2001
- ---------------------- Treasurer (Principal Financial and
Michael B. Perrine Accounting Officer)
/S/ RONNIE L. SPRADLING Executive Vice President-New Store December 28, 2001
- ----------------------- Development Director
Ronnie L. Spradling
/S/ STEVEN W. GURASICH, JR Director December 28, 2001
- --------------------------
Steven W. Gurasich, Jr.
/s/ ZACH MCCLENDON, JR. Director December 28, 2001
- -----------------------
Zach McClendon, Jr.
/S/ ROBERT C. SIDDONS Director December 28, 2001
- ---------------------
Robert C. Siddons
/S/ JOSEPH E. SIMPSON Director December 28, 2001
- ---------------------
Joseph E. Simpson
/S/ RICHARD BIRNBAUM Director December 28, 2001
- --------------------
Richard Birnbaum
31
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Financial Statements
Years ended September 30, 2001, 2000 and 1999
Contents
Report of Independent Auditors..............................................F-2
Audited Consolidated Financial Statements
Consolidated Balance Sheets.................................................F-3
Consolidated Statements of Operations.......................................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, 2001 and 2000, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended September 30, 2001. 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, 2001 and 2000 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 2001, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
November 27, 2001,
except for Notes 1, 2 and 10, as to which the date is December 14, 2001
Austin, Texas
F-2
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
September 30,
2001 2000
-----------------------------------
Assets
Current assets:
Cash and cash equivalents $ 1,388 $ 2,971
Accounts receivable, net of allowance for doubtful accounts of $527
in 2001 and $278 in 2000 11,351 11,616
Prepaid expenses 779 923
Income taxes recoverable and deferred tax asset 1,432 1,439
Inventories 65,164 78,079
-----------------------------------
Total current assets 80,114 95,028
Property and equipment:
Land 5,982 5,819
Buildings and improvements 15,485 14,713
Furniture, fixtures and equipment 8,762 8,262
-----------------------------------
30,229 28,794
Less accumulated depreciation (7,887) (5,878)
-----------------------------------
22,342 22,916
Deferred tax asset 488 204
Goodwill, net of accumulated amortization of $1,396 in 2001 and $986
in 2000 8,809 9,185
Noncompete agreements, net of accumulated amortization of $1,603 in
2001 and $1,162 in 2000 1,607 2,068
Other assets 320 246
-----------------------------------
Total assets $ 113,680 $ 129,647
===================================
F-3
September 30,
2001 2000
-----------------------------------
Liabilities
Current liabilities:
Accounts payable $ 5,875 $ 4,359
Accrued liabilities 1,203 1,826
Floor plan and revolving lines of credit payable 58,874 73,282
Current portion of notes payable and other short-term obligations 2,204 4,613
-----------------------------------
Total current liabilities 68,156 84,080
Notes payable, less current portion 9,375 6,015
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,
4,359,027 and 4,399,027 shares issued and outstanding at
September 30, 2001 and 2000, respectively 44 44
Paid-in capital 15,342 15,464
Retained earnings 20,763 24,044
-----------------------------------
Total stockholders' equity 36,149 39,552
-----------------------------------
Total liabilities and stockholders' equity $ 113,680 $ 129,647
===================================
See accompanying notes.
F-4
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except share data)
Year ended September 30,
2001 2000 1999
----------------------------------------------------------
Net sales $ 198,539 $ 217,718 $ 182,259
Cost of sales 152,160 164,409 135,625
----------------------------------------------------------
Gross profit 46,379 53,309 46,634
Selling, general and administrative expenses 41,492 42,326 30,978
Store closing costs 321 --- ---
Depreciation and amortization 2,906 2,645 1,967
----------------------------------------------------------
44,719 44,971 32,945
Operating income 1,660 8,338 13,689
Interest expense (6,533) (6,848) (3,808)
Gain on sale of asset --- --- 457
Other income (expense) 43 (26) 81
----------------------------------------------------------
Income before income taxes (4,830) 1,464 10,419
Income tax expense (benefit) (1,549) 567 3,846
----------------------------------------------------------
Net income (loss) $ (3,281) $ 897 $ 6,573
==========================================================
Earnings per share:
Basic $ (.75) $ .20 $ 1.53
==========================================================
Diluted $ (.75) $ .20 $ 1.49
==========================================================
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, 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/(loss) - - - 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/(loss) - - - 897 897
------------------------------------------------------------------------
Balance at September 30, 2000 4,399 44 15,464 24,044 39,552
Repurchase and cancellation of common
stock (40) - (122) - (122)
Net income/(loss) - - - (3,281) (3,281)
------------------------------------------------------------------------
Balance at September 30, 2001 4,359 $ 44 $ 15,342 $ 20,763 $ 36,149
========================================================================
See accompanying notes.
F-6
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Year ended September 30,
2001 2000 1999
----------------------------------------------------------
Operating activities
Net income/(loss) $ (3,281) $ 897 $ 6,573
Adjustments to reconcile net income/(loss) to
net cash provided by (used in) operating
activities:
Depreciation 2,018 1,791 1,359
Amortization 888 854 608
Deferred income taxes (320) (18) 19
Changes in operating assets and
liabilities:
Accounts receivable 265 805 (7,315)
Prepaid expenses 144 254 (132)
Inventories 12,915 (2,379) (17,990)
Other assets (74) (47) (123)
Accounts payable 1,516 746 925
Accrued liabilities (623) (1,502) (456)
Income taxes recoverable/income tax
payable 43 (4,188) 3,245
----------------------------------------------------------
Net cash provided by (used in) operating
activities 13,491 (2,787) (13,287)
Investing activities
Purchase of businesses -0- (1,034) (6,101)
Purchase of property and equipment (1,495) (4,762) (7,725)
----------------------------------------------------------
Net cash used in investing activities (1,495) (5,796) (13,826)
F-7
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Year ended September 30,
2001 2000 1999
----------------------------------------------------------
Financing activities
Net increase (decrease) in notes payable and
other short-term obligations $ (13,457) $ 7,466 $ 26,559
Net proceeds (payments) from issuance
(repurchase) of common stock (122) (37) 61
----------------------------------------------------------
Net cash provided by (used in) financing
activities (13,579) 7,429 26,620
Change in cash and cash equivalents (1,583) (1,154) (493)
Cash and cash equivalents, beginning of year 2,971 4,125 4,618
----------------------------------------------------------
Cash and cash equivalents, end of year $ 1,388 $ 2,971 $ 4,125
==========================================================
Supplemental Disclosure of Debt and Stock Issued in Purchase of Businesses
- --------------------------------------------------------------------------
Year ended September 30,
2001 2000 1999
--------------------------------------------------------
Debt issued in purchase of businesses $ --- $ --- $ 2,082
Stock issued in purchase of
businesses $ --- $ 1,100 $ 525
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
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.
Description of 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 Company finances substantially all of its inventory purchases and working
capital requirements through its borrowing agreements with two commercial
finance companies (see Notes 2 and 10). Although the Company has violated
certain debt covenants pursuant to such agreements in the past, the Company has
obtained waivers for such violations and it 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 2002 operating plan, including cost reduction initiatives and 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 other outstanding debt. However,
material shortfalls from anticipated performance could require the Company to
seek further amendment to the amended borrowing agreements or alternative
sources of financing. Description of Consolidation 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.
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 due to either their short-term nature or their variable
interest rate.
F-9
1. Summary of Significant Accounting Policies (continued)
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, amounts due from vendors under rebate programs and
amounts due from vendors for services provided under warranty programs.
The accounts receivable balances consisted of the following as of September 30,
2001 and 2000 (in thousands):
2001 2000
------------- -------------
Trade receivables............................ $ 4,584 $ 5,540
Amounts due from manufacturers............... 6,691 5,511
Other receivables............................ 603 843
Allowance for doubtful accounts.............. (527) (278)
------------- -------------
$ 11,351 $ 11,616
============= =============
Activity in the Company's allowance for doubtful accounts is as follows (in
thousands):
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
Additions charged to costs and expenses......... 479
Write-offs of uncollectible accounts............ (230)
---------------
Balance at September 30, 2001............................ $ 527
===============
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, 2001 and 2000 (in
thousands):
2001 2000
------------- -------------
New boats, motors and trailers................. $ 53,596 $ 65,333
Used boats, motors and trailers................ 5,330 5,653
Parts, accessories and other................... 6,722 7,510
Valuation allowance............................ (484) (417)
------------- -------------
$ 65,164 $ 78,079
============= =============
F-10
1. Summary of Significant Accounting Policies (continued)
Inventories (continued)
Activity in the Company's inventory valuation allowance is as follows (in
thousands):
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
Additions charged to costs and expenses................. 67
Inventory write-offs............................... -0-
-------------
Balance at September 30, 2001.................................... $ 484
=============
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 7 years
Goodwill 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.
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. To date, the Company has not assessed that goodwill will
not be recoverable as determined by the undisclosed cash flow of an individual
store location.
Pre-opening Costs
Pre-opening costs related to new store locations are expensed as incurred.
F-11
1. Summary of Significant Accounting Policies (continued)
Significant Suppliers
The Company purchased substantially all of its new outboard motors for use on
its Travis Edition boat packages from a single outboard motor manufacturer,
Brunswick Corporation, in fiscal year 2001. During the 2000 and the 1999 fiscal
years the Company purchased substantially all outboard motors from Brunswick
Corporation and the former Outboard Marine Corporation.
Approximately 42%, 33% and 12% of the Company's net purchases (including product
purchased in acquisitions) in fiscal 2001, 2000 and 1999, respectively, were
manufactured by boat suppliers owned by Genmar Holdings.
Advertising Costs
Advertising costs are expensed as incurred and were approximately $2,295,000,
$2,618,000 and $1,192,000 during the fiscal years ended September 30, 2001, 2000
and 1999, respectively.
Reclassifications
Certain amounts in the 2000 and 1999 financial statements have been reclassified
to conform with the classifications in the 2001 financial statements with no
effect on previously reported net income or stockholders' equity
Net Income/(Loss) Per Common Share
Year Ended September 30,
2001 2000 1999
------------- ------------- -------------
(in thousands, except per share data)
Numerator:
Net income/(loss) $ (3,281) $ 897 $ 6,573
============= ============= =============
Denominator:
Denominator for basic earnings per share - weighted average
shares 4,375 4,403 4,291
Effect of dilutive securities:
Employee stock options -- 43 118
------------- ------------- -------------
Denominator for diluted earnings per share - adjusted weighted
average shares and assumed conversions 4,375 4,446 4,409
============= ============= =============
Basic earnings per share $ (.75) $ .20 $ 1.53
Diluted earnings per share $ (.75) $ .20 $ 1.49
Options to purchase the following shares of common stock were excluded from the
computation of diluted EPS for the years ended September 30, 2001 as such shares
would be anti-dilutive and for the periods ended September 30, 2000 and 1999
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.
Excluded Exercises Contractual
Fiscal Year Options Prices Life in Years
- ------------------------------------------------------------------------------
2001 404,964 $ 6.80 6.67
2000 164,766 $ 14.40 6.93
1999 97,500 $ 21.18 7.79
F-12
2. Notes Payable and Other Short-Term Obligations
The Company finances substantially all of its inventory and working capital
requirements pursuant to borrowing agreements entered into in January 2000 with
two commercial finance companies. The agreements, which have maturity dates of
January 2003, contain substantially similar terms and financial ratio based
covenant requirements. The maximum aggregate borrowing availability as of
September 30, 2001 was limited to a maximum credit limit of $110 million at
various sub-prime based or LIBOR based interest rates (varying from 5.75% to
7.0% at September 30, 2001). 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 acquisitions, payment of
dividends or significant repurchases of the Company's common stock without prior
consent. As of September 30, 2001, the Company was in violation of several
financial ratio covenants. However, written waivers have been obtained and the
Company has entered into amended loan agreements with both lenders dated as of
December 14, 2001. (See Note 10)
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,
2001 and 2000, the Company had non-interest bearing borrowings of approximately
$5,370,000 and $5,795,000 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,
2001 2000
-----------------------------------
(in thousands)
Notes payable to commercial finance companies under revolving $ 58,874 $ 73,282
and floor plan line of credit agreements with interest
ranging from 0% to prime minus .25% with a stated maturity
date of January 31, 2003.
Notes payable (see terms below) 11,579 10,628
-----------------------------------
Total notes payable and other short-term obligations 70,453 83,910
Less current portion (61,078) (77,895)
-----------------------------------
Total notes payable, less current portion $ 9,375 $ 6,015
===================================
The weighted average interest rate on the borrowing arrangements and the floor
plan payables outstanding as of September 30, 2001 and 2000 was 6.8% and 6.9%,
respectively.
F-13
2. Notes Payable and Other Short-Term Obligations (continued)
Notes Payable consist of the following: September 30,
2001 2000
-----------------------------------
(in thousands)
Mortgage notes payable to various banks, organizations and
individuals secured by deeds of trust with interest ranging
from 6.0% to 8.85%, due in monthly principal and interest
installments ranging from $1,899 to $39,745, maturing
beginning in April 2004. $ 9,530 $ 5,410
Mortgage notes payable to various banks under deeds of
trust with balloon payments due in December 2001 of
$577,000 and January 2002 of $584,000 with interest
ranging from 30 day LIBOR +.375% to prime plus .25%,
floating. 1,161 3,584
Notes payable to various banks and a corporation secured by
certain vehicles, equipment and leasehold improvements
with interest ranging from 7.5% to 11.0%, due in monthly
principal and interest installments ranging from $209
to $3,106, maturing beginning in June 2004. 196 233
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. 692 1,401
-----------------------------------
Total notes payable $ 11,579 $ 10,628
===================================
Certain notes payable are secured by specific assets of the Company including
equipment, leasehold improvements, vehicles, land and buildings.
At September 30, 2001 and 2000, approximately 91.4% and 92.4% 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 2001, 2000 and 1999.
Aggregate annual maturities required on notes payable at September 30, 2001 are
as follows (in thousands):
Year ending
September 30
2002 $ 2,204
2003 635
2004 1,553
2005 547
2006 3,932
Thereafter 2,708
------------------
$ 11,579
==================
F-14
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 $3,841,000 in 2001, $3,524,000 in 2000 and
$2,031,000 in 1999.
Future minimum payments under non-cancelable operating leases at September 30,
2001 are as follows for each of the years ending September 30 (in thousands):
2002 $ 3,178
2003 2,451
2004 1,791
2005 1,085
2006 690
Thereafter 1,010
-----------------
$ 10,205
=================
Generally, the leases for facilities provide for renewals for various periods at
stipulated rates.
4. Acquisitions
The Company made various acquisitions during fiscal 1999. 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
Agreements
Date of Purchase Tangible and Cash Liabilities Notes Stock
Name of Company Acquisition Price Net Assets Goodwill Paid Assumed Issued Issued
- -----------------------------------------------------------------------------------------------------------------
Fiscal 1999
Amlin, Inc. dba Magic Marine 01/99 $1,639 $6,019 $1,090 $1,639 $5,470 $--- $---
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 & Service 04/99 2,147 4,798 1,597 2,147 4,248 -- ---
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
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.
F-15
4. Acquisitions (continued)
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, 1998 are as follows for the fiscal year ended September 30, 1999:
Net Sales $206,994,000
Net Income 7,668,000
Diluted earnings per share 1.74
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, 1998.
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,
2001 2000
-----------------------------------
Deferred tax assets:
Book over tax depreciation $ 488 $ 204
Accruals and valuation reserves 107 71
-----------------------------------
Net deferred tax assets $ 595 $ 275
===================================
F-16
5. Income Taxes (continued)
Significant components of the provisions (benefit) for income taxes are as
follows (in thousands):
Year ended September 30,
2001 2000 1999
----------------------------------------------------------
Current expense (benefit):
Federal $ (1,100) $ 507 $ 3,424
State (129) 79 403
----------------------------------------------------------
Total current expense (benefit) (1,229) 586 3,827
Deferred expense (benefit):
Federal (320) (19) 19
State - - -
----------------------------------------------------------
Total deferred expense (benefit) (320) (19) 19
----------------------------------------------------------
Total provision/(benefit) for income taxes $ (1,549) $ 567 $ 3,846
==========================================================
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,
2001 2000 1999
----------------------------------------------------------
Income tax expense/(benefit) at the federal
statutory rate $ (1,642) $ 498 $ 3,542
State income taxes (129) 79 403
Other 222 (10) (99)
----------------------------------------------------------
$ (1,549) $ 567 $ 3,846
==========================================================
Income taxes paid/(received) were approximately ($1,200,000); $1,850,000 and
$1,563,000 in the fiscal years ended September 30, 2001, 2000 and 1999,
respectively. The Company believes that its Tax Benefit as of September 30, 2001
is recoverable from federal income taxes paid in prior years eligible for
carry-back.
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.
F-17
6. Stockholders' Equity (continued)
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 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, 2001, 2000 and 1999:
Weighted
Range of Exercise Average
Number of Shares Prices Exercise Price
-----------------------------------------------------
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
Granted 82,333 $2.70-$4.00 $ 3.07
Exercised --- --- ---
Forfeited (68,500) $4.00-$22.50 $16.00
------------------
Outstanding at September 30, 2001 404,964 $2.70-$22.375 $ 6.80
==================
Exercisable at September 30, 2001 308,764 $2.70-$22.375 $ 6.60
==================
Options available for grant at September 30, 2001 36,239
==================
Common stock reserved for issuance at September 30,
2001 441,203
==================
The weighted-average remaining contractual life of options at September 30, 2001
and 2000 is approximately 6.67 and 7.08 years, respectively.
Options outstanding at September 30, 2001, are comprised of the following:
Outstanding Exercisable
----------------------------------- -------------------------------
Weighted Avg.
Range of Exercise Weighted Avg. Contractual Life Number of Weighted Avg.
Prices Options Exercise Prices in Years Options Exercise Price
- ------------------------------------------------------------------------------------------------------------------
$2.70 - $4.00 92,333 $ 3.17 9.40 80,933 $ 3.10
$5.25 - $5.75 206,865 $ 5.49 5.96 139,865 $ 5.36
$8.875 - $11.50 73,766 $ 9.37 5.45 66,966 $ 9.33
$15.00 - $22.375 32,000 $ 19.87 6.28 21,000 $ 19.69
- ------------------------------------------------------------------------------------------------------------------
$2.70 - $22.375 404,964 $ 6.80 6.67 308,764 $ 6.60
==================================================================================================================
F-18
6. Stockholders' Equity (continued)
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.
The FASB recently issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation", (the "Interpretation"), that
provides guidance related to the implementation of APB 25. The Interpretation is
to be applied prospectively to all new awards, modifications to outstanding
awards and changes in employee status on or after July 1, 2000. After December
15, 1998, for changes to awards that affect exercise prices of awards, the
Company must prospectively account for the impact of those changes. The adoption
of the Interpretation did not have a material impact on the Company's financial
condition or results of operations.
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,
2001 2000 1999
--------------------------------------------------
Risk-free interest rate 3.00% 6.50% 6.00%
Dividend yield 0% 0% 0%
Expected life 5 years 5 years 5 years
Volatility 65.2% 64.5% 39.3%
The pro forma amounts under Statement No. 123 are as follows:
Year Ended September 30,
2001 2000 1999
---------------------------------------------
Net income/loss as reported (000's) ($3,281) $897 $6,572
Pro forma net income/loss (000's) ($3,460) $738 $6,467
Diluted EPS - as reported ($0.75) $0.20 $1.49
Pro forma - Diluted EPS ($0.79) $0.17 $1.47
The compensation expense associated with the fair value of the options
calculated in 2001, 2000 and 1999 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,
2001 2000 1999
--------------------------------------------------
Shares Repurchased (000's) 40 15 -0-
Total Purchase Price (000's) $122 $59 n/a
Average Price per Share $3.08 $3.92 n/a
F-19
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.
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, 2001, 2000 and 1999.
9. New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets", effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill and intangible assets deemed to have indefinite lives will
no longer be amortized but will be subject to annual impairment tests in
accordance with the Statements. Other intangible assets will continue to be
amortized over their useful lives. The Company must apply the new rules on
accounting for goodwill and other intangible assets beginning in the first
quarter of fiscal 2003. However, the Company has not yet determined whether it
will early adopt the new rules beginning in the first quarter of fiscal 2002 as
allowed by the Statement. Application of the nonamortization provisions of the
Statement is expected to result in an increase in net income of approximately
$265,000 in the year of adoption. In the year of adoption, the Company will
perform the first of the required impairment tests of goodwill and indefinite
lived intangible assets as of the beginning of the fiscal year and has not yet
determined what the effect of these tests will be on the results of operations
and financial position of the Company.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS 143 establishes accounting standards for recognition and
measurement of a liability for an asset retirement obligation and the associated
asset retirement cost. SFAS 143 is effective for financial statements relating
to fiscal years beginning after June 15, 2002. Management does not expect SFAS
143 to have a material effect on the Company's financial statements.
In September 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS 144 addresses the financial accounting
and reporting for the impairment or disposal of long-lived assets. SFAS 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001. Management has not yet determined what the effect of SFAS 144
will be on the results of operations and financial position of the Company.
10. Subsequent Events
Loan Transactions
Effective December 14, 2001 the Company entered into amended and restated
borrowing agreements (the "Amended Agreements") with its two commercial finance
companies which provide substantially all of the Company's financing for its
inventory and working capital requirements (see Footnote #2 "Notes Payable and
Other Short Term Obligations"). Concurrent with execution of the Amended
Agreements, the Company received waivers on all financial covenants that were
then in non-compliance with the prior agreements. The Amended Agreements also
provide for certain revisions to (i) future financial ratio's and (ii) the
maximum amount which the Company may borrow from the initial amount of $110
million to varying reduced amounts through July of 2002 when such maximum amount
will be established at $70 million until the expiration of the borrowing
agreements in January of 2003.
F-20
Subordinated Convertible Loan Transactions
Effective December 14, 2001 the Company entered into Subordinated Convertible
loan transactions in the aggregate amount of $4,300,000. The loans are unsecured
with a term of 36 months and have rates ranging from prime + 2%, adjusted
quarterly, to 10.75%, fixed. The principal and interest amounts payable pursuant
to the loans is subordinated, in substantially all respects, to the Company's
borrowing agreements with the commercial finance companies providing inventory
and working capital financing for the Company (see Note 2). The loans are
redeemable by the Company, and if not redeemed may be converted by the holders
into the Company's common stock at a conversion price of approximately $2.46 per
share.
F-21