Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD OF ________ TO ________.
Commission File Number 0-20757
TRAVIS BOATS & MOTORS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2024798
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12116 Jekel Circle, Suite 102, Austin, Texas 78727
(Address of principal executive offices)
Registrant's telephone number, including area code: (512) 347-8787
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [ ] No [ X]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest practicable date.
Common Stock $.01 par value - 4,329,727 shares as of February 18, 2003.
INDEX
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets:
December 31, 2002 and September 30, 2002................................................1
Condensed Consolidated Statements of Operations:
Three Months Ended December 31, 2002 and 2001...........................................2
Unaudited Condensed Consolidated Statements of Cash Flows:
Three Months Ended December 31, 2002 and 2001...........................................3
Notes to Condensed Financial Statements.................................................4
Item 2: Management's Discussion and Analysis of Financial
Risk Factors............................................................................6
Condition and Results of Operations.....................................................6
Item 3: Quantitative and Qualitative Disclosures About Market Risk...............................................12
PART II - OTHER INFORMATION
Items 1 - 6........................................................................................................9
Signatures........................................................................................................10
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Travis Boats & Motors, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
( in thousands, except share data )
December 31, September 30,
2002 2002
------------- ----------------
(unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $887 $4,253
Accounts receivable, net 7,660 9,681
Inventories, net 65,865 56,957
Income Taxes Recoverable/Deferred tax asset 2,378 611
Prepaid expenses and other 1,168 1,009
------------- ----------------
Total current assets 77,958 72,511
Property and equipment:
Land 5,982 5,982
Buildings and improvements 15,932 15,899
Furniture, fixtures and equipment 9,362 9,327
------------- ----------------
31,276 31,208
Less accumulated depreciation (10,321) (9,820)
------------- ----------------
20,955 21,388
Intangibles and other assets:
Goodwill -- --
Non-compete agreements, net 1,045 1,149
Other assets 632 384
------------- ----------------
Total assets $100,320 $95,432
============= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $4,168 $4,122
Accrued liabilities 2,201 1,439
Floor plan and revolving line of
credit 58,984 50,949
Current portion of notes payable and other short-term 440 1,025
obligations
Notes payable in default, classified as short-term 6,856 6,436
obligations
------------- ----------------
Total current liabilities 72,649 63,971
Notes payable, less current portion 3,141 3,225
Convertible Subordinated Notes 1,300 1,300
Stockholders' equity
Serial Preferred stock, $100 par value, 1,000,000
shares authorized, 80,000 shares outstanding 8,000 8,000
Common Stock, $.01 par value, 50,000,000 authorized,
4,329,727 and 4,329,727 issued and outstanding at
December 31, 2002 and September 30, 2002, respectively 43 43
Paid-in capital 15,108 15,109
Retained earnings 79 3,784
------------- ----------------
Total stockholders' equity 23,230 26,936
------------- ----------------
Total liabilities and stockholders' equity $100,320 $95,432
============= ================
See notes to unaudited condensed consolidated financial statements
1
TRAVIS BOATS & MOTORS, INC. and SUBSIDIARIES
Unaudited Financial Highlights (in thousands, except share and store data)
Three Months ended
December 31,
2002 2001
----------------------
Net sales..................................... $17,887 $20,666
Cost of goods sold............................ 14,370 16,601
---------- ---------
Gross profit.................................. 3,517 4,065
Selling, general and administrative........... 7,336 7,314
Financing and board restructure expenses...... 145 ---
Depreciation and amortization................. 657 627
---------- ---------
8,138 7,941
Operating loss................................ (4,621) (3,876)
Interest expense.............................. (812) (1,039)
Other income.................................. 20 17
---------- ---------
Loss before income tax benefit and cumulative
effect of accounting change................... (5,413) (4,898)
Income tax benefit............................ (1,830) (1,794)
---------- ---------
Net loss before cumulative effect of
accounting change............................. ($3,583) ($3,104)
Cumulative effect of accounting change, net of
taxes of $2,281............................... --- (6,528)
---------- ---------
Net loss...................................... ($3,583) ($9,632)
Preferred stock dividends..................... ($120) ---
---------- ---------
Net loss attributable to common shareholders.. ($3,703) ($9,632)
========== =========
Basic and Diluted Loss Per Share before
dividends and cumulative effect of accounting
change, net................................... ($0.83) ($0.71)
Preferred stock dividends................. (0.03) ---
Cumulative effect of accounting change, net... --- (1.50)
---------- ---------
Basic and Diluted Loss Per Share.............. ($0.86) ($2.21)
========== =========
Weighted Average Basic
and Dilutive common shares outstanding...... 4,329,727 4,355,081
2
Travis Boats & Motors, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
Three months ended
December 31,
2002 2001
----------------------------------
Operating activities:
Net Loss ($3,583) ($9,632)
Adjustments to reconcile net loss to net cash used in
Operating activities:
Depreciation........................................................... 549 512
Amortization........................................................... 108 115
Cumlative effect of accounting change, act............................. 0 6,528
Changes in operating assets and liabilities
Accounts receivable............................................... 2,021 1,227
Prepaid expenses.................................................. (159) (104)
Inventories....................................................... (8,908) (8,795)
Other assets...................................................... 22 0
Accounts payable.................................................. 46 737
Accrued liabilities............................................... 762 (46)
Income tax recoverable............................................ (1,767) (1,557)
-------------- ---------------
Net Cash used in operating activities.................................. (10,909) (11,015)
Investing Activities:
Purchase of property and equipment..................................... (123) (66)
-------------- ---------------
Net cash used in investing activities.................................. (123) (66)
Financing activities:
Proceeds from issuance of Convertible Subordinated Notes............... 0 4,300
Net increase in notes payable and other short term obligations......... 7,786 7,045
Preferred stock dividends.............................................. (120) 0
Net proceeds (payments) from issuance
(repurchase) of common stock........................................ 0 (8)
-------------- ---------------
Net cash provided by financing activities.............................. 7,666 11,337
Change in cash and cash equivalents.................................... (3,366) 256
Cash and cash equivalents, beginning of period......................... 4,253 1,388
-------------- ---------------
Cash and cash equivalents, end of period.............................. $ 887 $1,644
============== ===============
See notes to unaudited condensed consolidated financial statements
3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared from the records of Travis Boats & Motors, Inc. and subsidiaries
(collectively, the Company) without audit. In the opinion of management, such
financial statements include all adjustments (consisting of only recurring
accruals) necessary to present fairly the financial position at December 31,
2002; and the interim results of operations and cash flows for the three month
periods ended December 31, 2002 and 2001. The condensed consolidated balance
sheet at September 30, 2002, presented herein, has been prepared from the
audited consolidated financial statements of the Company for the fiscal year
then ended.
Accounting policies followed by the Company are described in Note 2 to the
audited consolidated financial statements for the fiscal year ended September
30, 2002. Certain information and footnote disclosures normally included in
financial statements have been condensed or omitted for purposes of the
condensed consolidated interim financial statements. The condensed consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements, including the notes thereto, for the fiscal year ended
September 30, 2002 included in the Company's annual Report on Form 10-K.
The results of operations for the three month period ended December 31, 2002 are
not necessarily indicative of the results to be expected for the full fiscal
year.
NOTE 2 - BASIC/DILUTED OUTSTANDING SHARE CALCULATION
Financial Accounting Standards Board Statement No. 128 requires the calculation
of earnings per share to exclude common stock equivalents when the inclusion of
such would be anti-dilutive. In the quarters ended December 31, 2002 and 2001,
the inclusion of common stock equivalents would have been anti-dilutive based
upon the net loss posted by the Company. As such, all common stock equivalents
were excluded.
The Company had issued and outstanding incentive stock options to certain
officers, directors and employees totaling 311,298 shares which had a strike
price equal to or exceeding the closing price of the Company's common stock on
such date. The 311,298 option shares have a weighted average strike price of
$5.14 and a weighted average outstanding remaining life of 5.8 years.
Effective as of January 7, 2003, the Company cancelled 237,198 outstanding
incentive stock options with a weighted average remaining life of 5.37 years and
a weighted average strike price of $4.78 per share. the incentive stock options
were previously held by executive management and one independent board member.
The cancellatkon of the incentive stock options was a requirement of the terms
for the $1.5 million short term financing agreements entered into effective as
of December 2002.
The Company also has 528,584 shares of common stock subject to issuance pursuant
to $1.3 million in outstanding convertible subordinated notes and 3,252,826
shares of common stock subject to issuance pursuant to 80,000 shares of Series A
Preferred Stock outstanding as the conversion price of approximately $2.46 per
share of both issuances exceeds the Company's average market price of its common
stock.
4
NOTE 3 - STOCKHOLDERS' EQUITY
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.
Repurchases of shares of common stock during the quarters ended December 31,
2002 and 2001 consisted of the following:
3 mos ended 3 mos ended
December 31, 2002 December 31, 2001
------------------- -------------------
Shares Repurchased (000's) -- 8.5
Total Purchase Price (000's) -- $18
Average Price per Share -- $2.12
NOTE 4 - CONVERTIBLE SUBORDINATED NOTES
The Company has outstanding Convertible Subordinated Notes (the "Notes") in an
aggregate amount of $1.3 million originally issued in December 2001. The Notes
are unsecured with a term of 36 months and accrue interest at 10.75%, fixed. The
principal and interest amounts payable pursuant to the Notes are 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. The Notes are redeemable by the Company, and if not redeemed
the principal amount of the Notes may be converted by the holders into the
Company's common stock at a conversion price of approximately $2.46 per share.
NOTE 5 - SERIES A PREFERRED STOCK.
The Company has issued 80,000 shares of 6% Series A Cumulatiave Convertible
Preferred Stock (the "Preferred Stock") pursuant to an agreement with TMRC,
L.L.P. ("Tracker"), a wholly-owned subsidiary of Tracker Marine, L.L.C. The
issue price of the Preferred Stock is $100 per share. Each share may be
converted into the Company's common stock at a conversion price of approximately
$2.46 per share. The Preferred Stock is governed by a comprehensive agreement
that provides, among other components, the right to name certain directors and
re-pricing options in the event of the issuance of other equity securities or
debt with more favorable conversion prices or terms.
NOTE 6 - SHORT TERM BORROWINGS
The Company finances substantially all of its inventory and working capital
requirements pursuant to inventory borrowing agreements entered into in January
2000 with two commercial finance companies. The agreements which have maturity
dates of April 30, 2003 (see Management's Discussion and Analysis --
"Liquidity"), contain
5
substantially similar terms and financial ratio based covenant requirements. The
maximum aggregate borrowing availability as of December 31, 2002 was limited to
a maximum credit limit of $70 million at various prime based or LIBOR based
interest rates (varying from 4.75% to 4.82% at December 31, 2002). Borrowings
under the agreements are pursuant to a borrowing base, or specific floor plan,
advancing fomula and are used prmiarily to finance inventory purchases and for
general working capital requirements. Substantially all inventory, accounts
receivable, furniture, fixtures, equipment and intangible assets collateralize
these agreements. Pursuant to certain waivers and restructuring of covenants
under these inventory borrowing agreements during the 2002 fiscal year, the
Company also granted junior liens on its real estate holdings as collateral.
The Company also has approximately $6.8 million in real estate loans with a
single lender which have been re-classified as current for financial reporting
since (i) one loan in the amount of approximately $515,000 has matured and has
not been repaid or refinanced and (ii) the Company is out of compliance with
financial loan covenants. The Lender has demanded the early repayment of all
loans effective as of February 10, 2003. The Company has requested that the
Lender refinance the loans, but no guarantee can be made that the request will
be granted or that the Lender will not proceed with the demand for early
repayment. (See Risk Factors - "We are Out of Compliance on Certain Loan
Agreements, Have Been Out of Compliance on Others and have a Matured Real Estate
Loan that Has Not Been Refinanced or Repaid.").
NOTE 7 - GOODWILL
The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS
142") effective October 1, 2001. SFAS 142 provides that separable intangible
assets that have finite lives will continue to be amortized over their useful
lives and that goodwill and indefinite-lived intangible assets will no longer be
amortized but will be reviewed for impairment annually, or more frequently if
impairment indicators arise. The Company operates as one reporting unit for
goodwill impairment testing. Accordingly, with the adoption of the Statement,
the Company ceased amortization of goodwill as of October 1, 2001.
In accordance with SFAS 142, the Company completed goodwill impairment tests as
required. The tests involved the use of estimates related to the fair market
value of the business with which the goodwill is associated. As a result of the
transitional impairment test, which considered factors including the significant
negative industry and economic trends impacting current operations and our
market capitalization relative to our net book value, the Company recorded a
non-cash, after tax charge of $6.5 million (charge of $8.8 million less tax
effect of $2.3 million) as a cumulative effect of accounting change as of
October 1, 2001. The non-cash, after tax charge resulted in the elimination of
the entire goodwill balance from the Company's balance sheet.
Estimated amortization expense for the next five fiscal years is approximately
$415,000 in 2003; $385,000 in 2004; $235,000 in 2005, $118,000 in 2006 and $0 in
2007.
6
NOTE 9 - COMPREHENSIVE LOSSFor the three months ended December 31, 2002 and
2001, the Company recorded no comprehensive loss items, other than the net loss.
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
Risk Factors
Some of the information in this Report on Form 10-Q 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-Q, 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-Q occur, they could have a
material adverse effect on our business, operating results and financial
condition. For a more comprehensive discussion of these and the numerous other
Risk Factors affecting our business and operations see the Company's Report on
Form 10-K filed for the fiscal year ended September 30, 2002.
We are Out of Compliance on Certain Loan Agreements, Have Been Out of Compliance
on Others and have a Matured Real Estate Loan that Has Not Been Refinanced or
Repaid. We have completed the last two fiscal years with net losses. As a result
of these net losses, we have been out of compliance, at various times, on
certain loan agreement requirments of our inventory borrowing agreements and
real estate loans. These have occurred because we did not have the amount of net
earnings or cash flow required under our loan agreements. We have negotiated
short term waivers discussed above on terms of our inventory borrowing
agreements; however we are also currently not in compliance with financial
covenants of a loan agreement on certain real estate loans with Hibernia
National Bank ("Hibernia") requiring (i) minimum cash flow and (ii) minimum
tangible net worth.
The Company has a real estate loan in the amount of $515,076 with Hibernia that
matured on January 28, 2003. the Company has not repaid the loan, nor has it
been successful at negotiating a refinance of the loan. Hibernia has notified
the Company by letters dated as of January 31, 2003 that the unpaid loan is a
default under the loan documents. Additionally, the default represents a
cross-default under all of the Company's remaining loans from Hibernia. Hibernia
has demanded repayment on that matured loan and on each of the Company's other
loans with Hibernia by February 10, 2003. In the event of non-payment, Hibernia
notified the Company that it will proceed with any legal action necessary to
collect all sums due. The total outstanding principal balance of the six (6)
loans upon which payment has been demanded is approximately $6.8 million as of
the date of this Report on Form 10-Q.
By virtue of a cross-default clause in the Hibernia loans and the Company's
inventory borrowing agreements with our Senior Lenders, the above maturity
default on the $515,076 Hibernia note triggers a default under the inventory
borrowing agreements as well. The Company's newly-formed Operating Committee has
been in contact with Hibernia and has arranged meetings to review the situation
in an effort to resolve the
7
issue. The Operating Committee will further need to meet with the Company's
Senior Lenders to determine if an agreement can be reached in order to cure or
waive the cross-default provisions related to the Hibernia loans.
Our inability to continue to (i) negotiate waivers, (ii) to restructure or renew
these loans, or (iii) operate without being in compliance would result in a
significant and severe financial impact on our business, operating results and
financial condition. As outlined above, the default resulting from the matured
loan described above results in a concurrent default on our inventory borrowing
agreements. Accordingly, the Company is seeking to (i) refinance these loans
with other lenders based upon the favorable loan amount (approximately $6.8
million as of December 31, 2002) to apraised valuation (approximately $12.3
million as of September 30, 2002) based on the lender's third party appraisals
of the real estate securing the loan; (ii) sell the real estate in a
sale/leaseback transaction, or (iii) sell the real estate and relocate the
effected store locations to alternative leased locations. There is no guarantee
that the Company will be able to renegotiate these loans, to refinance the loans
or to sell the real estate and if such is accomplished that the terms of any
re-negotiations, refinance or sale will be acceptable to the Company or result
in proceeds sufficient to repay the indebtedness. This could jeopardize our
financial stability and force us to further restructure our operations, or
possibly to suspend operations until a plan of alternative financing is achieved
and could result in our Company being unable to continue as a going concern.
(See "Item 3. Defaults Upon Senior Securities" elsewhere in this Report on Form
10-Q).
We Must Comply with Listing Requirements for the NASDAQ Stock Market. We
transferred our common stock to the Nasdaq Small Cap Market effective as of
October 25, 2002. We requsted the transfer because oru Company did not comply
with all of the requirements for trading on the Nasdaq National Market. By
letter dated as of February 14, 2003 we were notified by the NASDAQ that the
closing price for our common stock for the 30 days prior thereto was below the
minimum $1.00 bid price required by the Nasdaq Small Cap Market. The NASDAQ
notified the Company that it can regain compliance of the Company's common stock
closes at $1.00 per share or more for a minimum of 10 consecutive trading days
prior to August 13, 2003. Otherwise, the NASDAQ will provide written
notification that the Company's common stock will be delisted; subject to the
Company's right to appeal the determination. Our continued inability to maintain
the required share price range or other requirements for trading on the Nasdaq
Small Cap Market could result in our common stock being delisted and not
eligible for trading on the Nasdaq Stock Market. Since we rely on the Nasdaq
Stock Market to offer trading of our common stock, our inability to continue on
the Nasdaq Stock Market could have a material adverse effect on our business,
financial condition, the price of our common stock and the ability of investors
to purchase or sell our common stock.
Execution of Restructure Plans. The Company anticipates that it will require
additional working capital or financing to fund operations for certain periods
during at least the first two quarters of its fiscal 2003 year. We believe that
our anticipated cash needs exceed amounts otherwise available under current
inventory borrowing agreements or our cash balances. This projected cash flow
shortfall is influenced in part by our seasonal trends, which include
historically low sales levels during the October through December periods. Also,
the seasonal lull normally experienced at the end of a calendar year was
compounded at the end of 2002 by continued economic uncertainty, weak industry
sales trends, and certain revised borrowing terms on our inventory borrowing
agreements which have had the effect of reducing our cash balances and borrowing
availability.
In recognition of this issue, we have (i) negotiated interim financing as
discussed below, (ii) developed management plans to significantly reduce expense
levels, (iii) entered into various agreements with a major shareholder as
discussed below, and (iv) formed a special Operating Committee of our Board of
Directors as discussed below. The Operating Committee will have authority to
oversee the overall financial operations of the Company (including all store
level and management operating expenses, employee headcount, inventory reduction
measures and other relevant expenses or initiatives) and to review weekly cash
flows.
We took these actions to create a plan to (i) stop, or in the alternative,
materially reduce the operating losses experienced during the past two fiscal
years, and (ii) to allow the Company to work towards building cash reserves
during the 2003 fiscal year that will potentially be sufficient to alleviate, or
alternatively reduce, similar off-season working capital shortages. Key
components of this plan include interaction with management, the Operating
Committee, our lenders and our key vendors to reach plans that provide
8
for a collaborative effort to reach attainable ratio levels in our debt
agreements and to enhance cash flow. We plan to enhance cash flow by, among
other initiatives, carefully reducing (i) variable expenses, including those
expenses related to payroll and benefits; (ii) reviewing additional store
locations for closure that are not expected to contribute to cash flows or are
in markets that can reasonably be served by other nearby Travis Boating Center
locations and (iii) improve sales management to speed the pace of reductions in
both new and used aged inventories which have historically tied up our cash flow
as a result of our inability to borrow funds against those products.
The restructure plans, along with detailed plans for our ongoing borrowing
needs, are to be approved by our Operating Committee and submitted to our
various lenders prior to April 30, 2003. Accordingly, the restructure plan is an
integral component in improving our cash flows and in negotiating new borrowing
agreements, however there is no assurance that our plans will succeed, or in the
event that they do succeed, that they will be sufficient to offset our net
losses, improve our cash flow or provide a basis for the continuation of our
financing.
Operating Losses and Reduced Financing have Jeopardized our Cash Flow. As a part
of our search for additional financing to reduce our anticipated shortfalls in
cash flow prior to the impact of positive cash flows historically beginning in
March of each selling season, we entered into a short term financing agreement
(the "Note") with TMRC, L.L.P ("TMRC" or "Tracker") and our current senior
inventory finance lenders to provide our Company with up to an additional $1.5
million in financing through April 30, 2003. The initial advance under the Note
was $600,000. A second advance of $645,000 was requested and received on January
16, 2003, but there is no guarantee of any additional funding since the
financing pursuant to the Note is subject to discontinuance at any time by any
of the lenders. Each of the lenders under the Note has the sole discretion
regarding any future advancement of additional funds under the Note. As of the
date of this Report on Form 10-Q the Company's cash flows have been sufficient
to preclude additional borrowings under the Note, however there is no guarantee
that our cash requirements will not exceed the amount which otherwise could be
borrowed under the Note. As security for the Note, we have pledged our federal
income tax returns towards the repayment of any amounts outstanding under the
Note.
As a condition to the Note, we reached an agreement with our senior inventory
finance lenders to amend our inventory borrowing agreements to (i) waive various
current defaults, (ii) modify certain covenants and terms, and (iii) to extend
the maturity date under those agreements from the original expiration date of
January 31, 2003 to a new expiration date of April 30, 2003, unless otherwise
terminated earlier in accordance with the terms of the agreements. Due to the
Company's need for ongoing inventory financing to support working capital and
operations, we will continue to work towards a long-term extension of the
inventory borrowing agreements beyond the maturity date of April 30, 2003.
However, there is no assurance that negotiations with our senior inventory
finance lenders will result in an extension of the current inventory borrowing
agreements or in new financing arrangements. There is also no assurance that
these or alternative inventory borrowing agreements will be available to the
Company or that such financing, if available, will be in amounts or have terms
and conditions sufficient to provide necessary working capital to the Company.
Failure by the Company to reach an agreement with its senior inventory finance
lenders to extend the inventory borrowing agreements could have the effect of
requiring the Company to (i) seek additional capital; (ii) only purchase
inventory from manufacturers willing to execute repurchase agreements with our
lenders; (iii) reduce our inventory purchase commitments to a level consistent
with financial accommodations available to us, (iv) sell or liquidate additional
assets to raise cash balances, or (v) secure alternative financing. Our failure
or inability to renew or complete alternative financing arrangements with terms
and conditions at least as favorable as currently in place for the Company could
jeopardize our financial stability and force us to further restructure our
operations, or possibly to suspend operations until a plan of alternative
financing is achieved. Accordingly, the lack of sufficient financing or
suspension of our operations could result in our inability to continue as a
going concern or result in our seeking bankruptcy protection while we further
restructure our operations.
9
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 34 stores under the name Travis Boating Center in
Texas (8), Arkansas (3), Louisiana (4), Alabama (1), Tennessee (5), Mississippi
(1), Florida (10), 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
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 up to
approximately 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, Fisher, ProCraft, Fishmaster, Ranger and Starcraft with
outboard motors generally manufactured by Suzuki or Brunswick Corporation, along
with trailers and numerous accessories, under our own proprietary Travis Edition
label. These signature Travis Edition packages, which account for the vast
majority of total new boat sales, have been designed and developed in
coordination with the manufacturers and often include distinguishing features
and accessories that have historically been unavailable to, or listed as
optional, by many of our competitors. We also sell yachts, such as Carver,
10
Crownline 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 $75,000 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 $75,000, 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.
Results of Operations
Quarter Ended, December 31, 2002 Compared to the Quarter Ended, December 31,
2001.
Net sales. Net sales in the first quarter of fiscal 2003 decreased to $17.9
million, compared to net sales of $20.7 for the first quarter of fiscal 2002.
The decrease in net sales during the quarter ended December 31, 2002 included
approximately $1.1 million in reduced sales as a result of the impact of fewer
stores in operation (34 versus 37) and a decrease of approximately $1.7 million
in comparable store sales. Comparable store sales decreased by 8.4% (34 stores
in base) for the quarter ended December 31,2002. Management believes the decline
in net sales and the decrease in comparable store sales was related to various
factors including, but not limited to, fewer stores in operation, prolonged
erratic levels of consumer confidence and employment uncertainty, combined with
persistent weak economic and industry conditions. The decrease in net sales for
the quarter ended December 31, 2002 incouded $1.1 million in reduced sales as a
result of the impact of fewer stores in operation (34 versus 37).
Gross profit. Gross profit decreased by approximately $3.5 million in the first
quarter of fiscal 2003 from $4.1 million in the same quarter of fiscal 2002.
Gross profit, as a percent of net sales, remained flat at 19.7% during the
quarter ended December 31, 2002 and 2001, respectively.
The decrease in total gross profit in actual dollars was primarily related to
(i) the decline in net sales during the periods and (ii) also, in an effort to
stimulate sales, we have continued to offer certain sales incentives and
participated in manufacturer sponsored rebate programs in an effort (i) to
reduce certain non-current inventory levels and (ii) to stimulate sales in
response to weak economic and industry conditions. We believe that we may
continue to experience erratic levels of overall gross profit margins during the
remainder of the 2003 fiscal year resulting, in part, to (i) a continued weak
and uncertain ecnoomic environment and (ii) introductions of certain new Travis
Edition product lines and (iii) continued emphasis on incentives and marketing
promotions to stimulate sales of both current and non-current/discontinued
inventory models.
F&I Products. 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.
11
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 sold.
Net sales of these products contributed approximately $397,000, or 11.3%, of
total gross profit in the first quarter of fiscal 2003, as compared to $550,000
or 13.5%, of total gross profit for the first quarter of the prior fiscal year.
Net sales attributable to F&I Products are reported on a net basis, 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. Management attributes the reduced sales of F&I Products
due primarily to the reduction in overall net sales and 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.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $7.5 million in first quarter of fiscal
2003 from $7.3 million for the first quarter of fiscal 2002. As a percent of net
sales, selling, general and administrative expenses increased to 41.8% in the
first quarter of fiscal 2003 from 35.4% for the first quarter of fiscal 2002.
The increase in selling, general and administrative expenses, in actual dollars,
for the quarter ended December 31, 2002 versus the same quarter of the prior
year was primarily attributable to increases in certain expenses, primarily
insurance expense and promotion and advertising expenses. The Company has
experienced significant increases in premiums related to both its
property/casualty and its employee health insurance coverages. during the
quarter ended December 31, 2002, the Company also incurred expenses of $145,000
related to the legal and administrative costs associated witht he restructuring
of its Board of Directors. The Board restructuring was related to the Company
securing additional financing and certain modifications in its inventory
borrowing agreements (se Management's Discussion and analysis -- "Liquidity").
Depreciation and Amortization Expenses. Depreciation and amortization expenses
increased to $657,000in the first quarter of fiscal 2003 from $627,000 for the
first quarter of fiscal 2002. Depreciation and amortization expenses, as a
percentage of net sales, were 3.7% for the first quarter of fiscal 2003,
compared to 3.0% in the same quarter of the 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 net fixed
assets associated with the capital expenditures made by the Company.
Interest expense. Interest expense decreased to $812,000 in the first quarter of
fiscal 2003 from $1.0 million in the first quarter of fiscal 2002. Interest
expense, as a percent of net sales, decreased to 4.5% from 5.3% of net sales in
the same periods.
12
The decreased interest expense, both in actual dollars and as a percent of net
sales, was primarily the result of significantly lower balances on the Company's
inventory based lines of credit due to the significant reductions in the levels
of inventory held by the Company. The Company has successfully reduced inventory
levels to reflect sales trends and as a result of its prior implementation of a
Master Business Plan that requires pre-approved purchase orders for all
inventory purchases. Interest expense also benefited from the decrease in the
Company's variable borrowing rates relative to the same period of the prior year
resulting from the numerous reductions in the prime rate.
Net loss. The Company, prior to preferred stock dividends of $120,000, reported
a net loss attributable to common shareholders of $3.7 million ($.86 per basic
and diluted share) for the quarter ended December 31, 2002. the Company,
excluding the cumulative effect of accounting change, reported a net loss of
$3.1 million ($.71 per basic and diluted share) for the same quarter of the
prior fiscal year.
The Company, after preferred stock dividends of $120,000, reported a net loss
attributable to common shareholders of $3.7 million ($.86 per basic and diluted
share) for the quarter ended December 31, 2002.
Inclusive of the impact of the cumulative effect of accounting change, the
Company reported a net loss of $9.6 million ($2.21 per basic and diluted share)
for the same quarter of the prior fiscal year.
As previously reported, the net loss from the cumulative effect of accounting
change is from the Company's adoption of SFAS 142, "Goodwill and Other
Intangible Assets" as of October 1, 2001. The application of the transition
provisions of SFAS 142 required the Company to take a non-cash, non-recurring,
after-tax charge of approximately $6.5 million effective as of October 2001. The
charge eliminated the Company's goodwill accounts.
Liquidity and Capital Resources
Our 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 our floor plan
and revolving credit lines (collectively the "borrowing agreements").
At December 31, 2002, we had approximately $900,000 in cash, $7.7 million in
accounts receivable (primarily contracts in transit from sales, manufacturer
rebates receivable and other amounts due from manufacturers) and $65.9 million
in inventories. Contracts in transit are amounts receivable from a customer or a
customer's financial institution related to that customer's purchase of a boat.
These asset balances were offset by approximately $6.4 million of accounts
payable and accrued liabilities, $59.0 million outstanding under our borrowing
agreements and $7.3 million in short-term indebtedness including (i) current
maturities of notes payable of $440,000; (ii) a real estate loan in the amount
of $515,076 with a balloon payment which matured in January 2003 (which has not
been refinanced and remains unpaid as of the date of this Report on Form 10-Q)
and (iii) approximately $6.3 million in real estate loans with a single lender
which have been re-classified as current for financial reporting since we are
out of compliance with certain financial loan covenants and the lender has
demanded early repayment. (See Risk Factors - "We are Out of Compliance on
Certain Loan Agreements, Have Been Out of Compliance on Others and Have a
Matured Real Estate Loan that has not been Refinanced or Repaid").
As of December 31, 2002, the aggregate maximum borrowing limits under our
borrowing agreements was $70.0 million, respectively.
13
At December 31, 2002, we had working capital of approximately $5.3 million.
Working capital, as of that date, was negatively effected by our net loss and
the aforementioned $6.8 million, in short term indebtedness classified as a
current liability.
For the quarter ended December 31, 2002, operating activities used cash flows of
$10.9 million due primarily to the pre-season and boat shows increase of $8.9
million in inventories and the increase of the income taxes recoverable due to
the net loss. These amounts were offset partially by the $2.0 million decrease
in accounts receivable; however the majority of this decrease was the result of
the Company writing off certain accounts receivable to bad debts.
For the quarter ended December 31, 2002, investing activities utilized cash
flows of $123,000. These activities were primarily funded through our borrowing
agreements and internal cash flows.
For the quarter ended December 31, 2002, financing activities provided cash
flows of $7.7 miollion primarily from the net proceeds of funds borrowed under
our inventory borrowing agreements for the purchase of our off-season and boat
show inventories. We finance substantially all of our inventory and working
capital requirements pursuant to borrowing agreements entered into in January
2000 with two commercial finance companies -- Transamerica Commercial Finance
Corporation ("TCFC") and GE Commercial Distribution Finance Corporation ("GE")
(formerly known as Deutsche Financial Services Corporation ("DFS")). The
agreements, which currently have maturity dates of April 2003, have been amended
numerous times. The agreements contain substantially similar terms and financial
ratio based covenant requirements. The maximum aggregate borrowing availability
as of December 31, 2002 was limited to a maximum credit limit of $70 million at
various prime based or LIBOR based interest rates (varying from 4.75% to 8.75%
at December 31, 2002). Borrowings under the agreements are pursuant to a
borrowing base, or specific floor plan, advancing formula and are used primarily
to finance inventory purchases and for general working capital requirements.
Substantially all inventory, accounts receivable, furniture, fixtures,
equipment, real estate (junior liens) 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 our termination of
such floor plans prior to their stated original maturity dates. 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 common stock dividends
or repurchases of our common stock are also substantially limited without prior
consent.
Effective on December 30th and 31st, 2002, we entered into Amended and Restated
borrowing agreements (the "Amended Agreements") with our senior inventory
lenders, TCFC and GE, (formerly "DFS").
The Amended Agreements included, but were not limited to, the following
components:
1. Extension of the maturity date of the respective borrowing agreements from
January 31, 2003 to April 30, 2003.
2. Waiver of certain financial, reporting and payment defaults as of the date of
the Amended Agreements. The financial default waivers included the
re-establishment and modification of new financial ratio levels based upon
our current and anticipated financial performance through the maturity date
of April 30, 2003. The waived reporting requirements provided us time to
finalize our audit report and report on Form 10-K for the fiscal year ended
September 30, 2002. The waived payment defaults were the result of our
failure to repay certain amounts scheduled to be paid according to the terms
of the borrowing agreements, including the timely payment of amounts for sold
inventory and scheduled amounts for certain matured inventory. The waivers of
the payment defaults were accommodated by the lenders revising the terms
under the Amended Agreements to temporarily advance certain funds to us on
inventory assets (primarily certain new and used aged inventories) that
previously were not eligible assets upon which we could borrow funds.
Repayment of the amounts resulting from the payment default
14
is required upon the earlier of, (i) the sale of such inventory providing the
basis for the temporary advance, (ii) the receipt by the Company of its pro-
jected calendar year 2002 federal income tax refund, or (iii) April 30, 2003.
3. An "Intercreditor Agreement" by and among TCFC, GE and TMRC, L.L.P. (the
owner of the Company's outstanding shares of Series A Preferred Stock) to
each, individually, provide the Company up to an additional $500,000 of
conditional funding (collectively $1.5 million). The requirement of any party
to advance funds under this agreement is at each participant's sole and
individual discretion. Accordingly, the Company is not guaranteed any
advances; or to the extent advances are made; any future or additional
advances. Funds may only be used for the general working capital expenses of
the Company. As of the date of this Report on Form 10-Q, the Company has
received $415,000 from each of TCFC, GE and TMRC, L.L.P. (collectively
$1,245,000) as advances pursuant to this agreement.
We pursued this transaction and financing because of our belief that current and
anticipated cash needs through April, 2003 exceed amounts otherwise available to
be borrowed under our current credit facilities with TCFC and GE. This projected
shortfall is influenced in part by our seasonal trends which include
historically low sales levels during the October through December periods. The
seasonal lull normally experienced at the end of a calendar year was compounded
at the end of calendar year 2002 by continued economic uncertainty, weak
industry sales trends, and certain revised borrowing terms which have had the
effect of reducing our borrowing base during this period.
Based upon management's initial Fiscal 2003 operating plan, including the (i)
sale/leaseback or refinancing of certain assets, (ii) closing additional store
locations, (iii) further reducing staff levels and, if necessary, benefits, (iv)
reducing expenses or renegotiating fixed payments plus the availability under
its borrowing agreements and the additional $1.5 million in conditional funding,
management believes that there is potential liquidity to fund our operations and
to make required principal payments under the two borrowing agreements and other
outstanding debt through the maturity date of April 30, 2003. However, material
shortfalls or variances from anticipated performance or the timing of certain
expenses or revenues could require us to seek further amendment to the amended
borrowing agreements or alternate sources of financing.
During this period prior to the expiration of our inventory borrowing agreements
on April 30, 2003, we will be revising our business plan to support our required
financing arrangements for the remainder of fiscal 2003 and beyond either with
our current lenders or from other sources. There is no assurance that renewal of
the borrowing agreements will be possible, that further amendments are available
to the Company or that we will be successful in obtaining adequate financing
arrangements from these or alternate sources.
15
Contractual Commitments and Commercial Commitments
- --------------------------------------------------
The following table sets forth a summary of our material contractual obligations
and commercial commitments as of December 31, 2002:
Year Ended September 30, Line of Long-Term Convertible Operating Total
(000's) Credit Debt Notes Leases -----
- ------------------------ ------- --------- ----------- ---------
2003 $ 58,894(1) $ 7,296(2) $ 2,259 $ 68,539
2004 1,247 2,353 3,600
2005 301 $ 1,300 1,663 3,264
2006 227 1,232 1,459
2007 482 343 825
Thereafter 884 277 1,161
------------------------------------------------------------------------
Total $ 58,984 $ 10,437 $ 1,300 $ 8,127 $ 78,848
========================================================================
(1) Our inventory borrowing agreements, which originated in January 2000,
mature in April 2003.
(2) Approximately $6.8 million of real estate loans with a single lender
have been re-classified as current for financial reporting since (i)
one loan in the amount of approximately $515,000 has matured and has
not been repaid or refinanced and (ii) the Company is out of compliance
with financial loan covenants. The Lender has demanded the early
repayment of all loans effective as of February 15, 2003. The Company
has requested that the Lender refinance the loans, but no guarantee can
be made that the request will be granted or that the Lender will not
proceed with the demand for early repayment. (See Risk Factors - "We
are Out of Compliance on Certain Loan Agreements, Have Been out of
Compliance on Others and have a Matured Real Estate Loan that Has Not
Been Refinanced or Repaid. ...").
Seasonality
Our business, as well as the sales demand for various types of boats, tends to
be highly 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 27% occurred in the quarter ending March 31 and
over 37% occurred in the quarter ending June 30. With the exception of our store
locations in Florida, our sales are generally significantly lower in the quarter
ending December 31. Because the overall sales levels (in most stores) in the
December quarter are much less than in the months with warmer weather, we
generally have a substantial operating loss in the quarter ending December 31.
Because of the difference in sales levels 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 weak as a result of lackluster consumer demand, timing of boat
shows, bad weather or lack of inventory we will likely suffer significant
operating losses.
Our business is also significantly affected by weather patterns. Weather
conditions that are unseasonable or unusual may adversely affect our results of
operations. For example, drought conditions or merely reduced rainfall levels,
as well as excessive rain, may affect our sale of boating packages and related
products and accessories.
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.
Cautionary Statement for purposes of the Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995.
Other than statements of historical fact, all statements contained in this
Report on Form 10-Q, including statements in "Item 1. Business", and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", are forward-looking statements as that term is defined in Section
27A of the Securities Act of 1933, as
16
amended, and Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements involve a number of uncertainties. The actual results
of the future events described in the forward-looking statements in this Report
on Form 10-Q could differ materially from those stated in such forward-looking
statements. Among the factors that could cause actual results to differ
materially are: the impact of seasonality and weather, general economic
conditions, competition and government regulations, the level of discretionary
consumer spending, national or local catastrophic events, as well as the risks
and uncertainties discussed in this Report on Form 10-Q, including without
limitation, the matters discussed in "Risk Factors" and the uncertainties set
forth from time to time in the Company's other public reports, filings and
public statements, including the Company's Report on Form 10-K for the Fiscal
Year ended September 30, 2002. All forward-looking statements in this Report on
Form 10-Q are expressly qualified in their entirety by the cautionary statements
in this paragraph.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Changes in short-term interest rates on loans from financial institutions could
materially affect the Company's earnings because the interest rates charged on
certain underlying obligations are variable.
At December 31, 2002, a hypothetical 100 basis point increase in interest rates
on the Company's Floor Plan and Revolving Line of Credit obligations would
result in an increase of approximately $590,000 in annual pre-tax expenses of
the Company. The estimated increase in expenses is based upon the increased
interest expense of the Company's variable rate Floor Plan and Revolving Line of
Credit obligations and assumes no change in the volume or composition of such
debt at December 31, 2002.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, our Company is involved in litigation relating to claims
arising from its normal business operations. Currently, our Company is a
defendant in several lawsuits. Some of these lawsuits involve claims for
substantial amounts.
In January 2003, the Company received notice of a lawsuit filed on behalf of the
bankruptcy estate for Outboard Marine Corporation ("OMC"). OMC was a primary
supplier of outboard engines to our Company prior to OMC's bankruptcy in
December of 2000. The suit alleges that we received approximately $700,000 in
cash payments from OMC that were are deemed to be preferential payments under
applicable bankruptcy law, and hence demands the repayment thereof. The Company
believes that the lawsuit is without merit and that the cash payments were
received in the ordinary course of business pursuant to the Company's contract
with OMC.
There is no guarantee that our Company will prevail in defense of lawsuits filed
against it. Lawsuits resulting in an unfavorable verdict or settlement for the
Company could have the effect of jeopardizing the Company's financial stability.
This financial instability could result in our Company being unable to continue
as a going concern.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
I. The Company's operating results as of December 31, 2002 were out of
compliance with two (2) ratio covenants of its Loan Agreement on real estate
indebtedness with Hibernia National Bank:
- - Modified Fixed Charge Coverage Ratio With respect to the Hibernia Loan
Agreement: the Modified Fixed Charge Coverage Ratio requires Travis Boats' to
maintain a Fixed Charge Coverage Ratio, on a rolling four (4) quarter basis, of
not less than 1.50 to 1.00. Travis Boats' Modified Fixed Charge Coverage Ratio
for the 12 months ended December 31, 2002 was less than 1.50 to 1.10 and as such
Travis Boats was not in compliance with the Loan Agreement.
17
- - Minimum Tangible Net Worth With respect to the Hibernia Loan Agreement:
the Minimum Tangible Net Worth Provision requires Travis Boats to maintain a
minimum tangible net worth of $27.5 million. As of December 31, 2002 the
Company's tangible net worth was less than $27.5 million and as such Travis
Boats was not in compliance with the Loan Agreement.
II. The Company's has a real estate loan in the amount of $515,076 with Hibernia
National Bank that matured on January 28, 2003. The Company has not repaid the
loan, or been successful at negotiating a refinance of the loan. Hibernia
National Bank has notified the Company by letters dated as of January 31, 2003
that the unpaid loan is a default of the loan documents and consequently, they
have demanded repayment on that matured loan and on each of the Company's other
loans with the Bank by February 10, 2003. In the event of non-payment, the Bank
notified the Company that it will proceed with any legal action necessary to
collect all sums due. The total outstanding principal balance of the six (6)
loans upon which payment has been demanded is approximately $6.8 million as of
the date of this Report on Form 10-Q.
III. As more fully described in the Risk Factors above, the demands for
repayment of the real estate loans in "Iten 3. Defaults Upon Senior Securities"
(II) above also constitutes a cross-default under the Company's borrowing
agreements with its Senior Inventory Lenders. As such, the Company is in default
of its borrowing agreements with its Senior Inventory Lenders. (See Risk Factors
- - "We are Out of Compliance on Certain Loan Agreements, Have Been out of
Compliance on Others and have a Matured Real Estate Loan that Has Not Been
Refinanced or Repaid".)
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Number Description Incorporated by Reference to:
-------------- ----------- -----------------------------
99.1 Certification Pursuant to Not applicable.
Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
During the quarter ended December 31, 2002 the Company filed a report on Form
8-K pertaining to the agreement with Tracker, as follows:
Form 8-K, Current Report of Unscheduled Material Events, filed on June
10, 2002, describing the transaction of June 10, 2002, in which Tracker
exercised a warrant and was issued 30,000 shares of newly issued 6%
Series A Cumulative Convertible Preferred Stock (the "Preferred Stock")
in the Company. As a condition to exercise of the warrant, the proceeds
of $3.0 million were required to be used by the Company to prepay a
$3.0 million convertible promissory note payable to an unaffiliated
third party.
The warrant was previously granted on March 13, 2002 when the Company
entered into an agreement with Tracker, a wholly-owned subsidiary of
Tracker Marine, L.L.C., whereby Tracker agreed to purchase 50,000
shares of Preferred Stock.
Subsequent to December 31, 2002, but prior to the date of this Report on Form
10-Q, the Company filed a report on Form 8-K/A pertaining to the agreement with
Tracker, as follows:
Form 8-K, Current Report of Unscheduled Material Events, filed on June
12, 2002, incorporating a copy of the Tracker/Travis Boats Master Deal
Agreement (Master Dealer Supply agreement) dated as of March 13, 2002,
by and between the Company and Tracker.
Subsequent to December 31, 2002, but prior to the date of this Report on Form
10-Q, the Company filed a report on Form 8-K pertaining to the agreement with
Tracker, as follows:
Form 8-K, Current Report of Unscheduled Material Events, filed on
January 15, 2003, incorporating copies of various agreements between
the Company and its Senior Lenders, the Company and Tracker, and
various insider shareholders of the Company and Tracker.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereto duly authorized.
Date: February 19, 2003 Travis Boats & Motors, Inc.
By: /s/ Michael B. Perrine
---------------------------------------
Michael B. Perrine
Chief Financial Officer, Treasurer and
Secretary
(Principal Accounting and Financial
Officer)
19