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 June 30, 2003
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 [ X ] No [ ]
Indicate by a check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
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 - 4,309,727 shares as of August 13, 2003.
INDEX
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets:
June 30, 2003 and September 30, 2002.......................1
Condensed Consolidated Statements of Operations:
Three and Nine Months Ended June 30, 2003 and 2002.........2
Unaudited Condensed Consolidated Statements of Cash Flows:
Nine Months Ended June 30, 2003 and 2002...................3
Notes to Condensed Financial Statements....................4
Item 2: Management's Discussion and Analysis of Financial
Conditions and Results of Operations.......................8
Item 3: Quantitative and Qualitative Disclosures About Market Risk...........15
PART II - OTHER INFORMATION
Items 1 - 6..................................................................15
Signatures...................................................................17
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Travis Boats & Motors, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
( in thousands, except share data )
June 30, September 30,
2003 2002
------------- ----------------
(unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $4,014 $4,253
Accounts receivable, net 12,712 9,681
Inventories, net 39,262 56,957
Income taxes recoverable/Deferred tax asset -- 611
Prepaid expenses and other 1,081 1,009
------------- ----------------
Total current assets 57,069 72,511
Property and equipment:
Land 5,982 5,982
Buildings and improvements 15,585 15,899
Furniture, fixtures and equipment 9,164 9,327
------------- ----------------
30,731 31,208
Less accumulated depreciation (11,040) (9,820)
------------- ----------------
19,691 21,388
Intangibles and other assets:
Non-compete agreements, net 835 1,149
Other assets 210 384
------------- ----------------
Total assets $77,805 $95,432
============= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $4,318 $4,122
Accrued liabilities 2,174 1,439
Floor plan and revolving line of
credit 39,136 50,949
Current portion of notes payable and other short-term 6,785 1,025
obligations
Notes payable in default, classified as short-term 0 6,436
obligations
------------- ----------------
Total current liabilities 52,413 63,971
Notes payable, less current portion 2,270 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,
4,309,727 and 4,329,727 issued and outstanding at
June 30, 2003 and September 30, 2002, respectively 43 43
Paid-in capital 15,100 15,109
Retained earnings/(deficit) ( 1,321) 3,784
------------- ----------------
Total stockholders' equity 21,822 26,936
------------- ----------------
Total liabilities and stockholders' equity $77,805 $95,432
============= ================
See notes to unaudited condensed consolidated financial statements
1
Travis Boats & Motors, Inc. and Subsidiaries -
Condensed Consolidated Statements of Operations
(in thousands, except share and store data)
Three Months Ended Nine Months Ended
June 30, June 30,
2003 2002 2003 2002
--------- ---------- --------- ---------
Net sales............................................. $53,129 $67,825 $109,149 $135,879
Cost of goods sold.................................... 42,136 52,614 87,049 106,134
--------- ---------- --------- ---------
Gross profit.......................................... 10,993 15,211 22,100 29,745
Selling, general and administrative................... 8,704 10,850 24,682 27,380
Store closing expense................................. 307 -- 307 --
Depreciation and amortization......................... 598 625 1,863 1,868
--------- ---------- --------- ---------
9,609 11,475 26,852 29,248
Operating income/(loss)............................... 1,384 3,736 (4,752) 497
Interest expense...................................... (872) (1,054) (2,614) (3,208)
Other income/(expense)................................ 46 (178) 88 66
--------- ---------- --------- ---------
Income/(loss) before income taxes, and cumulative
effect of accounting change........................... 558 2,504 (7,278) (2,645)
Income tax (provision)/benefit........................ -- (927) 2,533 978
--------- ---------- --------- ---------
Income/(loss) before cumulative effect of accounting
change................................................ $ 558 $ 1,577 $ (4,745) $(1,667)
Cumulative effect of accounting change, net of taxes
of $2,281............................................. -- -- -- (6,528)
--------- --------- --------- ---------
Net income/(loss)................................ $ 558 $ 1,577 $ (4,745) $(8,195)
Preferred stock dividends............................. (120) (67) (360) (67)
--------- --------- --------- ---------
Net income/(loss) attributable to common
shareholders..................................... $ 438 $(1,510) $ (5,105) $(8,262)
========= ========= ========= =========
Earnings/(loss) per share
Basic:
Income/(loss) before preferred stock dividends and
cumulative effect of accounting change, net........... 0.13 0.36 (1.10) (0.39)
Preferred stock dividends............................. (0.03) (0.01) (0.08) (0.01)
Cumulative effect of accounting change, net........... -- -- -- (1.50)
--------- --------- --------- ----------
Net income/(loss)................................ $ 0.10 $ 0.35 $ (1.18) $ (1.90)
========= ========= ========= ==========
Diluted:
Income/(loss) before preferred stock dividends and
cumulative effect of accounting change, net .......... 0.07 0.25 (1.10) (0.39)
Preferred stock dividends............................. -- -- (0.08) (0.01)
Cumulative effect of accounting change, net........... -- -- -- (1.50)
--------- --------- --------- ----------
Net income/(loss)............................... $ 0.07 $ 0.25 $ (1.18) $ (1.90)
========= ========= ========= ==========
Weighted average common shares outstanding............ 4,313,243 4,345,657 4,324,232 4,349,742
Weighted average dilutive common shares outstanding... 8,094,653 6,524,013 4,324,232 4,349,742
See notes to unaudited condensed consolidated financial statements
2
Travis Boats & Motors, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
Nine months ended
June 30,
2003 2002
----------------------------------
Operating activities:
Net Loss..................................................................... ($4,745) ($8,195)
Adjustments to reconcile net loss to net cash used in
Operating activities:
Depreciation........................................................... 1,549 1,518
Amortization........................................................... 314 350
Cumulative effect of accounting change, net............................ 0 6,528
Changes in operating assets and liabilities
Accounts receivable............................................... (3,031) (6,518)
Prepaid expenses.................................................. (72) (380)
Inventories....................................................... 17,694 3,497
Other assets...................................................... 174 (67)
Accounts payable.................................................. 195 2,131
Accrued liabilities............................................... 734 635
Income tax recoverable............................................ 611 778
---------- -----------
Net Cash provided by operating activities.............................. 13,423 277
Investing Activities:
Purchase of property and equipment..................................... 0 (541)
Other.................................................................. 151 0
---------- -----------
Net cash (used in)/provided by investing activities.................... 151 (541)
Financing activities:
Proceeds from issuance of convertible subordinated notes............... 0 1,300
Net decrease in notes payable and other short term obligations......... (13,444) (1,175)
Net proceeds from issuance of Series A preferred stock................. 0 7,820
Preferred stock dividends.............................................. (360) (67)
Net payments from repurchase of common stock........................... (9) (41)
---------- ------------
Net cash (used in)/provided by financing activities.................... (13,813) 7,837
Change in cash and cash equivalents.................................... (239) 7,573
Cash and cash equivalents, beginning of period......................... 4,253 1,388
---------- ------------
Cash and cash equivalents, end of period............................... $ 4,014 $ 8,961
========== ============
See notes to unaudited condensed consolidated financial statements
3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
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 June 30, 2003;
and the interim results of operations and cash flows for the three and nine
month periods ended June 30, 2003 and 2002. 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 and nine month period ended June 30,
2003 are not necessarily indicative of the results to be expected for the full
fiscal year.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
In December 2002, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123
("Statement 148"). This amendment provides two additional methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. Additionally, more prominent disclosures in
both annual and interim financial statements are required for stock-based
employee compensation. The transition guidance and annual disclosure provisions
of Statement 148 are effective for fiscal years ending after December 15, 2002.
The interim disclosure provisions are effective for financial reports containing
financial statements for interim periods beginning after December 15, 2002. The
adoption of Statement 148 did not have a material impact on the Company's
consolidated financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" (FIN 45). FIN 45 elaborates on the existing disclosure
requirements for most guarantees, including loan guarantees such as standby
letters of credit. It also clarifies that at the time a company issues a
guarantee, the company must recognize an initial liability for the fair value,
or market value, of the obligations it assumes under that guarantee and must
disclose that information in its interim and annual financial statements. FIN 45
is effective on a prospective basis to guarantees issued or modified after
December 31, 2002. The requirements of FIN 45 are effective for financial
statements of interim or annual periods ending after December 15, 2002. We
adopted the accounting and disclosure requirements of FIN 45, which resulted in
no material impact on our financial statements.
In April 2002, the FASB issued SFAS No. 145, Recission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections ("SFAS
145"). The new statement provides new guidance for debt extinguishment
transactions that are part of an entity's recurring operations. SFAS 145 is
effective for fiscal years beginning after May 15, 2002. As a result, the
Company no longer classifies debt extinguishment transactions as extraordinary
items. These costs are now included within the other expense category in the
statement of operations. For the three and nine months ended June 30, 2002, the
Company reclassified the amount of $206,000 incurred upon debt extinguishment to
other expense.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity, effective for
financial instruments entered into or modified after May 31, 2003. The statement
requires the reclassification of certain instruments that were classified as
equity. The Company is evaluating the applicability of the Statement on its
financial position and results of operations.
NOTE 3 - BASIC/DILUTED OUTSTANDING SHARE CALCULATION
The following table sets forth the computation of basic and diluted shares
outstanding:
4
Three Months Ended Nine Months Ended
June 30, June 30,
2003 2002 2003 2002
---------- --------- --------- ---------
Denominator for Basic income/(loss) per share -
Weighted average shares................. 4,313,243 4,345,657 4,324,232 4,349,742
Effect of assumed conversions:
Convertible Subordinated Notes............. 528,584 528,584 -- --
Series A Preferred Stock................... 3,252,826 1,649,772 -- --
Denominator for diluted income/(loss) per share
--------- --------- --------- ---------
Weighted average shares and
assumed conversions........................ 8,094,653 6,524,013 4,324,232 4,349,742
========= ========= ========= =========
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 nine month periods ended June 30, 2003 and
2002, 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, as of June 30, 2003, had outstanding incentive stock options to
certain employees totaling 74,100 shares which had a strike price equal to or
exceeding the closing price of the Company's common stock on such date. The
74,100 option shares have a weighted average strike price of $5.14 and a
weighted average outstanding remaining life of 5.8 years.
The Company also has excluded the inclusion of 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. For the nine-month period
ended June 30, 2003, the conversion price of approximately $2.46 per share of
both issuances exceeds the Company's average market price of its common stock.
NOTE 4 - 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 nine months ended June 30, 2003
and 2002 consisted of the following:
9 mos ended 9 mos ended
June 30, 2003 June 30, 2002
-------------------------------------
Shares Repurchased (000's) 20 19.3
Total Purchase Price (000's) $5.4 $40.1
Average Price per Share $0.27 $ 2.08
5
The Company has stock-based compensation plans under which directors, officers
and other employees receive stock options and other equity-based awards. The
plans provide for the grant of stock options, stock appreciation rights,
performance awards, restricted stock awards and other stock unit awards. The
Company follows the disclosure requirements of SFAS 123. As permitted under SFAS
123, the Company follows Accounting Principles Board Opinion No. 25 for its
stock-based compensation plans and does not recognize expense for stock option
grants if the exercise price is at least equal to the market value of the common
stock at the date of grant. Stock-based compensation expense reflected in the as
reported net loss includes expense for restricted stock unit awards and the
amortization of certain acquisition-related deferred compensation expense. The
fair value of stock options used to compute pro forma net loss and pro forma
loss per share disclosures is estimated using the Black-Scholes option-pricing
model, which was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. In
addition, this model requires the input of subjective assumptions, including the
expected price volatility of the underlying stock. Projected data related to the
expected volatility and expected life of stock options is based upon historical
and other information. Changes in these subjective assumptions can materially
affect the fair value estimate, and therefore the existing valuation models do
not provide a precise measure of the fair value of the Company's employee stock
options. As required under SFAS 148, the following table summarizes the pro
forma effect of stock-based compensation on net loss and loss per share if the
fair value expense recognition provisions of SFAS 123 had been adopted (in
thousands, except per share data):
Net Income/(Loss)
Three Months Ended June 30, Nine Months Ended June 30,
2003 2002 2003 2002
Reported net income/net loss 438 1,510 (5,105) (8,262)
Add: Total stock based employee compensation - - - -
expense included in the determination of net
loss as reported, net of related tax effects
Less: Total stock based employee compensation (33) (78) (126) (237)
expense determined under the fair value
method for all awards, net of related tax effects
----------- ---------- ----------- -----------
Pro forma net income/(loss) 405 1,432 (5,231) (8,499)
Reported Basic and Diluted Income/ Loss per Share
Reported Basic net income/(loss) per share 0.10 0.35 (1.18) (1.90)
Reported Diluted net income/(loss) per share 0.07 0.25 (1.18) (1.90)
Pro forma Basic net income/(loss) per share 0.09 0.33 (1.21) (1.95)
Pro forma Diluted net income/(loss) per share 0.05 0.22 (1.21) (1.95)
NOTE 5 - 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 (see Note 7). 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 6 - SERIES A PREFERRED STOCK
The Company has issued 80,000 shares of 6% Series A Cumulative 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
6
issue price of the Preferred Stock was $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 7 - 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 matured on April 30,
2003 and have been extended since that time on a monthly basis pending
negotiations for longer term renewal agreements acceptable to both the Company
an the lenders (see Management's Discussion and Analysis - "Liquidity"). The
maximum aggregate borrowing availability as of June 30, 2003 was limited to a
maximum credit limit of approximately $70 million at various prime based or
LIBOR based interest rates (varying from 4.75% to 4.82% at June 30, 2003).
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 and intangible
assets collateralize these agreements. The Company also granted junior liens on
its real estate holdings as collateral.
The Company also has approximately $5.5 million in real estate loans with a
single lender which previously have been re-classified as current. The Company
and Lender entered into revised loan agreement effective March 20, 2003 and the
Company is in compliance with the revised agreement. Terms of the revised
agreement require the Company to repay each loan on or prior to specific dates
prior to October 30, 2003. (See Management's Discussion and Analysis -
"Liquidity.").
NOTE 8 - 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.
NOTE 9 - COMPREHENSIVE INCOME/LOSS
For the three and nine months ended June 30, 2003 and 2002, the Company recorded
no comprehensive income or loss items, other than the net income or net loss.
NOTE 10 - CONTINGENCIES
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 in the U.S.
Bankruptcy Court for the Northern District of Illinois on behalf of the
bankruptcy estate for Outboard Marine Corporation ("OMC"). The Company has
denied the allegations in this lawsuit and finds them without merit. 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 contracts
with OMC.
7
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 a material adverse affect on our results of operations.
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
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 information 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 and therefore result in 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 and other documents filed of record with
the Securities and Exchange Commission.
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 requested the transfer because our 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. By letter dated
August 14, 2003, the NASDAQ notified the Company that it can regain compliance
if the Company's common stock closes at $1.00 per share or more for a minimum of
10 consecutive trading days prior to February 9, 2004. The NASDAQ has also
notified the Company that in the event it has a net worth of at least the $5.0
million required by the NASDAQ Small Cap Market maintenance standards on that
date the NASDAQ will grant the Company an additional grace period of 90 days
until May 9, 2004 to regain compliance with the minimum bid price. The Company's
net worth as of June 30, 2003 was $21.8 million and thus the Company believes
that it will receive the extended grace period from the NASDAQ. However, 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.
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 operated 30 stores on June 30, 2003 under the name Travis Boating Center
in nine states: Texas (8), Arkansas (2), Louisiana (4), Alabama (1), Tennessee
(3), Mississippi (1), Florida (9), Georgia (1) and Oklahoma (1). During the
quarter ended June 30, 2003, the Company closed the store locations in
Knoxville, Tennessee; Lake Pickwick, Tennessee; Little Rock, Arkansas and
Englewood, Florida. The assets of the closed locations were consolidated into
other Travis Boats locations in proximity to the closed stores.
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. 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 our 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. We also
8
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.
We study sales trends from the cities and states where we operate store
locations. We use the information from this data to coordinate the 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 our 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 new and used yachts in
several markets that range in length from 25 feet to over 50 feet. By providing
many different types of boats with many types of standard features, we attempt
to offer the customer an exceptional boat at a competitive price that is ready
for immediate use and enjoyment.
We believe that our Company offers a selection of boat, motor and trailer
packages that fall within the price range of the majority of all boats, motors
and trailers sold in the United States. Our product line generally consists of
boat packages priced from $7,500 to $100,000 with approximate even distribution
within this price range. However, we do sell new and used cruisers and yachts
that may have prices above $500,000. We believe that as our Company continues to
operate in Florida and enters other markets along the Gulf of Mexico or other
coastal areas, the number of off-shore fishing boats and cruisers 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.
Critical Accounting Policies
We have identified the policies below as critical to our business operations and
the understanding of our results of operations. The impact and any associated
risks related to these policies on our business operations is discussed
throughout Management's Discussion and Analysis of Financial Condition and
Results of Operations when such policies affect our reported and expected
financial results.
In the ordinary course of business, we have made a number of estimates and
assumptions relating to the reporting of results of operations and financial
condition in the preparation of our financial statements in conformity with
accounting principles generally accepted in the United States. We base our
estimates on historical experience and on various other assumptions that we
believe are reasonable under the circumstances. The results form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results could differ
significantly from those estimates under different assumptions and conditions.
We believe that the following discussion addresses our most critical accounting
policies, which are those that are most important to the portrayal of our
financial condition and results of operations and require our most difficult,
subjective, and complex judgments, often as a result of the need to make
estimates about the effect of matters that are inherently uncertain.
Revenue Recognition
We record 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. We record revenues from service operations at the
time repair or service work is completed.
We refer 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, we receive a fee.
Revenue that we earn 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, we 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. We record 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
we sell such policies on behalf of third party vendors or administrators. At the
time of sale, we record income for insurance and extended service agreements net
9
of the related fee that is paid to the third-party vendors or administrators.
Since our Company's inception, we have 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.
Allowance for Doubtful Accounts
Accounts receivable consist primarily of amounts due from financial institutions
upon sales contract funding, amounts due from manufacturers or vendors under
rebate programs, amounts due from manufacturers or vendors under warranty
programs and amounts due from customers for services. The Company routinely
evaluates the collectibility of accounts receivable focusing on amounts due from
manufacturers, vendors and customers. If events occur and market conditions
change, causing collectibility of outstanding accounts receivable to become
unlikely, the Company records an increase to its allowance for doubtful
accounts. The Company evaluates the probability of collection of outstanding
accounts receivable based several factors which include but are not limited to
the following: 1) age of the outstanding accounts receivable, 2) financial
condition of the manufacturer, vendor or customer, and 3) discussions or
correspondence with the manufacturer, vendor or customer. The Company determines
the allowance for doubtful accounts based upon both specific identification and
a general allowance for accounts outstanding for a specified period of time.
Inventory Valuation
Our 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. If the carrying amount of our inventory exceeds its fair
value, we write down our inventory to its fair value. We utilize our historical
experience and current sales trends as the basis for our lower of cost or market
analysis. Changes in market conditions, lower than expected customer demand,
closing of additional store locations and changing technology or features could
result in additional obsolete inventory that is unsaleable or only saleable at
reduced prices, which could require additional inventory reserve provisions.
Such events and market conditions include but are not limited to the following:
1) deteriorating financial condition of the manufacturer resulting in
discontinuance and lack of manufacturer's warranty for certain boats, motors or
other products, 2) introduction of new models or product lines by manufacturers
resulting in less demand for previous models or product lines, 3) Company
initiatives to promote unit sales and reduce inventory levels for new and/or
used inventory by reducing sales prices, and 4) competing boat retailers in
various markets in which the Company operates may offer sales incentives such as
price reductions.
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. The Company routinely evaluates its
recorded deferred tax assets to determine whether it is more likely than not
that such deferred tax assets will be realized. During the year ended September
30, 2002, the Company determined that for deferred tax assets that could not be
realized by carryback to prior tax years it was more likely than not that such
deferred tax assets would not be realized and accordingly a full valuation
allowance was necessary for these deferred tax assets.
Results of Operations
Quarter Ended, June 30, 2003 Compared to the Quarter Ended, June 30, 2002 and
Nine Months Ended, June 30, 2003 Compared to the Nine Months Ended, June 30,
2002.
Net sales. Net sales in the third quarter of fiscal 2003 decreased to $53.1
million, compared to net sales of $67.8 for the third quarter of fiscal 2002.
For the nine months ended June 30, 2003, net sales decreased to $109.1 million,
compared to $135.9 million during the same period of the prior fiscal year.
Comparable store sales decreased by 16.5% and 15.2% (30 stores in base) for the
quarter and nine months ended June 30, 2003. The decreases in net sales during
the quarter and nine months ended June 30, 2003 resulted from the decrease in
comparable store sales, reduced sales as a result of the impact of fewer stores
10
in operation (30 versus 35) and a decline in average retail prices based on our
aggressive sell-through of non-current inventory. The operation of fewer store
locations accounted for approximately $4.6 million and $8.2 million of the
reduction in net sales for the quarter and 9 months ended June 30, 2003,
respectively. During the quarter ended June 30, 2003, the Company sold
approximately $14.5 million of non-current and aged inventory at reduced retail
sales prices and gross profit margins. Our strategy is to accelerate the sale of
certain aged and discontinued product to improve inventory turns, improve
product mix refinement and to increase working capital since substantially all
of the aged inventory is ineligible to borrow against under the Company's
inventory borrowing agreements. Management believes that the sell-through of
additional inventory will have a negative impact on retail sales prices and
impact gross profit margins (in a range consistent with the quarter ended June
30, 2003) through the first quarter of the Company's 2004 fiscal year when it is
expected to be substantially complete; but offset by an improvement in working
capital from its inventory borrowing base loan requirements. Management further
believes that additional factors contributing to the decline in net sales and
the decrease in comparable store sales included, but were not limited to,
prolonged erratic levels of consumer confidence and employment uncertainty.
Gross Profit. Gross profit decreased by 27.7% to approximately $11.0 million in
the third quarter of fiscal 2003 from $15.2 million in the same quarter of
fiscal 2002. Gross profit, as a percent of net sales, decreased to 20.7% from
22.4% during the same periods. For the nine months ended, June 30, 2003, gross
profit decreased 25.7% to $22.1 million from $29.7 million in the same period of
the prior year. Gross profit, as a percent of sales, decreased to 20.2% from
21.9% during the same period.
The decrease in total gross profit was primarily related to the factors
discussed above in Net Sales. We believe that we may continue to experience
erratic levels of overall gross profit margins through the first quarter of the
2004 fiscal year resulting, in part, to (i) the aggressive sell-through of
substantially the remainder of the non-current and aged inventory; combined with
(ii) a continued weak and uncertain economic environment.
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. 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 arranged by us, 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 $2.0 million, or 18.2%,
and $3.8 million, or 17.1% of total gross profit for the quarter and nine months
ended June 30, 2003, as compared to $2.0 million or 13.2%, and $4.0 million or
13.5% of total gross profit for the same periods 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 improvement in F&I income, as
a percentage of gross profit, to (i) improved training and (ii) implementing
processes that allow for remote handling of F&I functions in several markets
which had previously underperformed relative to certain Company benchmarks and
goals.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $9.0 million in third quarter of fiscal
2003 from $10.9 million for the third quarter of fiscal 2002. As a percent of
net sales, selling, general and administrative expenses increased to 17.0% in
the third quarter of fiscal 2003 from 16.0% for the third quarter of fiscal
2002. For the nine months ended June 30, 2003, selling, general and
administrative expenses were $25.0 million, or 22.9% as a percentage of net
sales, versus $27.4 million, or 20.2% as a percentage of net sales in the same
period of the prior fiscal year.
Included in the selling, general and administrative expenses for the three and
nine months ended June 30, 2003 are Store Closing expenses of approximately
$307,000. These expenses are attributable to the Company closing store locations
during the quarter ended June 30, 2003 in Knoxville, Tennessee; Lake Pickwick,
Tennessee; Little Rock, Arkansas and Englewood, Florida. The assets of the
closed locations were consolidated into other Travis Boats locations in
proximity to the closed stores. The Store Closing expenses were primarily
non-cash expenses resulting from the elimination of $270,000 in leasehold and
other store facility improvements at the closed locations. The Company owns the
store location in Little Rock, Arkansas and had expired leases in Knoxville,
Tennessee and Englewood, Florida, therefore it does not have ongoing lease
expense obligations related to those former locations. The Lake Pickwick store
11
location was subject to a lease originally terminating in May 2004, however, the
Company believes that it has terminated its obligations thereunder. Expenses
related to Store Closings in the three and nine months ended June 30, 2002 were
not significant.
The decrease in selling, general and administrative expenses, in actual dollars,
for the quarter and nine months ended June 30, 2003 versus the same periods of
the prior year was primarily attributable to improved expense controls;
operating fewer stores and a significant reduction in labor costs as a result of
headcount reductions and the reduction in sales. The reduction in expenses have
been somewhat offset by increases in certain expenses, primarily insurance
expense and promotion and advertising expenses. The Company has also experienced
significant increases in premiums related to both its property/casualty and its
employee health insurance coverages.
Depreciation and Amortization Expenses. Depreciation and amortization expenses
decreased to $598,000 in the third quarter of fiscal 2003 from $625,000 for the
third quarter of fiscal 2002. Depreciation and amortization expenses, as a
percentage of net sales, were 1.1% and 0.9% for the quarter ended June 30, 2003
and 2002, respectively. Depreciation and amortization expenses remained flat at
approximately $1.9 million for the nine months ended June 30, 2003 and 2002,
respectively.
Interest Expense. Interest expense decreased to $872,000 in the third quarter of
fiscal 2003 from $1.1 million in the third quarter of fiscal 2002. Interest
expense was approximately 1.6% of net sales in the each period.
The decreased interest expense, in actual dollars, 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; in conjunction with the accelerated sell-though of certain inventory
discussed in Net Sales; 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 periods of the prior year.
Income Tax Expense/(Benefit). The Company files its federal tax returns based on
a calendar year period and effective with its 2003 calendar year has utilized
all of its previously available carryback periods to claim tax refunds. In
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes", the Company has determined that effective January 1, 2003 any
(i) deferred tax assets, or (ii) tax benefits which could not be realized by
carryback to prior tax years would likely not be realized. Accordingly, a full
valuation allowance was necessary for these tax assets. Therefore, as a result
of the Company's cumulative net loss for the calendar year to date period ended
June 30, 2003, the Company has not accrued an income tax expense or benefit for
calendar year to date 2003 operations. The income tax benefit of approximately
$2.5 million reflected for the nine months ended June 30, 2003 was the result of
the Company's federal income tax refund for the 2002 calendar year, which was
applied for in March 2003 and received by the Company in April 2003.
Net Income/(Loss). The Company, after preferred stock dividends of $120,000,
reported net income, of $438,000 ($0.10 per basic and $0.07 per diluted share)
for the quarter ended June 30, 2003, versus net income , after preferred stock
dividends of $67,000, of $1.5 million ($0.35 per basic and $0.25 per diluted
share) in the quarter ended June 30, 2002.
The Company, after preferred stock dividends of $360,000, reported a net loss
attributable to common shareholders of $5.1 million ($1.18 per basic and diluted
share) for the nine months ended June 30, 2003. The Company reported a net loss
of $1.7 million ($0.40 per basic and diluted share), prior to the impact of
cumulative accounting change for the nine months ended June 30, 2002. Inclusive
of the impact of the cumulative effect of accounting change, the Company
reported a net loss, of $8.3 million ($1.90 per basic and diluted share) for the
nine month period ended June 30, 2002.
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").
12
On June 30, 2003, we had approximately $4.0 million in cash, $12.7 million in
accounts receivable (primarily contracts in transit from sales, manufacturer
rebates receivable and other amounts due from manufacturers) and $39.3 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 $6.5 million of accounts
payable and accrued liabilities, $39.1 million outstanding under our Borrowing
Agreements and approximately $6.8 million in short-term indebtedness including
(i) current maturities of notes payable and short term loans of approximately
$1.3 million; and (ii) three real estate loans with a single lender in the
aggregate amount of approximately $5.5 million that mature prior to October 31,
2003.
The three real estate loans mature in the following amounts and dates: $463,000
on August 31, 2003; $922,000 on September 30, 2003 and $4,068,000 on October 31,
2003. The Company is negotiating a potential refinance or sale/leaseback process
on the properties. Management believes that the favorable loan amount of
approximately $5.5 million versus the appraised amount on the properties of
approximately $12.0 million will enable the Company to refinance or re-negotiate
the loans within the applicable maturity dates.
As of June 30, 2003, the aggregate maximum borrowing limit under our Borrowing
Agreements is approximately $70.0 million.
On June 30, 2003, we had working capital of approximately $4.7 million. Working
capital, as of that date, was negatively impacted by our fiscal year to date net
loss and the aforementioned $6.8 million in short term indebtedness.
For the nine months ended June 30, 2003, operating activities provided cash
flows of $13.4 million due primarily to a decrease of $17.7 million in
inventories as a result of the seasonal increase in sales and the Company's sell
through of non current and aged inventory (see Management's Discussion and
Analysis - "Net Sales").
For the nine months ended June 30, 2003, investing activities provided cash
flows of $151,000. These activities were primarily from certain assets sold or
placed out of service as a result of the Company closing several store locations
during the quarter ended June 30, 2003.
For the nine months ended June 30, 2003, financing activities utilized cash
flows of $13.8 million primarily from the net payment of funds under our
inventory borrowing agreements as a result of the seasonal reduction in
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 have
been amended numerous times. The agreements contain substantially similar terms
and financial ratio based covenant requirements. The maximum aggregate borrowing
availability as of June 30, 2003 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 June 30, 2003). 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 and (ii) fees for unused portions of
available credit. 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 in December, 2002, we entered into Amended and Restated borrowing
agreements (the "Amended Agreements") with our senior inventory lenders, TCFC
and GE, (formerly "DFS") with a initial maturity date of April 30, 2003. These
Amended Agreements have since been extended to mature on a monthly basis pending
negotiations for a longer term agreement acceptable to both the Company and its
lenders. The Amended Agreements also included 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), that provided the Company up to an
additional $500,000 from each lender of conditional working capital financing
(collectively $1.5 million) pending receipt of the Company's projected federal
income tax refund.
The Company received its federal income tax refund in the amount of
approximately $3.0 million during April 2003 and has repaid the $1.5 million
loan in full.
13
In conjunction with the negotiations for a longer term renewal of its inventory
borrowing agreements, the Company has met with its senior inventory lenders and
has discussed a comprehensive business strategy with the lenders that provides a
basis strategy by which the Company intends to improve cash flow by aggressively
accelerating the selling of non-current and discontinued inventories;
substantially reducing overhead and labor costs and increasing certain
components of profitable sales such as service labor; parts; and
finance/insurance products.
Management believes the strategy and operating plan will allow the negotiations
to result in renewed inventory borrowing agreements that provide terms similar
to those currently in place and provide the Company with the necessary
flexibility to execute its strategy of substantially accelerating the
sell-through of certain inventory. However there is no guarantee the renewal
terms, if any, will be in amounts, or have terms and conditions, acceptable to
the Company. Also any material shortfalls or variances from anticipated
performance or the timing of certain expenses or revenues could require us to
seek further amendment to our Borrowing Agreements or alternate sources of
additional financing.
Contractual Commitments and Commercial Commitments
The following table sets forth a summary of our material contractual obligations
and commercial commitments as of June 30, 2003:
Year Ended September 30, Line of Long-Term Convertible Operating Total
(000's) Credit Debt Notes Leases
- ------------------------------------ -------------- ------------- -------------- ------------ ------------
2003 $ 39,136 (1) $ 5,830 (2) $ 755 $ 45,721
2004 1,332 2,336 3,668
2005 301 $ 1,300 1,720 3,321
2006 227 1,294 1,521
2007 482 815 1,297
Thereafter 883 630 1,513
-------------- ------------- -------------- ------------ ------------
Total $ 39,136 $ 9,055 $ 1,300 $ 7,550 $ 57,041
============== ============= ============== ============ ============
(1) Our inventory borrowing agreements, which originated in January 2000,
currently mature on a monthly basis pending negotiations for renewal.
(See Management's Discussion and Analysis - "Liquidity").
(2) Approximately $5.5 million of real estate loans with a single lender
maturing on dates prior to October 31, 2003. (See Management's
Discussion and Analysis - "Liquidity").
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.
14
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 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 June 30, 2003, 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 $391,000 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
outstanding at June 30, 2003.
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 in the U.S.
Bankruptcy Court for the Northern District of Illinois on behalf of the
bankruptcy estate for Outboard Marine Corporation ("OMC"). The Company has
denied the allegations in this lawsuit and finds them without merit. 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 contracts
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 a material adverse affect on our results of operations.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
15
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Number Description Incorporated by Reference to:
31.1 Certification Pursuant to Not applicable.
Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification Pursuant to Not applicable.
Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant to Not applicable.
Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None.
16
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: August 14, 2003 Travis Boats & Motors, Inc.
By: /s/ Michael B. Perrine
-----------------------------------------------
Michael B. Perrine
Chief Financial Officer, Treasurer and Secretary
(Principal Accounting and Financial Officer)
17