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, 2004
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
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark 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: 4,299,727 shares as of August 17, 2004.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets:
June 30, 2004 (unaudited) and September 30, 2003........................1
Consolidated Statements of Operations:
Three and Nine Months Ended June 30, 2004 and 2003 (unaudited)..........2
Consolidated Statements of Cash Flows:
Nine Months Ended June 30, 2004 and 2003 (unaudited)....................3
Notes to Unaudited Consolidated 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........................16
PART II - OTHER INFORMATION
Item 3. Defaults Upon Senior Securities...................................................17
Item 6. Exhibits and Reports on Form 8-K..................................................17
Signatures................................................................................18
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
June 30, September 30,
2004 2003
------------- ----------------
(unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $ 3,244 $ 3,414
Accounts receivable, net 8,785 5,655
Inventories, net 44,009 30,970
Prepaid expenses and other 980 914
------------- ----------------
Total current assets 57,018 40,953
Property and equipment:
Land 3,934 5,124
Buildings and improvements 11,125 13,611
Furniture, fixtures and equipment 9,151 9,134
------------- ----------------
24,210 27,869
Less accumulated depreciation (11,308) (10,634)
------------- ----------------
12,902 17,235
Intangibles and other assets:
Non-compete agreements, net 448 731
Other assets 504 203
------------- ----------------
Total assets $ 70,872 $ 59,122
============= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,442 $ 2,258
Accrued liabilities 2,242 2,001
Current portion of deferred gain on sale of real property 107 87
Floor plan and revolving line of credit 44,130 28,658
Current portion of notes payable, convertible subordinated
notes and other short term obligations 2,105 4,723
------------- ----------------
Total current liabilities 53,026 37,727
Deferred gain on sale of real property, net of current portion 1,016 963
Notes payable, less current portion 4,147 1,591
Convertible subordinated notes, less current portion --- 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,
4,299,727 issued and outstanding 43 43
Paid-in capital 15,094 15,094
Retained deficit (10,454) (5,596)
------------- ----------------
Total stockholders' equity 12,683 17,541
------------- ----------------
Total liabilities and stockholders' equity $ 70,872 $ 59,122
============= ================
See notes to unaudited consolidated financial statements
1
Travis Boats & Motors, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except share data and store count)
Three months ended Nine months ended
June 30 June 30
2004 2003 2004 2003
--------- --------- --------- ---------
Net sales.............................................. $ 47,214 $ 53,129 $ 92,621 $109,149
Cost of goods sold..................................... 36,658 42,136 72,768 87,049
Gross profit........................................... 10,556 10,993 19,853 22,100
Selling, general and administrative.................... 8,058 8,704 20,462 24,682
Store closing expense.................................. -- 307 -- 307
Depreciation and amortization.......................... 496 598 1,565 1,863
--------- --------- --------- ---------
8,554 9,609 22,027 26,852
Operating income/(loss)................................ 2,002 1,384 (2,174) (4,752)
Interest expense....................................... (699) (872) (2,093) (2,614)
Other income........................................... (5) 46 72 88
Impairment on sale/leaseback of real estate............ -- -- (543) --
Profit/(loss) before income taxes...................... 1,298 558 (4,738) (7,278)
Income tax (expense)/benefit........................... -- -- -- 2,533
--------- --------- --------- ---------
Net profit/(loss)...................................... 1,298 558 (4,738) (4,745)
Preferred stock dividends.............................. 120 120 360 360
--------- --------- --------- ---------
Net profit/(loss) attributable to common shareholders.. $ 1,178 $ 438 $ (5,098) $ (5,105)
========= ========= ========= =========
Income/(loss) per share:
Basic income/(loss) per share before preferred
stock dividends................................... 0.30 0.13 (1.10) (1.10)
Preferred stock dividends........................... (0.03) (.03) (0.09) (0.08)
--------- --------- --------- ---------
Basic income/(loss) per share.......................... $ 0.27 $ 0.10 $ (1.19) $ (1.18)
========= ========= ========= =========
Diluted income/(loss) per share before preferred
stock dividends................................... 0.17 0.07 (1.10) (1.10)
Preferred stock dividends........................... -- -- (0.09) (0.08)
--------- --------- --------- ---------
Diluted income/(loss) per share........................ $ 0.17 $ 0.07 $ (1.19) $ (1.18)
========= ========= ========= =========
Weighted average basic common shares outstanding....... 4,299,727 4,313,243 4,299,727 4,324,232
Weighted average diluted common shares outstanding..... 8,081,137 8,094,653 4,299,727 4,324,232
See notes to unaudited consolidated financial statements
2
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Nine months ended
June 30
2004 2003
-----------------------------
Operating activities: (unaudited) (unaudited)
Net Loss............................ ........................................................ ($ 4,738) ($ 4,745)
Adjustments to reconcile net loss to net cash provided by/(used in) Operating activities:
Depreciation........................................................................... 1,274 1,549
Amortization........................................................................... 291 314
Amortization of deferred gain.......................................................... (62) ---
Impairment on sale/leaseback of real estate............................................ 543 0
Changes in operating assets and liabilities
Accounts receivable............................................................... (3,130) (3,031)
Prepaid expenses.................................................................. (66) (72)
Inventories....................................................................... (13,039) 17,694
Other assets...................................................................... (309) 174
Accounts payable.................................................................. 2,184 195
Accrued liabilities............................................................... 241 734
Income tax recoverable............................................................ --- 611
-------- --------
Net Cash provided by/(used in) operating activities.................................... (16,811) 13,423
Investing Activities:
Purchase of property and equipment..................................................... (731) 0
Proceeds from sale of property and equipment........................................... 3,382 151
-------- --------
Net cash provided by investing activities.............................................. 2,651 151
Financing activities:
Net increase/(decrease) in floorplan, revolving and other short term obligations....... 15,270 (13,444)
Proceeds from real estate refinance note............................................... 5,300 ---
Payments on real estate refinance note................................................. (6,460) ---
Preferred stock dividends.............................................................. (120) (360)
Net payments from repurchase of common stock........................................... -- (9)
-------- --------
Net cash provided by/(used in) financing activities.................................... 13,990 (13,813)
Change in cash and cash equivalents.................................................... (170) (239)
Cash and cash equivalents, beginning of period......................................... 3,414 4,253
-------- --------
Cash and cash equivalents, end of period............................................... $ 3,244 $ 4,014
======== ========
See notes to unaudited consolidated financial statements
3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
from the records of Travis Boats & Motors, Inc. and subsidiaries (collectively,
the "Company") in accordance with auditing standards generally accepted in the
United States. 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, 2004, and the interim results of
operations and cash flows for the three and nine month periods ended June 30,
2004 and 2003. The consolidated balance sheet at September 30, 2003, presented
herein, has been derived from the audited consolidated financial statements of
the Company for the fiscal year then ended.
Certain information and footnote disclosures normally included in the annual
financial statements have been condensed or omitted for purposes of the
condensed consolidated interim financial statements. The consolidated interim
financial statements should be read in conjunction with the audited consolidated
financial statements, including the notes thereto, for the fiscal year ended
September 30, 2003 included in the Company's annual Report on Form 10-K/A filed
with the Securities and Exchange Commission on February 2, 2004. Accounting
policies followed by the Company are described in Note 2 to the audited
consolidated financial statements for the fiscal year ended September 30, 2003
included in the Company's annual report on Form 10-K/A.
The results of operations for the three and nine month periods ended June 30,
2004 are not necessarily indicative of the results to be expected for the full
fiscal year.
Controlling Shareholder
As of January 7, 2003, TMRC, LLP, ("Tracker"), a wholly owned subsidiary of
Tracker Marine, LLC, pursuant to certain agreements for assistance in financing
and other matters (the "Agreements"), assumed effective control of the Company.
Tracker and affiliated entities have operations in marine and outdoor lifestyle
retail and manufacturing. Tracker is the manufacturer of various pleasure
boatlines including: Tracker, Mako, Nitro, ProCraft, Fisher and numerous other
popular models.
Prior to the Agreements, pursuant to its holding 80,000 shares of Series A
Preferred Stock, Tracker beneficially owned approximately 43%, or 3,252,825
shares, of the Company's common stock on a fully-diluted, as-converted basis. As
a result of the Agreements, Tracker now has voting control of approximately 57%,
or 4,611,119 shares, on a fully-diluted, as-converted basis. Tracker also has
the right to designate four of seven members of the Company's Board of
Directors. Tracker currently has two representatives on the Board of Directors
pursuant to its ownership of 80,000 shares of the Company's Series A Preferred
Stock, and has not yet designated two additional representatives.
4
NOTE 2 - INCOME/(LOSS) PER SHARE
(in thousands, except share data)
Three Months Ended Nine Months Ended
June 30, June 30,
2004 2003 2004 2003
---------- --------- --------- ---------
NUMERATOR
Net income/(loss) before preferred stock dividends..... 1,298 558 (4,738) (4,745)
Preferred stock dividends.............................. (120) (120) (360) (360)
Net income/(loss) attributable to common shareholders.. $ 1,178 $ 438 $ (5,098) $ (5,105)
Weighted average basic common shares outstanding......... 4,299,727 4,313,243 4,299,727 4,324,232
Effect of assumed conversions
Convertible subordinated notes......................... 528,584 528,584 --- ---
Series A preferred stock............................... 3,252,826 3,252,826 --- ---
Weighted average diluted common shares outstanding....... 8,081,137 8,094,653 4,299,727 4,324,232
Basic income/(loss) per share before preferred
stock dividends ..................................... .30 .13 (1.10) (1.10)
Preferred stock dividends................................ (.03) (.03) (.09) (.08)
Basic income/(loss) per share attributable ---------- --------- --------- ---------
to common shareholders............................... $ 0.27 $ 0.10 $ (1.19) $ (1.18)
========== ========= ========== ==========
Diluted income/(loss) per share before preferred
stock dividends...................................... 0.17 0.07 (1.10) (1.10)
Preferred stock dividends................................ -- -- (0.09) (0.08)
---------- --------- ---------- ----------
Diluted income/(loss) per share.......................... $ 0.17 $ 0.07 $ (1.19) $ (1.18)
========== ========= ========== ==========
The foregoing table does not include shares issuable upon the exercise of
outstanding stock options. At June 30, 2004, the Company had issued and
outstanding incentive stock options to certain employees totaling 56,100 shares
which had exercise prices equal to or exceeding the closing price of the
Company's common stock on such date. The 56,100 option shares have a weighted
average exercise price of $6.16 and a weighted average outstanding remaining
life of 6.3 years.
For the nine months ended June 30, 2004 and 2003, the weighted average dilutive
share calculation excludes the 528,584 shares of common stock subject to
issuance pursuant to $1.3 million in outstanding convertible subordinated notes
(see Note 4) and 3,252,826 shares of common stock subject to issuance pursuant
to 80,000 shares of Series A Preferred Stock. The shares were excluded since the
Company had a net loss in both periods.
5
NOTE 3 - STOCKHOLDERS' EQUITY
The Company accounts for its employee stock-based compensation using the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, and related Interpretations.
The Company makes disclosures regarding employee stock-based compensation using
the fair value method in accordance with Statement of Financial Accounting
Standards 148 ("SFAS"), Accounting for Stock-Based Compensation-Transition and
Disclosure. The Company has calculated the fair value of options granted in
these periods using the Black-Scholes option-pricing model and has determined
the pro forma impact on net loss.
The following table illustrates the effect on net income/(loss) and net
income/(loss) loss per share if the Company had applied the fair value
recognition provisions of SFAS 123 to stock-based compensation for all periods
presented (in thousands, except per share data):
Three months ended Nine months ended
June 30, June 30,
2004 2003 2004 2003
-----------------------------------------------
Net income/(loss) attributable to common
shareholders as Reported $ 1,178 $ 438 $ (5,098) $ (5,105)
Add: Total stock based employee compensation
expense included in the determination of net
income/(loss) as reported, net of tax effects --- --- --- ---
Less: Total stock based employee compensation
expense determined under the fair value (29) (33) (87) (126)
methods for all awards, net of related tax effects
-----------------------------------------------
Proforma net income/(loss) attributable to common shareholders $ 1,149 $ 405 $ (5,185) $ (5,231)
-----------------------------------------------
Basic and Diluted Income/(Loss) Per Share
Reported basic net income/(loss) per share attributable $ .27 $ .10 $ (1.19) $ (1.18)
to common shareholders
Reported dilutive net income/(loss) per share attributable $ .17 $ .07 $ (1.19) $ (1.18)
to common shareholders
Proforma basic net income/(loss) per share attributable $ .27 $ .09 $ (1.21) $ (1.21)
to common shareholders
Proforma dilutive net income/(loss) per share attributable $ .16 $ .05 $ (1.21) $ (1.21)
to common shareholders
The compensation expense associated with the fair value of the options
calculated in the quarter and nine month periods ended June 30, 2004 and 2003 is
not necessarily representative of the potential effects on reported net
income/(loss) in future periods.
6
NOTE 4 - NOTES PAYABLE
The Company entered into a real estate loan during November 2003 in the original
principal amount of $5.3 million. The loan has a three year maturity. Interest
payments are due monthly based upon interest at 12%, and all principal is
repayable at maturity. Proceeds of the loan were used to refinance other real
estate indebtedness maturing December 31, 2003 in the approximate amount of $3.7
million and the remainder was used for transaction expenses and general working
capital.
On February 6, 2004, the Company agreed to terms with its controlling
shareholder, Tracker, for a $500,000, non-revolving, loan. The note is due on
demand at any time on or after May 5, 2004 (the "Note"). The Note provided that
the Company, at the discretion of the Operating Committee of its Board of
Directors, could request advances at any time prior to May 5, 2004 up to the
aggregate amount of $500,000. Advances made pursuant to the Note bear interest
at a rate of 10% until the earlier of the date demand is made by Tracker for
repayment or January 5, 2005 at which time the rate will increase to 18% on any
unpaid principal and accrued, but unpaid, interest amounts. The Note is
generally unsecured, subject to Tracker retaining a right of offset with respect
to any cash, credits, rebates, deposits, accounts, securities, and any other
property of the Company in Tracker's possession, custody or control.
As of the date this report on Form 10-Q, the Company has borrowed $340,000 under
the Note and has made payments to reduce the current outstanding balance to
approximately $53,000.
NOTE 5 - SHORT TERM BORROWINGS
Inventory Borrowing Agreements
The Company finances substantially all of its inventory pursuant to borrowing
agreements (the "Borrowing Agreements") with two commercial finance companies --
Transamerica Commercial Finance Corporation ("TCFC") and GE Commercial
Distribution Finance Corporation ("GE") (formerly known as Deutsche Financial
Services Corporation). During the quarter ended March 31, 2004, TCFC was
acquired by GE. The Borrowing Agreements contain substantially similar terms and
financial covenants, however the Company's agreements with GE and TCFC remain
separate. As of June 30, 2004, the maximum aggregate borrowing availability was
limited to a maximum seasonal credit limit of $50.0 million at various prime
based or LIBOR based interest rates (varying from 4.12% to 4.75%) of which
approximately $44.1 million was funded, and an additional $4.5 million was
allocated for inventory orders in process. The Borrowing Agreements are
primarily for the purchase of inventories and, to a far lesser extent, provide
available amounts for general working capital requirements based upon levels of
certain used inventory, parts inventory and accounts receivable. As of June 30,
2004, the Company could request advances for additional new inventories up to
its $50 million credit limit, but did not have additional material amounts that
could be advanced solely for general working capital uses.
The Borrowing Agreement with TCFC expires on October 15, 2004 and the Borrowing
Agreement with GE expires on October 31, 2004. Effective with the submission of
its results for the periods ended March 31, 2004 and June 30, 2004, the Company
was out of compliance with several financial covenant terms and conditions of
the Borrowing Agreements. Additionally, while the Company had an aggregate loan
balance below the aggregate credit limits of the Borrowing Agreements, the
Company's balance outstanding on the GE Borrowing Agreement exceeded a scheduled
seasonal reduction in the available credit line occurring on July 31, 2004.
While not waiving compliance, TCFC and GE have agreed to forbearance with
respect to both the non-compliance and the overline subject to the following:
(i) the Company committing no additional defaults, (ii) TCFC and GE implementing
reductions in the maximum aggregate outstanding credit limits of the Borrowing
Agreements from $42.5 million to $38.0 million on August 31, 2004, then to $33.0
million on September 30, 2004 and to $31.0 million on October 31, 2004, and
(iii) implementing a formula requiring payments of $2 for each additional $1 of
new loan advances requested by the Company under the Borrowing Agreements.
7
NOTE 6 - SALE/LEASEBACKS
In March of 2004, the Company completed a sale/leaseback transaction of its
store location in San Antonio, Texas. The property was sold at a price of $2.5
million and leased back by the Company pursuant to a ten-year operating lease.
The sales price included a $1.5 million cash down payment and a short term
promissory note of $1.0 million. Accordingly, the transaction had been accounted
for as a financing transaction and the $1.5 million cash down payment received
had been accounted as a deposit liability. During the quarter ended June 30,
2004, the transaction was re-classified as a sale/leaseback pursuant to SSFAS
No. 98 as a result of the Company's receipt of payment of the remaining $1.0
million amount outstanding under the short term promissory note.
In April of 2004, the Company completed a sale/leaseback transaction of its
store location in Claremore, Oklahoma. The property was sold at a price of
$560,000 and leased back by the Company pursuant to an operating lease. The
transaction has been accounted for as a sale/leaseback pursuant to SFAS No. 98.
The gain of approximately $135,000 resulting from the sale of the property will
be classified as a Deferred Gain and will be amortized ratably over the lease
period which is 5 years.
NOTE 7 - SUBSEQUENT EVENTS
In July of 2004, the Company completed a sale/leaseback transaction of its store
location in Clearwater, Florida. The property was sold at a price of
approximately $2.3 million and leased back by the Company pursuant to a two-year
operating lease. The sales price included a $2.05 million cash down payment and
a long term promissory note of approximately $230,000. Accordingly, the
transaction will be accounted for as a financing transaction and the $2.05
million cash down payment received will be accounted as a deposit liability. The
transaction will be re-classified as a sale/leaseback pursuant to SFAS No. 98
upon the Company's receipt of the remaining $230,000 amount outstanding under
the long term promissory note.
In August of 2004, the Company completed a sale/leaseback transaction of its
store location in Pascagoula, Mississippi. The transaction has been accounted
for as a sale/leaseback pursuant to SFAS No. 98. The property was sold at a
sales price of $750,000 and leased back by the Company pursuant to an operating
lease.
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF
"SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
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 factors affecting our
business and operations see the Company's Report on Form 10-K/A filed for the
fiscal year ended September 30, 2003, and other documents filed of record with
the Securities and Exchange Commission.
OVERVIEW
Travis Boats & Motors, Inc. ("Travis Boats," the "Company" or "we") is a
multi-state superstore retailer of recreational boats, motors, trailers and
related marine accessories in the southern United States. Our Company currently
operates 30 stores under the name Travis Boating Center in Texas (8), Arkansas
(2), Louisiana (4), Alabama (1), Tennessee (3), Mississippi (1), Florida (9),
Georgia (1) and Oklahoma (1).
8
The Company was incorporated as a Texas corporation in 1979. Since our founding
as a single retail store in Austin, Texas, we have grown both through
acquisitions and the opening of new "start-up" store locations. It was during
the 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 significant inventory stocking
requirements for multi-stores allowed us to maximize volume discounts and
introduce 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.
Based on sales trends from the cities and states where we operate store
locations, we design and pre-package combinations of popular brand-name boats,
such as Mako, Cobalt, Ranger, Caravelle, Bayliner, Fisher, ProCraft, Fishmaster,
Sea Pro 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 to often include
distinguishing features/branded models and accessories within the base Travis
Edition price. It is the Company's belief that these features/branded models and
accessories have historically been unavailable to, or listed as optional, by
many of our competitors. We also sell small cruisers, such as Crownline, that
range to over 25 feet in length. 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.
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 also sell motors, trailers, accessories and
related equipment.
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 $150,000 with
approximate even distribution within this price range. Our management believes
that by combining flexible financing arrangements with many types of boats
having broad price ranges, we are able to offer boat packages to customers with
different purchasing budgets and varying income levels.
The Company seeks to provide customers with 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.
QUARTER ENDED JUNE 30, 2004. The Company reported net income of approximately
$1.2 million, on net sales of $47.2 million, for the three months ended June 30,
2004 versus net income of approximately $438,000, on net sales of $53.1 million,
for the same quarter of the prior fiscal year. The decrease in net sales
relative to the same quarter last year was related to various factors including,
but not limited to, the continued impact of significant product and brand
transition whereby the Company eliminated yacht sales and began the introduction
of new models of off-shore fishing boats to replace its previously carried
comparable product line. Significant initial stocking requirements resulted in
limited product assortment and availability of this new product in the nine
months ended June 30, 2004. The increase in net income was primarily the result
of the Company generating higher gross profit margins on its boat sales compared
to the prior fiscal year's quarter. As previously disclosed, results in prior
fiscal year periods were adversely impacted by the substantial sell-through of
certain aged and discontinued inventories. To improve operating performance, the
Company has also implemented a number of key initiatives designed to ultimately
improve the Company's financial condition. These initiatives include, but are
not limited to, the consolidation of our vendor relationships to improve
inventory turns, assortments and product consistency in our stores. Management
is optimistic that the Company's recent efforts related to product and brand
transition, reductions in obsolete inventory, and improved supply chain will
have a long-term positive impact on performance.
9
RESULTS OF OPERATIONS
QUARTER ENDED, JUNE 30, 2004 COMPARED TO THE QUARTER ENDED, JUNE 30, 2003 AND
NINE MONTHS ENDED JUNE 30, 2004 COMPARED TO THE NINE MONTHS ENDED JUNE 30, 2003.
- --------------------------------------------------------------------------------
NET SALES. Net sales in the third quarter of fiscal 2004 decreased to $47.2
million, compared to net sales of $53.1 for the third quarter of fiscal 2003.
For the nine months ended June 30, 2004, net sales decreased to $92.6 million,
compared to $109.1 million during the same period of the prior fiscal year.
The decrease in net sales during the quarter ended June 30, 2004 was the result
of a 10% decrease in comparable store sales. Management believes comparable
store sales continued to be negatively impacted by several factors including,
but not limited to, the significant product and brand transitions initiated on
or about the commencement of the 2004 fiscal year. This included the previously
announced decision to eliminate yacht sales, which reduced revenue by
approximately $3.5 million and $6.5 million for the quarter and nine months
ended June 30, 2004, respectively. Additionally, during the fall of 2003, the
Company began the introduction of new models of off-shore fishing boats to
replace its previously carried comparable product line. The Company's initial
stocking requirements contributed to only a limited assortment and selection of
the new boats being available during the quarter and nine months ended June 30,
2004. The impact on net sales of yachts and off-shore fishing boats from these
and other related issues was a decrease of approximately $7.7 million and $14.7
million in sales for the quarter and nine months ended June 30, 2004,
respectively, versus the same periods of the prior fiscal year. Comparable store
sales excluding the impact of the sale of yachts and off-shore fishing boats
increased by 5% for the quarter ended June 30, 2004.
Management believes that the impact of the significant product and brand
transition on net sales will be offset by improved gross profit margins on the
newly stocked products.
GROSS PROFIT. Gross profit decreased by 3.6% to approximately $10.6 million in
the third quarter of fiscal 2004 from $11.0 million in the same quarter of
fiscal 2003. Gross profit, as a percent of net sales, increased to 22.4% from
20.7% during the same periods. For the nine months ended June 30, 2004, gross
profit decreased 10% to $19.9 million from $22.1 million in the same period of
the prior year. Gross profit, as a percent of sales, increased to 21.4% from
20.2% during the same periods.
The increase in gross profit as a percent of net sales was primarily related to
(i) increases in the sale of parts, accessories and labor as a percent of net
sales and (ii) improved margins on the sales of our new and used boat, motor,
and trailer inventory. The Company's gross profit in fiscal year 2003 was
adversely impacted by its aggressive sell-through of substantial amounts of aged
and discontinued inventories at reduced sales prices and margins.
10
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 equipment
manufacturer ("OEM") expires. The insurance coverages provide the customer with
funds to repay a portion or all of their boat loan in the event of death,
disability or other covered event.
Since we have business relationships with numerous financial lenders we also
offer to assist our customers in obtaining financing for their boat purchase. If
the customer purchases F&I Products or utilizes financing we have helped
arrange, we earn commissions based upon our total volume of sales or the amount
of mark-up we charge over the cost of the products sold.
Net sales of these products contributed approximately $1.5 million, or 14.2%,
and $2.8 million, or 14.1%, of total gross profit for the quarter and nine
months ended June 30, 2004, respectively, as compared to $2.0 million, or 18.2%,
and $3.8 million, or 17.2%, of total gross profit for the same periods of the
prior fiscal year. Management believes that the decrease in F&I income is the
result of several factors including (i) the sale of fewer extended service
contracts during the quarter ended March 31, 2004 as a result of certain
original equipment manufacturers ("OEM") increasing the terms of original OEM
warranty coverage periods as marketing incentives to retail purchasers during
the boat show season and (ii) the change in the year to date sales mix resulting
in increases in the sale of parts, accessories and labor as a percent of net
sales, but in fewer boats sold in the Company's bay boat and off-shore models.
Net sales attributable to F&I Products are reported on a net basis, therefore,
all such sales contribute directly to the Company's gross profit.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased to $8.1 million in the third quarter of fiscal
2004 from $9.0 million for the third quarter of fiscal 2003. As a percent of net
sales, selling, general and administrative expenses increased to 17.1% in the
third quarter of fiscal 2004 from 17.0% for the third quarter of fiscal 2003.
For the nine months ended June 30, 2004, selling, general and administrative
expenses were $20.5 million, or 22.1% of net sales, versus $25.0 million, or
22.9% of net sales, in the same period of the prior fiscal year.
The reductions in actual dollars of expenses were generally related to operating
fewer store locations, the absence of store closing costs incurred in the prior
period and the expense containment strategies adopted in fiscal 2003. Although
rent expenses declined in actual dollars, this has been somewhat offset by
increased rents resulting from new leases on four stores pursuant to
sale/leaseback transactions completed beginning in September 2003 (see
"Depreciation and Amortization Expenses").
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses
decreased to $496,000 in the third quarter of fiscal 2004 from $598,000 for the
third quarter of fiscal 2003. Depreciation and amortization expenses declined to
approximately $1.6 million for the nine months ended June 30, 2004 from $1.9
million for the same period of the prior fiscal year.
11
The decrease in depreciation and amortization expenses was primarily
attributable to reductions in fixed assets (real estate) related to the sale of
four stores pursuant to sale/leaseback transactions effective beginning in
September 2003 (see "Selling, General and Administrative Expenses").
INTEREST EXPENSE. Interest expense decreased to $699,000 in the third quarter of
fiscal 2004 from $872,000 in the third quarter of fiscal 2003.
The decreased interest expense was primarily the result of significantly lower
balances on our inventory based lines of credit due to the significant
reductions in the levels of inventory held. The Company has successfully reduced
inventory levels due to improved supply chain management and the sell-through of
aged and discontinued inventories during fiscal 2003.
Although our strategy is to maintain lower inventory levels and improve
inventory turns, we anticipate continuing to utilize significant amounts of
third party financing sources to support our inventories and other assets.
Accordingly, we are subject to the impact of increases in interest expenses and
other costs associated with such borrowings.
INCOME TAXES. Our federal income tax return for the 12 months ended December 30,
2002 fully exhausted all available refunds of federal income taxes previously
paid by our Company. Accordingly, pursuant to SFAS No. 109, the Company has not
recognized any income tax benefits on our books from operating losses, due to
uncertainties associated with the utilization of the operating loss
carry-forwards in future periods. Accordingly, the Company did not record an
income tax benefit for the three or nine month periods ended June 30, 2004.
For the three months ended June 30, 2004, the Company reported net income
attributable to common shareholders of $1.2 million ($.27 per basic and $.17 per
diluted share) versus net income attributable to common shareholders of $438,000
($.10 per basic and $.07 per diluted share) for the same period of the prior
fiscal year.
For the nine months ended June 30, 2004, the Company reported a net loss
attributable to common shareholders of $5.1 million ($1.19 per basic and diluted
share) versus a net loss attributable to common shareholders of $5.1 million
($1.18 per basic and diluted share) for the same period of the prior fiscal
year. However, the prior year net loss was reduced from a pre-tax loss of $7.3
million as a result of the recognition of an income tax benefit of approximately
$2.5 million.
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") with GE
Commercial Distribution Finance Corporation ("GE") and Transamerica Commercial
Financial Corporatino ("TCFC").
On June 30, 2004, we had approximately $3.2 million in cash, $8.8 million in
accounts receivable (primarily contracts in transit from boat sales,
manufacturer rebates receivable and other amounts due from manufacturers) and
$44.0 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 $6.7
million of accounts payable and accrued liabilities, $44.1 million outstanding
under our Borrowing Agreements and approximately $2.1 million in short-term
indebtedness including current maturities of notes payable of approximately
$744,000, approximately $60,000 payable under a short term note to Tracker, and
convertible subordinated promissory notes of $1.3 million.
12
On June 30, 2004, we had working capital of approximately $4.0 million. Working
capital, as of that date, benefited from the net income in the quarter ended
June 30, 2004, but was negatively offset by the aforementioned $2.1 million in
short-term indebtedness.
For the nine months ended June 30, 2004, operating activities utilized cash
flows of $16.8 million due primarily to an increase of $13.0 million in
inventories. The Company historically builds inventory balances during each
fiscal year in the periods in advance of the seasonal boat shows. The boat shows
generally begin during January and continue through March of each year.
Historically, inventory continues to increase through the March quarter based on
boat show volumes and seasonal sales increases. In the nine months ended June
30, 2004, the Company had higher average inventory levels than in the prior year
as a result of the inventory reductions from the sell-through of aged and
discontinued inventory during fiscal 2003. Although inventory during the period
ended June 30, 2004 increased, the Company's significant initial stocking
requirements of newly introduced models of bay boats and off-shore fishing boats
contributed to only a limited assortment and selection of these new boats being
received in the current fiscal year by the Company. Inventories generally fall
to a seasonal low in the September quarter.
For the nine months ended June 30, 2004, investing activities provided cash
flows of $2.7 million. This was primarily a result of the Company's completion
of sale/leaseback transactions on its store locations in San Antonio, Texas and
Claremore, Oklahoma. Additional cash flow from investing activities was provided
by the sale of the land and buildings associated with a location in Little Rock,
Arkansas that had been closed during the 2003 fiscal year. Cash flows from
investing activities were offset by capital expenditures of approximately
$731,000 related to various assets including, but not limited to, vehicles and
equipment.
Financing activities during the quarter ended June 30, 2004 provided cash flows
of $14.0 million primarily from the net proceeds of funds borrowed under our
inventory Borrowing Agreements for the purchase of our seasonal boat
inventories. Our primary financing agreements are for the purchase of our boat,
motor and trailer inventories. During the fiscal year ended June 30, 2004, the
Company also obtained additional financing from the refinance of real estate
debt. A significant portion of the refinanced debt has subsequently been repaid
from the net proceeds of the completed sales/leaseback transactions in San
Antonio, Texas and Claremore, Oklahoma.
BORROWING AGREEMENTS. The Company finances substantially all of its inventory
pursuant to its Borrowing Agreements with GE and TCFC. During the quarter ended
March 31, 2004, TCFC was acquired by GE. The Borrowing Agreements contain
substantially similar terms and financial covenants, however the Company's
borrowing agreements with GE and TCFC remain separate. As of June 30, 2004, the
maximum aggregate borrowing availability was limited to a maximum seasonal
credit limit of $50.0 million at various prime based or LIBOR based interest
rates (varying from 4.12% to 4.75%) of which approximately $44.1 million was
funded and $4.5 million allocated for inventory orders in process. The Borrowing
Agreements are primarily for the purchase of inventories and, to a far lesser
extent, provide available amounts for general working capital requirements based
upon levels of certain used inventory, parts inventory and accounts receivable.
As of June 30, 2004, the Company could request advances for additional new
inventories up to its $50 million credit limit, but did not have additional
material amounts that could be advanced solely for general working capital uses.
13
Effective with the submission of its results for the periods ended March 31,
2004 and June 30, 2004, the Company was out of compliance with several financial
covenant terms and conditions of its Borrowing Agreements. Additionally, while
the Company had an aggregate loan balance below the aggregate credit limits of
the Borrowing Agreement, the Company's balance outstanding on the GE Borrowing
Agreement exceeded a scheduled seasonal reduction in the available credit line
occurring on July 31, 2004. This has resulted in an overline balance on the GE
Borrowing Agreement. The Borrowing Agreement with TCFC expires on October 15,
2004 and the Borrowing Agreement with GE expires on October 31, 2004.
While not waiving non-compliance, TCFC and GE have agreed to forbearance with
respect to both the non-compliance and the overline subject to the following:
(i) the Company committing no additional defaults, (ii) TCFC and GE implementing
reductions in the maximum aggregate outstanding credit limits of the Borrowing
Agreements from $42.5 million to $38.0 million on August 31, 2004, then to $33.0
million on September 31, 2004 and to $31.0 million on October 31, 2004, and
(iii) implementing a formula requiring payments of $2 for each additional $1 of
new loan advances requested by the Company under the Borrowing Agreements.
The Company and GE have discussed the provision of a new credit facility to the
Company beyond the current scheduled maturity dates of the existing facilities.
GE has notified the Company of general terms by which a one year discretionary
credit facility might be contemplated. GE has also raised questions as to
whether any such new facility would include a component for working capital
financing. However, the lenders have agreed to allow the Company to complete
certain proposed sale/leaseback transactions and permit the Company to retain a
portion of the net proceeds up to approximately $2.8 million as working capital.
At this time the Company is reviewing the general terms with its financial
advisor, Davenport & Company, LLC, and assessing the sufficiency of such
contemplated terms in conjunction with the continued implementation of its
business plan. There can be no assurance that GE will continue to provide
financing for the Company at the expiration of the Borrowing Agreements or that
if such financing is provided by GE or an alternate source that it will have
terms and conditions acceptable to the Company. There also can be no assurance
that the Company can close all of the sale/leaseback transactions as planned.
Our failure to achieve required financial and other covenants in our Borrowing
Agreements or to obtain sufficient financing on acceptable terms and conditions
would have a material adverse effect on our business, financial condition and
results of operations and require us to obtain additional equity capitalization
or alternate sources of financing. If such additional equity capital or
alternative financing cannot be obtained, the ability of the Company to continue
as a going concern would be in doubt and the Company may be required to seek
relief under debtor protection laws.
$5,300,000 REAL ESTATE LOAN. The Company entered into a real estate loan during
November 2003 in the original principal amount of $5.3 million. The loan has a
three year maturity. Interest payments are due monthly based upon interest at
12%, and all principal is repayable at maturity. Proceeds of the loan were used
to refinance other real estate indebtedness maturing December 31, 2003 in the
approximate amount of $3.7 million and the remainder was used for transaction
expenses and general working capital. The loan is secured by a first lien on the
land and buildings of the Company's store locations in Atlanta, Georgia;
Clearwater, Florida, San Antonio, Texas, Claremore, Oklahoma, Pascagoula,
Mississippi, and Bossier City, Louisiana and Baton Rouge, Louisiana. As of the
date of this report on Form 10-Q, the outstanding principal balance on the loan
has been reduced to $850,000 as a result of payments related to sale/leaseback
transactions in San Antonio, Texas, Claremore, Oklahoma and Clearwater, Florida.
$500,000 LOAN FROM TRACKER. On February 6, 2004, the Company agreed to terms
with its controlling shareholder, Tracker, for a $500,000, non-revolving, loan.
The terms of the loan are set forth in a promissory note payable to Tracker on
demand at any time on or after May 5, 2004 (the "Note"). The Note provided that
the Company, at the discretion of the Operating Committee of its Board of
Directors, could request advances at any time prior to May 5, 2004 up to the
aggregate amount of $500,000. Advances made pursuant to the Note bear interest
at a rate of 10% until the earlier of the date demand is made by Tracker for
repayment or January 5, 2005 at which time the rate will increase to 18% on any
unpaid principal and accrued, but unpaid, interest amounts. The Note is
generally unsecured, subject to Tracker retaining a right of offset with respect
to any cash, credits, rebates, deposits, accounts, securities, and any other
property of the Company in Tracker's possession, custody or control.
As of the date this report on Form 10-Q, the Company has borrowed $340,000 under
the Note and has made payments to reduce the current outstanding balance to
approximately $53,000.
14
As a pre-condition to the Note, Tracker required that the Company take the
following actions, all of which were approved by the Company's board of
directors on February 6, 2004:
o Declare a cash dividend, payable on or before May 5, 2004, in the aggregate
amount of $240,000 to Tracker as the holder of all of the Corporation's 6%
Series A Cumulative Convertible Preferred Stock with respect to the
quarters ended September 30, 2003, and December 31, 2003.
o Re-establish the Operating Committee of our Board of Directors. The
Operating Committee, which consists of Kenneth N. Burroughs, Robert Ring,
and Richard Birnbaum, is to determine whether additional borrowings are
necessary pursuant to the Note, and with respect thereto, review the
overall financial operations and expenses of the Company. Such duties may
be performed without the necessity of further actions or approval by the
entire Board of Directors.
As of the date this report on Form 10-Q, the Company has borrowed $340,000 under
the Note and has made payments to reduce the current outstanding balance to
approximately $50,000. The Company has also declared and paid the cash dividend
in the aggregate amount of $240,000 with respect to the quarters ended September
30 and December 31, 2003.
As evidenced by management's decision to seek additional financing in the form
of the Note, further shortfalls or variances from anticipated performance or the
timing of certain expenses or revenues may result in an adverse impact on our
business, financial condition and results of operations requiring us to seek
additional equity capitalization, borrowings or other alternate sources of
financing.
EXPLORATION OF STRATEGIC BUSINESS FINANCIAL ALTERNATIVES. In June of 2004, the
Company announced that a special committee of its Board of Directors had been
formed to explore strategic business and financial alternatives focused on
maximizing shreholder value. The Company engaged Davenport & Company LLC, an
investment banking firm based in Richmond, Virginia as financial advisor to
assist the Company with this process.
SEASONALITY
Our business, as well as the sales demand for various types of boats, tends to
be highly seasonal. Our strongest sales period historically 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 additional 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. The
Company also believes that the net sales for the three and nine months ended
June 30, 2004 were impacted by the significant product and brand transition.
This included the elimination of yacht sales and the Company's introduction of
new models of off-shore fishing boats. Accordingly, the results for any
quarterly period may not be indicative of the expected results for any other
quarterly period (see "Net sales").
15
NASDAQ LISTING REQUIREMENTS
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 June 16, 2004 we were notified by 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 Nasdaq Small Cap Market. 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 December 13,
2004. Alternatively, if the Company meets the initial listing criteria of the
Nasdaq Small Cap Market on December 13, 2004, Nasdaq will grant the Company an
additional grace period of 180 days to regain compliance with the minimum bid
price. If at the expiration of the second 180 day grace period the Company has
not regained compliance, but still meets the initial listing criteria, Nasdaq
will grant the Company an additional grace period until June 16, 2006 during
which time the Company would commit to seek shareholder approval for a reverse
stock split.
In addition, Nasdaq recently adopted a number of corporate governance listing
standards that must be satisfied to maintain listing on the Nasdaq Small Cap
Market. These standards require, among other things, that a company's audit
committee (i) have only "independent" members, and (ii) adopt a qualifying audit
committee charter. While the Company is exempt under Nasdaq Rule 4350(c)(5) and
Nasdaq IM-4350-4 from many of the new governance standards due to its status as
a "controlled company," it will nevertheless need to assess the need to comply
with certain other material requirements in advance of issuing its proxy
statement for the next annual meeting.
Failure to maintain the listing of our common stock on the NASDAQ Small Cap
Market would adversely impact the liquidity of the Company's common stock.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We do not utilize financial instruments for trading purposes and we do not hold
any derivative financial instruments that could expose us to significant market
risk. Our exposure to market risk for changes in interest rates relates
primarily to our obligations under our Borrowing Agreements, which are subject
to variable interest rates.
At June 30, 2004, a hypothetical 100 basis point change in interest rates on the
Company's Borrowing Agreements would result in a change of approximately
$441,000 in annual pre-tax expenses of the Company. The estimated change in
expenses is based upon the change in interest expense of the Company's Borrowing
Agreements and assumes no change in the volume or composition of such debt at
June 30, 2004.
Item 4. Controls and Procedures
(a) An evaluation as of the end of the period covered by this quarterly report
was carried out under the supervision and with the participation of the
Company's management, including the Company's President and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
"disclosure controls and procedures" (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act").
Based on that evaluation, the President and Chief Financial Officer
concluded that our disclosure controls and procedures are effective in
timely making known to them material information required to be disclosed
in our reports filed or submitted under the Exchange Act. There has been no
change in our internal control over financial reporting during the quarter
ended June 30, 2004 that has materially affected, or is reasonably likely
to affect, our internal control over financial reporting.
(b) The Company's Series A Preferred Stock has a cumulative dividend of 6% per
annum, to be declared and paid quarterly on the last day of March, June,
September and December of each year. The Statement of Designations of the
Series A Preferred Stock affords the Company the opportunity to elect to
pay the dividends in cash or in additional shares of Series A Preferred
Stock. In the event that additional shares of Series A Preferred Stock are
issued, the issue price would be approximately $2.45 per share, which is
the conversion price of the Series A Preferred Stock outstanding. The
Company has not declared, nor paid dividends of $120,000 due for the
quarters ended March 31, 2004 and June 30, 2004. The Board of Directors
will determine the date upon which the dividends will be declared and
whether they will be payable in cash or by the issuance of additional
preferred shares.
16
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
Effective with the submission of its results for the periods ended March 31,
2004 and June 30, 2004, the Company was out of compliance with several financial
covenant terms and conditions of its Borrowing Agreements. Additionally, while
the Company had an aggregate loan balance below the aggregate credit limits of
the Borrowing Agreement, the Company's balance outstanding on the GE Borrowing
Agreement exceeded a scheduled seasonal reduction in the available credit line
occurring on July 31, 2004. This has resulted in an overline balance on the GE
Borrowing Agreement. The Borrowing Agreement with TCFC expires on October 15,
2004 and the Borrowing Agreement with GE expires on October 31, 2004.
While not waiving non-compliance, TCFC and GE have agreed not to take action at
this time with respect to the non-compliance or the overline, provided that the
Company: (i) commits no further defaults under the Borrowing Agreements and (ii)
has aggregate obligations outstanding on the Borrowing Agreements of no more
than $38 million on August 31, 2004; $33 million on September 30, 2004 and $31
million on October 31, 2004.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the
Exchange Act
31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the
Exchange Act
32.1 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
During the quarter ended June 30, 2004 through the date of this Report on Form
10-Q, the Company filed the following Reports on Form 8-K:
August 17, 2004 Report on Form 8-K for financial statements and exhibits
including incorporation of press releases dated August 17, 2004 issued by the
Company.
17
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 20, 2004 Travis Boats & Motors, Inc.
By: /s/ Michael B. Perrine
------------------------------------------------
Michael B. Perrine
Chief Financial Officer, Treasurer and Secretary
(Principal Accounting and Financial Officer)
18