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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year Ended September 30, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-20757
TRAVIS BOATS & MOTORS, INC.
(Exact name of registrant as specified in its charter)
TEXAS
(State or other jurisdiction of
incorporation or organization)
74-2024798
(I.R.S. Employer
Indentification Number)
5000 Plaza on the Lake, Suite 250, Austin, Texas 78746
(Address of principal executive offices)
Registrant's telephone number, including area code: (512) 347-8787
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceeding 12 months (or for such shorter
period that Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes _X_ No___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitve proxy or
information statements incorporated by reference in Part III of this
Report on Form 10-K or any amendment to this Report on Form 10-K. _____
The aggregate market value of the voting stock (which consists solely of shares
of Common Stock) held by non-affiliates of the Registrant as of
December 24, 1998, (based upon the last reported price of $19.75 per
share) was approximately $56,779,631 on such date.
The number of shares of the issuer's Common Stock, par value $.01 per
share, outstanding as of December 24, 1998 was 4,287,063 of which
2,874,914 shares were held by non-affiliates.
Documents Incorporated by reference: Portions of Registrant's Proxy
Statement relating to the 1999 Annual Meeting of Stockholders to be held
in March 1999, have been incorporated by reference herein (Part III).
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
REPORT ON FORM 10-K
TABLE OF CONTENTS
RISK FACTORS.....
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 7.A Quantative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 10. Directors and Executive Officers
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Index to Consolidated Financial Statements
Risk Factors
This Report on Form 10-K contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could
differ materially from those discussed herein. Factors that could cause
or contribute to such differences include, but are not limited to, the
factors set forth below, those discussed in ''Management's Discussion and
Analysis of Financial Condition and Results of Operations'' and those
discussed elsewhere in this Report on Form 10-K.
Impact of Seasonality and Weather on Operations. The Company's
business, as well as the entire recreational boating industry, is highly
seasonal. Strong sales typically begin in January with the onset of the
public boat and recreation shows, and continue through July. Over the
previous five-year period, the average net sales for the quarterly
periods ended March 31 and June 30 represented approximately 27% and 41%,
respectively, of the Company's average annual net sales. If, for any
reason, the Company's sales were to be substantially below those normally
expected during these periods, the Company's business, financial
condition and results of operations would be materially and adversely
affected. The Company generally realizes significantly lower sales in the
quarterly period ending December 31, resulting in operating losses during
that quarter.
The Company's business is also significantly affected by weather
patterns which may adversely impact the Company's operating results. For
example, drought conditions or merely reduced rainfall levels, as well as
excessive rain, may force area lakes to close or render boating dangerous
or inconvenient, thereby curtailing customer demand for the Company's
products. In addition, unseasonably cool weather and prolonged winter
conditions may lead to a shorter selling season in certain locations.
While, management believes that the Company's geographic expansion has
reduced, and is expected to continue to reduce, the overall impact on the
Company of adverse weather conditions in any one market area, such
conditions will continue to represent potential, material adverse risks
to the Company and its future financial performance. Due to the foregoing
factors, among others, the Company's operating results in some future
quarters may be below the expectations of stock market analysts and
investors. In such event, there could be an immediate and significant
adverse effect on the trading price of the Common Stock. See "Impact of
Hurricanes and Tropical Storm Conditions" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Impact of Hurricanes and Tropical Storm Conditions. As the Company
has expanded into various coastal location within the states of Florida,
Mississippi and Louisiana it has become more vulnerable to the impact of
hurricanes and tropical storms in the Atlantic Ocean and the Gulf of
Mexico. During certain Hurricane conditions, national, state or local
authorities may require evacuations for public safety and the Company's
property insurance carrier's also may require the Company to relocate
inventory to a location expected to be out of the path of the oncoming
dangerous weather conditions. While management believes it carries
adequate insurance coverages, road closures or substantial traffic
congestion may limit the ability of the Company to relocate inventory to
safer locations and ultimately effect the Company's ability to seek a
full recovery of insurance proceeds for inventory damaged by rising water
associated with a storm. Retail sales may also be impacted as consumers
may be unable to purchase property/casualty insurance on an intended
boating purchase if a Hurricane or severe tropical storm is entering or
inside the Gulf of Mexico or threatening the Atlantic coast since
numerous insurance companies are unwilling or unable to place new
insurance in these situations.
Impact of General Economic Conditions and Discretionary Consumer
Spending. The Company's operations are dependent upon a number of
factors relating to or affecting consumer spending. The Company's
operations may be adversely affected by unfavorable local, regional or
national economic developments or uncertainties regarding future economic
prospects that reduce consumer spending in the markets served by the
Company's stores. Consumer spending on non-essential goods such as
recreational boats can also be adversely affected due to declines in
consumer confidence levels, even if prevailing economic conditions are
positive. In an economic downturn, consumer discretionary spending levels
are also reduced, often resulting in disproportionately large declines in
the sale of high-dollar items such as recreational boats.
For example, during the Company's 1988-1990 fiscal years, the Texas
economy was severely depressed due to declines in the financial, oil and
gas and real estate markets. While the Company remained profitable during
these periods, its operating performance declined. There can be no
assurance that a similar economic downturn might not recur in Texas or
any other market or that the Company could remain profitable during any
such period. Similarly, rising interest rates could have a negative
impact on consumers' ability or willingness to obtain financing from
third-party lenders, which could also adversely affect the ability of the
Company to sell its products. Changes in federal and state tax laws
including, without limitation, the imposition or proposed adoption of
luxury or similar taxes on certain consumer products, could also
influence consumers' decisions to purchase products offered by the
Company and could have a negative effect on the Company's sales. Local
influences such as corporate downsizing, military base closings and the
Mexican peso devaluation have adversely affected and may continue to
influence the Company's operations in certain markets.
Dependence Upon Expansion. A significant portion of the Company's
growth has resulted from, and will continue to be increasingly dependent
upon, the addition of new stores and continued sales and profitability
from existing stores. Since October 1991, at which time the Company
operated five stores in Texas, the Company has opened or acquired 19 new
store locations in Texas (3), Arkansas (2), Louisiana (4), Alabama (2),
Tennessee (3), Mississippi (1), Florida (2), Georgia (1) and Oklahoma
(1). During fiscal years 1998 and 1997, the stores added since October
1991 have collectively accounted for approximately 78.3% and 71.0%,
respectively, of the Company's aggregate net sales. Comparable store
sales increased 6.6% and 5.7% in fiscal years 1998 and 1997,
respectively. Recent rates of comparable store sales and net income
growth are not necessarily indicative of the comparable store performance
that may be achieved by the Company in the foreseeable future. See
''Management's Discussion and Analysis of Financial Condition and Results
of Operations.''
The Company intends to continue to pursue a strategy of growth into
new markets through acquiring existing boat retailers, converting
compatible facilities to Travis Boating Centers and building new store
facilities. Accomplishing these goals for expansion will depend upon a
number of general factors, including the identification of new markets in
which the Company can obtain approval to sell its existing or
substantially similar product lines, the Company's financial
capabilities, the hiring, training and retention of qualified personnel
and the timely integration of new stores into existing operations. The
acquisition strategy will further depend upon the Company's ability to
locate suitable acquisition candidates at a reasonable cost and to
dispose, timely and effectively, of the acquired entity's remaining
inventory, as well as the ability of the Company to sell its Travis
Edition product line to the customer base of the previous owner. There
can be no assurance that the Company can identify suitable acquisition
candidates or complete acquisitions on terms and conditions favorable to
the Company.
The strategy of growth through conversion of compatible facilities to
Travis Boating Centers or the construction of new Travis Boating Centers
will further depend upon the Company's ability (i) to locate and
construct suitable facilities at a reasonable cost in those new markets
in which the Company believes it can obtain adequate market penetration
at standard operating margins without the acquisition of an existing
dealer, (ii) to obtain the reliable data necessary to determine the size
and product preferences of such potential markets and (iii) to introduce
successfully its Travis Edition line. There can be no assurance that the
Company will be able to open and operate new stores on a timely or
profitable basis. Moreover, the costs associated with opening such stores
may adversely affect the Company's profitability. See ''Management's
Discussion and Analysis of Financial Condition and Results of
Operations.''
Management of Growth. The Company has undergone a period of rapid
growth. Management has expended and expects to continue to expend
significant time and effort in acquiring and opening new stores. There
can be no assurance that the Company's systems, procedures and controls
will be adequate to support the Company's expanding operations. The
inability of the Company to manage its growth properly could have a
material adverse effect on the Company's business, financial condition
and results of operations. The Company's planned growth will also impose
significant added responsibilities on members of senior management,
including the need to identify, recruit and integrate new senior level
managers, and the ability to maintain or expand Travis Edition's and
Travis Boating Center's successful appeal to consumers. There is no
assurance that any additions to management can be readily and
successfully achieved or that the Company will be able to continue to
grow its business.
Management Information Systems. In the time period inclusive of the
1997 fiscal year through the third fiscal quarter of the 1998 fiscal
year, the Company operated a single management information system ("MIS")
to monitor and manage its geographically dispersed stores. This MIS
system operates off of separate, individual computer servers at each of
the Company's store locations. The Company's corporate management
accesses and manages store level information by dialing telephone numbers
that are directly linked into the individual store location computers.
As part of the Company's continued centralization of its management,
accounting and administrative functions, the Company has begun the
implementation of a new computer system that is designed to allow
corporate management immediate, direct access at all times to each of its
store locations. Thus, the telephone connections are actively maintained
on a continuous basis. The new MIS system is currently operational in
seven (7) of the Company's 24 stores. Following additional successful
testing and training, the Company plans to continue to install the new
MIS system in approximately eight (8) additional existing store locations
and in substantially each of the new store locations it acquires during
fiscal 1999. There can be no assurance that the new MIS system will
function as planned or that the system can be integrated smoothly or cost
effectively in the Company's exising or acquired store locations. See -
"Management's Discussion and Analysis of Financial Condition and Results
of Operations - Year 2000 Issues".
Reliance on Manufacturers and Other Key Vendors. The Company's
success is dependent upon its relationship with, and favorable pricing
arrangements from, a limited number of major manufacturers. In the event
these arrangements were to change or terminate for any reason, including
changes in competitive, regulatory or marketing practices, the Company's
business, financial condition and results of operations could be
adversely affected. See - Management's Discussion and Analysis -
"Disclosure of YEAR 2000 Issues and Consequences".
As is typical in the industry, the Company deals with each of its
manufacturers pursuant to an annually renewable, non-exclusive, dealer
agreement that does not contain any contractual provisions concerning
product pricing or required purchasing levels. Pricing is generally
established on a model year basis, but is subject to change at the
manufacturer's sole discretion.
The Company purchased approximately 100% of its new outboard motors
for use on its Travis Edition lines of recreational boats in fiscal years
1998 and 1997, respectively, from Outboard Marine Corporation (''OMC''),
the manufacturer of Johnson and Evinrude outboard motors. Unlike the
Company's other dealer agreements, the Company's agreement with OMC is
multi-year in nature. The current agreement, which is in the first of
three years, sets forth an established discount level from the then
prevailing dealer net price over the entire term of the agreement. This
dealer agreement may be canceled by either party if the volume of product
purchased or available to be purchased is not maintained at pre-
established levels. If the Company's contract with OMC were canceled or
modified, it could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company has recently taken actions to reduce its reliance on OMC.
In October of 1998, the Company entered into a Letter of Intent Agreement
(the "LOI") with Mercury Marine, a subsidiary of Brunswick Corporation
(NYSE:BC), to become an authorized retailer of Mercury and related
outboard motors. The LOI sets forth the general terms and conditions for
outboard motor purchases over a three (3) year period. Currently, the
Company and Mercury Marine are negotiating the terms and conditions of a
definitive agreement that will supplement and replace the LOI. If the
Company's LOI with Mercury Marine were canceled or modified, or if a
definitive agreement can not be reached, it could have a material adverse
effect on the Company's business, financial condition and results of
operations.
Approximately 17.7% and 34.3% of the Company's net inventory purchases
in fiscal years 1998 and 1997, respectively, were from boat manufacturing
companies owned by Genmar Holdings, Inc. The Company also currently
purchases a high percentage of the annual production of a limited number
of additional boat manufacturers. To ensure adequate inventory levels to
support the Company's expansion, it may be necessary for such
manufacturers to increase production levels or allocate a greater
percentage of their production to the Company. In the event that the
operations of the Company's manufacturers were interrupted or
discontinued, the Company could experience temporary inventory
shortfalls, or disruptions or delays with respect to any unfilled
purchase orders then outstanding. Although the Company believes that
adequate alternate sources would be available that could replace a
manufacturer as a product resource, there can be no assurance that such
alternate sources will be available at the time of any such interruption
or that alternative products will be available at comparable quality and
prices. The unanticipated failure of any manufacturer or supplier to meet
the Company's requirements with regard to volume or design
specifications, the Company's inability to locate acceptable alternative
manufacturers or suppliers, the Company's failure to have dealer
agreements renewed or to meet certain volume requirements with regard to
purchasing, or any substantial increase in the manufacturer's pricing to
the Company, could have a material adverse effect on the Company's
business, financial condition and results of operations.
Limitations to Market Entry. Under most of its dealer agreements,
the Company must obtain permission from its manufacturers to sell
products in new markets. While the Company has received permission to
sell (i) outboard motors manufactured by OMC or Brunswick, and (ii)
various boat lines in its immediate expansion markets, manufacturers have
not granted such permission to the Company in each of its broader target
markets. While the Company believes it ultimately can sell products of
exisiting or other manufacturers in new markets, there can be no
assurance that all of the Company's current manufacturers will grant
permission for the Company to sell in new markets, or if unable to obtain
such permission, that the Company can obtain suitable alternative sources
of supply.
Unlike other states the Company has targeted for expansion, the State
of Oklahoma has restrictions on the location of competing marine dealers
that limit the ability of new entrants in the retail boat industry to
compete in Oklahoma. The Oklahoma laws prohibit marine dealers from
stocking similar brands of inventory within certain geographical
boundaries of other marine dealers stocking the same product. There can
be no assurance that other states will not pass similar or other
restrictions limiting new competition.
Income from Financing, Insurance and Extended Service Contracts. A
substantial portion of the Company's income results from the origination
and placement of customer financing and the sale of insurance products
and extended service contracts (collectively, ''F&I Products''). The
most significant component of the F&I income is the income resulting from
the Company's origination of customer financing. To assist customers
that desire to finance their boating purchases, the Company has made
arrangements with numerous financial institutions for these financial
institutions to offer competitive financing plans. For each loan that
the financial institutions are able to fund as a result of the Company
referring the customer, the financial institution pays a fee to the
Company. The fee amount is generally based on the loan amount and its
term.
During fiscal years 1998 and 1997, respectively, F&I Products
accounted for approximately 5.4% and 4.4% of net sales and approximately
20.3% and 16.7% of gross profit. The Company's lenders may choose to
pursue this business directly, rather than making payment to the Company
for referring customers. Moreover, lenders may reduce the fees paid to
the Company or impose other terms in their boat financing arrangements
with the Company that may be materially unfavorable to the Company or its
customers. For these and other reasons, the Company could experience a
significant reduction in income resulting from reduced demand for its
customer financing programs. In addition, if profit margins are reduced
on sales of F&I Products, or if these products are no longer available,
it would have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company sells optional extended service contracts providing for
extended warranty coverages on the customer's boating purchase. Claims
resulting under these extended service contracts are the responsibility
of the various third party providers that offer warranty plans sold by
the Company. As is typical with insurance risk, the third party
providers have further obtained insurance additional coverage to reinsure
their warranty exposure and protect against losses on warranty claims
that it would potentially be unable to pay. While, the Company has never
experienced any claims due to the default of a third party extended
service contract provider, the Company may experience significant breach
of warranty claims as a result of the failure of a third party extended
service contract provider or reinsurers to pay warranty claims that may,
in the aggregate, be material to the Company's business.
Availability of Financing. The Company typically borrows money from
financial institutions to support working capital necessary to stock
inventory levels at its various store locations. To provide for these
borrowing needs, the Company has arranged significant floor plan and
other inventory lines of credit from financial institutions and other
lenders. The Company believes that its terms of borrowing reflect
competitive terms and market conditions. While the Company believes it
will continue to obtain comparable financing from these or other lenders,
there can be no assurance that such financing will be available to the
Company. The failure to obtain sufficient financing on favorable terms
and conditions could have a material adverse effect on the business,
financial condition and results of operations of the Company. See
''Management's Discussion and Analysis of Financial Condition and Results
of Operations-Liquidity and Capital Resources.''
Dependence on Key Personnel. The Company believes its success
depends, in large part, upon the continued services of key management
personnel, including Mark T. Walton, Chairman of the Board and President;
Ronnie L. Spradling, Executive Vice President-New Store Development; and
Michael B. Perrine, Chief Financial Officer, Secretary and Treasurer; and
other key employees. Although the Company has employment agreements
through TBC Management, Ltd. (an affiliated partnership of the Company)
with each of Messrs. Walton, Spradling and Perrine expiring in June 1999,
the loss of any of these individuals could materially and adversely
affect the Company, including its business expansion plans. The Company
maintains and is the beneficiary of key-man life insurance policies on
Messrs. Walton and Perrine in the amount of $1.0 million each, and on Mr.
Spradling in the amount of $500,000.
Product and Service Liability Risks. Products sold or serviced by
the Company may expose it to potential liability for personal injury or
property damage claims relating to the use of those products or the
Company's failure to properly repair or service such items. Additionally,
as a result of the Company's activities in custom packaging its Travis
Edition lines, the Company may be included as a defendant in product
liability claims relating to defects in manufacture or design.
Historically, the resolution of product liability claims has not
materially affected the Company's business. The Company generally
requires manufacturers from which it purchases products to supply proof
of product liability insurance. Although the Company maintains third-
party product liability insurance that it believes to be adequate, there
can be no assurance that the Company will not experience legal claims in
excess of its insurance coverage, or claims that are ultimately not
covered by insurance. Furthermore, if any significant claims are made
against the Company, the Company's business, financial condition and
results of operations may be adversely affected by related negative
publicity.
Volatility of Stock Price. Prior to the Company's initial public
offering in June 1996, there was no public trading market for the
Company's Common Stock. There can be no assurance of an ongoing active
trading market or that the market price of the Common Stock will not
decline. It is anticipated that there will be limited float in the market
due to the relatively low number of shares owned by the public and
consequently, fluctuations in the market price for the Common Stock could
be significant.
Volatility of Stock Price (Continued). Recent market conditions for
companies with a relatively low number of shares owned by the public , as
well as the Company's quarterly variations in operating results due to
seasonality and other factors, are likely to result in significant
fluctuations in the market price for the Common Stock. Future
announcements concerning the Company or its competitors, including
government regulations, litigation or changes in earnings estimates or
descriptive materials published by analysts, may also cause the market
price of the Common Stock to fluctuate substantially. These fluctuations,
as well as general economic, political and market conditions, such as
recessions, may adversely affect the market price of the Common Stock.
See ''Management's Discussion and Analysis of Financial Condition and
Results of Operations.''
Shares Eligible for Future Sale. Sales of substantial amounts of the
Company's Common Stock in the public market, or the perception that such
sales may occur, could have a material adverse effect on the market price
of the Common Stock. As of December 24, 1998, the Company, its officers
and directors and certain stockholders, beneficially own or control
voting rights, in the aggregate, on approximately 1,487,130 shares
(including vested options) of Common Stock. No prediction can be made as
to the effect, if any, that future sales of shares, or the availability
of shares for future sale, will have on the market price of the Common
Stock prevailing from time to time.
Anti-takeover Effect of Articles and Bylaw Provisions. The Company's
Articles of Incorporation provide that up to 1,000,000 shares of
preferred stock may be issued by the Company from time to time in one or
more series. The Board of Directors is authorized to determine the
rights, preferences, privileges and restrictions granted to and imposed
upon any unissued series of preferred stock and to fix the number of
shares of any series of preferred stock and the designation of any such
series, without any vote or action by the Company's stockholders. The
Board of Directors may authorize and issue preferred stock with voting or
conversion rights that could adversely affect the voting power or other
rights of the holders of Common Stock. In addition, the issuance of
preferred stock could have the effect of delaying, deferring or
preventing a change in control of the Company. The Company's Articles of
Incorporation also allow the Board of Directors to fix the number of
directors in the Bylaws with no minimum or maximum number of directors
required. The Company's Bylaws currently provide that the Board of
Directors shall be divided into three classes of two or three directors
each, with each class elected for three-year terms expiring in successive
years. The effect of these provisions may be to delay or prevent a tender
offer or takeover attempt that a stockholder might consider to be in the
stockholder's best interest, including attempts that might result in a
premium over the market price for the shares held by the stockholders.
PART I
Other than statements of historical fact, all statements contained in
this Report on Form 10-K, including statements in ''Item 1. Business'',
and ''Management's Discussion and Analysis of Financial Condition and
Results of Operations'', are forward-looking statements as that term is
defined in Section 21E of the Exchange Act that involve a number of
uncertainties. The actual results of the future events described in the
forward-looking statements in this Report on Form 10-K could differ
materially from those stated in such forward-looking statements. Among
the factors that could cause actual results to differ materially are:
general economic conditions, competition and government regulations, as
well as the risks and uncertainties discussed in this Report on Form 10-
K, 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. All
forward-looking statements in this Report on Form 10-K are expressly
qualified in their entirety by the cautionary statements in this
paragraph.
Item 1. Business
General
Travis Boats & Motors, Inc. (''Travis Boats'' or the ''Company'') is a
leading multi-state superstore retailer of recreational boats, motors,
trailers and related marine accessories in the southern United States.
The Company, which currently operates 24 stores under the name Travis
Boating Center in Texas, Arkansas, Louisiana, Alabama, Tennessee,
Mississippi, Florida, Georgia and Oklahoma seeks to differentiate itself
from competitors by providing customers a unique superstore shopping
experience that showcases a broad selection of high quality boats,
motors, trailers and related marine accessories at firm, clearly posted
low prices. Each superstore also offers complete customer service and
support, including in-house financing programs and full-service repair
facilities staffed by factory-trained mechanics.
History
Travis Boats was incorporated as a Texas corporation in 1979. As used
herein and unless otherwise required by the context, the terms ''Travis
Boats'' and the ''Company'' shall mean Travis Boats & Motors, Inc. and
its direct and indirect subsidiaries.
Since its founding as a single retail store in Austin, Texas, the
Company has grown both through acquisitions and the establishment of new
store locations. During the 1980's, the Company expanded into San
Antonio, Texas with the construction of a new store facility. The Company
subsequently made acquisitions of boat retailers operating within the
Texas markets of Midland, Dallas and Abilene. It was during this initial
period of expansion that the Company began developing the systems
necessary to manage a multi-store operation and leveraging the economies
of scale associated with volume purchasing. The Company's success in
these areas led to the proprietary Travis Edition packaging concept and
the Company's pricing philosophy. Since 1990, Travis Boats has opened or
acquired 19 additional store locations in the following states: Texas
(3), Arkansas (2), Louisiana (4), Alabama (2), Tennessee (3), Mississippi
(1), Florida (2), Georgia (1) and Oklahoma (1)
Included in the new store acquisitions are the following transactions:
Non-compete
Date of Purchase Tangible Agreements Cash Liabilities Notes Stock
Name of Company Acquisition Price Net Assets and Goodwill Paid Assumed Issued Issued
- --------------- ----------- -------- ---------- ------------ -------- ----------- -------- -------
(In Thousands)
Fiscal 1998
- -----------
Southeastern 11/97 $ 1,730 $ 1,390 $ 280 $ 1,606 $ - $ 124 $ -
Marine
Worthen Marine 12/97 287 142 145 287 - - -
HnR Marine 04/98 359 359 - 359 - - -
Moore's Marine 05/98 777 376 401 777 - - -
Rodgers Marine 09/98 2,443 2,093 350 327 1,766 - 350
Fiscal 1997
- -----------
North Alabama
Watersports 10/96 892 687 205 812 - 80 -
Tri-Lakes Marine 11/96 3,180 1,892 644 643 1,937 600 -
Bent's Marine 02/97 1,519 840 679 1,064 - 455 -
McLeod Marine 08/97 958 730 228 958 - - -
Adventure Marine 09/97 8,226 5,536 2,690 1,430 5,203 115 1,478
Fiscal 1996
- -----------
Red River Marine 09/95 2,955 1,905 1,050 917 438 1,600 -
Clays Boats &
Motors 12/95 329 241 88 263 - 66 -
The Company sells approximately 75 different Travis Edition models of
brand-name fishing, water-skiing and general recreational boats, along
with motors, trailers, accessories and related equipment. Personal
watercraft, off-shore fishing boats and cabin cruisers are also offered
for sale at selected store locations. During fiscal 1998, substantially
all of the boat units sold range in size from 16 to 25 feet at prices
ranging from $7,500 to $25,000. Approximately 1.7% of new boat sales are
personal watercraft with retail prices generally ranging from $5,000 to
$10,000 and approximately 6.7% of new boat sales are off-shore fishing
boats and cruisers with lengths of 27 feet or greater and ranging in
retail price from $50,000 to $300,000. The Company's retail pricing
structure seeks to maintain a consistent gross profit percentage for each
of it Travis Edition models (see Business Strategy - Travis Edition
concept).
The Company custom designs and pre-packages combinations of popular
brand-name boats, such as Larson, Sprint, Pro-Line and Sea Ark boats with
outboard motors generally manufactured by Outboard Marine Corporation or
Brunswick, along with trailers and numerous accessories, under its
proprietary Travis Edition product line. These signature Travis Edition
packages, which account for the vast majority of total new boat sales,
have been designed and developed in coordination with the manufacturers
and often include distinguishing features and accessories that have
historically been unavailable to, or listed as optional by, many
competitors. These factors enable the Company to provide the customer
with an exceptional product that is conveniently packaged for immediate
enjoyment and competitively priced.
The Company believes that it 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. The Company's
product line generally consists of boat packages priced from $7,500-
$25,000 with approximate even distribution within this price range.
While the Company's sales have historically been concentrated on boats
with retail sales prices below $25,000, the Company in limited market
areas and quantities does sell boats that have retail sales prices in
excess of $200,000. Additionally, as the Company continues to operate
in Florida and enters other coastal type markets along the Gulf of Mexico
or coastal areas, management believes that the distribution of off-shore
fishing boats and cabin cruisers will continue to increase as a
percentage of net sales. Management believes that by combining flexible
financing arrangements with an even distribution of products through a
broad price range, the Company is able to offer boat packages to
customers with different purchasing budgets and varying income levels.
Business Strategy
The Company has developed a multi-state, chain superstore
merchandising strategy in the recreational boating business. The
Company's objective is to continue to grow as one of the dominant
retailers of recreational boats, motors, trailers and marine accessories
in the southern United States. As such the Company's strategy is to
increase its store location count in the southern United States while
also maintaining a focus on possible expansion into other regions.
Management's merchandising strategy is based on providing customers with
a comprehensive selection of quality, brand name boats and boating
products in a comfortable superstore environment. The Company intends to
continue to build brand identity by placing the Travis Edition name on
complete boating packages. Travis Boats has developed and implemented a
business strategy designed to increase its market penetration within both
existing and new market areas through a variety of advertising and
promotional events. The Company intends to emphasize the following key
elements of its business strategy:
Travis Boating Center superstore. Travis Boating Center superstores
have a distinctive and stylish trade dress accented with deep blue
awnings, a nautical neon building decoration, expansive glass storefronts
and brightly lit interiors. The stores range in size from approximately
2,000 (temporary store locations) to over 33,000 square feet and
management estimates the average store size at approximately 21,000
square feet. The superstore locations present customers with a broad
array of boats and often over 9,000 parts and accessories in a clean,
well-stocked, air-conditioned shopping environment. All boats are
typically displayed fully rigged with motor, trailer and a complete
accessory package, giving a ''ready to take home'' impression.
Professionally-trained mechanics operate service bays, providing
customers with quality and reliable maintenance and repair service.
Travis Edition concept. The Company uses extensive market research,
combined with the design resources of its manufacturers, to develop
custom Travis Edition boating packages. The Company's significant
purchasing power and consequent ability to coordinate designs with
manufacturers have enabled the Company to obtain products directly from
the factory at the lowest prices, with favorable delivery schedules and
with distinguishing features and accessories that have historically been
unavailable to, or listed as optional by, many competitors. The Company
can also add certain additional features after receipt of the product to
enhance the Company's Travis Edition packages. Each Travis Edition is a
complete, full-feature package, including the boat, motor, trailer and
numerous additional accessories and design features often not found on
competitors' products, thus providing customers with superior value.
These features often include enhanced styling such as additional exterior
colors, complete instrumentation in dashboards, transoms warrantied for
life, canopy tops, trolling motors, upgraded interiors with stereos, wood
grain dashboards, in-dash depth finders, stainless steel motor propellers
and enhanced hull design not available on other models. In addition,
Travis Edition boats are identified by the Company's attractive private
label logo as well as the respective manufacturer's logo.
Unlike most recreational boat dealers, the Company establishes firm
prices on its Travis Edition packages and generally maintains such prices
for an entire season. Prices are advertised and clearly posted so that
the customer receives the same price at any Travis Boating Center. The
Company's selling philosophy eliminates customer anxiety associated with
bargaining or negotiation and results in a price at or below prices
generally available from competitors. The Company believes this pricing
strategy and low-pressure sales style provide the customer with the
comfort and confidence of having received a better boat with more
features at a lower price. In the Company's view, this approach has
promoted good customer relationships and enhanced the Company's
reputation in the industry as a leading provider of quality and value.
Boat Show Participation. The Company also participates in boat
shows, typically held in January through March, in each of its markets
and in certain markets of close proximity. These shows are normally held
at convention centers, with all area dealers purchasing space to display
their respective product offerings. Boat shows and other offsite
promotions generate a significant amount of interest in products and
often have an immediate impact on sales at a nominal incremental cost.
Although total boat show sales are difficult to assess, management
attributes a significant portion of the second fiscal quarter's net sales
to such shows.
F&I Products. In the Company's efforts to maintain customer service
and support for customers purchasing its Travis Edition boat packages it
also offers customers the ability to purchase extended service contracts
and insurance coverages, including credit life and accident/disability
coverages (collectively ''F&I Products''). The Company also offers to
assist the customer in obtaining financing for their boat purchase
through a diversified group of financial institutions with which the
Company maintains financing agreements. The Company earns commissions on
these F&I Products based upon the Company's mark-up over the cost of the
products. F&I Products account for a substantial portion of the Company's
income, the most significant component of which is the income resulting
from the Company's origination of customer financing.
Operations
Purchasing. The Company is the largest volume buyer in the United
States of Johnson outboard motors from Outboard Marine Corporation
(''OMC'') and is the largest domestic volume buyer of boats from
substantially all of the boat manufacturers it represents. As a result,
the Company has significant access to the manufacturers and substantial
input into the design process for the new boats that are introduced to
the market each year by such manufacturers. In addition, the Company has
designed and developed, in coordination with its manufacturers, signature
Travis Edition boating packages which account for the vast majority of
its total new boat sales. The Company's purchasing power allows it to
purchase boats that are pre-rigged for the Company's Travis Edition
lines. Approximately 18% and 34% of the Company's net purchases in fiscal
years 1998 and 1997, respectively, were from Genmar Industries which
manufactures the Larson, AquaSport and (formerly) the Cajun boat lines.
The Company typically deals with each of its manufacturers pursuant to
an annually renewable, non-exclusive dealer agreement which does not
contain any contractual provisions concerning product pricing or
purchasing levels. Pricing is generally established on an annual basis,
but may be changed at the manufacturer's sole discretion. The Company's
agreement with OMC, unlike its other dealer agreements, is multi-year in
nature. The current agreement, which is in the first of three years, sets
forth an established discount level from the then prevailing OMC dealer
net price over the entire term of the agreement. This dealer agreement
may be canceled by either party if volume of product purchased or
available to be purchased is not maintained at pre-established levels.
OMC supplied products that represented approximately $32.4 million, or
36.3% and $17.7 million, or 42.1%, of the Company's net purchases during
fiscal years 1998 and 1997, respectively.
Pursuant to its arrangements with certain manufacturers, the Company's
right to display some product lines in certain markets may be restricted.
Floor plan and other inventory financing. The Company acquires a
substantial portion of its inventory through floor plan financing
agreements. Inventory is generally purchased under floor plan lines of
credit (secured by such inventory) maintained with third party finance
companies or under revolving lines of credit maintained with commercial
banks, depending upon the type of product purchased. The finance
companies maintain relationships with certain manufacturers that allow
the Company to obtain several months of interest-free financing,
generally from August of one year through at least May of the following
year. Management believes that these financing arrangements are standard
within the industry. As of September 30, 1998, the Company and its
subsidiaries owed an aggregate of approximately $25.1 million pursuant to
the floor plan and revolving lines of credit.
Competition. The Company operates in a highly competitive
environment. In addition to facing competition generally from businesses
seeking to attract discretionary spending dollars, the recreational boat
industry itself is highly fragmented, resulting in intense competition
for customers, access to quality products, access to boat show space in
new markets and suitable store locations. The Company relies heavily on
boat shows to generate sales. If the Company is impeded in its ability to
participate in boat shows in its existing or targeted markets, it could
have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company competes primarily with single location or single state
boat dealers and, to a lesser degree, with national specialty marine
stores, catalog retailers, sporting goods stores and mass merchants,
particularly with respect to parts and accessories. Dealer competition,
which includes one other publicly traded multi-state retailer of
recreational boats, continues to increase based on the quality of
available products, the price and value of the products and attention to
customer service. There is significant competition both within markets
currently being served by the Company and in new markets into which the
Company plans to enter. While the Company generally competes in each of
its markets with retailers of brands of boats not sold by the Company in
that market, it is common for other competitive retailers to sell the
same brands of outboard motors. Management believes that a trend in the
industry is for independent dealers to attempt to form alliances or
buyer's groups; for manufacturers to include more features as standard
equipment on boats and consequently, for competitive dealers to offer
packages comparable to those offered by the Company as its Travis Edition
lines. In addition, several of the Company's competitors, especially
those selling boating accessories, are large national or regional chains
that may have substantially greater financial, marketing and other
resources than the Company. There can be no assurance that the Company
will be able to compete successfully in the retail marine industry in the
future.
Impact of Environmental and Other Regulatory Issues. On October 31,
1994, the U.S. Environmental Protection Agency (''EPA'') announced
proposed emissions regulations for outboard marine motors. The proposed
regulations would require a 75% average reduction in hydrocarbon
emissions for outboard motors and set standards for carbon monoxide and
nitrogen oxide emissions as well. Under the proposed regulations,
manufacturers began phasing in low emission models in 1998 and have nine
years to achieve full compliance. In The Company's primary outboard
motor suppliers, Outboard Marine Corporation ("OMC") and Mercury Marine
each have begun the phase-in process for the new EPA compliant outboard
motors. However, in fiscal 1998, the Company purchased minimal
quantities of the new EPA compliant outboard motors as a result of a lack
of supply of the new product since the manufacturer's are in the initial
stages of the new product's release. The Company's boat models sold with
the new EPA compliant outboards in fiscal 1998 generally were priced
approximately $1,000 higher than those with traditional outboard motors.
Management anticipates retail prices to generally be from $500 to $1,500
higher for the new EPA compliant outboards depending on the motor's
horsepower. Management, based upon discussions with OMC and Mercury
Marine believe that the higher retail costs will be offset by enhanced
fuel efficiency and acceleration speed, as well as reduced maintenance
costs of the new EPA compliant outboard. Costs of comparable new models,
if materially more expensive than previous models, or the manufacturer's
inability to deliver responsive, fuel efficient outboard motors that
comply with EPA requirements, could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company, in the ordinary course of its business, is required to
dispose of certain waste products that are regulated by state or federal
agencies. These products include waste motor oil, tires, batteries and
certain paints. It is the Company's policy to use appropriately licensed
waste disposal firms to handle this refuse. If there were improper
disposal of these products, it could result in potential liability for
the Company. Although the Company does not own or operate any underground
petroleum storage tanks, it currently maintains several above-ground
tanks, which are subject to registration, testing and governmental
regulation.
Additionally, certain states have required or are considering
requiring a license in order to operate a recreational boat or personal
watercraft. While such licensing requirements are not expected to be
unduly restrictive, regulations may discourage potential first-time
buyers, thereby limiting future sales, which could have a material
adverse effect on the Company's business, financial condition and results
of operations.
Trademarks and service marks. The Company does not hold any
registered trade or service marks at this time but has trademark
applications pending with the U.S. Patent and Trademark Office for the
names ''Travis Boating Center'' and ''Travis Edition,'' for its corporate
logo and for the overall appearance and trade dress of its Travis Boating
Centers. There can be no assurance that any of these applications will be
granted. However, based on a number of years of use, the Company believes
it has common law rights to these marks at least in its current market
areas.
Employees. As of September 30, 1998, the Company's staff consisted
of 503 employees, 478 of whom are full time. The full-time employees
include 24 in store level management and 35 in corporate administration
and management. The Company is not a party to any collective bargaining
agreements and is not aware of any efforts to unionize its employees. The
Company considers its relations with its employees to be good.
The Company has made various acquisitions during the three year period
ended September 30, 1998. All of the acquisitions were asset purchases
(except for Adventure Marine, which was a stock purchase) and have been
accounted for using the purchase method of accounting. The operating
results of the companies acquired have been included in the consolidated
financial statements from the respective date of acquisition. The assets
acquired generally include boat, motor and trailer inventory, parts and
accessories inventory and to a lesser extent, property, plant and
equipment. A summary of the Company's significant acquisitions follows:
Non-compete
Date of Purchase Tangible Agreements Cash Liabilities Notes Stock
Name of Company Acquisition Price Net Assets and Goodwill Paid Assumed Issued Issued
- --------------- ----------- -------- ---------- ------------ -------- ----------- -------- -------
(In Thousands)
Fiscal 1998
- -----------
Southeastern 11/97 $ 1,730 $ 1,390 $ 280 $ 1,606 $ - $ 124 $ -
Marine
Worthen Marine 12/97 287 142 145 287 - - -
HnR Marine 04/98 359 359 - 359 - - -
Moore's Marine 05/98 777 376 401 777 - - -
Rodgers Marine 09/98 2,443 2,093 350 327 1,766 - 350
Fiscal 1997
- -----------
North Alabama
Watersports 10/96 892 687 205 812 - 80 -
Tri-Lakes Marine 11/96 3,180 1,892 644 643 1,937 600 -
Bent's Marine 02/97 1,519 840 679 1,064 - 455 -
McLeod Marine 08/97 958 730 228 958 - - -
Adventure Marine 09/97 8,226 5,536 2,690 1,430 5,203 115 1,478
Fiscal 1996
- -----------
Red River Marine 09/95 2,955 1,905 1,050 917 438 1,600 -
Clays Boats &
Motors 12/95 329 241 88 263 - 66 -
Item 2. Properties
The Company leases its corporate offices which are located at 5000
Plaza on the Lake, Suite 250, Austin, Texas. The Company also owns and
operates Travis Boating Center locations in Abilene, Austin, Beaumont,
Dallas, Midland and San Antonio, Texas; Baton Rouge and Bossier City,
Louisiana; Hot Springs, Arkansas; Pascagoula, Mississippi and Gwinnett
County (Buford), Georgia (currently under construction). The remaining
facilities are leased under leases with original lease terms generally
ranging from five to ten years with additional multi-year renewal
options. The Company typically pays a fixed rent and in substantially
all of the leased locations the Company is responsible for the payment of
taxes, insurance, repairs and maintenance.
The chart below reflects the status and approximate size of the
various Travis Boating Center locations operated as of December 24,
1998.
Owned Year of
Location Square Footage* Acreage* or Leased Market Entry
- ------------------ --------------- -------- --------- ------------
Austin, Texas(1) 20,000 3.5 Owned 1979
San Antonio,
Texas(1)(3) 15,500 1.9 Owned 1982
Midland, Texas(1) 18,750 3.8 Owned 1982
Dallas, Texas(1) 20,000 4.2 Owned 1983
Abilene, Texas(2) 24,250 3.7 Owned 1989
Houston, Texas(2) 15,100 3.0 Leased 1991
Baton Rouge,
Louisiana(2) 33,200 7.5 Owned 1992
Beaumont, Texas(2) 25,500 6.5 Owned 1994
Arlington, Texas(2) 31,000 6.0 Leased 1995
Heber Springs,
Arkansas(2) 26,000 9.0 Leased 1995
Hot Springs,
Arkansas(2) 20,510 3.0 Owned 1995
New Iberia,
Louisiana(4) 24,000 3.3 Leased 1995
Florence, Alabama(2) 22,500 6.0 Leased 1996
Huntsville, Alabama(3) 2,000 3.0 Leased 1996
Winchester,
Tennessee(2) 28,000 3.5 Leased 1996
Metairie, Louisiana(2) 30,000 3.5 Leased 1997
Pascagoula,
Mississippi(2) 28,000 4.1 Owned 1997
Key Largo, Florida(3) 3,000 1.4 Leased 1997
Ft. Walton Beach
Fl. - Sales(4) 7,000 2.9 Leased 1997
Ft. Walton Beach
Fl.- Service(4) 7,500 2.0 Leased 1997
Hendersonville,
Tennessee(2) 31,320 3.6 Leased 1997
Roswell, Georgia (3) 2,000 2.0 Leased 1997
Gwinnett County,
Georgia (5) N/A 5.0 Owned 1998
Claremore,
Oklahoma (4) 15,000 2.0 Owned 1998
Bossier City,
Louisiana (2) 30,000 8.6 Owned 1998
Knoxville,
Tennessee (3) 5,000 2.0 Leased 1998
* Square footage and acreage are approximate.
(1) Newly constructed store.
(2) Facility acquired/leased and converted to superstore.
(3) Temporary facility. To be relocated.
(4) Acquired/leased facility
(5) Raw land. Superstore under construction.
Item 3. Legal Proceedings
The Company is not a party to any material legal proceedings. The
Company is, however, involved in various legal proceedings arising out of
its operations in the ordinary course of business. The Company believes
that the outcome of all such proceedings, even if determined adversely,
would not have a material adverse effect on its business, financial
condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders of the Company
during the fourth quarter of the fiscal year ended September 30, 1998.
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters
The Company's common stock trades on the Nasdaq Stock Market under the
symbol: TRVS. As of December 24, 1998, the Company believes its shares
are beneficially owned by more than 400 shareholders. On December 24,
1998, the last reported sales price of the common stock on the NASDAQ
National Market System was $19.75 per share.
The following table sets forth for the period indicated, on a per
share basis, the range of high and low sales prices for the Company's
common stock during fiscal years 1998 and 1997 as quoted by the NASDAQ.
These price quotations reflect inter-dealer prices, without adjustment
for retail mark-ups, mark-downs or commissions and may not necessarily
represent actual transactions:
1998 Sales Price 1997 Sales Price
---------------- -----------------
Quarter Ended High Low Ending High Low Ending
- ------------- ------- ------ ------- ------- ------- -------
December 31 $24.125 $18.75 $24.125 $14.125 $10.75 $13.125
March 31 $22.375 $26.75 $26.625 $13.25 $11.125 $11.625
June 30 $29.125 $24.50 $24.50 $14.00 $10.75 $13.125
September 30 $26.875 $15.00 $15.50 $21.25 $13.25 $20.375
The Company has never declared or paid cash dividends on its Common
Stock and presently has no plans to do so. Any change in the Company's
dividend policy will be at the sole discretion of the Board of Directors
and will depend on the Company's profitability, financial condition,
capital needs, future loan covenants, general economic conditions, future
prospects and other factors deemed relevant by the Board of Directors.
The Company currently intends to retain earnings for use in the operation
and expansion of the Company's business and does not anticipate paying
cash dividends in the foreseeable future. Certain covenants contained in
the Company's loan agreements effectively restrict the payment of any
dividends without the lender's prior consent.
Item 6. Selected Financial Data
The following selected consolidated financial information should be
read in conjunction with and is qualified in its entirety by reference to
the consolidated financial statements of the Company and the notes
thereto, and Management's Discussion and Analysis of Financial Condition
and Results of Operations, included elsewhere in this Report on Form 10-K:
Fiscal Year FiscalYear Twelve Months Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended Ended
December 31, September 30, September 30, September 30, September 30, September 30,
1994(1) 1995(2) 1995(2) 1996(1)(3) 1997(1)(4) 1998(1)(5)
------------ ------------- ------------- ------------- ------------- -------------
Consolidated Statement
of Operations Data:
Net sales $ 37,225 $ 41,442 $ 44,617 $ 64,555 $ 91,309 $ 131,740
Gross profit 8,734 10,306 10,815 16,483 23,955 34,901
Selling, general and
administrative expenses 6,333 6,353 7,526 10,857 15,562 22,630
Operating income 2,135 3,736 3,004 5,061 7,480 11,011
Interest expense 629 670 845 1,289 1,354 2,310
Net income 1,023 2,050 1,486 2,383 3,982 5,563
Basic earnings per
share $ 0.39 $ 0.76 $ 0.55 $ 0.78 $ 0.96 $ 1.31
Diluted earnings per
share $ 0.39 $ 0.76 $ 0.55 $ 0.78 $ 0.94 $ 1.26
Weighted avg. common
shares outstanding -
basic 2,648 2,672 2,663 3,043 4,137 4,250
Weighted avg. common
shares outstanding -
diluted 2,648 2,672 2,663 3,043 4,252 4,418
Store Data:
Stores open at period
end 8 11 11 12 19 24
Average sales per
store(6) $ 4,653 $ 4,886 $ 5,283 $ 5,617 $ 5,775 $ 6,383
Percentage increase
in Comparable
store sales(7) 28.4% 5.0% 12.2% 4.3% 5.7% 6.6%
December 31, September 30, September 30, September 30, September 30,
1994 1995 1996 1997 1998
------------ ------------- ------------- ------------- -------------
Consolidated Balance
Sheet Data:
Cash and cash
equivalents $ 259 $ 996 $ 1,533 $ 5,816 $ 4,618
Working capital 1,866 2,808 15,263 14,806 16,392
Total assets 17,434 23,357 31,350 59,121 69,116
Short-term debt,
including current
maturities Of
long-term debt 10,977 11,443 4,661 21,447 26,105
Long-term debt less
current maturities 2,588 4,876 4,334 5,145 4,980
Stockholders' equity 2,562 4,812 18,598 24,058 30,433
(1) The Company's fiscal years ended on December 31 in 1994, and on September
30 in 1995, pursuant to a change adopted in 1995, resulting in a nine-
month 1995 fiscal year. The Consolidated Statement of Operations Data
for the fiscal years ended December 31, 1994 and September 30, 1995,
1996, 1997 and 1998 has been derived from the audited consolidated
financial statements of the Company. All other financial and store
data has been derived from the Company's unaudited consolidated
financial statements.
(2) Reflects inclusion of nine-month audited financial statements for the
fiscal year ended September 30, 1995 and the three-month unaudited financial
statements for the quarter ended December 31, 1994, in order to
provide a basis for comparing 12 months of operations in 1995 to
fiscal 1996 operations.
(3) Includes the operations of Red River Marine, Inc. acquired in
September 1995 and Clay's Boats & Motors, Inc. acquired in December 1995
are included for the fiscal 1996, 1997 and 1998 periods.
(4) Includes the operations of North Alabama Watersports, Inc. acquired in
October 1996, Tri-Lakes Marine, Inc. acquired in November 1996, Bent's Marine,
Inc. acquired in February 1997, Adventure Marine and Outdoors, Inc.,
Adventure Marine South, Inc. and Adventure Boat Brokerage, Inc. Also
includes the operations of Travis Boating Center Mississippi, which
acquired certain assets from McLeod Marine, Inc. on August 1, 1997.
(5) Includes the operations of Southeastern Marine Group, Inc. acquired in
November 1997, Worthern Marine Sales and Service, Inc. acquired in December
1997, HnR Marine, Inc. acquired in March 1998, Moore's Marine, Inc.
acquired in April 1998, and Rodgers Cadillac, Inc.
(2-5) See "Management's Discussion and Analysis".
(6) Includes only those stores open for the entire preceeding 12-month period.
(7) New stores or upgraded facilities are included in the comparable store
base at the beginning of the store's thirteenth complete month of
operations.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto
included elsewhere in this Report on Form 10-K. The discussion in this
section of this Report on Form 10-K contains forward-looking statements
that involve risks and uncertainties. The Company's actual results could
differ materially from those discussed herein. Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed in this section, those discussed in ''Risk Factors'' and those
discussed elsewhere in this Report on Form 10-K.
Overview
The following discussion compares fiscal years 1998 and 1997, which
reflects the inclusion of the audited consolidated financial statements
for the fiscal years ended September 30, 1998 and 1997, respectively. The
results of the acquisitions listed in the chart below from their
acquisition dates are included in the discussion below of the respective
discussion of the fiscal year in which such acquisition occurred.
A summary of the Company's significant acquisitions follows:
Non-compete
Date of Purchase Tangible Agreements Cash Liabilities Notes Stock
Name of Company Acquisition Price Net Assets and Goodwill Paid Assumed Issued Issued
- --------------- ----------- -------- ---------- ------------ -------- ----------- -------- -------
(In Thousands)
Fiscal 1998
- -----------
Southeastern 11/97 $ 1,730 $ 1,390 $ 280 $ 1,606 $ - $ 124 $ -
Marine
Worthen Marine 12/97 287 142 145 287 - - -
HnR Marine 04/98 359 359 - 359 - - -
Moore's Marine 05/98 777 376 401 777 - - -
Rodgers Marine 09/98 2,443 2,093 350 327 1,766 - 350
Fiscal 1997
- -----------
North Alabama
Watersports 10/96 892 687 205 812 - 80 -
Tri-Lakes Marine 11/96 3,180 1,892 644 643 1,937 600 -
Bent's Marine 02/97 1,519 840 679 1,064 - 455 -
McLeod Marine 08/97 958 730 228 958 - - -
Adventure Marine 09/97 8,226 5,536 2,690 1,430 5,203 115 1,478
Fiscal 1996
- -----------
Red River Marine 09/95 2,955 1,905 1,050 917 438 1,600 -
Clays Boats &
Motors 12/95 329 241 88 263 - 66 -
The following table sets forth for the periods indicated certain
financial data as a percentage of net sales:
Fiscal Year Twelve Months Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended
September 30, September 30, September 30, September 30, September 30,
1995 1995 1996 1997 1998
------------- ------------- ------------- ------------- -------------
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of goods sold 75.1 75.8 74.5 73.8 73.5
------ ------ ------ ------ ------
Gross profit 24.9 24.2 25.5 26.2 26.5
Selling, general and
administrative
expenses 15.3 16.9 16.8 17.0 17.2
Operating income 9.0 6.7 7.8 8.2 8.4
Interest expense 1.6 1.9 2.0 1.5 1.8
Other income 0.3 0.0 0.0 0.0 0.1
------ ------ ------ ------ ------
Income before income
taxes 7.7 5.2 5.9 6.7 6.7
Income tax expense 2.8 1.9 2.2 2.3 2.5
------ ------ ------ ------ ------
Net income 4.9% 3.3% 3.7% 4.4% 4.2%
Results of Operations
Fiscal Year Ended September 30, 1998 Compared to the Fiscal Year Ended
September 30, 1997
Highlights
Fiscal year 1998 was a record year for the Company, which included the
following achievements compared to fiscal 1997:
- -Net sales increased 44.3% to $131.7 million.
- -Gross profit margins increased as a percentage of net sales by 25 basis
points to 26.49% from 26.24%.
- -Operating income increased as a percentage of net sales by 17 basis
points to 8.36% from 8.19%.
- -Net income increased by 39.7% to $5.6 million from $4.0 million.
- -Diluted earnings per share increased by 34.0% to $1.26 from $0.94.
Net sales. Net sales increased by 44.3% to $131.7 million in fiscal
1998 from $91.3 million in fiscal 1997. The primary component of the increase
in net sales during the 1998 and 1997 fiscal years has been the result of
newly opened or acquired store locations. Accordingly, of the increase
in net sales, $36.6 million, or 90.6% is related to the stores locations
that were (i) newly opened or acquired (12), or (ii) those relocated or
renovated (3) to meet the Company's superstore standards during fiscal
1998 or 1997. The Company also benefitted from growth in comparable
store sales. During fiscal year 1998, comparable store sales increased
by 6.6%, or $3.7 million, (9 stores in base) versus 5.7%, or $2.1
million, (6 stores in base) during fiscal 1997. See "Risk Factors -
Dependence Upon Expansion".
Growth in overall sales volume was also in part the result of additional
new Travis Edition boating packages introduced during fiscal 1998 and
1997. This included the new addition of the Pro-Line and Polar brand
boats as well as new boat models introduced by the Company's existing
boat manufacturers. These additional new Travis Edition boat lines have
allowed the Company to further broaden its boat line-up in an effort to
continue to address the needs and desires of the recreational boating
population. During fiscal 1998, the Company experienced increased
parts/accessories and service labor sales as an increased percentage of
the Company's store base was relocated or renovated to superstore
standards which provide larger and more accessible areas to merchandise
its product selection and conduct repair work on boats. This resulted
in enhanced sales of parts/accessories and service labor both in actual
dollars and as a percentage of net sales. Parts/accessory sales
increased to $11.3 million, or 8.6% of net sales, from $8.6 million, or
9.4% of net sales, in fiscal years 1998 and 1997, respectively. Service
labor sales increased to $4.7 million, or 3.6% of net sales, from $3.3
million, or 3.6% of net sales, in fiscal years 1998 and 1997,
respectively. Net sales also benefitted from used boat sales including
those used boat sales from the Company's used boat superstores located at
its Beaumont, Texas and Heber Springs, Arkansas store locations. The
used boat sales in fiscal 1998 and fiscal 1997, were approximately $7.3
million and $4.0 million, respectively. The Company plans to continue to
explore the used boat market and potential sites for used boat
superstores.
Net sales from comparable stores, which had 9 stores included in the
base for calculation, increased by 6.6% and 5.7% in fiscal year's 1998
and 1997, respectively. The Company relocated or renovated 3 stores and
opened or acquired an additional twelve stores during fiscal years 1998
and 1997 rendering such locations to be excluded from the comparable
store base. The Company's planned acquisition strategy and subsequent
renovation of stores to superstore standards is expected to continue to
negatively impact the number of stores includable in comparable store
base calculations in relationship to the total number of store locations
operated. See ''Risk Factors-Dependence on Expansion''. As such,
comparable store performance is expected to remain unstable until higher
percentages of the Company's stores are includable in comparable store
calculations.
Included within net sales is revenue that the Company earns related to
F&I Products. The Company, through relationships with various national
and local lenders, is able to place financing for its customers' boating
purchases. These lenders allow the Company to ''sell'' the loan at a rate
higher than a minimum rate established by each such lender and the
Company earns fees based on the percentage increase in the loan rate over
the lender's minimum rate. The Company sells these loans without recourse
except that in certain instances the Company must return the fees earned
if the customer repays the loan or defaults in the first 120-180 days.
The Company also sells, as a broker, certain types of insurance
(property/casualty, credit life, disability) and extended service
contracts. The Company may also sell these products at amounts over a
minimum established cost and earn income based upon the profit over the
minimum established cost. Net sales attributable to F&I Products
increased by 78.2% to approximately $7.1 million in fiscal 1998 from $4.0
million in fiscal 1997. This improvement was primarily due to higher net
spreads achieved in the placement of customer financing, as well as
overall increases in the percentage of customers buying these products
(which is referred to as ''sell-through''). This increase was enhanced by
the Company's continued emphasis on training of F&I employees and
achievement of established goals. See "Risk Factors - Income from
Financing, Insurance and Extended Service Contracts".
Gross profit. Gross profit increased by 45.7% to approximately $34.9
million in fiscal 1998 from $24.0 million in fiscal 1997. Gross profit as
a percent of sales increased to 26.5% in fiscal 1998 from 26.2% in fiscal
1997. The Company generally seeks to maintain a gross profit margin of
21% to 23% on its boating packages and is able to further leverage the
margin through sales of parts/accessories, service labor and F&I
Products, all of which generally produce gross profit margins in excess
of 25%. During fiscal 1998, the Company's gross profit margin was
positively impacted by the increased revenues derived from the
parts/accessory, service labor and used boat sales as discussed above in
Net Sales.
Net sales attributable to F&I Products, which have a significant
impact on the gross profit margin, contributed $7.1 million, or 20.3%, of
total gross profit in fiscal 1998, as compared to $4.0 million, or 16.6%,
of total gross profit for fiscal 1997. Net sales attributable to F&I
Products are reported on a net basis and therefore all of such sales
contribute directly to the Company's gross profit. The costs associated
with the sale of F&I Products are included in selling, general and
administrative expenses.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 45.4% to $22.6 million in fiscal
1998 from $15.6 million for fiscal 1997. Selling, general and
administrative expenses as a percent of net sales increased by 14 basis
points to 17.18% in fiscal 1998 from 17.04% for fiscal 1997. In terms of
both actual dollars and as a percentage of net sales, the increase in
selling, general and administrative expenses was primarily attributable
to increased expenses associated with the operation of a larger store
network, growth in the corporate-office staffing infrastructure and
increased insurance costs associated with introducing Travis stores into
new geographically diverse regions. Rental expense also increased as a
percent of net sales as the Company expanded and relocated its Corporate
headquarters, which had previously been located in the Austin, Texas
superstore facility, in June 1997.
Interest expense. Interest expense, in actual dollars, increased by
70.6% to $2.3 million in fiscal 1998 from $1.4 million in fiscal 1997.
Interest expense as a percent of net sales, increased to 1.8% in fiscal
1998 from 1.5% in fiscal 1997. Effective with the funding of the
Company's Initial Public Offering in late June of 1996 and an additional
140,500 shares in the over-allotment option, the Company reduced certain
revolving indebtedness and certain long term indebtedness in fiscal 1997.
The Company utilized available working capital and negotiated reduced
borrowing rates under its floor plan and revolving lines of credit which
combined to provide for the containment of interest expense and its
percentage decrease as a percent of net sales in fiscal 1997. The
Company's reborrowing under its revolving credit lines as necessary to
fund future acquisitions and to support working capital needs caused the
increase in both dollars and as a percentage of sales in fiscal 1998. See
''Liquidity and Capital Resources.''
Net income. Net income increased by 39.7% to approximately $5.6
million in fiscal 1998 from $4.0 million in fiscal 1997. While the
Company continued to benefit from enhanced gross profit margins in fiscal
1998, the increase in interest expense both in actual dollars and as a
percent of net sales resulted in net income as a percent of sales
decreasing to 4.2% from 4.4% during the same periods. Net income
attributable to F&I Products increased by 33.3% to approximately $1.6
million in fiscal 1998 from $1.2 million in fiscal 1997. The calculation
of net income attributable to F&I Products is based on an allocation of
gross profit after adjusting for costs which management believes are
directly allocable to F&I Products.
Fiscal Year Ended September 30, 1997 Compared to the Fiscal Year Ended
September 30, 1996
Net sales. Net sales increased by 41.3% to $91.3million in fiscal
1997 from $64.6million in fiscal 1996. Of this increase in net sales, $23.2
million, or 86.7% was related to the stores locations that were (i) newly
opened or acquired (7), or (ii) those relocated or renovated (5) to meet
the Company's superstore standards during fiscal 1997 or 1996.
Approximately $2.1 million of the increase in net sales was attributable
to a 5.7% growth in comparable store sales (6 stores in base). The
primary component of the increase in net sales during the 1997 and 1996
fiscal years has been the result of the newly opened or acquired store
locations. See "Risk Factors - Dependence Upon Expansion". General
growth in overall sales volume was also in part the result of growth in
new Travis Edition boating packages first introduced in fiscal 1997.
This included the new addition of the Pro-Line and Polar brand boats as
well as new boat models introduced by the Company's existing boat
manufacturers. These additional new Travis Edition boat lines have
allowed the Company to further broaden its boat line-up in an effort to
continue to address the needs and desires of the recreational boating
population. During fiscal 1997, the Company experienced increased
parts/accessories and service labor sales as an increased percentage of
the Company's store base was renovated to superstore standards which
provide larger and more accessible areas to
merchandise its product selection and conduct repair work on boats.
This resulted in enhanced sales of parts/accessories and service labor
both in actual dollars and as a percentage of net sales. Parts/accessory
sales increased from $5.7 million, or 8.8% of net sales, to $8.6 million,
or 9.4% of net sales, in fiscal years 1996 and 1997, respectively.
Service labor sales increased from $2.3 million, or 3.6% of net sales, to
$3.3 million, or 3.6% of net sales, in fiscal years 1996 and 1997,
respectively. Net sales also benefitted from the Company's introduction
of an used boat superstore on the premises of its Beaumont, Texas store
location. The used boat sales from this facility in fiscal 1997 were
approximately $600,000. The Company plans to continue to explore the
used boat market and potential sites for used boat superstores.
The Company discontinued its emphasis on the sales program featuring
weekend sales shows in the parking lots of local Sam's Clubs or certain
other large retailers as certain retailers did not allow for the
Company to display its entire product line which in turn did not allow
for maximum sales reach and productivity. This ''parking lot'' program
which was initiated with several shows in late 1995, expanded during
fiscal 1996 to include a full-time travelling sales team and
participation in approximately 35 parking lot shows (primarily during
the second and third fiscal quarters) which generated net sales of
approximately $2.5 million during fiscal 1996.
Net sales from comparable stores, which had 6 stores included in the
base for calculation, increased 5.7% in fiscal 1997. The Company
relocated or renovated 5 stores and opened or acquired an additional 8
stores during fiscal years 1997 and 1996 rendering such locations to be
excluded from the comparable store base. The Company's planned
acquisition strategy and subsequent renovation of stores to superstore
standards is expected to continue to negatively impact the number of
stores includable in comparable store base calculations in relationship
to the total number of store locations operated. See ''Risk Factors-
Dependence on Expansion.'' As such, comparable store performance is
expected to remain unstable until higher percentages of the Company's
stores are includable in comparable store calculations.
Included within net sales is revenue that the Company earns related to
F&I Products. The Company, through relationships with various national
and local lenders, is able to place financing for its customers' boating
purchases. These lenders allow the Company to ''sell'' the loan at a rate
higher than a minimum rate established by each such lender and the
Company earns fees based on the percentage increase in the loan rate over
the lender's minimum rate. The Company sells these loans without recourse
except that in certain instances the Company must return the fees earned
if the customer repays the loan or defaults in the first 120-180 days.
The Company also sells, as a broker, certain types of insurance
(property/casualty, credit life, disability) and extended service
contracts. The Company may also sell these products at amounts over a
minimum established cost and earn income based upon the profit over the
minimum established cost. Net sales attributable to F&I Products
increased by 48.2% to approximately $4.0 million in fiscal 1997 from $2.7
million in fiscal 1996. This improvement was primarily due to higher net
spreads achieved in the placement of customer financing, as well as
overall increases in the percentage of customers buying these products
(which is referred to as ''sell-through''). This increase was enhanced by
the Company's continued emphasis on training of F&I employees and
achievement of established goals.
Gross profit. Gross profit increased by 45.3% to approximately $24.0
million in fiscal 1997 from $16.5 million in fiscal 1996. Gross profit as
a percent of sales increased to 26.2% in fiscal 1997 from 25.5% in fiscal
1996. The Company generally seeks to maintain a gross profit margin of
21% to 23% on its boating packages and is able to further leverage the
margin through sales of parts/accessories, service labor and F&I
Products, all of which generally produce gross profit margins in excess
of 25%. During fiscal 1997, the Company's gross profit margin was
positively impacted by the increased revenues derived from the
parts/accessory, service labor and used boat sales as discussed above in
Net Sales.
Net sales attributable to F&I Products, which have a significant
impact on the gross profit margin, contributed $4.0 million, or 16.6%, of
total gross profit in fiscal 1997, as compared to $2.7 million, or 16.4%,
of total gross profit for fiscal 1996. Net sales attributable to F&I
Products are reported on a net basis and therefore all of such sales
contribute directly to the Company's gross profit. The costs associated
with the sale of F&I Products are included in selling, general and
administrative expenses.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 43.1% to $15.6 million in fiscal
1997 from $10.9 million for fiscal 1996. Selling, general and
administrative expenses as a percent of net sales increased by 20 basis
points to 17.0% in fiscal 1997 from 16.8% for fiscal 1996. In terms of
both actual dollars and as a percentage of net sales, the increase in
selling, general and administrative expenses was primarily attributable
to increased expenses associated with the operation of a larger store
network, through growth in the corporate-office staffing infrastructure
and increased advertising costs associated with introducing Travis Boats
and its Travis Edition products into new geographically diverse regions.
Rental expense also increased as a percent of net sales as the Company
expanded and relocated its Corporate headquarters which had previously
been located in the Austin, Texas superstore facility. Opening and other
start-up costs associated with the relocation of the Arlington, Texas
facility to a new superstore location, and the opening of satellite sales
facility locations in Dallas, Texas and Hot Springs, Arkansas also
contributed to the increase in selling, general and administrative
expenses.
Costs associated with being a public company such as annual reports,
investor relations, investor presentations and certain legal and
accounting issues further impacted selling, general and administrative
expenses.
Interest expense. Interest expense, in actual dollars, increased by
5.0% to $1.4 million in fiscal 1997 from $1.3 million in fiscal 1996.
However, interest expense as a percent of net sales, decreased to 1.5% in
fiscal 1997 from 2.0% in fiscal 1996. Effective with the funding of the
Company's Initial Public Offering in late June of 1996 and an additional
140,500 shares in the over-allotment option, the Company reduced certain
revolving indebtedness and certain long term indebtedness. The Company
has since continued to utilize available working capital and has
negotiated reduced borrowing rates under its floor plan and revolving
lines of credit which have combined to provide for the containment of
interest expense and its percentage decrease as a percent of net sales.
The Company intends to reborrow under its revolving credit lines as
necessary to fund future acquisitions and to support working capital
needs. See ''Liquidity and Capital Resources.''
Net income. Net income increased by 67.1% to approximately $4.0
million in fiscal 1997 from $2.4 million in fiscal 1996. Net income as a
percent of sales increased to 4.4% from 3.7% during the same periods. Net
income attributable to F&I Products increased by 48.2% to approximately
$1.2 million in fiscal 1997 from $810,000 in fiscal 1996. The calculation
of net income attributable to F&I Products is based on an allocation of
gross profit after adjusting for costs which management believes are
directly allocable to F&I Products.
Quarterly Data and Seasonality
The following table sets forth certain unaudited quarterly financial
data for each of the Company's last eight quarters and such data
expressed as a percentage of the Company's net sales for the respective
quarters. The information has been derived from unaudited financial
statements that, in the opinion of management, reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such quarterly information. The operating results for any
quarter are not necessarily indicative of the results to be expected for
any future period.
Quarter Ended
---------------------------------------------------------------
Fiscal Year 1997 Fiscal Year 1998
---------------- ----------------
Dec. 31 March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30
------- -------- -------- -------- -------- -------- -------- --------
(In thousands)
Net sales $ 5,451 $ 24,273 $ 37,348 $ 24,237 $ 10,142 $ 33,427 $ 55,699 $ 32,472
Gross profit 1,341 6,404 9,531 6,679 2,611 9,104 14,185 9,001
Selling, general
and administrative
expenses 2,140 3,638 5,426 4,358 3,694 5,294 7,941 5,701
Operating income
(loss) (983) 2,529 3,873 2,061 (1,416) 3,464 5,896 3,067
Interest expense 214 415 412 313 461 578 649 622
Net income (loss) (744) 1,320 2,172 1,234 (1,156) 1,798 3,267 1,654
Basic earnings
per share (.18) .32 .53 .30 (.27) .42 .77 .39
Diluted earnings
per share (.18) .31 .51 .29 (.27) .41 .74 .38
Wtd. avg. common
shares outstanding
- basic 4,137 4,137 4,137 4,137 4,225 4,254 4,255 4,260
Wtd. avg. common
shares outstanding -
diluted 4,137 4,240 4,240 4,239 4,225 4,423 4,439 4,409
As a Percentage of Net Sales
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit 24.6 26.4 25.5 27.6 25.7 27.2 25.5 27.7
Selling, general
and administrative
expenses 39.3 15.0 14.5 18.0 36.4 15.8 14.3 17.6
Operating income
(loss) (18.0) 10.4 10.4 8.5 (14.0) 10.4 10.6 9.5
Interest expense 3.9 1.7 1.1 1.3 4.5 1.7 1.2 1.9
Net income (loss) (13.7) 5.4 5.8 5.1 (11.4) 5.4 5.9 5.1
The Company's business, as well as the sales demand for various types
of boats, tends to be highly seasonal. Strong sales typically begin in
January with the onset of the public boat and recreation shows, and
continue through July. Over the previous five-year period, the average
annual net sales for the quarterly periods ended March 31 and June 30
represented approximately 27% and 41%, respectively, of the Company's
annual net sales. With regard to net income, the Company historically
generates profits in three of its fiscal quarters and experiences
operating losses in the quarter ended December 31 due to a broad seasonal
slowdown in sales. During the quarter ended September 30, inventory
typically reaches its lowest levels and accumulated cash reserves reach
the highest levels. During the quarter ended December 31, the Company
generally builds inventory levels in preparation for the upcoming selling
season which begins with boat and recreation shows occurring during
January through March in certain market areas in which the Company
conducts business. Travis Boats' operating results would be materially
and adversely affected if net sales were to fall significantly below
historical levels during the months of January through June.
The Company's business is also significantly affected by weather
patterns. Weather conditions that are unseasonable or unusual may
adversely affect the Company's results of operations. For example,
drought conditions or merely reduced rainfall levels, as well as
excessive rain, may affect the Company's sale of boating packages and
related products and accessories. See Risk Factors - "Impact of
Seasonality and Weather on Operations".
Quarterly results may fluctuate as a result of the expenses associated
with new store openings or acquisitions. The Company, prior to fiscal
1997, had attempted to concentrate expansion during the seasonal slowdown
generally occurring in the quarter ending December 31. During fiscal
1997, the Company modified its acquisition strategy to acquire store
locations through-out the fiscal year. This was done to allow the
Company the opportunity to derive in-season sales from the acquisitions
as well as to provide a longer period in which to integrate the acquired
store's operations. Accordingly, the results for any quarterly period
may not be indicative of the expected results for any other quarterly
period.
Liquidity and Capital Resources
The Company's short-term cash needs are primarily for working capital
to support operations including inventory requirements, off-season
liquidity and store expansion. These short-term cash needs have
historically been financed with cash from operations and borrowings under
the Company's floor plan and revolving credit lines (collectively the
"credit facilities"). At September 30, 1998, the Company had working
capital of $16.4 million, including $4.6 million in cash, $4.9 million in
accounts receivable (primarily contracts in transit from sales) and $38.9
million in inventories, offset by approximately $4.2 million of accounts
payable and accrued liabilities, $10.1 million outstanding under floor
plan lines of credit, approximately $15.0 million under revolving lines
of credit and $4.4 million in other current liabilities and short-term
indebtedness including current maturities of long-term debt. Contracts in
transit are amounts receivable from a customer or a customer's financial
institution related to that customer's purchase of a boat. As of
September 30, 1998, the aggregate maximum borrowing limits under floor
plan and revolving lines of credit were approximately $57.0 million and
$55.0 million, respectively.
In fiscal 1997, operating activities utilized cash flows of $808,000
due primarily to an increase of $5.2 million and $2.0 million in
inventories and accounts receivable, respectively. These amounts were
offset partially by an increase in accrued liabilities of $884,000 and an
increase in accounts payable of $1.5 million. Of the increase in
inventories, approximately $14.6 million was related to inventory
acquired in seven store acquisitions during fiscal 1997 and the initial
stocking of Travis Editions product in the newly acquired
locations.
In fiscal 1998, operating activities generated cash flows of $2.9
million due primarily to increased net profits,
controlled inventory growth and proceeds received on unearned
manufacturer rebate revenues. Management believes that store inventory
levels at September 30, 1998 were below standard stocking levels as the
Company was in the process of contract discussions with its primary
outboard motor supplier, Outboard Marine Corporation. The Company was
also in discussions with a new alternate outboard motor supplier, Mercury
Marine. The Company could not order outboard motor powered boats until a
determination of what type of outboard motor was to be placed on the
boat. The Company agreed in principal to agreements with Outboard Marine
Corporation and Mercury Marine in November of 1998 and the Company has
since re-stocked its store locations to levels that management believes
are historically appropriate.
Financing activities in fiscal 1998 provided $4.8 million of cash
flows primarily from the net proceeds of borrowings under the Company's
credit facilities. The Company has a $55.0 million revolving line of
credit agented by NationsBank of Texas, N.A.,.. The line provides for
borrowing pursuant to a borrowing formula based upon the certain of the
Company's inventory and accounts receivable. Collateral consists of a
security interest in specific inventories (and proceeds thereof),
accounts receivable and contracts in transit. The line has a maturity on
October 31, 1999 and pricing is at the Company's election of the prime
rate minus 1.00% or on a LIBOR based price structure. There is a fee on
the unused portion assessed quarterly. A comprehensive loan agreement
governs the line of credit. The agreement contains financial covenants
regulating debt service coverages, tangible net worth, operating leverage
and restrictions on dividends or distributions. As of December 21, 1998,
$25.8 million was drawn on the revolving line and the Company could
borrow an additional $29.2 million, of which approximately $1.5 million
was immediately available for borrowing based upon the revolving line's
borrowing formula. As the Company purchases inventory, the amount
purchase increases the borrowing base availability and typically the
Company makes a determination to borrow depending upon anticipated
working capital requirements. Management believes the Company to be in
compliance with the terms and conditions of this loan agreement.
The Company also maintains floor plan lines of credit with various
finance companies totalling approximately $57 million in credit limits,
which generally have no stated maturity and utilize subsidies from
manufacturers to provide for certain interest free periods each calendar
year (usually August through at least May). Certain floor plan lines of
credit with finance companies are governed by loan agreements containing
financial covenants concerning, among others, minimum tangible net worth
and leverage ratios. As of December 21, 1998, approximately $22.2 million
was drawn under the floor plan lines and management believes the Company
was in compliance with the terms and conditions of these loan agreements.
Merchandise inventories were $34.5 million and $38.9 million as of
September 30, 1997 and September 30, 1998, respectively. Accounts
receivable increased by approximately $1.0 million to $4.9 million at the
end of fiscal 1998 from a year earlier. The receivables amount represents
primarily contracts in transit generated from sales. Costs in excess of
net assets acquired increased to by approximately $0.9 million to $6.2
million in fiscal 1998 due to the acquisitions during fiscal 1998
discussed previously in the section Overview.
The Company had capital expenditures of approximately $4.3 million
in fiscal 1998 and approximately $2.3 million in fiscal 1997. Capital
expenditures during fiscal 1997 and 1998 included the acquisitions of the
store locations discussed previously in the section Overview, the
renovation of several facilities to the Company's superstore standards
and expenditures related to the roll-out of the Company's management
information systems in certain store locations. The Company also
acquired raw land for the construction of a new superstore location to
relocate the Roswell, Georgia temporary store location. The fiscal 1997
and 1998 capital expenditures were primarily financed under the Company's
credit facilities and additionally with certain individuals and
corporations.
The Company's revolving credit facility, floor plan lines of credit
and internally generated working capital should be sufficient to meet the
Company's cash requirements in the near future.
Disclosure of YEAR 2000 Issues and Consequences
The Year 2000 Issue ("Y2K") is the result of computer programs being
written using two digits rather than four to define the applicable
year. Any of the Company's computer programs or hardware that have
date-sensitive software or embedded chips may recognize a date
using"00" as the year 1900 rather than the year 2000. This could cause a
system failure or miscalculations in the Company's point of sale,
accounting and other financial operations which could cause disruptions
of operations, including, among other things, could result in a
temporary inability to process financial transactions, or engage in
similar normal business or financial reporting activities. Similarly,
material suppliers to the Company may be unable to produce or ship
product in the ordinary course of their business operations.
Based on recent system evaluations, surveys, and on-site
inventories, the Company determined that it will be required to modify
or replace minimal portions of its software and certain hardware so that
those systems will properly utilize dates beyond December 31, 1999. As
part of a previously planned company-wide upgrade to its accounting
systems initiated in March of 1998, the Company is presently replacing
its integrated accounting and point-of-sale management information system
("MIS"). The new MIS system is currently operating in seven (7) store
locations and the Company is planning to install the system in
approximately 8 new store locations by the end of calendar 1999 and in
substantially each of the new store locations acquired in fiscal 1999.
The new MIS system was selected in part due to its ability to allow the
Company increased efficiencies in its efforts to further centralize full
financial and accounting operations. The new MIS system is a Y2K
compliant system. The Company's existing integrated accounting and point
of sale system currently is not Y2K compliant. The system's owner, Bell
& Howell, Inc. has notified the Company that the system is expected to
have a Y2K compliant version by the end of the first quarter of calendar
1999. Having the existing software Y2K compliant before year 2000 greatly
reduces any risk of delays in implementation of the new system. However,
in the event the Bell & Howell system is not Y2K compliant by the second
quarter of 1999, the Company has determined that an immediate evaluation
by the Company's management and the Board of Directors will be required
to determine if the Company should accelerate its planned implementation
of the new MIS system. If acceleration of implementation of the new MIS
system occurs, the Company believes it would experience a cost of
approximately $200,000 in additional travel, training, consulting,
personnel and other costs. If the Company discontinued use of its
existing system it would also be required to expense all unamortized
system costs.
The Company has one other key system that is not part of the integrated
package. The Company contracts with Automatic Data Processing ("ADP")
for payroll processing. ADP has provided the Company with separate
software in which is used to administer the company-wide payroll. The
Human Resources department of the Company has just completed installation
of a year 2000 compliant version which has been provide to the Company by
ADP.
A survey has been performed on all back office software packages. We have
not seen any material date macros or other date related functions that
would be materially affected by dates beyond December 31, 1999.
Significant non-technical systems and equipment that may contain
microcontrollers which are not Y2K compliant are being identified and
addressed if deemed critical. This includes, but is not limited to,
telephone systems, copiers, fax machines, point of sale credit card
authorization terminals.
The Company has, and continues to utilize a written questionaire
specifically designed to query significant vendors, including but not
limited to, boat suppliers, parts/accessory suppliers and wholesalers,
and financial institutions. Certain of the companies queried have
responded to questionaires stating that their systems are Y2K compliant.
The Company is monitoring the status of the questionaire respondants that
have indicated that Y2K compliance is not yet complete, but is
anticipated to be complete during calendar year 1999. The Company has
not received any questionaires from companies that have expressed an
inability or business related purpose that would render them unable to
reach Y2K compliance. To date, the Company is not aware of any Y2K issue
that would materially impact the Company's results of operations,
liquidity, or capital resources. However, the Company has no means of
ensuring that significant vendors will be Y2K ready. The inability of
vendors to complete their Y2K resolution process in a timely fashion
could materially impact the Company. The effect of non-compliance by
significant vendors is not determinable.
While the Company believes its efforts will provide reasonable
assurance that material disruptions will not occur due to internal
failure, the possibility of interruption still exists.
In the ordinary course of business, the Company has acquired or plans to
acquire a significant amount of Y2K compliant hardware and software.
These purchases are part of specific operational and financial system
enhancements with completion dates during late 1999 that were planned
without specific regard to the Y2K issue. These system enhancements
resolve many Y2K problems and have not been delayed as a result of any
additional efforts addressing the Y2K issue. Minimal costs will be
associated with Y2K issue. The Company does not expect the year 2000
cost of unforeseen hardware or software applications to exceed $10,000.
Management believes it has an effective program in place to resolve the
Y2K issue in a timely manner. In the event that the Company does not
complete implementation of its new system or installation of the Y2K
version of its existing software, it could experience disruptions in its
operations. In addition, disruptions in the economy generally resulting
from the Y2K issues could also result in a materially adverse affect to
the Company.
The Company currently has assigned two (2) management level employees to
further identify risks and to develop contingency plans in the event the
Company does not complete all phases of the Y2K program. The Company
plans to evaluate the status of completion in April 1999 and determine
whether formal implementation of such contingency plans are necessary.
New Accounting Standards
In September 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income ("SFAS No. 130"). SFAS No. 130 establishes standards for reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. The Company does not
anticipate the adoption of SFAS No. 130 to have a material impact on the
Company's financial position or results of its operations at September
30, 1998.
Also in September 1997, the FASB issued SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS No. 131"). SFAS
No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued
to stockholders. SFAS No. 131 is effective for financial statements for
fiscal years beginning after December 15, 1997. The Company has not yet
determined the impact, if any, of adopting SFAS No. 131.
In September 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS No. 133"). SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset
or liability measured at its fair value. SFAS No. 133 requires that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. Because of
the Company's minimal use of derivative financial instruments, management
does not anticipate that the adoption of SFAS No. 133 will have a
material impact on the Company's consolidated results of operations,
financial position or cash flows.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-Up
Activities. The SOP requires costs of start-up activities and
organization costs to be expensed as incurred, and is effective for
fiscal years beginning after December 15, 1998. The effects of adoption
must be reported as a cumulative change in accounting principle. The
Company expects that the impact of adoption will not be material to its
financial position or results of operations.
Inflation
The Company believes that inflation generally has not had a material
impact on its operations or liquidity to date.
ITEM 7.A QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At September 30, 1998, approximately 64.8% of the Company's notes payable
and other short term obligations bear interest at variable rates,
generally tied to a reference rate such as the prime rate of interest of
certain banks. Accordingly, the Company's earnings and after tax
cashflow are affected by changes in interest rates. Assuming a two
percentage point change in the fiscal 1998 average interest rate under
the fiscal 1998 average of these borrowings, it is estimated that the
Company's fiscal 1998 interest expense would have changed by $700,892 and
that the Company's fiscal 1998 net income and after tax cashflow would
have changed by $462,589. In the event of an adverse change in interest
rates, management would likely take actions to further mitigate its
exposure. However, due to the uncertainty of the actions that would be
taken (such as re-financing debt, or seeking lower borrowing costs
through adjusting debt maturities) and their possible effects, the
aforementioned analysis assumes no such actions. Further, the analysis
does not consider the effects of the change in the level of overall
economic activity that could exist in such an environment.
At September 30, 1998, the Company has an interest rate protection
agreement on $5.0 million of the $55.0 million revolving line of credit
agreement, calling for a five year fixed interest rate of 7.295%. This
agreement, the fair value of which is not material at September 30, 1998
and is not expected to become material in the near term, has not been
considered in the above analysis.
Item 8. Financial Statements
For the financial statements and supplementary data required by this
Item 8, see the Index to Consolidated Financial Statements and Schedules.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers
There is incorporated herein by reference that portion of the
Company's proxy statement for the 1999 Annual Meeting of Stockholders
which appears therein under the captions ''Item 1: Election of
Directors'' and ''Information Concerning Directors.''
Item 11. Executive Compensation
There is incorporated in this Item 11 by reference that portion of the
Company's definitive proxy statement for the 1999 Annual Meeting of
Stockholders which appears under the caption ''Executive Compensation.''
Item 12. Security Ownership of Certain Beneficial Owners and Management
There is incorporated in this Item 12 by reference that portion of the
Company's definitive proxy statement for the 1999 Annual Meeting of
Stockholders which appears under the caption ''Securities Holdings of
Principal Stockholders, Directors, Nominees and Officers.''
Item 13. Certain Relationships and Related Transactions
There is incorporated in this Item 13 by reference that portion of the
Company's definitive proxy statement for the 1999 Annual Meeting of
Stockholders which appears under the captions ''Certain Relationships and
Related Transactions'' and ''Compensation Committee Interlocks and
Insider Participation.''
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
The following consolidated financial statements of the Company are
included following the Index to Consolidated Financial Statements and
Schedules on page F-1 of this Report.
Report of Ernst & Young LLP, Independent Auditors F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Shareholder's Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
(a) 2. Financial Statement Schedules
All schedules have been omitted because they are not applicable, not
required under the instructions, or the information requested is set
forth in the consolidated financial statements or related notes thereto.
(a) 3. Exhibits
The following Exhibits are incorporated by reference to the filing or
are included following the Index to Exhibits.
INDEX TO EXHIBITS
(a) Exhibits: Except as otherwise noted, all Exhibits have been
previously filed with Registrant's S-1 dated June 1996.
3.1 Restated Articles of Incorporation of the Registrant, as amended.
3.2 Restated Bylaws of the Registrant, as amended.
10.2(a) Agreement dated as of August 11, 1995, between the Company and
Outboard Marine Corporation.
10.2(b) Dealer Agreement dated as of October 13, 1995, between the Company
and Outboard Marine Corporation.
10.3 Dealer Agreement dated as of August 17, 1995, between the Company
and Larson Boats, a Division of Larson/Glastron Boats, Inc., a
subsidiary of Genmar Industries, Inc.
10.4 Dealer Agreement dated as of August 17, 1995, between the Company
and Mastercrafters Corporation.
10.5(a) Inventory Security Agreement and Power of Attorney dated as of
November 30, 1993, Between Bombardier Capital Inc. and the Company.
10.5(b) Inventory Security Agreement and Power of Attorney dated as of
November 30, 1993, Between Bombardier Capital Inc. and Falcon Marine
Abilene, Inc.
10.6(a) Agreement for Wholesale Financing dated as of August 17, 1995, by
and among Deutsche Financial Services Corporation, the Company and
its subsidiaries; and Amendment to Agreement for Wholesale Financing
dated as of September 22, 1995.
10.6(b) Agreement for Wholesale Financing dated as of August 17, 1995,
between Deutsche Financial Services Corporation and Travis Boats &
Motors Baton Rouge, Inc.
10.7(a) Inventory Loan Agreement dated as of September 20, 1995, between TBC
Arkansas, Inc. And Hibernia National Bank.
10.7(b) Commercial Security Agreement dated September 1, 1995, between TBC
Arkansas, Inc. and Hibernia National Bank.
10.8(a) Inventory Loan Agreement dated as of December 17, 1992, between
Travis Boats & Motors Baton Rouge, Inc. and Hibernia National Bank;
and First Amendment to Inventory Loan Agreement dated as of
February 7, 1994.
10.8(b) Promissory Note dated May 30, 1995, in the original principal amount
of $100,000, payable By Travis Boats & Motors Baton Rouge, Inc. to
Hibernia National Bank.
10.8(c) Promissory Note dated May 30, 1995, in the original principal amount
of $800,000, payable By Travis Boats & Motors Baton Rouge, Inc. to
Hibernia National Bank.
10.8(d) Promissory Note dated July 14, 1995, in the original principal amount
of $480,000, payable By Travis Boats & Motors Baton Rouge, Inc. to
Hibernia National Bank.
10.8(e) Business Loan Agreement dated July 14, 1995, between Travis Boats &
Motors Baton Rouge, Inc. and Hibernia National Bank.
10.8(f) Commercial Security Agreement dated July 14, 1995, between Travis
Boats & Motors Baton Rouge, Inc. and Hibernia National Bank.
10.8(g) Collateral Mortgage dated July 14, 1995, from Travis Boats & Motors
Baton Rouge, Inc. to Hibernia National Bank.
10.8(h) Assignment of Leases and Rents dated July 14, 1995, between Travis
Boats & Motors Baton Rouge, Inc. and Hibernia National Bank.
10.8(i) Pledge of Collateral Mortgage Note dated July 14, 1995, from Travis
Boats & Motors Baton Rouge, Inc. to Hibernia National Bank.
10.9(a) Promissory Note dated September 1, 1995, in the original principal
amount of $3,000,000, Payable by TBC Arkansas, Inc. to Hibernia
National Bank.
10.9(b) Commercial Guaranty dated September 1, 1995 by the Company in favor
of Hibernia National Bank guarantying a $3,000,000 Promissory Note.
10.9(c) Promissory Note dated September 1, 1995, in the original principal
amount of $250,000, Payable by TBC Arkansas to Hibernia National
Bank.
10.10(a)Amended and Restated Loan Agreement dated as of September 15, 1995,
by and among NationsBank of Texas, N.A., the Company and its
subsidiaries.
10.10(b)Security Agreement dated July 31, 1995, by and among NationsBank of
Texas, N.A., the Company and its subsidiaries.
10.11 General Promissory Note dated August 31, 1995, in the original
principal amount of $300,000, payable by the Company to Amerisure
Property & Casualty, Ltd.
10.12 General Promissory Note dated August 31, 1995, in the original
principal amount of $100,000, payable by the Company to Capitol
Commerce Reporter, Inc.
10.13 General Promissory Note dated August 31, 1995, in the original
principal amount of $75,000, payable by the Company to Capitol
Commerce Reporter, Inc.
10.14 General Promissory Note dated August 31, 1995, in the original
principal amount of $150,000, payable by the Company to Joe Simpson
and Pat Simpson.
10.15 Asset Purchase Agreement dated as of September 20, 1995, by and
among Red River Marine, Inc., Red River Marine, Inc. #2, and TBC
Arkansas, Inc.
10.16 Promissory Note dated September 20, 1995, in the original principal
amount of $800,000, Payable by TBC Arkansas, Inc. to Benny Hargrove.
10.17(a)Promissory Note dated as of September 20, 1995, in the original
principal amount of $462,145.53, payable by TBC Arkansas, Inc. to
Red River Marine, Inc. #2.
10.17(b)Mortgage With Power of Sale (Realty) dated September 20, 1995, from
TBC Arkansas, Inc. to Red River Marine, Inc. #2.
10.18 Promissory Note dated September 20, 1995, in the original principal
amount of $230,177.16, payable by TBC Arkansas, Inc. to Red River
Marine, Inc. and Red River Marine, Inc. #2.
10.19 Promissory Note dated September 20, 1995, in the original principal
amount of $108,750, Payable by TBC Arkansas, Inc. to Red River
Marine, Inc. and Red River Marine, Inc. #2.
10.20 Travis Boats and Motors, Inc. 1995 Incentive Plan.
10.21 Form of Amended and Restated Employment Agreement dated May 7, 1996,
between the Company and Mark T. Walton, Ronnie L. Spradling and
Michael B. Perrine.
10.22 Form of Option Agreement dated May 17, 1995, between the Company and
Michael B. Perrine, Ronnie L. Spradling and Mark T. Walton.
10.23 Form of Indemnification Agreement for Directors and Officers of the
Company.
10.24 Management Agreement dated December 14, 1995, by and among TBC
Management, Ltd., The Company and its subsidiaries.
10.25 [Intentionally left blank]
10.26(a)First Lien Promissory Note dated September 15, 1995, in the original
principal amount of $679,000, payable by Travis Snowden Marine, Inc.
to NationsBank of Texas, N.A.
10.26(c)First Lien Deed of Trust, Assignment, Security Agreement and Financing
Statement dated September 15, 1995, from Travis Snowden Marine, Inc.
to Michael F. Hord, Trustee.
10.27(a)Second Modification and Extension Agreement dated April 26, 1994,
between the Company and NationsBank of Texas, N.A.
10.27(b)''504'' Note dated April 28, 1994, in the original principal amount
of $454,000, payable by the Company to Cen-Tex Certified Development
Corporation.
10.27(c)Deed of Trust, Assignment, Security Agreement and Financing Statement
dated March 5, 1993, from the Company to Michael F. Hord, Trustee.
10.27(d)Deed of Trust dated April 28, 1994, from the Company to Wm. H.
Harrison, Jr., Trustee.
10.28 Trust Agreement dated December 31, 1994, by and among Ideal Insurance
Company, Ltd. and the Company.
16 Letter re change in certifying accountant.
Portions of this exhibit have been omitted and are subject to an
application for confidential treatment filed separately with the
Commission.
The above Exhibits have been previously filed with Registrant's S-1 dated
June 1996.
(b) Financial Statement Schedules: None.
The following exhibits are filed herewith
10.29(a)Revolving Credit Agreement dated as of December 12, 1996, in the
original principal amount of $15,000,000 by and among the Company,
its Subsidiaries and NationsBank of Texas, N.A. as agent.
10.29(b)Commercial Security Agreement dated as of December 12, 1996 by and
among the Company, its Subsidiaries and NationsBank of Texas, N.A.
as agent.
10.29(c)Promissory Note dated as of December 12, 1996 in ane original
principal amount of $9,000,000 among the Company, its subsidiaries
and NationsBank of Texas, N.A., as agent.
10.29(d)Promissory Note dated as of December 12, 1996 in the original
principal amount of $6,000,000 among the Company, its subsidiaries
and NationsBank of Texas, N.A. as agent.
10.30 Asset Purchase Agreement dated as of November 1, 1996 between Travis
Boating Center Tennessee, Inc. and Tri-Lakes Marine, Inc.
10.31 Asset Purchase Agreement dated as of November 1, 1996 between Travis
Boating Center Alabama, Inc. and Tri-Lakes Marine, Inc.
The above Exhibits have been previously filed with
Registrant's Report on Form 10-K for the fiscal
year ended September 30, 1996.
The following exhibits are filed herewith on the
Registrant's Report on Form 10-K for the fiscal
year ended September 30, 1997.
10.32(#)Asset Purchase Agreement dated as of February 19, 1997 between Travis
Boating Center Louisiana, Inc. and Bent's Marine, Inc.
10.33 Asset Purchase Agreement dated as of August 1, 1997 between Travis
Boating Center Mississippi, Inc. and McLeod Marine, Inc
10.34 Stock Purchase Agreement dated as of September 30, 1997 among Travis
Boating Center Florida, Inc. and Frederic D. Pace and John W.
Reinhold providing for the purchase of 100% of the common stock of
Adventure Boat Brokerage, Inc.
10.35 Stock Purchase Agreement dated as of September 30, 1997 among Travis
Boating Center Florida, Inc. and John W. Reinhold providing for the
purchase of 100% of the common stock of Adventure Marine & Outdoors,
Inc.
10.36 Stock Purchase Agreement dated as of September 30, 1997 among Travis
Boating Center Florida, Inc. and Frederic D. Pace and John W.
Reinhold providing for the purchase of 100% of the common stock of
Adventure Marine South, Inc.
10.37 First Amendment to Revolving Credit Agreement dated as of October 31,
1997, in the original principal amount of $55,000,000 by and among
the Company, its Subsidiaries and NationsBank of Texas, N.A. as
agent.
10.38 Asset Purchase Agreement dated as of November 20, 1997 between Travis
Boating Center Tennessee, Inc. and Southeastern Marine Group, Inc.
10.39(+)Travis Boats & Motors, Inc. 1995 Incentive Plan filed pursuant to
Form S-8 filed on December 11, 1997.
21.1 List of Subsidiaries of Registrant.
23.1(+)Consent of Ernst & Young LLP, Independent Auditors of Registrant,
dated December 23, 1998.
27.1 Financial Data Schedule
(#) Incorporated by reference from the Company Report on Form 10-Q for
the quarter ended March 31, 1997.
(+) Incorporated by reference from the Company's filing on Form S-8 on
December 11, 1997.
No annual report or proxy material has been sent to security holders
as of the date of this Form 10-K; however, the Company anticipates
sending the annual report and proxy materials on or before any applicable
deadlines. When such a report and proxy materials are furnished, the
Registrant will furnish copies of such materials to the Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TRAVIS BOATS & MOTORS, INC.
/S/ MARK T. WALTON
--------------------
By:
Chairman of the Board and President
Date: December 24, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Name Capacity Date Signed
/S/ MARK T. WALTON
- --------------------
Mark T. Walton Chairman of the Board, December 24, 1998
President and Director
(Principal Executive Officer)
/S/ MICHAEL B. PERRINE
- ------------------------
Michael B. Perrine Chief Financial Officer, December 24, 1998
Secretary and Treasurer
(Principal Financial and
Accounting Officer )
/S/ RONNIE L. SPRADLING
- -------------------------
Ronnie L. Spradling Executive Vice President- December 24, 1998
New Store Development and
Director
/S/ E. D. BOHLS
- -----------------
E. D. Bohls Director December 24, 1998
/S/ STEVEN W. GURASICH, JR.
- -----------------------------
Steven W. Gurasich, Jr. Director December 24, 1998
/S/ ZACH MCCLENDON, JR
- ------------------------
Zach McClendon, Jr. Director December 24, 1998
/S/ ROBERT C. SIDDONS
- -----------------------
Robert C. Siddons Director December 24, 1998
/S/ JOSEPH E. SIMPSON
- -----------------------
Joseph E. Simpson Director December 24, 1998
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Financial Statements
Years ended September 30, 1998, 1997 and 1996
Contents
Report of Ernst & Young LLP, Independent Auditors..........F-2
Audited Consolidated Financial Statements
Consolidated Balance Sheets................................F-3
Consolidated Statements of Income..........................F-5
Consolidated Statements of Stockholders' Equity............F-6
Consolidated Statements of Cash Flows......................F-7
Notes to Consolidated Financial Statements.................F-9
F-1
Report of Ernst & Young LLP,Independent Auditors
The Board of Directors
Travis Boats & Motors, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Travis
Boats & Motors, Inc. and Subsidiaries as of September 30, 1998 and 1997
and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended
September 30, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Travis Boats & Motors, Inc. and Subsidiaries as of September 30, 1998 and
1997 and the consolidated results of their operations and their cash
flows for each of the three years in the period ended September 30, 1998, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
November 24, 1998
Austin, Texas
F-2
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
September 30
1998 1997
------------------------
Assets
Current assets:
Cash and cash equivalents $ 4,618 $ 5,816
Accounts receivable 4,893 3,915
Prepaid expenses 1,045 371
Prepaid federal income taxes 425 -
Inventories 38,934 34,450
Deferred tax asset 180 173
------------------------
Total current assets 50,095 44,725
Property and equipment:
Land 3,516 1,991
Buildings and improvements 8,485 6,366
Furniture, fixture and equipment 4,109 3,162
------------------------
16,110 11,519
Less accumulated depreciation (3,417) (2,750)
------------------------
12,693 8,769
Deferred tax asset 96 120
Goodwill, net of accumulated amortization
of $290 in 1998 and $79 in 1997 4,910 4,067
Noncompete agreements, net of
accumulated amortization of $396 in
1998 and $130 in 1997 1,292 1,308
Other assets 30 132
------------------------
Total assets $ 69,116 $ 59,121
------------------------
F-3
September 30
1998 1997
------------------------
Liabilities
Current liabilities:
Bank overdraft $ - $ 272
Accounts payable 1,697 2,238
Accrued liabilities 2,512 2,929
Amounts due for purchase of business 2,117 1,430
Federal income taxes payable - 1,081
Unearned revenue 1,272 522
Current portion of notes payable and
other short-term obligations 26,105 21,447
------------------------
Total current liabilities 33,703 29,919
Notes payable, less current portion 4,980 5,145
Stockholders' equity:
Serial preferred stock, $.01 par
value, 1,000,000 shares authorized,
no shares issued or outstanding - -
Common stock, $.01 par value,
50,000,000 shares authorized,
4,285,063 and 4,224,867 issued and
outstanding at September 30, 1998
and 1997, respectively 43 42
Paid-in capital 13,816 13,004
Retained earnings 16,574 11,011
------------------------
Total stockholders' equity 30,433 24,057
------------------------
Total liabilities and stockholders' equity $ 69,116 $ 59,121
------------------------
See accompanying notes.
F-4
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except share data)
Year ended September 30
1998 1997 1996
----------------------------------
Net sales $ 131,740 $ 91,309 $ 64,555
Cost of sales 96,839 67,354 48,072
----------------------------------
Gross profit 34,901 23,955 16,483
Selling, general and
administrative expenses 22,630 15,562 10,857
Depreciation and amortization 1,260 913 564
----------------------------------
23,890 16,475 11,421
Operating income 11,011 7,480 5,061
Interest expense (2,310) (1,354) (1,289)
Other income (expenses) 80 (12) 61
----------------------------------
Income before income taxes 8,781 6,114 3,833
Income taxes 3,218 2,132 1,450
----------------------------------
Net income $ 5,563 $ 3,982 $ 2,383
----------------------------------
Earnings per share:
Basic $ 1.31 $ .96 $ .78
----------------------------------
Diluted $ 1.26 $ .94 $ .78
----------------------------------
See accompanying notes.
F-5
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(in thousands, including share data)
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
-----------------------------------------------------------------
Balance at September 30,1995 2,684 $ 27 $ 139 $ 4,646 $ 4,812
Issuance of common stock 1,453 14 13,062 - 13,076
Common stock issuance costs - - (1,674) - (1,674)
Net income - - - 2,383 2,383
-----------------------------------------------------------------
Balance at September 30,1996 4,137 41 11,527 7,029 18,597
Issuance of common stock in
purchase of business 88 1 1,477 - 1,478
Net income - - - 3,982 3,982
-----------------------------------------------------------------
Balance at September 30,1997 4,225 42 13,004 11,011 24,057
Issuance of common stock 40 1 462 - 463
Issuance of common stock in
purchase of business 20 - 350 - 350
Net income - - - 5,563 5,563
-----------------------------------------------------------------
Balance at September 30,1998 4,285 $ 43 $ 13,816 $ 16,574 $ 30,433
-----------------------------------------------------------------
See accompanying notes.
F-6
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
($ in thousands)
Year ended September 30
1998 1997 1996
----------------------------------
Operating activities
Net income $ 5,563 $ 3,982 $ 2,383
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 807 780 489
Amortization 453 133 75
Changes in operating assets and
liabilities:
Accounts receivable (978) (1,995) (284)
Prepaid assets (674) (244) (53)
Inventories (416) (5,166) (6,153)
Other assets 105 (18) (4)
Deferred tax asset 17 (92) (63)
Accounts payable (570) 1,453 (222)
Accrued liabilities (689) 884 201
Federal income tax
payable/prepaid (1,506) 128 377
Unearned revenue 750 (653) 1,174
----------------------------------
Net cash provided by (used in)
operating activities 2,862 (808) (2,080)
Investing activities
Purchase of businesses (4,522) (3,477) (263)
Purchase of property and equipment (4,301) (2,256) (1,135)
----------------------------------
Net cash used in investing activities (8,823) (5,733) (1,398)
F-7
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Year ended September 30
1998 1997 1996
----------------------------------
Financing activities
Net increase (decrease) in notes
payable and other short-term
obligations $ 4,300 $ 10,824 $ (7,389)
Net proceeds from issuance of common
stock 463 - 11,404
----------------------------------
Net cash provided by financing activities 4,763 10,824 4,015
Change in cash and cash equivalents (1,198) 4,283 537
Cash and cash equivalents, beginning
of year 5,816 1,533 996
----------------------------------
Cash and cash equivalents, end of year $ 4,618 $ 5,816 $ 1,533
See accompanying notes.
F-8
1. Summary of Significant Accounting Policies
Description of Business and Consolidation
Travis Boats & Motors, Inc. (the "Company") based in Austin, Texas, is a
retailer of boats, motors, trailers and related watersport accessories.
The Company operates locations in the southern region of the United
States. The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
The Company records revenue on sales of boats, motors, trailers, and
related watersport parts and accessories upon delivery to the customer
and transfer of title at the closing of the transaction.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
investments with maturities of ninety days or less when purchased to be
cash equivalents.
Inventories
Inventories consist of boats, motors, trailers and related watersport
parts and accessories. Inventories are carried at the lower of cost or
market. Cost for boats, motors and trailers is determined using the
specific identification method. Cost for parts and accessories is
determined using the first-in, first-out method. The Company has
recorded a valuation allowance for inventories of $273,000 at September
30, 1998 and $74,000 at September 30, 1997.
F-9
1. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are stated at cost. Provisions for depreciation
are determined using double-declining balance and straight-line methods.
The Company uses estimated useful lives of 5 - 20 years for buildings and
improvements and 5 - 10 years for furniture, fixtures and equipment.
Income Taxes
In accordance with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, deferred income taxes are provided for
temporary differences between the basis of assets and liabilities for
financial reporting purposes and for income tax return purposes.
Intangible Assets
Amounts assigned to intangible assets are amortized over the respective
estimated useful lives using the straight-line method as follows:
Noncompete agreements 5 to 7 years
Goodwill 15 to 25 years
Goodwill and other intangible assets are recorded at the lower of
unamortized cost or fair value. Management reviews the valuation and
amortization of intangible assets on a periodic basis, taking into
consideration any events or circumstances which might result in
diminished fair value. If this review indicates goodwill will not be
recoverable, as determined by the undiscounted cash flows of the entity
acquired over the remaining amortization period, the carrying value of
the goodwill is reduced by the estimated shortfall of cash flows.
F-10
1. Summary of Significant Accounting Policies (continued)
Accounts Receivable
Accounts receivable potentially expose the Company to concentrations of
credit risk, as defined by the Statement of Financial Accounting
Standards No. 105, Disclosure of Information about Financial Instruments
with Off-Balance Sheet Risk and Financial Instruments with Concentrations
of Credit Risk. Accounts receivable consist primarily of amounts due from
financial institutions upon sales contract funding and amounts due from
vendors under rebate programs. There was no allowance for doubtful
accounts recorded at September 30, 1998 and 1997.
Pre-opening Costs
Pre-opening costs related to new store locations are expensed as
incurred.
Significant Suppliers
The Company purchased substantially all of its new outboard motors for
use on its Travis Edition boat packages in fiscal 1998, 1997 and 1996
from a single outboard motor manufacturer.
Approximately 18%, 34% and 23% of the Company's net purchases in fiscal
1998, 1997 and 1996, respectively, were from a single boat supplier.
Advertising Costs
Advertising costs are expensed as incurred and were approximately
$643,000, $829,000 and $508,000 during the fiscal years ended September
30, 1998, 1997 and 1996, respectively.
Notes Payable and Other Short-Term Obligations
Interest expense on notes payable and other short-term obligations is
recorded as incurred. No interest expense is recorded during portions of
the year on certain floor plan payables which include noninterest bearing
payment terms.
F-11
1. Summary of Significant Accounting Policies (continued)
Unearned Revenue
Amounts received from vendors in connection with agreed upon rebates or
discounts are deferred until the related product is sold and such rebate
or discount is earned.
Net Income Per Common Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share. Statement 128
replaced the previously reported primary and full diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes any dilutive effects of
options, warrants, and convertible securities. Diluted earnings per share
is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been
presented, and restated where necessary, to conform to the Statement 128
requirements.
Year ended September 30
1998 1997 1996
----------------------------------
(in thousands, except per share data)
Numerator:
Net income $ 5,563 $ 3,982 $ 2,383
Denominator: =============================
Denominator for basic earnings
per share - weighted average shares 4,250 4,137 3,043
Effect of dilutive securities:
Employee stock options 168 115 -
----------------------------------
Denominator for diluted earnings
per share - adjusted weighted
average shares and assumed conversions 4,418 4,252 3,043
=============================
Basic earnings per share $ 1.31 $ .96 $ .78
Diluted earnings per share $ 1.26 $ .94 $ .78
F-12
2. Notes Payable and Other Short-Term Obligations
Notes payable and other short-term obligations consist of the following
(in thousands):
September 30
1998 1997
----------------------------
Floor plans payable to commercial
finance companies under revolving
line of credit agreements with interest
ranging from 0% to prime minus .50% with
no stated maturity date. $ 10,148 $ 14,422
Note payable to bank under a $55 million
revolving line of credit agreement with
interest ranging from prime minus .375%
to prime minus 1.34%, due October 1999. 15,000 6,000
Notes payable (see terms below) 5,937 6,170
----------------------------
Total notes payable and other short-term
obligations 31,085 26,592
Less current portion (26,105) (21,447)
----------------------------
Total notes payable and other short-term
obligations, less current portion $ 4,980 $ 5,145
The floor plans payable are secured by specific boat, motor and trailer
inventory, as well as general security filings on all inventory and
certain equipment. The floor plans payable to commercial finance
companies include noninterest bearing payment terms for part of the
calendar year (typically the months of August through May). As of
September 30, 1998 and 1997, the amount of noninterest bearing floor
plans payable to finance companies was $3,488,888 and $8,579,509,
respectively.
Floor plans payable of certain of the Company's subsidiaries are
guaranteed by the Company. The Company is significantly limited as to
annual dividends for preferred and common stock.
The weighted average interest rate on floor plan payables and revolving
lines of credit outstanding as of September 30, 1998 and 1997 is 4.8% and
5.3%, respectively.
F-13
2. Notes Payable and Other Short-Term Obligations (continued)
Notes payable consist of the following (in thousands):
September 30
1998 1997
----------------------------
Mortgage notes payable to various banks,
organizations and individuals under deeds
of trust with interest ranging from 5.0%
to prime plus 1% due in installments ranging
from $1,225 monthly including interest to
$30,114 semiannually plus interest, maturing
beginning in September 1999. $ 3,480 $ 4,140
Notes payable to various banks, a corporation
and an individual for vehicles, equipment and
leasehold improvements with interest ranging
from 7.1% to 9.5%, due in installments ranging
from $485 monthly to $62,500 quarterly,
maturing beginning in November 1998. 1,030 260
Acquisition related notes payable to
individuals and corporations with interest
ranging from 8.25% to 8.75%, due in monthly
principal and interest installments ranging
from $291 to $12,770, maturing beginning in
January 1999. 1,427 1,770
----------------------------
Total notes payable $ 5,937 $ 6,170
----------------------------
Certain notes payable are secured by assets of the Company including
inventory, accounts receivable, equipment, leasehold improvements,
vehicles, land and buildings. Notes payable of certain of its
subsidiaries are guaranteed by the Company.
At September 30, 1998, approximately 64.8% of the Company's notes payable
and other short-term obligations bear interest at variable rates,
generally tied to a reference rate such as the prime rate of interest of
certain banks. Accordingly, the Company believes that the carrying
amount of the notes payables and other short term obligations
approximates their fair value.
Interest paid approximates interest expense during 1998, 1997 and 1996.
F-14
2. Notes Payable and Other Short-Term Obligations (continued)
Aggregate annual maturities required on notes payable at September 30,
1998 are as follows (in thousands):
Year ending
September 30
------------
1999 $ 957
2000 898
2001 886
2002 1,630
2003 227
Thereafter 1,339
-----------
$ 5,937
-----------
3. Leases
The Company leases various facilities under operating leases. Rent
expense (in thousands) was $1,188 in 1998, $546 in 1997 and $264 in 1996.
Generally, the leases provide for renewals for various periods at
stipulated rates. Future minimum rentals due under noncancelable leases
are as follows for each of the years ending September 30 (in thousands):
1999 $ 1,018
2000 898
2001 744
2002 551
2003 178
Thereafter 399
F-15
4. Acquisitions
The Company has made various acquisitions during the three year period
ended September 30, 1998. All of the acquisitions were asset purchases
(except for Adventure Marine, which was a stock purchase) and have been
accounted for using the purchase method of accounting. The operating
results of the companies acquired have been included in the consolidated
financial statements from the respective date of acquisition. The assets
acquired generally include boat, motor and trailer inventory, parts and
accessories inventory and to a lesser extent, property, plant and
equipment. A summary of the Company's significant acquisitions follows:
Non-compete
Date of Purchase Tangible Agreements Cash Liabilities Notes Stock
Name of Company Acquisition Price Net Assets and Goodwill Paid Assumed Issued Issued
- --------------- ----------- -------- ---------- ------------ -------- ----------- -------- -------
(In Thousands)
Fiscal 1998
- -----------
Southeastern 11/97 $ 1,730 $ 1,390 $ 280 $ 1,606 $ - $ 124 $ -
Marine
Worthen Marine 12/97 287 142 145 287 - - -
HnR Marine 04/98 359 359 - 359 - - -
Moore's Marine 05/98 777 376 401 777 - - -
Rodgers Marine 09/98 2,443 2,093 350 327 1,766 - 350
Fiscal 1997
- -----------
North Alabama
Watersports 10/96 892 687 205 812 - 80 -
Tri-Lakes Marine 11/96 3,180 1,892 644 643 1,937 600 -
Bent's Marine 02/97 1,519 840 679 1,064 - 455 -
McLeod Marine 08/97 958 730 228 958 - - -
Adventure Marine 09/97 8,226 5,536 2,690 1,430 5,203 115 1,478
Fiscal 1996
- -----------
Red River Marine 09/95 2,955 1,905 1,050 917 438 1,600 -
Clays Boats &
Motors 12/95 329 241 88 263 - 66 -
F-16
5. Income Taxes
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax
liabilities and assets are as follows (in thousands):
September 30
1998 1997
-------------------------
Deferred tax assets:
Book over tax depreciation $ 96 $ 120
Accrued salaries and wages 180 173
-------------------------
Total deferred tax assets 276 293
Valuation allowance for
deferred tax assets - -
-------------------------
Net deferred tax assets $ 276 $ 293
Significant components of the provisions for income taxes are as follows
(in thousands):
Year ended September 30
1998 1997 1996
----------------------------------------
Current expense:
Federal $ 2,791 $ 1,993 $ 1,342
State 410 231 171
----------------------------------------
Total current expense 3,201 2,224 1,513
Deferred expense (benefit):
Federal 17 (83) (56)
State - (9) (7)
----------------------------------------
Total deferred expense
(benefit) 17 (92) (63)
----------------------------------------
Total provision for income
taxes $ 3,218 $ 2,132 $ 1,450
----------------------------------------
F-17
5. Income Taxes (continued)
The differences between the effective tax rate and the U.S. federal
statutory rate of 34% are reconciled as follows (in thousands):
Year ended September 30
1998 1997 1996
----------------------------------------
Income tax expense at the
federal statutory rate $ 2,986 $ 2,079 $ 1,303
State income taxes 410 223 164
Other (178) (170) (17)
----------------------------------------
$ 3,218 $ 2,132 $ 1,450
Income taxes paid (in thousands) were approximately $4,207, $1,900 and
$1,088 in the fiscal years ended September 30, 1998, 1997 and 1996,
respectively.
6. Stockholders' Equity
In March 1995, the Company granted options to purchase shares of the
Company's common stock to certain officers of the Company which vest over
five years.
Effective December 14, 1995, the Company adopted an Incentive Stock
Option Plan which provides for the granting of options to directors,
officers, and key employees to purchase shares of the Company's common
stock. The Company has reserved 200,000 shares of common stock for
issuance under such plan.
The Company has elected to follow Accounting Principles Board No. 25,
Accounting for Stock Issued to Employees (APB 25), and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, Accounting for Stock-Based Compensation
(Statement 123), requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals
market price of the underlying stock on the date of grant, no
compensation expense is recognized.
F-18
6. Stockholders' Equity (continued)
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted subsequent to September 30, 1995 under the fair value method
prescribed by Statement 123. The Company has evaluated the effects of
Statement 123 and determined that it does not have a material effect on
the Company's statement of income or earnings per share.
Total option activity for the years ended September 30, 1998, 1997 and
1996:
Weighted
Range of Average
Number of Exercise Exercise
Shares Prices Price
------------------------------------
Outstanding at September 30,1995 133,867 $5.25 $5.25
Granted 110,999 $9.00 $9.00
Exercised - - -
Forfeited (13,333) $9.00 $9.00
---------
Outstanding at September 30,1996 231,533 $5.25-$9.00 $6.83
Granted 38,500 $10.00-$17.00 $12.37
Exercised - - -
Forfeited (5,000) $9.00 $9.00
---------
Outstanding at September 30,1997 265,033 $5.25-$17.00 $7.58
Granted 100,750 $15.00-$22.50 $20.83
Exercised (36,200) $5.25-$13.125 $6.42
Forfeited (6,300) $9.00-$13.125 $12.76
---------
Outstanding at September 30,1998 323,281 $5.25-$22.50 $11.75
=========
Exercisable at September 30,1998 222,531 $5.25-$17.00 $7.20
=========
Options available for grant
at September 30, 1998 211,020
=========
Common stock reserved for
issuance at September 30, 1998 534,301
=========
F-19
6. Stockholders' Equity (continued)
The weighted-average remaining contractual life of options at September
30, 1998 is approximately 7.91 years. Options outstanding at September
30, 1998, are comprised of the following:
Range of
Exercise
Options Prices
-----------------------------------
108,865 $5.25
80,666 $9.00
36,250 $9.50-$15.00
97,500 $17.00-$22.50
=======
323,281
7. Related Party Transactions
The Company sells extended service contracts to its customers. For the
period from January 1, 1994 through June 27, 1996, the obligations of the
Company under these contracts were transferred to Ideal Insurance
Company, Ltd. ("Ideal") pursuant to an agreement between the Company and
Ideal dated as of January 1, 1994. Ideal reinsured these risks with
Amerisure Property & Casualty, Ltd. ("Amerisure"), a company wholly owned
by certain principal shareholders of the Company. These contracts are
administered by First Extended Service Corporation ("FESC"), which
contracts are insured by FESC's affiliate, FFG Insurance Co. ("FFG"). In
conjunction with these agreements, the Company paid Amerisure an agreed
amount for each extended service contract which is insured and, in the
event of claims under any extended service contracts, Amerisure
reimburses the repair facility for the amount of covered claims.
Amerisure is then financially responsible for any repairs required
pursuant to the extended service contract. The Company received a
commission for each extended service contract that it sold. No extended
service contract commissions have been received from Amerisure since the
Company received $411,000 in fiscal 1996. The Company transferred the
obligations under the extended service contracts sold subsequent to June
27, 1996 to entities other than Ideal and Amerisure.
F-20
8. Commitments and Contingencies
The Company is currently involved in several matters regarding pending or
threatened litigation in the normal course of business. Management does
not expect the ultimate resolution of these matters to have a material
adverse effect on the Company's consolidated financial statements.
9. Benefit Plan
In January 1995, the Company adopted a 401(k) retirement plan which is
available to all full-time employees. The Company may, in its discretion,
make matching contributions which the Company, in its discretion,
determines from year to year. The Company's expenses related to the plan
were not significant in the years ended September 30, 1998, 1997 and
1996.
10. New Accounting Pronouncements
In September 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income ("SFAS No. 130"). SFAS No. 130 establishes standards for reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. The Company does not
anticipate the adoption of SFAS No. 130 will have a material impact on the
Company's financial position or results of its operations.
Also in September 1997, the FASB issued SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS No. 131"). SFAS
No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued
to stockholders. SFAS No. 131 is effective for financial statements for
fiscal years beginning after December 15, 1997. The Company has not yet
determined the impact, if any, of adopting SFAS No. 131.
F-21
New Accounting Pronouncements (continued)
In September 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS No. 133"). SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset
or liability measured at its fair value. SFAS No. 133 requires that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. Because of
the Company's minimal use of derivative financial instruments, management
does not anticipate that the adoption of SFAS No. 133 will have a
material impact on the Company's consolidated results of operations,
financial position or cash flows.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-Up
Activities. The SOP requires costs of start-up activities and
organization costs to be expensed as incurred, and is effective for
fiscal years beginning after December 15, 1998. The effects of adoption
must be reported as a cumulative change in accounting principle. The
Company expects that the impact of adoption will not be material to its
financial position or results of operations.
F-22
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8) pertaining to the 1995 Incentive Plan of Travis Boats & Motors,
Inc. of our report dated November 24, 1998, with respect to the consolidated
financial statements of Travis Boats & Motors included in the Annual Report
(Form 10-K) for the year ended September 30, 1998.
/s/ Ernst & Young LLP
Austin, Texas
December 23, 1998
EXHIBIT 27.1
[ARTICLE] 5
[MULTIPLIER] 1,000
12-MOS 12-MOS
SEP-30-98 SEP-30-97
[PERIOD-START] OCT-01-97 OCT-01-96
[PERIOD-END] SEP-30-98 SEP-30-97
[CASH] 4,618 5,816
[SECURITIES] 0 0
[RECEIVABLES] 4,893 3,915
0 0
[INVENTORY] 38,934 34,450
[CURRENT-ASSETS] 50,095 44,725
[PP&E] 16,110 11,519
[DEPRECIATION] 3,417 2,750
[TOTAL-ASSETS] 69,116 59,121
[TOTAL-LIABILITIES] 38,683 35,064
[BONDS] 4,980 5,145
[PREFERRED-MANDATORY] 0 0
[COMMON] 43 42
[OTHER-SE] 30,390 24,015
[TOTAL-LIABILITY-AND-EQUITY] 69,116 59,121
[SALES] 131,740 91,309
[TOTAL-REVENUES] 131,740 91,309
[CGS] <96,839> <67,354>
[TOTAL-COSTS] <96,839> <67,354>
[OTHER-EXPENSES] <23,890> <16,475>
[LOSS-PROVISION] 0 0
[INTEREST-EXPENSE] <2,310> <1,354>
[INCOME-PRETAX] 8,781 6,114
[INCOME-TAX] <3,218> <2,132>
[INCOME-CONTINUING] 5,563 3,982
[DISCONTINUED] 0 0
[EXTRAORDINARY] 0 0
[CHANGES] 0 0
[NET-INCOME] 5,563 3,982
1.31 .96
[EPS-DILUTED] 1.26 .94