<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
FILED PURSUANT TO RULE 424(A)
SEC FILE NO. 333-03283
SUBJECT TO COMPLETION, DATED MAY 23, 1996
[LOGO OF TRAVIS BOATING CENTER APPEARS HERE]
1,750,000 SHARES
COMMON STOCK
Of the 1,750,000 shares of Common Stock offered hereby, 1,312,500 shares are
being sold by Travis Boats & Motors, Inc. (the "Company" or "Travis Boats"),
and 437,500 shares are being sold by the Selling Stockholders. See "Principal
and Selling Stockholders." The Company will not receive any of the proceeds
from the sale of the shares being sold by the Selling Stockholders. Prior to
this offering, there has been no public market for the Common Stock of the
Company. The Common Stock has been approved, subject to official notification
of issuance, for quotation on the Nasdaq National Market under the symbol
"TRVS." It is currently estimated that the initial public offering price will
be between $11.00 and $13.00 per share. See "Underwriting" for information
relating to the method of determining the initial public offering price.
--------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
- --------------------------------------------------------------------------------
Total(2)....................... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Before deducting expenses of this offering payable by the Company,
estimated at $ .
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 262,500 shares of Common Stock solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $ , $ and $ , respectively. See "Underwriting."
--------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens
& Company"), San Francisco, California, on or about , 1996.
ROBERTSON, STEPHENS & COMPANY PRINCIPAL FINANCIAL SECURITIES, INC.
The date of this Prospectus is , 1996.
<PAGE>
PICTURES ARE INCLUDED AS FOLLOWS:
1. Photograph of store front.
2. Five photographs of store interior.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES OR AN OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 25
Management............................................................... 33
Certain Transactions..................................................... 39
Principal and Selling Stockholders....................................... 41
Description of Capital Stock............................................. 42
Shares Eligible for Future Sale.......................................... 45
Underwriting............................................................. 47
Legal Matters............................................................ 49
Experts.................................................................. 49
Additional Information................................................... 49
Index to Financial Statements............................................ F-1
</TABLE>
------------
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by its independent auditors, and with quarterly reports for the
first three quarters of each fiscal year containing unaudited summary
financial information.
Unless the context requires otherwise, as used in this Prospectus, "Company"
and "Travis Boats" refer to Travis Boats & Motors, Inc. and its subsidiaries.
The Company's principal executive office is located at 13045 Research
Boulevard, Austin, Texas 78750, and its telephone number is (512) 250-8103.
The trademarks "Travis Boating Center(TM)" and "Travis Edition(TM)" are
owned by the Company. All rights are fully reserved. This Prospectus also
includes trademarks and trade names of companies other than Travis Boats.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and Consolidated Financial Statements and
Notes thereto, appearing elsewhere in this Prospectus. Effective September 30,
1995, the Company changed its fiscal year end to September 30; references to
the Company's fiscal years prior to such date refer to the Company's fiscal
years ended on December 31.
THE COMPANY
Travis Boats is a leading multi-state superstore retailer of recreational
boats, motors, trailers and related marine accessories in the southern United
States. The Company currently operates 12 superstores in Texas, Arkansas and
Louisiana under the name Travis Boating Center. Founded in 1979 in Austin,
Texas, Travis Boats differentiates itself from competitors by providing
customers a unique superstore shopping experience that showcases a broad
selection of high quality boats, motors, trailers and marine products at firm,
clearly posted low prices. Each superstore offers complete customer service and
support, including in-house financing programs and full-service repair
facilities staffed by factory-trained mechanics.
The Company sells approximately 40 different 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. Boats
sold generally range in size from 16 to 23 feet at prices ranging from $7,500
to $23,000 with an average boat purchase price of approximately $12,000. The
Company custom designs and pre-packages combinations of popular brand-name
boats, such as Aquasport, Cajun and Larson, with Johnson outboard and other
motors, trailers and numerous accessories, under its proprietary Travis Edition
product line. These signature Travis Edition packages, which account for the
vast majority of the Company's total new boat sales, are 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.
Travis Boats is the largest volume buyer in the United States of Johnson
outboard motors from Outboard Marine Corporation and is the largest domestic
volume buyer of boats from substantially all of the boat manufacturers it
represents. The Company's volume purchasing, design expertise and market
knowledge has allowed it to position its own Travis Edition line of brand label
recreational boats as a superior value. Unlike most recreational boat dealers,
the Company establishes firm, clearly posted prices on Travis Edition packages,
generally maintains such prices for an entire season and typically does not
engage in promotional discounts or sales. This selling philosophy eliminates
customer anxiety associated with bargaining or negotiation and results in
prices at or below those 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 has enhanced the Company's reputation
in the industry as a leading provider of quality and value.
Travis Boating Center superstores have a distinctive and stylish trade dress
accented with deep blue awnings, nautical neon building decoration and
expansive glass storefronts. Stores range in size from 6,000 to 33,200 square
feet and average approximately 21,000 square feet. Each superstore presents
customers with a broad array of boats and over 9,000 parts and accessories in a
brightly lit, 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. A professional service and
repair staff operates service bays, providing customers with quality
maintenance and repair service. The Company also participates in offsite sales
promotions such as regional boat shows, in-the-water sales events on area lakes
and various types of
4
<PAGE>
parking lot shows in conjunction with large retailers, including Sam's Clubs.
These and other offsite shows generate significant sales, marketing exposure
and access to a larger and more diverse customer base for nominal incremental
cost.
The recreational boating industry generated approximately $7.7 billion in
retail sales of boats, motors, trailers and related accessories in 1995, of
which approximately $3.0 billion was generated in the Company's 17-state target
market. The boat retailing business is highly fragmented and is characterized
by numerous independent retailers, most of which are family owned, operate in
only a single market, have annual sales of less than $3.0 million and provide
varying degrees of merchandising, professional management and customer service.
The Company believes it has better pricing, superior merchandising, broader
selection, more sophisticated operating systems and a more consumer-oriented
environment than the other independent retailers with which it competes.
Management believes it is the first to have developed a multi-state, chain
superstore merchandising strategy in the retail sales of recreational boats.
The Company's objective is to become the dominant retailer of boats, motors,
trailers and related marine accessories in the southern United States. The
Company's business strategy is to expand its superstore concept, further
develop Travis Edition as an identifiable brand in the recreational boating
business and build customer awareness through extensive advertising and
promotions. This strategy includes expansion into new regional markets,
allowing the Company to benefit from geographic diversity and broaden its
customer base.
Travis Boats' growth strategy is to continue increasing sales at existing
stores and to expand the current store base by further developing existing
markets and entering new markets. Management's strategy for developing new
Travis Boating Center locations has three components: (i) acquire existing boat
retailers, (ii) acquire and convert compatible facilities and (iii) build new
stores. Since 1991, the Company has opened or acquired seven stores in new
markets, while increasing average sales per store from $2.7 million to $4.9
million. The Company's 20,000 square foot new store prototype costs
approximately $825,000 (excluding the cost of the land), is expected to
generate $5.0 million in annual revenues and approximately $250,000 in annual
operating contributions to the Company, resulting in a return on invested
capital of approximately 30%. New locations established through acquisition
typically involve a lower cash investment, yet generate similar sales and
operating contributions. Accordingly, acquisitions have historically produced
substantially greater returns on invested capital than with new store
construction. The Company's expansion strategy is based primarily on
acquisitions rather than new store construction, although it will build new
stores if judged to be the most efficient means of entering a market. Because
of the fragmented nature of the industry, the Company has numerous
opportunities to acquire existing facilities and businesses and believes it can
continue to make such acquisitions on favorable financial terms.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the
Company.......................... 1,312,500 shares
Common Stock Offered by the
Selling Stockholders............. 437,500 shares
Common Stock Outstanding after the
Offering......................... 3,996,006 shares(1)
Use of Proceeds................... Repayment of $14.2 million of principal and
interest on certain indebtedness including
revolving lines of credit.
Proposed Nasdaq National Market
symbol........................... TRVS
</TABLE>
- --------
(1) Excludes (i) 262,500 shares of Common Stock issuable upon the exercise of
the Underwriter's over-allotment option, (ii) an aggregate of 133,867
shares of Common Stock issuable upon the exercise of outstanding non-
statutory stock options at an exercise price of $5.25 per share and (iii)
200,000 shares of Common Stock reserved for issuance under the Company's
1995 Incentive Plan (the "Incentive Stock Plan"). See "Management--Stock
Option Plans and Agreements" and "Underwriting."
5
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND STORE DATA
(In thousands, except per share and certain store data)
<TABLE>
<CAPTION>
TWELVE
FISCAL YEAR ENDED FISCAL YEAR MONTHS SIX MONTHS
DECEMBER 31,(1) ENDED ENDED ENDED MARCH 31,
---------------------------------- SEPTEMBER 30, DECEMBER ----------------
1991 1992 1993 1994 1995(1) 31, 1995(2) 1995 1996(3)
------- ------- ------- ------- ------------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net sales............. $13,796 $18,317 $25,757 $37,225 $41,442 $45,006 $16,627 $22,017
Gross profit.......... 3,241 4,193 5,946 8,734 10,306 11,254 3,774 5,571
Operating income...... 698 767 1,270 2,135 3,736 3,007 420 1,007
Net income............ 202 255 596 1,023 2,050 1,408 98 243
Net income per share.. $ 0.08 $ 0.10 $ 0.23 $ 0.39 $ 0.76 $ 0.53 $ 0.04 $ 0.09
Weighted avg. shares
outstanding.......... 2,612 2,612 2,612 2,648 2,684 2,684 2,684 2,684
STORE DATA:
Stores open at period
end.................. 6 7 7 8 11 12 9 12
Average sales per
store(4)............. $ 2,747 $ 3,025 $ 3,679 $ 4,653 $ 4,886 $ 4,946 $ 1,981 $ 2,046
Percentage increase in
comparable store
sales(5)............. 4.7% 7.4% 25.6% 28.4% 5.0% 16.0% 22.6% 6.4%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------
ACTUAL AS ADJUSTED(6)
------ --------------
CONSOLIDATED BALANCE SHEET DATA:
<S> <C> <C>
Working capital.............................................. $ 2,616 $15,980
Total assets................................................. 41,898 41,898
Short-term debt, including current maturities of long-term
debt........................................................ 26,216 12,852
Long-term debt, less current maturities...................... 5,397 4,561
Stockholders' equity......................................... 5,055 19,255
</TABLE>
- --------
(1) The Company's fiscal years ended on December 31 in 1991, 1992, 1993 and
1994, and on September 30 in 1995, pursuant to a change adopted in 1995,
resulting in a nine-month 1995 fiscal year. Except for Consolidated
Statement of Operations Data for the fiscal years ended December 31, 1993
and 1994 and September 30, 1995, all financial and store data is unaudited.
(2) Reflects inclusion of nine-month audited financial statements for the
fiscal year ended September 30, 1995 and three-month unaudited financial
statements for the quarter ended December 31, 1995, in order to provide a
basis for comparing 12 months of operations in 1995 to prior fiscal years.
(3) The operations of Red River Marine, Inc. acquired in September 1995 are
included for the 1996 period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 4 of Notes to
Consolidated Financial Statements.
(4) Includes only those stores open for the entire preceding 12-month period.
(5) New stores and upgraded facilities are included in the comparable store
base at the beginning of the store's thirteenth complete month of
operations.
(6) Adjusted to reflect the issuance and sale of the 1,312,500 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $12.00 per share and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
Except as otherwise noted, all information in this Prospectus (i) reflects a
1-for-3 stock dividend to be paid prior to the effective date of this offering
and (ii) assumes no exercise of the Underwriters' over-allotment option. See
"Capitalization," "Description of Capital Stock" and "Underwriting."
- --------------------------------------------------------------------------------
6
<PAGE>
RISK FACTORS
The discussion in this Prospectus 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
Prospectus. These factors should be considered carefully in evaluating the
Company and its business before purchasing the shares of Common Stock offered
hereby.
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 in excess of 27% and 37%, 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. Although 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 "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business--
Seasonality."
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. In fact, the State of
Texas and other southern states are currently experiencing severe drought
conditions which, in addition to causing potential restrictions on boating
activities on certain area lakes, are expected to materially and adversely
impact the regional economies of the affected states. There can be no
assurance that these drought conditions in the regional markets served by the
Company will not have a material adverse effect on the operations of certain
of the Company's locations and, accordingly, the Company's business, financial
condition and results of operations. 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
7
<PAGE>
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, also influence consumers' decision 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. See
"Business--Recreational Boating Industry."
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 seven new store locations in Texas, Arkansas and Louisiana. During
the time period of fiscal 1991 through fiscal 1995, these new stores
collectively accounted for approximately 32% of the Company's aggregate net
sales and approximately 43% of aggregate pre-tax income. Comparable store
sales increased 16% in calendar 1995 and 28% in fiscal 1994. 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.
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" and "Business--Growth Strategy."
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 has recently deployed a new management information system to
improve its ability to monitor and manage its geographically dispersed stores.
As of the date of this Prospectus, this system is operational in nine of the
Company's 12 stores. Although the Company believes this system will be
operational in all stores in fiscal 1997, there can be no assurance that this
goal can be achieved, that the system will function as planned or that the
system can be integrated smoothly with new store openings and acquisitions.
8
<PAGE>
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. See "Business--Business Strategy" and "--Growth
Strategy."
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.
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 100% of its new outboard motors in 1995 from Outboard
Marine Corporation ("OMC"), the manufacturer of Johnson outboard motors.
Unlike the Company's other dealer agreements, the Company's agreement with OMC
is multi-year in nature. This 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.
Approximately 20.1% of the Company's net purchases in fiscal 1995 were from
a single boat supplier. The Company also currently purchases a high percentage
of the annual production of a limited number of 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. See "Business--Operations."
LIMITATIONS TO MARKET ENTRY
Under certain 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 Johnson motors and various boat lines in its
immediate expansion markets, manufacturers have not granted such permission to
the Company in its broader target markets. There can be no assurance that
these 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.
9
<PAGE>
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. There can be no assurance that other states will not pass similar or
other restrictions limiting new competition. See "Business--Operations."
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 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 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. The Company competes in each of its markets with
retailers of brands of boats and motors not sold by the Company in that
market. Management believes that a trend in the industry is for manufacturers
to include more features as standard equipment on boats and for 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
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. See "Business--
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 which is the income resulting from the Company's
origination of customer financing. The Company's lenders may choose to pursue
this business directly, rather than through intermediaries such as the
Company. Moreover, lenders may impose 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. Furthermore, under optional extended service
contracts with customers, the Company may experience significant breach of
warranty claims that may, in the aggregate, be material to the Company's
business. See "Business--Operations--Customer Service and Support."
AVAILABILITY OF FINANCING
The Company currently has significant floor plan and other inventory lines
of credit from financial institutions and other lenders, which the Company
believes reflect competitive terms and 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."
10
<PAGE>
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. See "Management."
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. 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. See "Business--Product Liability."
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 would begin phasing in low emission models in 1998 and have nine
years to achieve full compliance. The EPA estimates that its proposed
regulations, if enacted, will result in an increase in the average price of an
outboard marine motor of $700 after full implementation of the regulations in
the year 2006. Costs of comparable new models, if materially more expensive
than previous models, or the manufacturer's inability to 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 one above-ground tank, which is 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. 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. See "Business--Environmental and Other
Regulatory Issues."
CONTROL BY OFFICERS AND DIRECTORS
Upon completion of this offering, the executive officers and directors of
the Company will own approximately 52.7% of the issued and outstanding shares
of the Company's Common Stock (49.5% if the
11
<PAGE>
Underwriters' over-allotment is exercised in full). As a result of such
ownership, such officers and directors will have the power effectively to
control the Company, including the election of directors, the determination of
matters requiring stockholder approval and other matters pertaining to
corporate governance. See "Principal and Selling Stockholders."
NO PRIOR MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
There has been no public trading market for the Company's Common Stock prior
to this offering. The initial public offering price of the Common Stock will
be determined through negotiations between the Company and the Representatives
of the Underwriters. There can be no assurance that an active trading market
will develop and continue after completion of this offering or that the market
price of the Common Stock will not decline below the initial public offering
price. It is anticipated that there will be limited float in the market due to
the relatively low number of shares to be offered to the public and
consequently, fluctuations in the market price for the Common Stock could be
significant. Recent market conditions for newly public companies, 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" and "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION
Assuming an offering price per share of $12.00, purchasers of the Common
Stock in this offering will experience immediate and substantial dilution in
pro forma net tangible book value of the Common Stock of $7.46, or 62.2%, per
share. See "Dilution."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
and does not anticipate paying cash dividends in the foreseeable future.
Moreover, the Company's financing covenants under certain of the Company's
current loan agreements restrict the Company's ability to pay dividends. See
"Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Company's Common Stock in the public
market after this offering, or the perception that such sales may occur, could
have a material adverse effect on the market price of the Common Stock. The
Company, its officers and directors and certain stockholders, holding, in the
aggregate, 2,683,506 shares of Common Stock prior to the offering, have agreed
that they will not, directly or indirectly, offer, sell, grant any option to
purchase or otherwise dispose of any shares of Common Stock of the Company or
any securities convertible or exchangeable therefor, for a period of 180 days
after the date of this Prospectus without the prior written consent of
Robertson, Stephens & Company. Of the 3,996,006 shares of Common Stock to be
outstanding after the offering (4,258,506 shares if the Underwriters' over-
allotment option is exercised in full), the 1,750,000 shares of Common Stock
being offered hereby (2,012,500 shares if the Underwriters' over-allotment
option is exercised in full) will be freely tradeable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"); and 2,246,006 shares will become eligible for sale pursuant
to Rule 144 ("Rule 144") under the Securities Act upon expiration of the 180-
day period. Furthermore, the Company intends, 90 days after the closing of the
offering, to register 200,000 shares of Common Stock reserved for issuance to
its employees, directors and consultants upon exercise of options available
for grant under the Incentive Stock Plan and 133,867 shares of Common Stock
that may be purchased under the Option Agreements (as hereinafter defined). 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. See "Management--Stock
Option Plans and Agreements," "Principal and Selling Stockholders" and "Shares
Eligible for Future Sale."
12
<PAGE>
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. See
"Management" and "Description of Capital Stock--Anti-Takeover Provisions."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,312,500 shares of
Common Stock offered by the Company hereby (net of underwriting discounts and
commissions and estimated offering expenses) are estimated to be approximately
$14.2 million, assuming an initial public offering price of $12.00 per share.
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholders.
The Company intends to use the net proceeds to repay the following
outstanding bank and other indebtedness: (i) approximately $13.2 million to
reduce floor plan and other inventory revolving lines of credit payable to
commercial banks, bearing interest at a floating rate of prime plus 0.25% to
1.0%, and maturing in July and August 1996; (ii) $211,622 to repay a mortgage
note payable to an unaffiliated individual, bearing interest at 10.5% and
maturing in September 2000; and (iii) approximately $750,000 to repay
indebtedness incurred in connection with the acquisition of Red River Marine,
Inc. and Red River Marine, Inc. #2 in Arkansas in September 1995, which
consists of two notes, bearing interest at 8.75% and maturing in November 1997
and November 2002, respectively.
The Company plans to use reborrowings under its revolving lines of credit
for general corporate purposes, including working capital, expansion into new
markets and for financing of possible acquisitions. Although the Company
constantly evaluates acquisition opportunities, there currently are no
agreements with respect to any acquisitions. See "Risk Factors--Dependence
Upon Expansion" and "Business--Growth Strategy."
DIVIDEND POLICY
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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
14
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated short-term debt and
capitalization of the Company at March 31, 1996, and as adjusted to give
effect to the sale of the 1,312,500 shares of Common Stock offered by the
Company at an assumed initial public offering price of $12.00 per share after
deducting underwriting discounts and commissions and estimated offering
expenses and the application of the estimated net proceeds therefrom. See "Use
of Proceeds." This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and Notes thereto included
elsewhere herein.
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------
ACTUAL AS ADJUSTED
------- -----------
(In thousands)
<S> <C> <C>
Short-term debt, including current maturities of long-term
debt...................................................... $26,216 $12,852
======= =======
Long-term debt, less current maturities.................... $ 5,397 $ 4,561
Stockholders' equity:
Serial preferred stock, $.01 par value, 1,000,000 shares
authorized; none issued or outstanding.................. -- --
Common stock, $.01 par value, 50,000,000 shares autho-
rized, 2,683,506 issued and outstanding; 3,996,006 is-
sued and outstanding as adjusted(1)..................... 27 40
Additional paid-in capital............................... 139 14,326
Retained earnings........................................ 4,889 4,889
------- -------
Total stockholders' equity.............................. 5,055 19,255
------- -------
Total capitalization................................... $10,452 $23,652
======= =======
</TABLE>
- --------
(1) Excludes (i) an aggregate of 133,867 shares of Common Stock issuable upon
the exercise of outstanding non-statutory stock options at an exercise
price of $5.25 per share and (ii) 200,000 shares of Common Stock reserved
for issuance under the Company's Incentive Stock Plan. See "Management--
Stock Option Plans and Agreements."
15
<PAGE>
DILUTION
At March 31, 1996, the net tangible book value of the Company was
approximately $4.0 million or $1.47 per share of Common Stock. "Net tangible
book value per share" represents the amount of the Company's total tangible
assets less total liabilities, divided by the number of shares of Common Stock
outstanding.
Dilution in net tangible book value per share represents the difference
between the amount paid by purchasers of shares of Common Stock in this
offering and the net tangible book value per share of Common Stock immediately
after completion of this offering. After giving effect to the sale by the
Company of 1,312,500 shares of Common Stock offered hereby at an assumed
initial public offering price of $12.00 per share (the midpoint of the
estimated public offering price range), and after deducting estimated
underwriting discounts and commissions and offering expenses, the net tangible
book value of the Company at March 31, 1996 would have been approximately
$18.2 million or $4.54 per share. This amount represents an immediate increase
in net tangible book value of $3.07 per share of Common Stock to existing
stockholders and an immediate dilution in net tangible book value of $7.46 per
share to purchasers of Common Stock in the offering as illustrated in the
following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $12.00
Net tangible book value per share at March 31, 1996........... $1.47
Increase per share attributable to the new investors.......... 3.07
-----
Net tangible book value per share after this offering.......... 4.54
------
Dilution of net tangible book value per share to new invest-
ors........................................................... $ 7.46
======
</TABLE>
The following table sets forth since March 31, 1991, the number of shares of
Common Stock purchased from the Company, the total consideration and the
average consideration per share paid by the stockholders and to be paid by new
investors purchasing shares of Common Stock in this offering assuming an
initial public offering price of $12.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)... 123,435 8.6% $ 145,604 0.9% $ 1.17
New investors.............. 1,312,500 91.4% 15,750,000 99.1% 12.00
--------- ----- ----------- -----
Total.................... 1,435,935 100.0% $15,895,604 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Excludes (i) an aggregate of 133,867 shares of Common Stock issuable upon
the exercise of outstanding non-statutory stock options at an exercise
price of $5.25 per share and (ii) 200,000 shares reserved for issuance
under the Company's Incentive Stock Plan. See "Management--Stock Option
Plans and Agreements." To the extent outstanding stock options are
exercised, there will be additional dilution to new investors.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of and for the
year ended December 31, 1994 and as of and for the nine months ended September
30, 1995 comprising fiscal 1995 was derived from the Company's consolidated
financial statements, which were audited by Ernst & Young LLP, independent
auditors, whose report with respect thereto, together with such consolidated
financial statements, appear elsewhere herein. The selected consolidated
financial data presented below as of and for the year ended December 31, 1993
was derived from the Company's consolidated financial statements, which were
audited by Devona Jeffery, L.L.C., independent auditors, whose report with
respect thereto, together with such consolidated financial statements, appear
elsewhere herein. The selected consolidated financial data presented below as
of and for the years ended December 31, 1991 and 1992, and as of and for the
six-month periods ended March 31, 1995 and 1996, was derived from unaudited
consolidated financial statements (which, with respect to the 1991 and 1992
fiscal years, are not presented herein). In the opinion of management of the
Company, the unaudited consolidated financial statements include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial information included herein. The information set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and related Notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR TWELVE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31,(1) ENDED ENDED MARCH 31,
-------------------------------------- SEPTEMBER 30, DECEMBER 31, ----------------
1991 1992 1993 1994 1995(1) 1995(2) 1995 1996(3)
-------- -------- -------- -------- ------------- ------------- ------- -------
(In thousands, except per share and certain store data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net sales.............. $ 13,796 $ 18,317 $ 25,757 $ 37,225 $41,442 $45,006 $16,627 $22,017
Gross profit........... 3,241 4,193 5,946 8,734 10,306 11,254 3,774 5,571
Selling, general and
administrative
expenses.............. 2,443 3,293 4,496 6,333 6,353 7,904 3,217 4,302
Operating income....... 698 767 1,270 2,135 3,736 3,007 420 1,007
Interest expense....... 538 462 449 629 670 946 371 669
Net income............. 202 255 596 1,023 2,050 1,408 98 243
Net income per share... $ 0.08 $ 0.10 $ 0.23 $ 0.39 $ 0.76 $ 0.53 $ 0.04 $ 0.09
Weighted avg. shares
outstanding........... 2,612 2,612 2,612 2,648 2,684 2,684 2,684 2,684
STORE DATA:
Stores open at period
end................... 6 7 7 8 11 12 9 12
Average sales per
store(4).............. $ 2,747 $ 3,025 $ 3,679 $ 4,653 $ 4,886 $ 4,946 $ 1,981 $ 2,046
Percentage increase in
comparable store
sales(5).............. 4.7% 7.4% 25.6% 28.4% 5.0% 16.0% 22.6% 6.4%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30, DECEMBER 31, MARCH 31,
1991 1992 1993 1994 1995 1995 1996
----- ----- ------ ------ ------------- ------------ ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents........... $ 187 $ 104 $ 139 $ 259 $ 996 $ 673 $ 665
Working capital........ 291 874 11 1,866 2,808 1,855 2,616
Total assets........... 7,489 9,727 14,088 17,434 23,357 35,590 41,898
Short-term debt,
including current
maturities of long-
term debt............. 5,119 6,798 10,608 10,977 11,443 24,776 26,216
Long-term debt less
current maturities.... 915 1,538 1,013 2,588 4,876 5,426 5,397
Stockholders' equity... 658 814 1,485 2,562 4,812 4,097 5,055
</TABLE>
- --------
(1) The Company's fiscal years ended on December 31 in 1991, 1992, 1993 and
1994, and on September 30 in 1995, pursuant to a change adopted in 1995,
resulting in a nine-month 1995 fiscal year. Except for Consolidated
Statement of Operations Data for the fiscal years ended December 31, 1993
and 1994 and September 30, 1995, all financial and store data is
unaudited.
(2) Reflects inclusion of nine-month audited financial statements for the
fiscal year ended September 30, 1995 and three-month unaudited financial
statements for the quarter ended December 31, 1995, in order to provide a
basis for comparing 12 months of operations in 1995 to prior fiscal years.
(3) The operations of Red River Marine, Inc. acquired in September 1995 are
included for the 1996 period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 4 of Notes to
Consolidated Financial Statements.
(4) Includes only those stores open for the entire preceding 12-month period.
(5) New stores or upgraded facilities are included in the comparable store
base at the beginning of the store's thirteenth complete month of
operations.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion in this section of the Prospectus 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 Prospectus.
OVERVIEW
Travis Boats 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 12 superstores under the name
Travis Boating Center in Texas, Arkansas and Louisiana, differentiates 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.
The Company was founded and opened its initial store in Austin, Texas in
1979. 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 Travis Edition
packaging concept and the Company's pricing philosophy. Since 1991, the
Company has opened or acquired seven stores in new markets, while increasing
average sales per store from $2.7 million to $4.9 million. New store openings,
existing store sales increases and acquisitions have increased net sales to
$41.4 million for the nine-month period comprising fiscal 1995 from $13.8
million in fiscal 1991, with net income having increased to $2.1 million from
approximately $202,000 over the same period.
The Company acquired substantially all of the assets of Red River Marine,
Inc. ("Red River Marine") on September 20, 1995. Red River Marine, a leading
boat retailer in Arkansas, operates stores in the resort communities of Hot
Springs and Heber Springs. The Company also acquired substantially all of the
assets of Clay's Boats & Motors, Inc., the operator of a single store location
in New Iberia, Louisiana, on December 1, 1995. The results of operations of
Red River Marine and Clay's Boats & Motors from their respective acquisition
dates through March 31, 1996 are included in the discussion below.
The Company's business, as well as the sales demand for various types of
boats, tends to be highly seasonal. See "--Quarterly Data and Seasonality."
Effective September 30, 1995, the Company elected to change its fiscal year
end from December 31 to September 30. This change was made to establish a
fiscal year that more closely conforms to the business cycle of the Company.
The following discussion compares fiscal year 1994 to calendar year 1995,
which reflects the inclusion of nine-month audited consolidated financial
statements for the fiscal year ended September 30, 1995 and three-month
unaudited consolidated financial statements for the quarter ended December 31,
1995 in order to provide a basis for comparing 12 months of operations. See
"--Quarterly Data and Seasonality."
The following discussion and analysis of financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements of the Company, including the related Notes thereto,
appearing elsewhere in this Prospectus.
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------- SIX MONTHS
DECEMBER ENDED
31, SEPTEMBER 30, TWELVE MONTHS MARCH 31,
------------ ------------- ENDED ------------
1993 1994 1995 DECEMBER 31, 1995 1995 1996
----- ----- ------------- ----------------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of goods sold..... 76.9 76.5 75.1 75.0 77.3 74.7
----- ----- ----- ----- ----- -----
Gross profit............ 23.1 23.5 24.9 25.0 22.7 25.3
Selling, general and
administrative
expenses............... 17.5 17.0 15.3 17.6 19.4 19.5
Operating income........ 4.9 5.7 9.0 6.7 2.5 4.6
Interest expense........ 1.7 1.7 1.6 2.1 2.2 3.0
Other income............ 0.3 0.2 0.3 0.0 0.7 0.1
----- ----- ----- ----- ----- -----
Income before income
taxes.................. 3.5 4.2 7.7 4.9 1.0 1.7
Income tax expense...... 1.2 1.5 2.8 1.9 0.4 0.6
----- ----- ----- ----- ----- -----
Net income.............. 2.3% 2.7% 4.9% 3.1% 0.6% 1.1%
===== ===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED MARCH 31, 1996 COMPARED TO SIX MONTHS ENDED MARCH 31, 1995
Net sales. Net sales increased by 32.5% to $22.0 million in the six months
ended March 31, 1996 from $16.6 million in the six months ended March 31,
1995. Of this increase, $560,000 was attributable to 6.4% growth in comparable
store sales and $4.8 million resulted from sales by store locations that were
built, upgraded or acquired subsequent to March 31, 1995 and therefore were
not yet includable in comparable store sales. Net sales benefitted from
general growth in overall store sales volume, the Company's participation in
additional season-opening boat shows and a new sales program featuring weekend
sales shows in the parking lots of local Sam's Clubs. The Sam's program was
initiated in late 1995.
Gross profit. Gross profit increased by 47.4% to $5.6 million in the six
months ended March 31, 1996 from $3.8 million in the six months ended March
31, 1995. Gross profit as a percent of sales increased to 25.3% in the six
months ended March 31, 1996 from 22.7% in the six months ended March 31, 1995.
Increased net sales attributable to F&I Products contributed $951,000, or
17.1%, of total gross profit for the six months ended March 31, 1996, as
compared to $408,000, or 10.7%, of total gross profit for the six months ended
March 31, 1995. 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
herein as "sell-through"). Net sales attributable to F&I Products are reported
on a net basis (with associated costs included in selling, general and
administrative expenses), and therefore all of such sales contribute directly
to the Company's gross profit.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 34.4% to $4.3 million for the six months
ended March 31, 1996 from $3.2 million for the six months ended March 31,
1995. Selling, general and administrative expenses as a percent of net sales
increased to 19.5% for the six months ended March 31, 1996 from 19.4% for the
six months ended March 31, 1995. The increase in selling, general and
administrative expenses, both in terms of dollars and as a percent of net
sales, was primarily attributable to increased expenses associated with the
operation of a larger store network, the Company's participation in additional
season-opening boat shows and the expenses related to the implementation of
the Company's management information system in three stores acquired in the
latter part of 1995. Selling, general and administrative expenses as a percent
of net sales are typically at the highest levels during the quarters ended
December 31 and March 31 because of the Company's fixed overhead expenses and
the seasonal nature of its annual sales. See "--Quarterly Data and
Seasonality."
19
<PAGE>
Interest expense. Interest expense increased by 80.3% to $669,000 in the six
months ended March 31, 1996 from $371,000 in the six months ended March 31,
1995. This resulted in an increase in interest expense as a percent of net
sales to 3.0% in the 1996 period from 2.2% in the 1995 period. The increase
was primarily the result of the additional debt incurred in the acquisition of
Red River Marine as well as higher balances on the Company's floor plan lines
of credit necessary to support inventory requirements for additional stores
and projected increases in net sales.
Net income. Net income increased by 148% to $243,000 in the six months ended
March 31, 1996 from $98,000 in the six months ended March 31, 1995. Net income
as a percent of sales increased to 1.1% from 0.6% during the same periods. The
Company generally experiences lower net income as a percent of net sales
during the first six months of its fiscal year due to the seasonal nature of
its annual sales. See "--Quarterly Data and Seasonality."
CALENDAR YEAR 1995 COMPARED TO FISCAL 1994
Net sales. Net sales increased by 21.0% to $45.0 million in calendar year
1995 from $37.2 million in fiscal 1994. Of this increase, $4.4 million was
attributable to 16.0% growth in comparable store sales in calendar 1995 and
$3.4 million of this increase was due to the operations of stores that were
built, upgraded or acquired in 1995 and therefore were not yet includable in
comparable store sales.
The increase in comparable store sales was primarily the result of the
Company's introduction of several new Travis Edition boat lines appealing to
customer groups previously not successfully captured by the Company. These new
boat lines included the Viper line of high performance bass boats, the
Aquasport line of off-shore fishing boats and the Sea Ark line of aluminum
fishing boats. These lines collectively accounted for $2.7 million of calendar
1995 net sales.
Notwithstanding these increases, the rate of increase in comparable store
sales in 1995 reflected diminished growth from the rates of increase for
fiscal 1994 and 1993. Management attributes the substantial growth in
comparable store sales during fiscal 1994 and 1993 primarily to the small
number of stores includable in the comparable store base and the significant
increase in the number of models of Travis Edition packages made available for
sale resulting from the Company having entered into sales agreements with
additional new manufacturers and through the development of additional models
with existing manufacturers. While the Company expects comparable store sales
growth to continue due to planned enhancements in product lines, this growth
is not expected to continue at historical levels.
Gross profit. Gross profit increased by 29.9% to $11.3 million in calendar
1995 from $8.7 million in fiscal 1994. This increase was primarily due to the
increase in net sales and because gross profit as a percent of net sales
increased to 25.0% from 23.5% during the period.
Gross profit attributable to sales of F&I Products was $1.6 million, or
14.2%, of total gross profit in calendar 1995 compared to $1.1 million, or
12.6%, of total gross profit in fiscal 1994. This increase was primarily due
to increased revenues from the origination and placement of customer
financing, partially caused by selected lenders offering more beneficial
programs.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by approximately 25.4% to $7.9 million in
calendar 1995 from $6.3 million in fiscal 1994. Selling, general and
administrative expenses as a percent of net sales increased to 17.6% in
calendar 1995 from 17.0% in fiscal 1994. The increase, both in terms of
dollars and as a percent of net sales, was primarily the result of the
increased variable expenses related to the net sales increase and, to a lesser
extent, those expenses attributable to integrating the three recently acquired
stores. During calendar 1995, corporate overhead expenses and store management
salaries accounted for approximately $1.4 million of total selling, general
and administrative expenses compared to approximately $1.1 million for fiscal
1994. The majority of Travis Boats' work force is compensated by commission;
accordingly, increased sales volume leads to higher commissions and payroll
taxes. Due to the
20
<PAGE>
significant increase in net sales, however, gross wages as a percent of net
sales declined to approximately 10.0% of net sales in calendar 1995 from
approximately 11.4% of net sales in fiscal 1994.
Interest expense. Interest expense increased by approximately 50.4% to
$946,000 in calendar 1995 from $629,000 in fiscal 1994. This resulted in an
increase of interest expense as a percent of net sales to 2.1% in calendar
1995 from 1.7% in fiscal 1994. The increase in interest expense was primarily
the result of higher balances outstanding on the Company's floor plan lines of
credit to support the increased sales levels and higher effective interest
rates during calendar 1995. Interest expense was also affected by the
incremental interest expense associated with the indebtedness incurred in
connection with the acquisition of the new stores in Arkansas and Louisiana.
Net income. Net income increased by 40.0% to $1.4 million in calendar 1995
from $1.0 million in fiscal 1994. This increase was due primarily to the
increased sales volume, greater sell-through of F&I Products and improved
leverage of general and administrative expenses. The Company's net income as a
percent of net sales increased to 3.1% in calendar 1995 from 2.7% in fiscal
1994.
FISCAL 1994 COMPARED TO FISCAL 1993
Net sales. Net sales increased by 44.2% to $37.2 million in fiscal 1994 from
$25.8 million in fiscal 1993. Of this increase, $5.2 million was attributable
to 28.4% growth in comparable store sales and $6.2 million was due to the
operations of the store locations that were built, upgraded or acquired during
fiscal 1994 and therefore were not yet includable in comparable store sales.
The increase in comparable store sales was primarily the result of the
substantial sales growth in boat lines that the Company first introduced as
Travis Editions in fiscal 1993. The Sprint line of fishing boats and the
Larson line of family runabouts were able to gain rapid customer acceptance
with combined net sales growth of $4.7 million during fiscal 1994.
Gross profit. Gross profit increased by 47.5% to $8.7 million in fiscal 1994
from $5.9 million in fiscal 1993. This increase was primarily due to the
increase in net sales and the origination and placement of customer financing.
Gross profit attributable to sales of F&I Products was $1.1 million, or 12.6%,
of total gross profit in 1994, compared to $717,000, or 12.2%, of total gross
profit in 1993. In fiscal 1994, the Company improved training programs and
sell-through goals for F&I Products sales personnel. Gross profit as a percent
of sales increased to 23.5% in fiscal 1994 from 23.1% in fiscal 1993.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 40.0% to $6.3 million in fiscal 1994 from
$4.5 million in fiscal 1993. Selling, general and administrative expenses as a
percent of net sales were 17.0% in fiscal 1994 as compared to 17.5% in fiscal
1993. The decrease in selling, general and administrative expenses as a
percent of net sales from fiscal 1993 to fiscal 1994 was primarily due to the
significant increase in net sales relative to the level of fixed selling,
general and administrative expenses.
Interest expense. Interest expense increased by 40.1% to $629,000 in fiscal
1994 from $449,000 in fiscal 1993. Interest expense as a percent of net sales
was 1.7% during both periods.
Net income. Net income increased by approximately 67.8% to $1.0 million in
fiscal 1994 from $596,000 in fiscal 1993. Net income as a percent of sales
increased to 2.7% in fiscal 1994 from 2.3% in fiscal 1993. This increase was
due primarily to increased sales volume, greater sell-through of F&I Products
and better leverage of general and administrative expenses.
21
<PAGE>
QUARTERLY DATA AND SEASONALITY
The following table sets forth certain unaudited quarterly financial data
for each of the Company's last nine 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.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------
FISCAL YEAR 1994 FISCAL YEAR 1995 FISCAL YEAR 1996
----------------------------------- --------------------------- -----------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31
-------- ------- -------- ------- -------- ------- -------- ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $10,250 $14,908 $8,892 $3,175 $13,452 $17,048 $10,942 $3,564 $18,453
Gross profit............ 2,380 3,626 2,220 508 3,266 4,300 2,740 948 4,623
Selling, general and
administrative
expenses............... 1,560 2,020 1,580 1,173 2,044 2,347 1,962 1,551 2,751
Operating income
(loss)................. 753 1,540 574 (732) 1,152 1,883 701 (729) 1,736
Interest expense........ 144 145 166 174 196 265 209 276 393
Net income (loss)....... 404 915 268 (564) 662 1,046 342 (642) 885
<CAPTION>
AS A PERCENTAGE OF NET SALES
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............ 23.2 24.3 25.0 16.0 24.3 25.2 25.0 26.6 25.1
Selling, general and
administrative
expenses............... 15.2 13.5 17.8 36.9 15.2 13.8 17.9 43.5 14.9
Operating income
(loss)................. 7.3 10.3 6.5 (23.1) 8.6 11.0 6.4 (20.5) 9.4
Interest expense........ 1.4 1.0 1.9 5.5 1.5 1.6 1.9 7.7 2.1
Net income (loss)....... 3.9 6.1 3.0 (17.8) 4.9 6.1 3.1 (17.9) 4.8
</TABLE>
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 in excess of 27% and
37%, 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 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 in January and February 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.
22
<PAGE>
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. While
management believes that the Company's quarterly net sales will continue to be
impacted by seasonality, quarterly results may become less susceptible to
certain regional weather conditions as expansion occurs throughout the
southern United States. 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 attempts to concentrate
expansion during the seasonal slowdown generally occurring in the quarter
ending December 31. Stores opened during this time period will generate
additional operating losses, at a minimum, until the second quarter.
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 credit
facilities. At March 31, 1996, the Company had working capital of $2.6
million, including $4.5 million in accounts receivable (primarily contracts in
transit from sales) and $28.7 million in inventories, offset by approximately
$736,000 of accounts payable, $24.2 million outstanding under floor plan lines
of credit, approximately $650,000 under open lines of credit and $1.3 million
in other short-term indebtedness including current maturities of long-term
debt. Contracts in transit are amounts receivable from a customer's financial
institution related to that customer's purchase of a boat. As of March 31,
1996, the aggregate maximum borrowing limits under floor plan and working
capital lines of credit were approximately $38.6 million and $850,000,
respectively.
Operating activities provided cash flows of $2.7 million for fiscal 1995 due
primarily to net income of $2.1 million and changes in working capital. For
the six months ended March 31, 1996, operating activities utilized cash flows
of $14.4 million due primarily to increases in inventories and accounts
receivable of $14.3 million and $3.4 million, respectively, offset partially
by unearned revenue of $2.8 million relating to a volume purchase from a
manufacturer (which is not expected to occur in future periods). Financing
activities provided $15.2 million of cash flows from increased borrowings.
Increases in inventories have been financed with borrowings under the
Company's floor plan and working capital lines of credit. These credit lines
are collateralized by security interests in specific inventories, accounts
receivable and contracts in transit. The floor plan and working capital lines
with commercial banks are generally annually renewable and bear interest at
floating rates ranging from .25% to 1% above the bank's prime rate. The floor
plan lines of credit maintained with finance companies generally have no
stated maturity and utilize subsidies from manufacturers to provide for
certain interest free periods each calendar year (usually August through
April). Certain lines of credit are governed by loan agreements containing
certain financial covenants concerning, among others, minimum tangible net
worth, leverage ratio, debt service coverage and maximum annual capital
expenditures. As of March 31, 1996, management believes the Company was in
compliance with the terms and conditions of its loan agreements.
Merchandise inventories were $13.5 million and $14.3 million as of December
31, 1994 and September 30, 1995, respectively, and $28.7 million as of March
31, 1996. The significant increase in merchandise inventories from September
30, 1995 to March 31, 1996 was attributable to a volume purchase from a
manufacturer that was financed through an interest-free program. Accounts
receivable increased from approximately $1.0 million at the end of fiscal 1995
to $4.5 million as of March 31, 1996. This amount represents primarily
contracts in transit generated from sales. The increase was due to the higher
level of sales in the second fiscal quarter. Costs in excess of net assets
acquired increased to $1.1 million in fiscal 1995 due to the acquisition of
Red River Marine in September 1995.
The Company had net capital expenditures of $1.1 million in fiscal 1993 and
approximately $937,000 in fiscal 1994, primarily related to the construction
of new superstore boating centers in Austin, Texas and
23
<PAGE>
Lewisville (Dallas), Texas. During fiscal 1995, the Company purchased the
facility previously leased in Baton Rouge, Louisiana for approximately
$590,000, completed construction of the superstore in Lewisville (Dallas),
Texas and acquired substantially all of the assets of Red River Marine for
approximately $2.5 million. These capital expenditures were substantially
financed with long-term debt provided by commercial banks and individuals at
fixed interest rates.
24
<PAGE>
BUSINESS
GENERAL
Background. Travis Boats is a leading multi-state superstore retailer of
recreational boats, motors, trailers and related marine accessories in the
southern United States. The Company currently operates 12 superstores in
Texas, Arkansas and Louisiana under the name Travis Boating Center. Founded in
1979 in Austin, Texas, Travis Boats differentiates itself from competitors by
providing customers a unique superstore shopping experience that showcases a
broad selection of high quality boats, motors, trailers and marine products at
firm, clearly posted low prices. Each superstore also provides in-house
financing programs and full-service repair facilities staffed by factory-
trained mechanics.
The Company sells approximately 40 different 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. Boats sold generally range in size from 16 to 23 feet at prices
ranging from $7,500 to $23,000 with an average boat purchase price of
approximately $12,000. The Company custom designs and pre-packages
combinations of popular brand-name boats, such as Aquasport, Cajun and Larson,
with Johnson outboard and other motors, 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.
Unit level economics. The Company's new store prototype costs approximately
$825,000, excluding the cost of the land, and has 20,000 square feet of
enclosed space. Initial pre-opening expenses of approximately $50,000 are
typically required for newly built, upgraded or acquired stores. Initial
inventories total approximately $2.1 million, substantially all of which are
financed by manufacturers' programs or through floor plan financing
arrangements and typically result in no net additional capital investment by
the Company. The Company's new store model is expected to generate $5.0
million in net sales and produce an operating contribution to the Company of
approximately $250,000, resulting in a return on invested capital of
approximately 30%. Existing stores operational during calendar year 1995
experienced sales ranging from $2.6 million to $7.9 million. Average existing
store sales were $4.9 million with an average operating contribution of
$286,000 in calendar 1995.
New locations established through acquisition typically involve a lower cash
investment, yet generate similar sales and store contributions. Accordingly,
acquisitions have historically produced substantially greater returns on
invested capital than new store construction. The Company's expansion strategy
is based primarily on acquisitions rather than new store construction,
although it will build new stores if judged to be the most efficient means of
entering a market. Because of the fragmented nature of the industry, the
Company has numerous opportunities to acquire existing facilities and
businesses and believes it can continue to make such acquisitions on favorable
financial terms.
RECREATIONAL BOATING INDUSTRY
The retail recreational boating industry represents a large and growing
industry in the United States as evidenced by the following data reported by
the National Marine Manufacturers Association (the "NMMA"):
.76.8 million people participated in recreational boating in 1995
.Total consumer expenditures related to recreational boating in 1995 were
approximately $17.3 billion
.Total boat and motor sales in 1995 were approximately $7.7 billion
. Estimated unit purchases of outboard, inboard/outboard and stern drive
pleasure boats increased 20.8% from 279,000 units in 1991 to 337,000
units in 1995
25
<PAGE>
Demographics continue to be a key aspect of growth. The 35-54 age group,
which is the fastest growing segment of the U.S. population, is the largest
age category purchasing boats. This age group is projected to increase at a
2.5% annual rate through the end of the century, while other age categories
are projected to remain flat. Although these individuals account for 36% of
the U.S. population over age 16, they account for over 50% of discretionary
income.
The Company's management believes that the southern United States is a
particularly strong market for its products due to mild weather conditions,
extended fishing and recreational seasons and accessibility to the Gulf of
Mexico and numerous lakes, rivers, estuaries and wetlands. Boat registrations
in these markets reflect sales of products in average price ranges similar to
those offered by the Company, including outboard powered recreational boat
packages with average retail values of approximately $12,000 and
inboard/outboard runabouts with average retail values of approximately
$21,000. As reported by the NMMA, the Company's targeted 17-state market
accounted for over 57% of coastal shoreline in the continental U.S. and 43% of
inland water in square miles. Furthermore, on average this target market is
characterized by higher rates of boat ownership, with one boat owner for every
22 individuals versus the U.S. average of one for every 31 individuals,
representing 40.6% of total recreational boats registered in the U.S.
BUSINESS STRATEGY
Management of the Company believes it is the first to have developed a
multi-state, chain superstore merchandising strategy in the recreational
boating business. The Company's objective is to become the dominant retailer
of recreational boats, motors, trailers and marine accessories in the southern
United States. 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 6,000 to 33,200 square feet and
average approximately 21,000 square feet. Each superstore presents customers
with a broad array of boats and 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 and
with favorable delivery schedules. 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. 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
26
<PAGE>
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.
Advertising and promotion. Due to the Company's relative size, the Company
has a competitive advantage within its industry by being able to conduct an
organized and systematic advertising and marketing effort. The Company
promotes its signature Travis Edition boat packages through full-color
informational brochures and through professionally developed advertising used
in magazine, newspaper, television and radio campaigns, targeting customers on
a Company-wide, state-wide or local basis. In certain magazines, the Company
purchases gate-fold cover, multi-page advertising space to promote its Travis
Edition product line in a catalog format. To enhance statewide and regional
exposure, the Company also actively sponsors numerous professional fishing
guides and fishing tournaments. These advertising techniques have permitted
the Company to attain mass market exposure that management believes would not
be cost effective to a boat dealer operating a single or small store network.
Substantial financial assistance in certain forms of general advertising is
received from manufacturers.
The Company also participates in boat shows, typically held in January and
February, 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 in which to participate. 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 second quarter net sales to such shows.
The Company implements numerous in-store promotions, including open houses
and seminars featuring experts discussing topics ranging from boating safety
to the latest competitive kneeboarding techniques. The Company also
participates in offsite sales promotions such as boat shows, in-the-water
sales events on area lakes and various types of parking lot shows in
conjunction with large retailers, including Sam's Clubs. In certain markets,
the Company holds "Demo Days," events that showcase boats in the water and
allow customers actually to operate and test-drive a variety of boats before
selecting the package of their choice.
GROWTH STRATEGY
The Company believes it is the first organization in the retail recreational
boat industry to operate a multi-state retail store network in an effort to
realize economies of scale from consolidation in this fragmented industry.
Continued expansion into new states adds to the Company's geographic
diversity, lessening the impact of economic cycles or weather patterns in
individual regions. Furthermore, expansion into several contiguous markets
enables the Company to readily shift individual boats from store-to-store to
fill customer orders when necessary. Management has developed databases to
forecast market trends by studying information obtained from state and local
government agencies and manufacturers and from discussions with other
retailers and employees of the Company.
The Company's superstore concept, Travis Edition packaging and pricing
practices, combined with the Company's enhanced internal systems and
management controls, establish a framework for continued expansion in multiple
states. Since October 1991, Travis Boats has opened or acquired seven stores
in new markets, and its current expansion strategy focuses beyond its existing
presence in Texas, Arkansas and Louisiana, into most other southern states. At
this time the Company has targeted Alabama, Arizona, Florida, Georgia, Kansas,
Kentucky, Mississippi, Missouri, New Mexico, North Carolina, Oklahoma, South
Carolina, Tennessee and Virginia as potential new-entry markets. The close
proximity of current and anticipated new markets facilitates operating and
distribution efficiencies within the Company's overall business.
27
<PAGE>
To further achieve its goal of becoming the dominant retailer of
recreational boats throughout the southern United States, the Company intends
to continue establishing new Travis Boating Center locations by (i) acquiring
existing boat retailers, (ii) acquiring and converting compatible facilities
and (iii) building new stores. The factors considered by the Company in
assessing a potential acquisition are the quality of the market, the
attractiveness of the location, price and the Company's ability to retain
qualified employees. In identifying new locations for expansion, the primary
focus of the Company is a prospective market's historic and projected level of
new boat registrations. The Company prefers that the boat retailer liquidate
inventory prior to the effective date of the acquisition, allowing the Company
to control inventory quality and immediately to merchandise its Travis Edition
boating packages and institute its value pricing philosophy.
The Company generally seeks expansion in new markets where the establishment
of a facility can immediately and substantially enhance the Company's market
share as well as its name recognition. It has accomplished this through the
development of its prototype superstore boating center. In strategic market
areas, the Company has built new facilities that have set the standard for its
image and operations. The Company has also acquired existing retailers and
facilities which it has converted to Company specifications. While newly built
stores provide design and location flexibility with attractive returns, the
Company's emphasis is to expand through the acquisition of existing
facilities, which yield higher returns on capital than can be achieved through
new store construction. See "Risk Factors--Dependence Upon Expansion."
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 20.1% of the Company's net purchases in fiscal
1995 were from a single boat supplier.
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. This 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 $11.0 million, or
34.5%, of the Company's net purchases during fiscal 1995.
Pursuant to its arrangements with certain manufacturers, the Company's right
to display some product lines in certain markets may be restricted. While the
Company has received permission to sell Johnson motors and various boats in
its immediate expansion markets, it has not received such permission in its
broader target market. The Company does not believe that these restrictions
imposed by manufacturers will materially affect the Company's expansion plans.
See "Risk Factors--Limitations to Market Entry."
Store operations and management. Each Travis Boating Center superstore is
managed by a general manager who oversees the operations, personnel and
financial performance of the individual store, subject to the direction of the
Company's corporate office. To date, the Company has been successful in
recruiting and retaining general managers, with only one general manager
resigning since 1990. To increase loyalty and service, the Company encourages
general managers to purchase stock in the Company beginning with the
completion of their first year of service. The store is also typically staffed
by approximately three sales representatives, one
28
<PAGE>
finance manager, two parts employees, eight service related and make ready
employees and an office manager. Each store maintains an individual point of
sale and inventory tracking system which can be accessed through modems by
other stores and by the Company's corporate office. The Company is currently
replacing its inventory management and financial accounting system with an
updated, fully-integrated system in each of its stores. As of the date of this
Prospectus, the new system is operating in nine stores, including the
Company's Austin headquarters, with plans for the system to be fully
operational in all stores in fiscal 1997. The sales staff of each store is
compensated on a commission basis. Store managers are salaried employees with
incentive bonuses based on their store's performance. Parts managers and
service managers are compensated primarily on a salary basis with commission
incentives. In the past, the Company has not laid off employees during the
slow winter months.
Customer service and support. The Company strives to differentiate itself
further from competitors by providing superior customer service and support
before, during and after the sale. The sales process begins with the Company's
ability to offer customers a turn-key purchasing process by offering
attractive lender financing packages, extended service agreements, credit
life, accidental and health insurance and casualty insurance. The Company
thoroughly instructs customers about the operation of their boats and,
whenever practical, accompanies the customer to an area lake for a hands-on
demonstration. Subsequent to the delivery, customers are encouraged to bring
in their boats for regular service and maintenance by the Company's factory-
trained service personnel.
Management information systems. The Company has developed and maintained
management information systems and databases to monitor market conditions and
assess product and expansion strategies. Information received from state and
regulatory agencies, manufacturers and industry contacts allows the Company to
determine market share statistics and gross volume sales numbers on its
products as well as those of competitors. This information impacts ongoing
operations by allowing the Company to remain abreast of major or subtle
changes within the market and allows management to react accordingly by
realigning product lines and by adding new product lines and models.
The Company also utilizes the information assimilated from its management
information systems to determine and monitor the appropriate inventory level
at each store location throughout the selling season. When selecting new
markets for entry, the Company also undertakes a methodical market analysis
beginning with extensive on site observation, discussions with manufacturers
currently serving the area, and often discussions with local competitive
dealers. Further market research is conducted from a review of demographic and
other historical data on the number and type of boats annually registered or
newly licensed with appropriate local and state agencies. The Company has
developed databases and programs that permit the prompt retrieval of data used
by management to evaluate the Company's expansion decisions.
Distribution and inventory management. The Company maintains a close
geographic proximity between stores that it operates and stores that it plans
to open. This allows for timely and cost-effective sharing of managerial and
sales responsibilities and the transfer of individual boats among stores to
fill customer orders. The Company strives to locate new stores within a 250
mile radius of an existing store to facilitate the prompt transfer of
inventory that otherwise might take three to four weeks to order from the
manufacturer. This reduces delays in delivery and helps the Company maximize
inventory turnover. It also assists in controlling the potential of overstock
or understock situations. The Company plans to maintain a similar geographic
radius in future expansion plans, although there may be instances in which it
will not be advantageous to do so.
Floor plan 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 and/or 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 April of the following year. Management believes that these financing
arrangements are standard within the industry. As of March 31, 1996, the
Company and its subsidiaries owed an aggregate of $24.2 million pursuant to
the floor
29
<PAGE>
plan financing agreements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Sales of used boats. The Company's primary sales focus is on the retail sale
of new boat, motor and trailer packages. To facilitate new product sales, the
Company will accept a prospective customer's used boat for sale on consignment
or as a trade-in. In evaluating trades, the Company generally offers trade
allowances at or below the published wholesale cost to allow for the immediate
sale of the used product to certain wholesalers with which it regularly
conducts business. Accordingly, used product inventory and sales are typically
insignificant in relation to those of new products.
Employees. As of March 31, 1996, the Company's staff consisted of 250
employees, 241 of whom are full time. The full-time employees include 12 in
store level management and 18 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.
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.
SEASONALITY
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 annual net sales for the quarters ended
March 31 and June 30 represented in excess of 27% and 37%, respectively, of
the Company's annual net sales. The Company generally realizes significantly
lower sales in the quarterly period ending December 31, resulting in operating
losses during that quarter. The Company uses seasonality and its strong
capital position to take product delivery during the manufacturers' slow
seasons and to gain pricing advantages and better product availability during
the selling season.
The Company's business is also significantly affected by weather patterns
which may adversely affect the Company's results of operations. 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. Although the Company's
geographic expansion has reduced, and is expected to continue to reduce, the
overall impact to 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. See "Risk Factors--
Impact of Seasonality and Weather on Operations."
ENVIRONMENTAL AND OTHER REGULATORY ISSUES
On October 31, 1994, the U.S. Environmental Protection Agency (the "EPA")
announced proposed emissions regulations for outboard marine engines. 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 would begin phasing in low emission models in 1998 and have nine
years to achieve full compliance. Costs of these new models, if materially
different than previous comparable horsepower models, and/or the
manufacturer's inability to comply with the EPA requirements, could have a
material adverse effect on the Company's business, financial condition and
results of operations. As of the date of this Prospectus, the EPA has not yet
finalized these regulations. The Company
30
<PAGE>
believes that its outboard motor manufacturer currently meets all common
standards and has proprietary or licensed technology to meet or exceed EPA
standards with a new line of motors.
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 to the Company. Although the Company does
not own or operate any underground petroleum storage tanks, it currently
maintains one above-ground tank which is 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. While the licensing
requirements are not expected to be unduly restrictive, such regulations may
discourage potential first-time buyers thereby limiting future sales. The
adoption of such licensing regulations could have a material adverse effect on
the Company's business. See "Risk Factors--Impact of Environmental and Other
Regulatory Issues."
PRODUCT LIABILITY
Products sold or serviced by the Company may expose it to potential
liabilities for personal injury or property damage claims relating to the use
of those products. 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, and the Company maintains third-party product liability
insurance, which it believes to be adequate. However, 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. See "Risk Factors--Product
and Service Liability Risks."
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 believes that the principal factors influencing competition are price,
location, selection, service and the availability of customer financing. 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 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 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. The Company competes in each of its markets with
retailers of brands of boats and motors not sold by the Company in that
market. Management believes that a trend in the industry is for manufacturers
to include more features as standard equipment on boats and for dealers to
offer packages comparable to those now 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
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. See "Risk Factors--
Competition."
31
<PAGE>
PROPERTIES
The Company owns its corporate offices located in the Travis Boating Center
in Austin, Texas. The Company also owns and operates Travis Boating Center
locations in Abilene, Dallas, Midland and San Antonio, Texas; Baton Rouge,
Louisiana; and Hot Springs, Arkansas. The remaining facilities are leased
under short-term leases that generally contain multi-year renewal options. In
all such cases, the Company pays a fixed rent. In substantially all of the
leased locations, the Company is responsible for taxes, insurance, repairs and
maintenance.
The chart below reflects the status and approximate size of the various
Travis Boating Centers operated as of the date of this Prospectus.
<TABLE>
<CAPTION>
OWNED OR
LOCATION SQUARE FOOTAGE* ACREAGE* LEASED YEAR OF MARKET ENTRY
-------- --------------- -------- -------- --------------------
<S> <C> <C> <C> <C>
Austin, Texas(1)........ 20,000 3.5 Owned 1979
San Antonio, Texas(1)... 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 2.2 Leased 1991
Baton Rouge, Louisian-
a(2)................... 33,200 7.5 Owned 1992
Beaumont, Texas(2)...... 25,500 6.5 Leased 1994
Arlington, Texas(3)..... 6,000 1.0 Leased 1995
Heber Springs, Arkan-
sas(4)................. 26,000 9.0 Leased 1995
Hot Springs, Arkan-
sas(4)................. 20,510 3.0 Owned 1995
New Iberia, Louisian-
a(4)................... 24,000 3.3 Leased 1995
</TABLE>
- --------
* Square footage and acreage are approximate.
(1) Newly constructed store.
(2) Facility acquired and converted to superstore.
(3) To be moved to newly constructed superstore under long-term lease.
(4) Acquired facility.
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.
32
<PAGE>
MANAGEMENT
DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each
director, each person who has agreed to serve as a director, and each
executive officer of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mark T. Walton(1)(2).... 44 Chairman of the Board and President
Ronnie L. Spradling(1).. 52 Executive Vice President--New Store Development and Director
Michael B. Perrine...... 32 Chief Financial Officer, Treasurer and Secretary
E.D. Bohls(1)(2)........ 77 Vice Chairman of the Board
Joseph E.
Simpson(1)(2)(3)....... 62 Director
Robert C.
Siddons(1)(2)(4)....... 53 Director
Steve Gurasich(3)(4).... 47 Director Nominee
Zach McClendon,
Jr. (3)(4)............. 58 Director Nominee
</TABLE>
- --------
(1) Member of the Nominations Committee.
(2) Member of the Executive Committee.
(3) Member or nominee to the Audit Committee.
(4) Member or nominee to the Compensation Committee.
Mark T. Walton has served as President and as a director of the Company
since 1980 and as Chairman of the Board since 1995. From 1979 to 1980, Mr.
Walton served as the General Manager of the Company's Austin store. Utilizing
his 25 years of experience in the retail boat business, Mr. Walton, together
with Mr. Spradling, developed and implemented the Travis Edition and Travis
Boating Center concepts.
Ronnie L. Spradling has served as Executive Vice President of the Company
since 1989 and as the Executive Vice President of New Store Development since
1994. Mr. Spradling became a director in 1995. Mr. Spradling previously served
as the General Manager of Falcon Marine, Inc., located in Midland, Texas from
1982 to 1988. Mr. Spradling has over 28 years of experience in boat retailing
operations. Together with Mr. Walton, Mr. Spradling helped develop and
implement the Travis Boating Center and Travis Edition concepts.
Michael B. Perrine has served as Chief Financial Officer since 1991 and as
Treasurer and Secretary of the Company since 1992. From 1986 to 1991, he
served as a loan officer in the Commercial Banking Division of NationsBank,
N.A. Mr. Perrine is responsible for developing and implementing the Company's
corporate structure.
E.D. Bohls has served as the Vice Chairman of the Board of the Company since
1995 and previously served as Chairman of the Board of the Company from 1979
to 1995. He has served as Chairman of the Board of Capital Commerce Reporter,
Inc., a public records research company, since 1986. In addition, he has
served as Vice President and as a director of Americana Enterprises, a private
real estate development joint venture, since 1975.
Joseph E. Simpson has served as a director of the Company since 1979. He has
served as President and as a director of Capital Commerce Reporter, Inc., a
records research company, since 1986.
Robert C. Siddons has served as a director of the Company since 1979. He has
served as President of Frank Siddons Insurance Agency, a family-owned
insurance agency, since 1987. In addition, he has served as President of the
Texas Builders Insurance Company, a commercial lines insurance company, since
1987.
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<PAGE>
Steve Gurasich has agreed to serve as a director of the Company upon the
closing of the offering. For over the past 20 years, Mr. Gurasich has served
in various capacities, including most recently as Chairman of the Board of
GSD&M Advertising, Austin, Texas, an advertising firm, handling such accounts
as Southwest Airlines, Wal-Mart, MasterCard, Coors Light and Pearle Vision.
Zach McClendon, Jr. has agreed to serve as a director of the Company upon
the closing of the offering. Mr. McClendon is the co-founder of the
predecessor to SeaArc Marine, Inc., a manufacturer of various types of boats
and marine products, and now serves as the Chairman of the Board of its parent
company. In addition, Mr. McClendon serves as the Chairman of the Board of
Union Bank and Trust Company, a subsidiary of First Union Financial
Corporation, and as Chairman of the Board of Drew Cottonseed Oil Mill, Inc., a
manufacturer of polystyrene products.
Officers are elected annually by, and serve at the discretion of, the Board
of Directors.
The number of directors of the Board of Directors is currently fixed at
seven. The Board of Directors is divided into three classes, designated as
Class A, Class B and Class C. The members of each class of directors will
serve for staggered three-year terms. Messrs. Bohls and Simpson are currently
Class A directors and will stand for election at the 1996 annual stockholders'
meeting. Mr. Spradling is currently a Class B director and will stand for
election at the 1997 annual stockholders' meeting. Messrs. Walton and Siddons
are currently Class C directors and will stand for election at the 1998 annual
stockholders' meeting. There are currently two Class B positions on the Board
of Directors that are vacant.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation awarded to, earned by or paid for services rendered to the
Company in all capacities during the fiscal year ended September 30, 1995, by
the Company's President and the other most highly compensated executive
officer who received compensation in excess of $100,000 for the fiscal year
ended September 30, 1995 (collectively, the "named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
----------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS
--------------------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Mark T. Walton....................... $108,000 $45,000 -- 20,267
President
Ronnie L. Spradling.................. $ 69,000 $45,000 -- 46,933
Executive Vice President
</TABLE>
- --------
(1) Fiscal year 1995 is a nine-month period; dollar amounts shown have been
annualized.
34
<PAGE>
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth information concerning stock options granted
by the Company to the named executive officers during the fiscal year ended
September 30, 1995.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM(2)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(1) FISCAL YEAR ($/SHARE) DATE 5% 10%
---- ---------- --------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mark T. Walton.......... 20,267 15.1% $5.25 May 2005 $ 66,914 $ 169,574
Ronnie L. Spradling..... 46,933 35.1% $5.25 May 2005 $ 154,960 $ 392,698
</TABLE>
- --------
(1) The stock options were granted by the Company pursuant to Nonqualified
Stock Option Agreements dated May 17, 1995. These options become
exercisable as to 20% of the shares covered thereby on May 17 of each year
with the first installment vesting on May 17, 1996.
(2) These amounts are calculated based on certain assumed rates of annual
compound stock price appreciation from the date the option was granted to
the end of the option term. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the future
performance of the Company and overall stock market conditions. There can
be no assurance that the amounts reflected in this table will be achieved.
These calculations assume a fair market value of $5.25 per share of Common
Stock on May 17, 1995, the date of grant of such options.
STOCK OPTION PLANS AND AGREEMENTS
The Company is currently a party to certain option agreements ("Option
Agreements") pursuant to which options to purchase shares of the Common Stock
are outstanding. Additionally, the Company currently maintains one plan, the
Incentive Stock Plan, pursuant to which options, stock appreciation rights and
restricted stock are available for future grant.
Nonqualified Stock Option Agreements. Pursuant to the Option Agreements,
each of Messrs. Walton, Spradling and Perrine (together, the "Optionees")
received nonqualified stock options to purchase 20,267, 46,933 and 66,667
shares of Common Stock, respectively, at a price of $5.25 per share
exercisable for a period of ten years. These options become exercisable as to
20% of the shares covered thereby on May 17 of each year with the first
installment vesting on May 17, 1996.
In the event the employment of an Optionee is terminated for "cause," as
defined in the Option Agreement, the Optionee shall have the right to exercise
any vested, unexercised portion of the Option. If an Optionee is terminated
without "cause," the options shall immediately become fully vested and
exercisable. Upon the occurrence of a "change in control" of Travis Boats, as
defined in the Option Agreements, the options shall immediately become fully
vested and exercisable.
Incentive Stock Plan. The Company's Incentive Stock Plan was adopted by the
Board of Directors and approved by the Company's stockholders in December
1995. A total of 200,000 shares of Common Stock have been reserved for
issuance pursuant to the Incentive Stock Plan. To date, no options have been
granted under this plan. The Incentive Stock Plan provides for the grant to
employees, including officers of the Company, of "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), nonstatutory stock options, stock appreciation rights
and restricted stock (collectively, "Awards"). In addition, non-employee
directors ("Outside Directors") and consultants are eligible to receive
nonstatutory stock options.
The Incentive Stock Plan provides that Awards may be granted to employees
(including officers), consultants and directors of the Company and its
majority-owned subsidiaries. To the extent that the aggregate
35
<PAGE>
fair market value of the shares with respect to which options designated as
"incentive stock options" are exercisable for the first time by any optionee
during any calendar year (under all plans of the Company) exceeds $100,000,
such options will be reclassified in accordance with the Code. The Incentive
Stock Plan is not a qualified deferred compensation plan under Section 401(a)
of the Code and is not subject to the provisions of the Employee Retirement
Income Security Act of 1974, as amended.
The Incentive Stock Plan is currently administered by the Compensation
Committee of the Board. Subject to special provisions relating to Outside
Directors, the Board of Directors or its designated committee selects the
employees to which Awards may be granted and the type of Award to be granted
and determines, as applicable, the number of shares to be subject to each
Award, the exercise price and terms of vesting. In making such determination,
the Board of Directors or its designated committee takes into account the
employee's present and potential contributions to the success of the Company
and other relevant factors.
The exercise price of all incentive stock options granted under the
Incentive Stock Plan must be at least equal to the fair market value of the
shares of Common Stock on the date of grant. With respect to any participant
who owns stock representing more than 10% of the voting rights of the
Company's outstanding capital stock, the exercise price of any incentive stock
option granted under the Incentive Stock Plan must equal at least 110% of the
fair market value of the shares of Common Stock subject to such option on the
date of grant and the term of the option must not exceed five years.
Options granted under the Incentive Stock Plan vest pursuant to terms
determined by the Board of Directors or its designated committee.
The terms of all incentive stock options and nonstatutory stock options
granted under the Incentive Stock Plan may not exceed ten years and ten years
and 30 days, respectively. However, the terms of all incentive stock options
granted to an optionee who, at the time of grant, owns stock representing more
than 10% of the voting rights of the of the Company's outstanding capital
stock, may not exceed five years.
Options may be granted to Outside Directors under the Incentive Stock Plan
only pursuant to an automatic, nondiscretionary grant mechanism, under which
each Outside Director whose term begins after the closing of this offering
will receive an option to acquire 13,333 shares of Common Stock, exercisable
at fair market value on the date of grant and vesting in five equal annual
installments beginning on the first anniversary of the Outside Director's term
in office. The term of the option shall be ten years; provided that vested
options shall be exercisable only while the Outside Director remains a
director, or within one month after termination of his status as an Outside
Director.
Restricted Common Stock ("Restricted Stock") may be granted to employees
pursuant to terms determined by the Board of Directors or its designated
committee. Restricted Stock may not be transferred until the restrictions are
removed or have expired. Conditions to the removal of restrictions may
include, but are not required to be limited to, continuing employment or
service to the Company or achievement of certain performance objectives.
Stock appreciation rights ("SARs") may be granted to employees, either
independent of, or in connection with, options. SARs are exercisable in the
manner, and pursuant to terms, determined by the Board of Directors or its
designated committee. Terms to be determined by the Board of Directors (or its
designated committee) include the number of shares to which the SAR applies,
the vesting schedule for the exercise of such right and the expiration date of
the right. Upon exercise of an SAR, the holder shall receive payment (in cash,
stock or a combination of both at the discretion of the Board of Directors or
its designated committee) in an amount equal to the product of (i) the fair
market value of a share of Common Stock as of the date of exercise, minus the
fair market value of a share of Common Stock as of the date the SAR was
granted, multiplied by (ii) the number of shares as to which the SAR is being
exercised. The exercise of SARs granted in connection with options requires
the holder to surrender the related option (or any portion thereof, to the
extent unexercised). No SAR granted under the Incentive Stock Plan is
transferable by the employee other than by will or the laws of descent and
distribution and each SAR is exercisable during the lifetime of the employee
only by such employee.
36
<PAGE>
In the event of certain changes in the Company's capitalization, including
as a result of a stock split or stock dividend, which results in a greater or
lesser number of shares of outstanding Common Stock, appropriate adjustment
shall be made in the number of shares available under the Incentive Stock
Plan, the exercise price and in the number of shares subject to options,
Restricted Stock and SARs.
Award agreements under the Incentive Stock Plan may, as determined by the
Board of Directors or its designated committee, provide that, in the event of
a "change in control" of the Company, the following will occur: the holder of
a stock option will be granted a corresponding stock appreciation right; all
outstanding stock appreciation rights and stock options will become
immediately and fully vested and exercisable in full; and the restriction
period on any Restricted Stock will be accelerated and the restrictions will
expire. In general, a "change in control" of the Company occurs in any of five
situations: (1) a person (other than (a) the Company, (b) certain affiliated
companies or benefit plans, or (c) a company, a majority of which is owned
directly or indirectly by the stockholders of the Company) becomes the
beneficial owner of 50% or more of the voting power of the Company's
outstanding voting securities; (2) a majority of the Board of Directors is not
comprised of the members of the Board of Directors at the effective date of
the Incentive Stock Plan and persons whose elections as directors were
approved by those original directors or their approved successors; (3) a
person described in clause (1) announces a tender offer for 50% or more of the
Company's outstanding voting securities and the Board of Directors approves or
does not oppose the tender offer; (4) the Company merges or consolidates with
another corporation or partnership, or the Company's stockholders approve such
a merger or consolidation, other than mergers or consolidations in which the
Company's voting securities are converted into securities having the majority
of voting power in the surviving company; or (5) the Company liquidates or
sells all or substantially all of its assets, or the Company's stockholders
approve such a liquidation or sale, except sales to corporations having
substantially the same ownership as the Company.
If a "restructuring" of the Company occurs that does not constitute a change
in control of the Company, the Board of Directors or the committee
administering the Incentive Stock Plan may (but need not) cause the Company to
take any one or more of the following actions: accelerate in whole or in part
the time of vesting and exercisability of any outstanding stock options and
stock appreciation rights to permit those stock options and stock appreciation
rights to be exercisable before, upon, or after the completion of the
restructure; grant each option holder corresponding stock appreciation rights;
accelerate in whole or in part the expiration of some or all of the
restrictions on any Restricted Stock; if the restructuring involves a
transaction in which the Company is not the surviving entity, cause the
surviving entity to assume in whole or in part any one or more of the
outstanding incentive awards upon such terms and provisions as the Board of
Directors or its designated committee deems desirable; or redeem in whole or
in part any one or more of the outstanding incentive awards (whether or not
then exercisable) in consideration of a cash payment as adjusted for
withholding obligations. A restructuring generally is any merger of the
Company or the direct or indirect transfer of all or substantially all of the
Company's assets (whether by sale, merger, consolidation, liquidation, or
otherwise) in one transaction or a series of transactions.
EMPLOYMENT AGREEMENTS
The Company is the beneficiary of employment agreements with TBC Management,
Ltd. (an affiliated partnership of the Company) and each of Mark T. Walton,
Ronnie L. Spradling and Michael B. Perrine, providing, among other things, for
three-year terms and annual base salaries of $175,000 for Mr. Walton, $150,000
for Mr. Spradling and $90,000 for Mr. Perrine, respectively. In addition,
Messrs. Walton, Spradling and Perrine have agreed to contractual
confidentiality and noncompete provisions in their respective employment
agreements, which will extend beyond termination of their employment for any
reason. In the event any of these employees are terminated without "cause," as
such term is defined in the employee agreements, such employees will be
entitled to payment of approximately three times their annual salary. The
foregoing agreements are scheduled to become effective upon the completion of
this offering.
The employment agreements also provide that, if the consolidated income of
Travis Boats before income tax expenses and non-recurring audit adjustments
(the "Pre-tax Income") reflects growth in excess of 20.0%
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over the previous fiscal year, Messrs. Walton and Spradling will each receive
a bonus of 2.0% of the Pre-tax Income and Mr. Perrine will receive a bonus of
1.0% of the Pre-tax Income. If the Pre-tax Income does not reflect growth of
20.0%, the bonus for each individual will be determined by the Board of
Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation decisions during fiscal year 1994 were made by the Company's
Board of Directors, which included Mark T. Walton, President of the Company.
In 1995, the Company established a Compensation Committee to review the
performance of executive officers, establish overall employee compensation
policies and recommend major compensation programs for approval by the Board
of Directors. No member of the current Compensation Committee serves as an
executive officer of the Company, or as a director of any entity, an executive
officer of which serves on the Compensation Committee or as a director of the
Company.
COMPENSATION OF DIRECTORS
During fiscal 1995, the Company paid directors' fees of $1,500 per month to
each director, whether or not such director was an officer or employee of the
Company. Effective immediately following the closing of this offering,
directors who are not officers or employees of or consultants to the Company
will receive annual compensation of $10,000, plus $2,000 per year for each
committee on which such director serves, excluding the Nominations Committee,
for which compensation will not be received, and $3,000 per year in the case
of the Executive Committee. Directors' expenses for attending meetings are
reimbursed by the Company. Directors who are elected or appointed after or
upon the closing of this offering and who are not also officers or employees
of the Company will also receive options to purchase Common Stock under the
Incentive Stock Plan. See "--Stock Option Plans and Agreements."
401(K) PROFIT SHARING PLAN
In January 1995, the Company adopted a 401(k) Plan (the "401(k) Plan") under
which substantially all employees of the Company and its subsidiaries who have
completed at least one year of service and attain the age of 21 are eligible
to participate, subject to certain other conditions. Eligible participants may
elect to defer the receipt of up to a maximum of 15.0% of their annual
compensation (up to a maximum dollar amount established in accordance with
Section 401(k) of the Code) and have such deferred amounts contributed to the
401(k) Plan. The Company may, in its discretion, make matching contributions
which the Company, in its discretion, determines from year to year. The Board
of Directors has voted to make a matching contribution equal to 50.0% of the
first 4.0% of each eligible participant's 1995 calendar year contribution. The
amount of this contribution is not expected to exceed $100,000. Participants
are fully vested in their contributions while employer- matching contributions
vest over a five year period.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation provide that the Company has the
power to indemnify any person to the fullest extent permitted by law. The
Company has entered into indemnification agreements with each of its directors
and executive officers providing the broadest indemnification allowable under
the Texas Business Corporation Act. See "Description of Capital Stock--
Indemnification of Officers and Directors; Limitation of Director Liability."
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<PAGE>
CERTAIN TRANSACTIONS
Stockholders Agreement. The shares of Common Stock are subject to
restrictions on transfer pursuant to a stock restriction agreement entered
into by the Company and all of the stockholders of the Company. The stock
restriction agreement prohibits the sale of Common Stock without first
offering such stock for sale to the other stockholders and the Company. This
agreement also provides that upon certain events, a stockholder shall sell,
and the Company shall purchase, all of the stockholder's stock at a formula
price. The Company is currently prohibited from issuing stock to any
stockholder unless such stockholder first enters into the stock restriction
agreement. This agreement terminates automatically upon the consummation of
this offering.
Reinsurance Arrangements. The Company sells extended service contracts to
its customers. The obligations of the Company under these contracts are
transferred to Ideal Insurance Company, Ltd. ("Ideal") pursuant to an
agreement between the Company and Ideal dated as of January 1, 1994. Ideal
reinsures these risks with Amerisure Property & Casualty, Ltd. ("Amerisure"),
a company wholly owned by certain principal stockholders of the Company. These
contracts are administered by First Extended Service Corporation ("FESC") and
are reinsured under a stop-loss policy issued to Amerisure by FFG Insurance
Co. ("FFG"), an affiliate of FESC. In conjunction with these arrangements, the
Company pays 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 and/or FFG are financially responsible for any repairs required
pursuant to the extended service contract. Upon consummation of this offering,
Amerisure will remain a separate legal entity and will maintain its current
ownership structure. However, to eliminate any potential conflict of interest,
the Company will terminate its relationship with Amerisure effective upon
consummation of the offering with respect to future extended service
contracts. The Company is evaluating whether to use traditional insurance, to
form a wholly owned subsidiary to provide the services previously provided by
FESC or to arrange an alternate method of insurance. To provide for the risks
associated with the extended service contracts sold by the Company prior to
the consummation of this offering, Amerisure intends to retain cash reserves
in an amount it believes will reasonably be adequate to cover any of
Amerisure's obligations. Moreover, Amerisure has obtained the above described
stop-loss policy from FFG. For the fiscal year ended December 31, 1994, and
for the fiscal year ended September 30, 1995, the Company received net
payments of approximately $350,000 and $448,000, respectively, through the
sale of extended service contracts. Over the same period, Amerisure received
an aggregate of approximately $700,000, all of which it has reserved against
losses with respect to extended service contracts sold to the Company's
customers. Amerisure's underwriting losses and aggregate reinsurance costs
will not be determinable until the end of each of the five-year extended
service contracts sold prior to this offering. The Company is not affiliated
with Ideal, FESC or FFG.
Employment Arrangements. Executive management, store management and
corporate administrative employees are employed by TBC Management, Ltd., a
Texas limited partnership (the "Partnership"). The Partnership, in turn, has
entered into a Management Agreement with the Company and its subsidiaries and
invoices each company monthly for management services rendered. The general
partner and 1.0% owner of the Partnership is the Company. The sole limited
partner and 99.0% owner of the Partnership is T B C Management, Inc. (the
"Delaware Company"), a Delaware company wholly owned by Travis Boats. The
operations of the Partnership are accounted for on a consolidated basis with
those of the Company. The Delaware Company's income results from distributions
of the Partnership and is accordingly taxed under Delaware law.
Certain Borrowings. On August 31, 1995, the Company borrowed $300,000 from
Amerisure. The Company executed a promissory note in favor of Amerisure for
the principal amount of $300,000, repayable at an interest rate of prime plus
0.25% per annum. The note has been paid in full.
The Company borrowed a total of $150,000 from Joseph E. and Pat Simpson.
Joseph E. Simpson is a director and principal stockholder of the Company. The
Company borrowed $100,000 on October 11, 1994 and executed an unsecured
promissory note for that amount. On January 31, 1995, the $100,000 note was
renewed and extended until January 1, 1996. On March 31, 1995, the Company
borrowed an additional $50,000 and executed a promissory note for that amount.
Both notes were renewed and extended into one $150,000 note on
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<PAGE>
August 31, 1995. The renewed and extended note provided for quarterly interest
payments at an interest rate equal to the prime rate minus 0.25%, with the
principal balance payable in full on October 1, 1996. The renewed and extended
note will be paid in full prior to the consummation of this offering.
The Company borrowed $175,000 from Capital Commerce Reporter, Inc., a
company owned by Joseph E. Simpson and E.D. Bohls, directors and principal
stockholders of the Company. The loan was evidenced by two unsecured
promissory notes, for $100,000 and $75,000. The notes were originally executed
on August 10, 1994 and were renewed and extended on December 31, 1994 and on
August 31, 1995. The renewed and extended notes provided for quarterly
payments of interest only at a rate equal to the prime rate minus 0.25%, with
the principal balance payable in full on October 1, 1996. The notes will be
paid in full prior to the consummation of this offering.
E.D. Bohls, Jesse Cox, Robert C. Siddons, Joseph E. Simpson, Ronnie L.
Spradling and Mark T. Walton, all of whom are stockholders and officers or
directors of the Company, have each executed a personal guaranty of certain
indebtedness of the Company. It is currently contemplated that such guaranties
will be released upon completion of this offering.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth the beneficial ownership of the Common Stock
as of March 31, 1996, and as adjusted to reflect the sale of shares offered
hereby of (i) each person known to the Company to own beneficially 5% or more
of the Common Stock, (ii) each of the Company's directors, (iii) each of the
Company's named executive officers, (iv) each Selling Stockholder and (v) all
of the Company's executive officers and directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OWNED AFTER
THE OFFERING(1)(2) NUMBER OF THE OFFERING(3)
----------------------- SHARES -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------ ------------ ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
E.D. Bohls(4)........... 808,427 30.1% 97,800 710,627 17.8%
Robert C. Siddons(5).... 538,968 20.1 94,900 444,068 11.1
Mark T. Walton(6)....... 411,521 15.3 40,000 371,521 9.3
Joseph E. Simpson....... 404,224 15.1 72,700 331,524 8.3
Ronnie L. Spradling(7).. 267,030 9.9 25,000 242,030 6.0
James Bohls(8).......... 252,928 9.4 43,700 209,228 5.2
Jesse C. Cox(9)......... 202,112 7.5 43,700 158,412 4.0
Michael B. Perrine(10).. 20,800 * -- 20,800 *
Blake Bohls(11)......... 25,408 * 8,000 17,408 *
Mason Bohls(12)......... 25,408 * 8,000 17,408 *
Kelly Harber............ 8,534 * 500 8,004 *
J. Brooks Rainer........ 6,400 * 800 5,600 *
Charles Bell............ 9,878 * 800 9,078 *
William M. Breed........ 11,691 * 1,600 10,091 *
All executive officers
and directors
as a group (six
persons)(13)........... 2,450,970 90.4% 330,400 2,120,570 52.7%
</TABLE>
- -------
* Less than 1%.
(1) Except as otherwise indicated, the persons named in the table have sole
voting and investment power with respect to the shares of Common Stock
shown as beneficially owned by them. Beneficial ownership as reported in
the above table has been determined in accordance with Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
based on information furnished by the persons listed, and represents the
number of shares of Common Stock for which a person, directly or
indirectly, through any contract, management, understanding, relationship
or otherwise, has or shares voting power, including the power to vote or
direct the voting of such shares, or investment power, including the
power to dispose or to direct the disposition of such shares, and
includes shares which may be acquired upon the exercise of options within
60 days following June 24, 1996, which is the assumed effective date of
this offering. The percentages are based upon 2,683,506 shares
outstanding as of the date of this Prospectus, and 3,996,006 shares
outstanding after giving effect to this offering. Except as otherwise
noted below, the address of each holder of 5% or more of the Common Stock
is 13045 Research Boulevard, Austin, Texas 78750.
(2) Does not include options granted to Mark T. Walton, Ronnie L. Spradling
and Michael B. Perrine to purchase 16,214, 37,546 and 53,334 shares of
Common Stock, respectively, which are not exercisable until more than 60
days after June 24, 1996. See "Management--Stock Option Plans and
Agreements."
(3) Assumes no exercise of the Underwriters' over allotment option.
(4) Includes 202,112 shares owned by Mr. Bohls' son, James Bohls, to which
Mr. E.D. Bohls controls the voting rights. Mr. E.D. Bohls disclaims
beneficial ownership of such shares. Also includes 50,816 shares held by
trusts for the benefit of James Bohls' children of which James Bohls
serves as trustee, but all voting rights have been retained by Mr. E.D.
Bohls.
(5) Includes 19,202 shares held by family trusts over which Mr. Siddons
exercises sole voting and investment control.
(6) Includes 4,053 shares subject to options exercisable within 60 days of
June 24, 1996 and 4,268 shares owned and held in trust for Mr. Walton's
children, for which the voting rights reside with Mr. Walton.
(7) Includes 9,387 shares subject to options exercisable within 60 days of
June 24, 1996.
(8) Includes 50,816 shares held by trusts for the benefit of Mr. Bohls'
children as to which he serves as trustee with full dispositive power.
Mr. E.D. Bohls retains all voting rights in such shares. James Bohls'
address is 1301 South IH-35, Austin, Texas 78701.
(9) Jesse C. Cox's address is 12300 IH-10, San Antonio, Texas 78230.
(10) Includes 13,333 shares subject to options exercisable within 60 days of
June 24, 1996.
(11) Shares are held in trust for the benefit of Blake Bohls. Mr. James Bohls
serves as trustee with full dispositive power. Mr. E.D. Bohls retains all
voting rights in such shares.
(12) Shares are held in trust for the benefit of Mason Bohls. Mr. James Bohls
serves as trustee with full dispositive power. Mr. E.D. Bohls retains all
voting rights in such shares.
(13) See Notes (6), (7) and (10). Includes 26,773 shares subject to options
exercisable within 60 days of June 24, 1996.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company does not
purport to be complete and is subject to and qualified in its entirety by the
Articles of Incorporation and Bylaws of the Company which are included as
exhibits to the registration statement of which this Prospectus is a part, and
by the provisions of applicable law.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Effective prior to the closing of this offering, the authorized capital
stock of the Company will consist of 50,000,000 shares of Common Stock, $.01
par value, and 1,000,000 shares of Preferred Stock, $.01 par value, issuable
in series. As of the date of this Prospectus, 2,683,506 shares of Common Stock
were issued and outstanding and held by 24 persons. A total of 133,867 shares
of Common Stock are reserved for issuance upon the exercise of options granted
to Mark T. Walton, Ronnie L. Spradling and Michael B. Perrine, and 200,000
shares of Common Stock are reserved for issuances of Awards under the
Incentive Stock Plan. No shares of Preferred Stock are issued or outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders, voting with the holders of
Preferred Stock as a single class, except where class voting is required by
the Texas Business Corporation Act. Cumulative voting in the election of
directors is not permitted and the holders of a majority of the combined
number of outstanding shares of Common Stock and Preferred Stock entitled to
vote in any election of directors may elect all of the directors standing for
election. Upon the closing of this offering, the holders of a majority of the
outstanding shares of Common Stock will be able to elect all of the directors.
Holders of Common Stock are entitled to receive ratably such dividends, if
any, as may be declared by the Board of Directors out of funds legally
available therefor, subject to any preferential dividend rights of outstanding
Preferred Stock. Upon a liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to receive ratably the net assets of
the Company available after the payment of all debts and other liabilities and
subject to the prior rights of any outstanding Preferred Stock. The holders of
Common Stock have no preemptive, subscription, redemption or conversion
rights. The outstanding shares of Common Stock are, and the shares offered by
the Company in this offering, will be, when issued and paid for, fully paid
and nonassessable.
PREFERRED STOCK
The Board of Directors may issue Preferred Stock in one or more series and
may designate the dividend rate, voting rights and other rights, preferences
and restrictions of each series without further stockholder approval. It is
not possible to predict the effect of the issuance of Preferred Stock upon the
rights of holders of Common Stock unless and until the Board of Directors
determines the specific rights of the holders of a series of Preferred Stock.
However, such effects might include, among other things, restricting dividends
on Common Stock, diluting the voting power of Common Stock, impairing the
liquidation rights of Common Stock and delaying, discouraging or preventing a
change in control of the Company without further action by the stockholders.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Incorporation and Bylaws,
the Company's Incentive Stock Plan and the indemnification agreements with
directors and officers of the Company may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that
a stockholder might consider to be in that stockholder's best interest,
including attempts that might result in a premium over the market price for
the shares held by stockholders.
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<PAGE>
Articles of Incorporation and Bylaws. Pursuant to the Company's Articles of
Incorporation, the Company's Board of Directors may issue additional shares of
Common Stock or establish one or more series of Preferred Stock having the
number of shares, designations, relative voting rights, dividend rates,
liquidation and other rights, preferences and limitations that the Board of
Directors fixes without stockholder approval. Any additional issuance of
Common Stock or designation of rights, preferences, privileges and limitations
with respect to Preferred Stock could have the effect of impeding or
discouraging the acquisition of control of the Company by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity
of the Company's management. Specifically, if, in the due exercise of its
fiduciary obligations, the Board of Directors were to determine that a
takeover proposal was not in the Company's best interest, shares could be
issued by the Board of Directors without stockholder approval in one or more
transactions that might prevent or render more difficult or costly the
completion of the takeover transactions by diluting the voting or other rights
of the proposed acquiror or insurgent stockholder group, by putting a
substantial voting lock in institutional or other hands that might undertake
to support the position of the incumbent Board of Directors, by effecting an
acquisition that might complicate or preclude the takeover, or otherwise.
The Company's Bylaws 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 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
effect of these provisions may be to delay or prevent a tender offer or
takeover attempt that a stockholder might consider to be in his best interest,
including attempts that might result in a premium over the market price for
the shares held by the stockholders. Cumulative voting in the election of
directors is specifically denied. Although the Bylaws do not give the Board
any power to approve or disapprove stockholder nominations for the election of
directors or of any other business desired by stockholders to be conducted at
an annual or any other meeting, provisions of the Bylaws (i) may have the
effect of precluding a nomination for the election of directors or precluding
the conduct of business at a particular annual meeting if the proper
procedures are not followed and (ii) may discourage or deter a third party
from conducting a solicitation of proxies to elect its own slate of directors
or otherwise attempting to obtain control of the Company, even if the conduct
of such solicitation or attempt might be beneficial to the Company and its
stockholders.
The Company's Articles of Incorporation and Bylaws provide that special
meetings of stockholders generally can be called only by the President or
Board of Directors or by holders of at least 25% of the voting stock of the
Company and provide for an advance notice procedure for the nomination, other
than by or at the direction of the Board of Directors or a committee of the
Board of Directors, of candidates for election as directors as well as for
other stockholder proposals to be considered at annual meetings of
stockholders. In general, notice of intent to nominate a director or raise
business at such meetings must be received by the Company not less than 30 nor
more than 60 days before the meeting, and must contain certain information
concerning the person to be nominated or the matters to be brought before the
meeting and concerning the stockholder submitting the proposal.
Incentive Stock Plan. Awards granted pursuant to the Company's Incentive
Stock Plan may provide that, under certain circumstances, upon a change in
control of the Company, all outstanding stock options will become immediately
vested and exercisable in full and the restriction period on any restricted
stock award will be accelerated and the restrictions shall expire. It is
anticipated that all options granted under the Incentive Stock Plan will
contain such a provision. As of the date of this Prospectus, no options have
been granted under the Incentive Stock Plan. See "Management--Stock Option
Plans and Agreements."
Indemnification of Officers and Directors; Limitation of Director
Liability. The Company has entered into indemnification agreements with all of
its directors and executive officers, which, among other things, require the
Company to indemnify directors against liability arising from stockholder
claims of a breach of duty by a director if a director votes against a
transaction that would result in a change of control of the Company. The
Company's Articles of Incorporation also provide that its directors shall not
be liable for monetary damages
43
<PAGE>
caused by an act or omission occurring in their capacity as directors. This
provision does not eliminate the duty of care, and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of non-
monetary relief will remain available under Texas law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Company, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for actions
leading to improper personal benefit to a director and for payment of
dividends or acts or omissions for which a director is made expressly liable
by applicable statute. The limitations on liability provided for in the
Company's Articles of Incorporation do not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The Company believes that these
provisions will assist the Company in attracting and retaining qualified
individuals to serve as executive officers and directors.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is KeyCorp
Stockholder Services, Inc., Dallas, Texas.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
3,996,006 shares of Common Stock (4,258,506 shares if the Underwriters' over-
allotment option is exercised in full), assuming no exercise of options
outstanding as of May 1, 1996. Of these shares, all 1,750,000 of the shares of
Common Stock offered hereby (2,012,500 shares if the Underwriters' over-
allotment option is exercised in full) will be freely tradeable in the public
market without restriction by persons other than "affiliates" of the Company,
as that term is defined in Rule 144 under the Securities Act.
The remaining 2,246,006 shares of Common Stock will be "restricted"
securities within the meaning of Rule 144 and may not be sold unless
registered under the Securities Act or an exemption therefrom is available,
such as Rule 144 or Rule 144A.
The Company, its officers and directors and certain stockholders, who
collectively own an aggregate of 2,683,506 shares of Common Stock prior to the
offering, have agreed not to offer for sale, sell or otherwise dispose of,
directly or indirectly, any shares of Common Stock (other than the shares to
be sold by the Selling Stockholders in this offering) or any securities
convertible into or exchangeable or exercisable for Common Stock, or sell or
grant options, rights or warrants with respect to any shares of Common Stock
(other than the grant of options pursuant to option plans existing on the date
hereof), without the prior consent of Robertson, Stephens & Company for a
period of 180 days following the date of this Prospectus (the "Lock-Up
Period"). Following the expiration of such 180-day period, all of such shares
will be eligible for resale in the public market subject, where applicable, to
the volume limitations and other requirements of Rule 144. The shares subject
to the lock-up agreements include all outstanding shares that would otherwise
be eligible for resale in the public market pursuant to Rule 144 beginning 90
days after the date of this Prospectus. In addition to the foregoing, as of
May 1, 1996, there were outstanding options to purchase an aggregate of
133,867 shares of Common Stock. Of the shares underlying such options, 26,773
shares will be eligible for sale upon expiration of the Lock-Up Period. The
remaining 107,094 shares underlying such options will become eligible for sale
more than 180 days after the date of this Prospectus as such options vest.
Robertson, Stephens & Company has informed the Company that it has no current
intention to release shares during the Lock-Up Period. Any request for release
would be evaluated by Robertson, Stephens & Company, and the decision whether
to permit early release of shares would be made dependent upon the facts and
circumstances existing at the time of the request.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), including an affiliate, who has beneficially
owned "restricted" shares for at least two years (including the holding period
of any prior owner except an affiliate from whom such shares were purchased)
may sell within any three-month period commencing 90 days after the date of
this Prospectus, a number of shares that does not exceed the greater of 1.0%
of the then outstanding shares of Common Stock (approximately 39,960 shares
immediately after this offering, or approximately 42,585 shares if the
Underwriters' over-allotment option is exercised in full) or the average
weekly trading volume in Common Stock during the four calendar weeks preceding
the date on which notice of such sale is filed with the Securities and
Exchange Commission (the "Commission"). Sales under Rule 144 are also subject
to certain provisions relating to the manner and notice of sale and
availability of current public information about the Company. Affiliates may
sell shares which are not "restricted" shares in accordance with volume
limitations and other restrictions, but without regard to the two-year holding
period. A person who is not an affiliate of the Company at any time during the
90 days preceding a sale and who beneficially owns shares that were not
acquired from the Company or an affiliate of the Company within the past three
years may sell such shares under Rule 144 without regard to volume
limitations, manner of sale and notice provisions or the availability of
current public information concerning the Company.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register all 200,000 shares reserved for issuance under the
Incentive Stock Plan, as well as 133,867 shares issuable upon exercise of
outstanding options under the Option Agreements. All shares acquired in the
future under the Incentive Stock Plan or pursuant to the Option Agreements
will be available for resale by non-affiliates in the public market without
restriction, subject, however, to lock-up agreements with respect to such
shares. Shares
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<PAGE>
acquired by affiliates under the Incentive Stock Plan or the Option Agreements
may not be resold unless they are registered under the Securities Act or
resold pursuant to an exemption from such registration, such as Rule 144.
Prior to this offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that market
sales of shares of Common Stock or the availability of shares of Common Stock
for sale will have on the market price of the Common Stock prevailing from
time to time. Nevertheless, sales of substantial shares of Common Stock of the
Company in the public market could adversely affect prevailing market prices
and could impair the Company's future ability to raise capital through the
sale of its equity securities.
46
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), acting through their
representatives, Robertson, Stephens & Company LLC and Principal Financial
Securities, Inc. (the "Representatives"), have severally agreed with the
Company and the Selling Stockholders, subject to the terms and conditions of
the Underwriting Agreement, to purchase from the Company and the Selling
Stockholders the number of shares of Common Stock set forth opposite their
respective names below. The Underwriters are committed to purchase and pay for
all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Robertson, Stephens & Company LLC..................................
Principal Financial Securities, Inc. ..............................
---------
Total............................................................ 1,750,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose to offer the shares of Common Stock to the
public at the initial public offering price set forth on the cover page of
this Prospectus, and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may re-
allow, a concession not in excess of $ per share to certain other dealers.
After the initial public offering, the public offering price, concessions and
reallowances to dealers may be reduced by the Representatives. No such
reduction shall change the amount of proceeds to be received by either the
Company or the Selling Stockholders as set forth on the cover of this
Prospectus.
The Company has granted to the Underwriters an option, exercisable not later
than 30 days from the date of this Prospectus, to purchase up to 262,500
additional shares of Common Stock at the initial public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the above table bears to the total shares of Common
Stock listed in such table, and the Company will be obligated, pursuant to
such option, to sell such shares to the Underwriters. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of Common Stock offered hereby. If purchased, the Underwriters will offer
such additional shares on the same terms as those on which the 1,750,000
shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain
liabilities, including liabilities under the Securities Act.
Pursuant to the terms of lock-up agreements, the officers, directors and
certain stockholders of the Company, including the Selling Stockholders, who
will hold in the aggregate approximately 2,246,006 shares of Common Stock
following this offering, have agreed that they will not directly or indirectly
offer to sell, sell, or otherwise dispose of shares of Common Stock or any
securities convertible or exchangeable therefor, for a period of 180 days
after the date of this Prospectus, without the prior written consent of
Robertson, Stephens & Company LLC. Robertson, Stephens & Company LLC may, in
its sole discretion and at any time without notice, release all or any portion
of the securities subject to lock-up agreements. See "Shares Eligible for
Future Sale." In addition,
47
<PAGE>
the Company has agreed not to offer to sell, sell or otherwise dispose of any
shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Robertson, Stephens & Company
LLC, except for the shares of Common Stock offered hereby and except that the
Company may issue securities pursuant to the Company's Incentive Stock Plan
and upon the exercise of outstanding options.
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
During 1995, the Company paid Principal Financial Securities, Inc. a fee in
the amount of $15,000 in connection with its due diligence investigation of
the Company relating to this offering.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiations among the Company and the
Representatives. The factors to be considered in such negotiations will be the
prevailing market conditions, the results of operations of the Company in
recent periods, the market capitalizations and stages of development of other
companies which the Company and the Representatives believe to be comparable
to the Company, estimates of the business potential of the Company and the
present state of the Company's development. There can be no assurance that an
active or orderly trading market will develop for the Company's Common Stock
or that the Common Stock will trade in the public market subsequent to this
offering at or above the initial public offering price.
48_
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the validity of shares of Common Stock
offered hereby are being passed upon for the Company by Jenkens & Gilchrist, a
Professional Corporation, Austin, Texas. Certain legal matters will be passed
upon for the Underwriters by Brobeck, Phleger & Harrison LLP, Austin, Texas.
EXPERTS
The consolidated financial statements of the Company at September 30, 1995
and December 31, 1994 and for the fiscal year ended September 30, 1995 and
December 31, 1994, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of the Company at December 31, 1993
and for the year then ended appearing in this Prospectus and Registration
Statement have been audited by Devona Jeffery, L.L.C., independent auditor, as
set forth in their report thereon appearing elsewhere herein, and are included
in reliance upon such report given upon the authority of such firm as expert
in accounting and auditing.
The consolidated statements of operations, retained earnings and cash flows
of Red River Marine, Inc. ended September 30, 1994 and 1995, included in this
Prospectus and Registration Statement, have been audited by Turner, Burkett &
Ring, P.A., Searcy, Arkansas, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-1 (the
"Registration Statement") with the Commission under the Securities Act in
respect of the Common Stock offered hereby. For purposes of this Prospectus,
the term "Registration Statement" means the initial Registration Statement and
any and all amendments thereto. This Prospectus does not contain all of the
information contained in the Registration Statement and the exhibits and
schedules thereto, as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement,
including the exhibits thereto. Statements herein concerning the contents of
any contract or other document filed as an exhibit to the Registration
Statement are not necessarily complete, and in each instance reference is made
to such contract or other document filed with the Commission as an exhibit to
the Registration Statement, or otherwise, each such statement being qualified
by and subject to such reference in all respects.
As a result of the offering, the Company will become subject to the
informational requirements of the Exchange Act, and in accordance therewith,
will file reports and other information with the Commission. Reports,
registration statements, proxy statements, and other information filed by the
Company with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at its regional
offices located at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and 7 World Trade Center, Suite 1300, New York, New York 10048.
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements certified by its
independent public accountants and quarterly reports for the first three
quarters of each fiscal year containing unaudited financial information.
49
<PAGE>
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Consolidated Financial Statements........... F-2
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
nine months ended
September 30, 1995....................................................... F-3
HISTORICAL FINANCIAL STATEMENTS
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
Audited Consolidated Financial Statements
Reports of Independent Auditors........................................... F-4
Consolidated Balance Sheets--December 31, 1993 and 1994, and September 30,
1995..................................................................... F-6
Consolidated Statements of Operations for the Years ended December 31,
1993 and 1994 and the nine months ended September 30, 1995............... F-7
Consolidated Statements of Stockholders' Equity for the Years ended Decem-
ber 31, 1993 and 1994 and the nine months ended September 30, 1995....... F-8
Consolidated Statements of Cash Flows for the Years ended December 31,
1993 and 1994 and the nine months ended September 30, 1995............... F-9
Notes to Consolidated Financial Statements................................ F-10
Unaudited Interim Financial Statements
Unaudited Condensed Consolidated Balance Sheet as of March 31, 1996....... F-19
Unaudited Condensed Consolidated Statements of Operations for the six
months ended March 31, 1995 and 1996..................................... F-20
Unaudited Condensed Consolidated Statements of Cash Flows for the six
months ended March 31, 1995 and 1996..................................... F-21
Notes to Unaudited Condensed Consolidated Financial Statements............ F-22
RED RIVER MARINE, INC. AND SUBSIDIARY
Audited Consolidated Financial Statements
Report of Independent Auditors............................................ F-24
Consolidated Statements of Income and Retained Earnings for the Years
ended September 30, 1994 and 1995........................................ F-25
Consolidated Statements of Cash Flows for the Years ended September 30,
1994 and 1995............................................................ F-26
Notes to Financial Statements............................................. F-27
</TABLE>
F-1
<PAGE>
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated statements of operations of
Travis Boats & Motors, Inc. (the Company) for the nine months ended September
30, 1995 reflect adjustments as if the acquisition of Red River Marine, Inc.
and the repayment of certain existing debt as contemplated by the Registration
Statement had occurred as of January 1, 1995.
The acquisition of Red River Marine, Inc. occurred on September 20, 1995 and
has been accounted for using the purchase method of accounting for business
combinations. Accordingly, the historical consolidated statements and
operations of the Company include the operations of Red River Marine, Inc.
since September 20, 1995.
The unaudited pro forma condensed consolidated financial statements should
be read in conjunction with the separate historical financial statements of
Travis Boats & Motors, Inc. and Red River Marine, Inc., related notes and
"Management's Discussions and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Registration Statement. The pro forma
information is not necessarily indicative of the results that would have been
obtained had the acquisition of Red River Marine, Inc. actually occurred on
the date assumed herein, nor is the pro forma information indicative of the
future results of the Company and its consolidated subsidiaries.
F-2
<PAGE>
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
TRAVIS BOATS LESS
& MOTORS RED RIVER RED RIVER
NINE MONTHS MARINE MARINE
ENDED YEAR ENDED THREE MONTHS
SEPTEMBER 30, SEPTEMBER 30, ENDED TRAVIS BOATS
1995 1995 DECEMBER 31, PRO FORMA & MOTORS
HISTORICAL HISTORICAL 1994 ADJUSTMENTS PRO FORMA
------------- ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 41,442,349 $ 14,085,084 $ 897,821 $ -- $ 54,629,612
Cost of goods sold...... (31,136,555) (11,316,009) (753,022) -- (41,699,542)
------------ ------------ --------- --------- ------------
Gross profit............ 10,305,794 2,769,075 144,799 -- 12,930,070
Operating expenses...... (6,569,809) (2,573,890) (484,640) 324,920 (a),(b),(c) (8,334,139)
Interest expense........ (670,020) (331,318) (51,956) 523,000 (d),(e) (426,382)
Other income............ 133,849 85,240 7,619 -- 211,470
------------ ------------ --------- --------- ------------
Income (loss) before
income taxes........... 3,199,814 (50,893) (384,178) 847,920 4,381,019
Income tax (expense).... (1,149,621) -- -- (427,546)(f) (1,577,167)
------------ ------------ --------- --------- ------------
Net income (loss)....... $ 2,050,193 $ (50,893) $(384,178) $ 420,374 $ 2,803,852
============ ============ ========= ========= ============
Net income per common
share.................. $ .76 $ .70
============ ============
Weighted average common
shares outstanding..... 2,683,506 3,996,006
</TABLE>
The following pro forma adjustments reflect the effect of the acquisition of
Red River Marine, Inc. and the transactions contemplated by the Registration
Statement as if such acquisition and such transactions had occurred on January
1, 1995. Adjustments included in the unaudited pro forma condensed
consolidated statement of operations for the nine months ended September 30,
1995 are as follows:
(a) To eliminate costs in the amount of $25,000 incurred by Red River
Marine in connection with the acquisition.
(b) To reflect nine months of amortization expense in the amount of
$52,500 on costs in excess of net assets acquired recorded in connection
with the acquisition.
(c) To eliminate excess owner's compensation and related expenses in the
amount of $352,420, all of which were directly attributable to the
acquisition.
(d) To reflect nine months of interest expense in the amount of $84,000
on notes payable issued in connection with the acquisition (average
interest rate of 8.75%).
(e) To eliminate interest expense on debt to be retired with proceeds
from the transactions contemplated by the Registration Statement as
follows:
. $523,000 related to floor plans payable and revolving lines of credit
(average interest rate of 5.3%)
. $84,000 related to notes payable issued in connection with the
acquisition (average interest rate of 8.75%)
(f) To reflect income taxes at the Company's effective tax rate of 36%.
F-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Travis Boats & Motors, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Travis Boats
& Motors, Inc. and Subsidiaries as of September 30, 1995 and December 31, 1994
and the related consolidated statements of operations, stockholders' equity
and cash flows for the nine-month period ended September 30, 1995 and the year
ended December 31, 1994. 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, 1995 and December 31, 1994
and the consolidated results of their operations and their cash flows for the
nine-month period ended September 30, 1995 and the year ended December 31,
1994, in conformity with generally accepted accounting principles.
Ernst & Young LLP
November 8, 1995, except for Note 10,
as to which the date is May 3, 1996
Austin, Texas
F-4
<PAGE>
May 17, 1994
President and Board of Directors
Travis Boats & Motors, Inc.
and Subsidiary Companies
Austin, Texas
We have audited the Consolidated Accompanying Balance Sheet of Travis Boats
& Motors, Inc. and Subsidiary Companies as of December 31, 1993, and the
related Consolidated Statements of Operations, Stockholders' Equity and Cash
Flows for the year then ended, in accordance with standards established by the
American Institute of Certified Public Accountants. All information included
in these financial statements are the representation of management of Travis
Boats & Motors, Inc. and Subsidiary Companies. Our responsibility is to
express an opinion on these Financial Statements based on our independent
audit.
We conducted the audit in accordance with Generally Accepted Auditing
Standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated balance sheet of Travis Boats & Motors,
Inc. and Subsidiary Companies as of December 31, 1993 presents fairly, in all
material respects, the financial position of Travis Boats & Motors, Inc. and
Subsidiary Companies and the results of their operations and their cash flows
for the year then ended, in conformity with Generally Accepted Accounting
Principles.
Devona Jeffery, L.L.C.
Austin, Texas
F-5
<PAGE>
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------ -------------
1993 1994 1995
----------- ----------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 139,162 $ 258,752 $ 996,058
Accounts receivable................... 375,503 223,608 1,046,717
Prepaid expenses...................... 135,877 73,190 48,559
Inventories........................... 10,704,170 13,494,799 14,270,312
Deferred tax asset.................... -- -- 115,375
----------- ----------- -----------
Total current assets................ 11,354,712 14,050,349 16,477,021
Property and equipment:
Land.................................. 1,138,287 1,500,718 1,815,718
Buildings and improvements............ 1,897,149 2,246,627 4,183,718
Furniture, fixture and equipment...... 798,864 938,970 1,351,449
----------- ----------- -----------
3,834,300 4,686,315 7,350,885
Less accumulated depreciation......... (1,150,909) (1,342,728) (1,559,693)
----------- ----------- -----------
2,683,391 3,343,587 5,791,192
Deferred tax asset..................... -- -- 21,300
Costs in excess of net assets ac-
quired................................ 14,167 -- 1,050,000
Other assets........................... 35,700 40,167 17,150
----------- ----------- -----------
Total assets........................ $14,087,970 $17,434,103 $23,356,663
=========== =========== ===========
LIABILITIES
Current liabilities:
Accounts payable...................... $ 337,649 $ 196,056 $ 461,919
Accrued liabilities................... 197,568 784,165 1,188,355
Federal income taxes payable.......... 201,239 226,535 576,157
Current portion of notes payable and
other short-term obligations......... 10,607,640 10,977,126 11,442,625
----------- ----------- -----------
Total current liabilities........... 11,344,096 12,183,882 13,669,056
Notes payable, less current portion.... 1,012,644 2,587,994 4,875,745
Deferred revenue....................... 21,011 -- --
Redeemable preferred stock, Series A,
$100 par value, 10.5% noncumulative,
nonvoting, 10,000 shares authorized,
2,250, 1,000, and -0- shares issued
and outstanding at December 31, 1993
and 1994, and September 30, 1995,
respectively.......................... 225,000 100,000 --
Stockholders' equity:
Common stock, $.01 par value,
50,000,000 shares authorized,
2,564,331, 2,635,865 and 2,683,506
shares issued and outstanding at
December 31, 1993 and 1994, and at
September 30, 1995, respectively..... 25,643 26,358 26,835
Paid-in capital....................... 5,947 66,670 138,511
Retained earnings..................... 1,572,854 2,596,323 4,646,516
Notes receivable--stockholders........ (119,225) (127,124) --
----------- ----------- -----------
Total stockholders' equity.......... 1,485,219 2,562,227 4,811,862
----------- ----------- -----------
Total liabilities and stockholders'
equity............................. $14,087,970 $17,434,103 $23,356,663
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
------------------------ SEPTEMBER 30,
1993 1994 1995
----------- ----------- -------------
<S> <C> <C> <C>
Net sales............................. $25,756,505 $37,224,643 $41,442,349
Cost of goods sold.................... 19,810,693 28,490,216 31,136,555
----------- ----------- -----------
Gross profit.......................... 5,945,812 8,734,427 10,305,794
Selling, general and administrative
expenses............................. 4,496,029 6,332,883 6,352,844
Depreciation and amortization......... 179,527 266,299 216,965
----------- ----------- -----------
4,675,556 6,599,182 6,569,809
----------- ----------- -----------
Operating income...................... 1,270,256 2,135,245 3,735,985
Interest expense...................... (449,364) (628,685) (670,020)
Other income.......................... 82,822 61,348 133,849
----------- ----------- -----------
Income before income taxes............ 903,714 1,567,908 3,199,814
Income taxes.......................... 307,262 544,439 1,149,621
----------- ----------- -----------
Net income............................ $ 596,452 $ 1,023,469 $ 2,050,193
=========== =========== ===========
Net income per common share........... $ .23 $ .39 $ .76
=========== =========== ===========
Weighted average common shares out-
standing............................. 2,611,972 2,647,739 2,683,506
</TABLE>
See accompanying notes.
F-7
<PAGE>
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK NOTES
----------------- PAID-IN RETAINED RECEIVABLE--
SHARES AMOUNT CAPITAL EARNINGS STOCKHOLDERS TOTAL
--------- ------- -------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1992................... 2,564,331 $25,643 $ 5,947 $ 976,402 $(173,066) $ 834,926
Net income............. -- -- -- 596,452 -- 596,452
Net proceeds on notes
receivable--
stockholders.......... -- -- -- -- 53,841 53,841
--------- ------- -------- ---------- --------- ----------
BALANCE AT DECEMBER 31,
1993 .................. 2,564,331 25,643 5,947 1,572,854 (119,225) 1,485,219
Issuance of common
stock................. 71,534 715 60,723 -- -- 61,438
Net income............. -- -- -- 1,023,469 -- 1,023,469
Net proceeds (issuance)
on notes receivable--
stockholders.......... -- -- -- -- (7,899) (7,899)
--------- ------- -------- ---------- --------- ----------
BALANCE AT DECEMBER 31,
1994................... 2,635,865 26,358 66,670 2,596,323 (127,124) 2,562,227
Issuance of common
stock................. 47,641 477 71,841 -- -- 72,318
Net income............. -- -- -- 2,050,193 -- 2,050,193
Net proceeds on notes
receivable--
stockholders.......... -- -- -- -- 127,124 127,124
--------- ------- -------- ---------- --------- ----------
BALANCE AT SEPTEMBER 30,
1995................... 2,683,506 $26,835 $138,511 $4,646,516 $ -- $4,811,862
========= ======= ======== ========== ========= ==========
</TABLE>
See accompanying notes.
F-8
<PAGE>
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ -------------
1993 1994 1995
----------- ----------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................ $ 596,452 $ 1,023,469 $ 2,050,193
Adjustments to reconcile net income to
net cash (used in) provided by
operating activities:
Depreciation and amortization....... 179,527 266,299 216,965
Loss on disposal of assets.......... 1,000 19,381 --
Changes in operating assets and lia-
bilities:
(Increase) decrease in accounts
receivable....................... (111,298) 151,895 (823,109)
(Increase) decrease in prepaid as-
sets............................. (56,538) 62,687 24,631
(Increase) decrease in invento-
ries............................. (3,260,728) (2,790,629) 349,830
Decrease in other assets.......... 7,469 9,700 23,017
Increase in deferred tax asset.... -- -- (136,675)
Increase (decrease) in accounts
payable.......................... 320,021 (141,593) 265,863
Increase in accrued liabilities... 50,654 586,597 404,190
Increase in income taxes payable.. 21,358 25,296 349,622
Decrease in deferred charges...... (113,167) (21,011) --
----------- ----------- -----------
Net cash (used in) provided by operat-
ing activities....................... (2,365,250) (807,909) 2,724,527
INVESTING ACTIVITIES:
Purchase of business.................. -- -- (916,345)
Purchase of property and equipment.... (1,085,229) (937,004) (1,885,345)
----------- ----------- -----------
Net cash used in investing
activities........................... (1,085,229) (937,004) (2,801,690)
FINANCING ACTIVITIES:
Net increase in notes payable and
other short-term obligations......... 3,431,426 1,935,964 715,027
Issuance of common stock.............. -- 61,488 72,268
Redemption of preferred stock......... -- (125,000) (100,000)
Net proceeds (issuance) on notes
receivable--stockholders............. 53,841 (7,949) 127,174
----------- ----------- -----------
Net cash provided by financing
activities........................... 3,485,267 1,864,503 814,469
Increase in cash and cash
equivalents.......................... 34,788 119,590 737,306
Cash and cash equivalents, beginning
of year.............................. 104,374 139,162 258,752
----------- ----------- -----------
Cash and cash equivalents, end of
year................................. $ 139,162 $ 258,752 $ 996,058
=========== =========== ===========
</TABLE>
See accompanying notes.
F-9
<PAGE>
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Consolidation
Travis Boats & Motors, Inc. (the "Company") is a retailer of boats, motors,
trailers and related watersport accessories. The Company operates 11 locations
in Texas, Louisiana and Arkansas. 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. In 1995, the Company changed its fiscal year end from December
31 to September 30 to coincide with the seasonal cycle of its business.
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.
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 are carried at the lower of cost or market. Cost is determined
using the specific identification method. Inventories consist of boats,
motors, trailers and related watersport accessories.
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. The Company
capitalized interest of approximately $80,000 during the nine months ended
September 30, 1995 in connection with the construction of a store location. No
interest was capitalized in the years ended December 31, 1993 and 1994.
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.
Costs in Excess of Net Assets Acquired
Amounts assigned to costs in excess of net assets acquired are amortized
over the respective estimated useful lives using the straight-line method as
follows:
<TABLE>
<CAPTION>
LIFE
--------
<S> <C>
Noncompete agreement.......................... 7 years
Goodwill...................................... 25 years
</TABLE>
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
F-10
<PAGE>
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
due from vendors under rebate programs. There was no allowance for doubtful
accounts recorded at December 31, 1993 and 1994 and September 30, 1995.
Pre-opening Costs
Pre-opening costs related to new store locations are expensed as incurred.
Advertising Costs
Advertising costs are expensed as incurred and were approximately $178,000,
$334,000, and $353,000 during the years ended December 31, 1993 and 1994 and
the nine months ended September 30, 1995, respectively.
Net Income per Common Share
Net income per common share is based on the weighted average number of
common shares outstanding during the period. Common stock issued during the
nine months ended September 30, 1995 has been included in the calculation of
weighted average common shares outstanding for all periods presented. The
effect of common stock equivalents is not significant.
Recently Issued Accounting Standards
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement No. 121 also addresses the accounting for long-
lived assets that are held for disposition. The Company will adopt Statement
No. 121 in 1996 and, based on current circumstances, does not expect a
material impact to the Company's results of operations or financial position.
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-
Based Compensation," which prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options. The
Company must adopt the provisions of Statement No. 123 during the year ended
September 30, 1996. Under such provisions, the Company may elect to expense
the fair value of stock-based compensation or provide pro forma disclosures of
what net income would have been had the Company adopted the new fair value
method for recognition purposes. The Company continues to evaluate the
provisions of Statement No. 123 and has not determined whether it will adopt
the Statement for expense recognition purposes.
Reclassifications
Certain 1993 and 1994 amounts have been reclassified in order to conform
with the 1995 presentation.
2. NOTES PAYABLE AND OTHER SHORT-TERM OBLIGATIONS
Notes payable and other short-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------- SEPTEMBER 30
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Floor plan payables............. $ 8,790,002 $ 10,223,665 $ 10,302,562
Revolving lines of credit....... 540,000 570,000 667,143
Notes payable................... 2,290,282 2,771,455 5,348,665
------------ ------------ ------------
Total notes payable and other
short-term obligations....... 11,620,284 $ 13,565,120 16,318,370
Less current portion............ (10,607,640) (10,977,126) (11,442,625)
------------ ------------ ------------
Total notes payable and other
short-term obligations, less
current portion.............. $ 1,012,644 $ 2,587,994 $ 4,875,745
============ ============ ============
</TABLE>
F-11
<PAGE>
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. NOTES PAYABLE AND OTHER SHORT-TERM OBLIGATIONS (CONTINUED)
Floor plan payables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1993 1994 1995
---------- ----------- -------------
<S> <C> <C> <C>
Floor plan payable to bank under a
$7,500,000 revolving line of
credit agreement with interest
floating at prime plus .25%,
maturing July 1996............... $3,658,375 $ 4,268,901 $ 2,163,267
Floor plan payable to bank under
revolving line of credit
agreements totaling $4,050,000
with interest floating at prime
plus .50% to prime plus 1%,
maturing May 1996 and August
1996............................. 630,220 610,185 1,224,389
Floor plans payable to commercial
finance companies under revolving
line of credit agreements with
interest ranging from 0% to prime
plus 4.75% with no stated
maturity date.................... 4,501,407 5,344,579 6,914,906
---------- ----------- -----------
Total floor plans payable......... $8,790,002 $10,223,665 $10,302,562
========== =========== ===========
</TABLE>
The floor plan payables are collateralized by specific boat, motor and
trailer inventory, as well as general security filings on all inventory and
equipment. The floor plan payables to finance companies include non-interest
bearing payment terms for part of the calendar year (typically the months of
August through April). As of December 31, 1993 and 1994, and September 30,
1995, the amount of non-interest bearing floor plans payable to finance
companies was $4,389,639, $4,478,125 and $6,522,829, respectively.
Floor plan payables of certain of the Company's subsidiaries are guaranteed
by the Company. Certain floor plan payables are guaranteed in limited dollar
amounts by various stockholders of the Company. The Company is significantly
limited as to annual dividends for preferred and common stock.
Borrowings under revolving lines of credit consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1993 1994 1995
-------- -------- -------------
<S> <C> <C> <C>
Note payable to bank under a $500,000
revolving line of credit agreement with
interest at prime plus .25%, due July
1996................................... $500,000 $500,000 $470,000
Notes payable to bank under $250,000
revolving line of credit agreements
with interest at prime plus 1%, due
February 1996 and May 1996............. 40,000 70,000 197,143
-------- -------- --------
Borrowings under lines of credit........ $540,000 $570,000 $667,143
======== ======== ========
</TABLE>
The weighted average interest rate on floor plan payables and revolving
lines of credit outstanding as of December 31, 1993, December 31, 1994 and
September 30, 1995 is 3.9%, 5.2% and 5.3%, respectively.
F-12
<PAGE>
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. NOTES PAYABLE AND OTHER SHORT-TERM OBLIGATIONS (CONTINUED)
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1993 1994 1995
---------- ---------- -------------
<S> <C> <C> <C>
Mortgage notes payable to various
banks, organizations and
individuals under deeds of trust
with interest ranging from 6.0% to
10.5% due in monthly principal and
interest installments ranging from
$1,225 to $30,114, maturing
beginning in April 1998........... $1,269,105 $2,134,561 $3,266,475
Notes payable to various banks, a
corporation and an individual for
equipment with interest ranging
from 6.99% to 11.0%, due in
monthly installments ranging from
$333 to $10,500, maturing
beginning in December 1995........ 130,065 85,228 580,524
Notes payable to individuals with
interest at prime plus 1% fixed
annually, due in annual principal
installments of $20,000
(aggregate) plus interest,
maturing October 1997,
collateralized by approximately
90,000 shares of the Company's
outstanding common stock owned by
certain directors and officers of
the Company....................... 80,000 60,000 60,000
Notes payable (unsecured) to
corporation(s) owned by various
stockholders of the Company and to
stockholders individually, with
interest due quarterly at various
rates at or below prime plus 1%,
maturing October 1996............. 91,667 491,666 641,666
Note payable to individual with
interest at 8.75%, due in monthly
principal and interest
installments of $12,543, maturing
November 2002..................... -- -- 800,000
Interim construction note payable
to a bank under a deed of trust
with interest at prime plus 1%,
maturing April 1994............... 705,834 -- --
Note payable to individual with
interest at 10%, due in monthly
principal and interest
installments of $1,186............ 13,611 -- --
---------- ---------- ----------
Total notes payable................ $2,290,282 $2,771,455 $5,348,665
========== ========== ==========
</TABLE>
Certain notes payable are collateralized by assets of the Company including
inventory, accounts receivable, equipment, leasehold improvements, vehicles,
company stock, land and buildings. Notes payable of certain of its subsidiaries
are guaranteed by the Company. Certain notes payable are guaranteed in limited
dollar amounts by various stockholders of the Company.
F-13
<PAGE>
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. NOTES PAYABLE AND OTHER SHORT-TERM OBLIGATIONS (CONTINUED)
Interest paid was approximately $440,000, $641,000, and $843,000, in the
years ended December 31, 1993 and 1994 and the nine months ended September 30,
1995, respectively.
Aggregate maturities required on notes payable at September 30, 1995 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30
------------
<S> <C>
1996....................................... $ 472,920
1997....................................... 1,208,899
1998....................................... 534,539
1999....................................... 360,868
2000....................................... 492,964
Thereafter................................. 2,278,475
----------
$5,348,665
==========
</TABLE>
3. LEASES
The Company leases various facilities under operating leases. Rent expense
was $246,979 in 1993, $214,421 in 1994 and $188,581 in 1995. 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:
<TABLE>
<S> <C>
1996.......................................... $227,748
1997.......................................... 36,066
1998 and thereafter........................... --
</TABLE>
In addition, under most of the Company's leases, the Company has renewal
options at varying terms.
4. ACQUISITION
Effective September 20, 1995, the Company acquired Red River Marine, Inc.
with retail store locations in Hot Springs and Heber Springs, Arkansas. This
acquisition included land and building (Hot Springs location) and boat, motor
and trailer inventory, as well as parts and accessories inventory of each
location. The purchase price was $2,517,417 of which approximately $1,600,000
was financed by the issuance of notes payable to the seller.
The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the operating results of Red River Marine, Inc.
have been included in the consolidated financial statements from the date of
acquisition. The purchase price ($2,517,417) and liabilities assumed
($437,150) have been allocated to the tangible net assets acquired
($1,904,567) based on their respective fair values at the date of acquisition.
The resulting excess purchase price ($1,050,000) was allocated to a noncompete
agreement ($300,000) and goodwill ($750,000).
F-14
<PAGE>
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACQUISITION (CONTINUED)
The unaudited pro forma combined condensed results of operations of the
Company for the nine months ended September 30, 1995 and the year ended
December 31, 1994 as if the purchase had occurred on January 1, 1994 on the
basis described above are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1994 SEPTEMBER 30, 1995
----------------- ------------------
<S> <C> <C>
Revenue.............................. $50,400,575 $54,629,612
=========== ===========
Net income........................... $ 1,341,310 $ 2,469,132
=========== ===========
Net income per common share.......... $ .51 $ .92
=========== ===========
</TABLE>
The pro forma information does not purport to represent what the Company's
results of operations would actually have been had the acquisition occurred at
the beginning of the period indicated, nor to project the Company's results of
operations for any future date or period.
5. INCOME TAXES
In 1992, the Financial Accounting Standards Board issued Statement No. 109,
"Accounting for Income Taxes." The Company adopted the provisions of the new
standard in its financial statements for the year ended December 31, 1994. The
cumulative effect as of January 1, 1994 of adopting the Standard was
immaterial and the prior year financial statements have not been restated to
reflect the change in accounting method.
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:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1993 1994 1995
------ ------ -------------
<S> <C> <C> <C>
Deferred tax assets:
Book over tax deprecia-
tion................... $ -- $ -- $ 21,300
Accrued salaries and
wages.................. -- -- 115,375
------ ------ --------
Total deferred tax as-
sets..................... -- -- 136,675
Valuation allowance for
deferred tax assets...... -- -- --
------ ------ --------
Net deferred tax assets... $ -- $ -- $136,675
====== ====== ========
</TABLE>
F-15
<PAGE>
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31 ENDED
----------------------- SEPTEMBER 30
1993 1994 1995
----------- ----------- ------------
<S> <C> <C> <C>
Current expense:
Federal.................................. $ 307,262 $ 523,589 $1,243,371
State.................................... -- 20,850 42,925
----------- ----------- ----------
Total current expense.................. 307,262 544,439 1,286,296
=========== =========== ==========
Deferred expense (benefit):
Federal.................................. -- -- (130,900)
State.................................... -- -- (5,775)
----------- ----------- ----------
Total deferred expense (benefit)....... -- -- (136,675)
----------- ----------- ----------
Total provision for income taxes........... $ 307,262 $ 544,439 $1,149,621
=========== =========== ==========
</TABLE>
The differences between the effective tax rate and the U.S. federal
statutory rate of 34% are reconciled as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31 ENDED
----------------------- SEPTEMBER 30
1993 1994 1995
----------- ----------- ------------
<S> <C> <C> <C>
Income tax expense at the federal statu-
tory rate.............................. $ 307,262 $ 533,089 $1,087,937
State income taxes..................... -- 20,850 37,150
Other.................................. -- (9,500) 24,534
----------- ----------- ----------
$ 307,262 $ 544,439 $1,149,621
=========== =========== ==========
</TABLE>
Income taxes paid were approximately $162,000, $528,000 and $855,000, in the
years ended December 31, 1993 and 1994 and the nine months ended September 30,
1995, respectively.
6. REDEEMABLE PREFERRED STOCK
On August 31, 1989, the Company issued 2,250 shares of Series A redeemable
preferred stock for $225,000. The preferred stock is noncumulative and has a
par value and redemption value of $100 per share. The holders of the preferred
stock are entitled to receive dividends at the rate of 10.5% annually if
declared by the Board of Directors. No dividends were declared or paid during
the years ended December 31, 1993 and 1994 and the nine months ended September
30, 1995. The Company must redeem all preferred stock outstanding within 10
years from the date of issuance or August 31, 1999. The Company redeemed 1,250
shares in 1994 and 1,000 shares in 1995 for $125,000 and $100,000,
respectively. No preferred stock was outstanding at September 30, 1995.
7. STOCKHOLDERS' EQUITY
In March 1994, the Board of Directors of the Company approved a 199 for 1
stock dividend for stockholders of record as of March 31, 1994. See also Note
10.
The Company has granted options to purchase shares of the Company's common
stock to certain officers of the Company which vest over five years.
F-16
<PAGE>
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
Total option activity for the years ended December 31, 1993 and 1994 and the
nine months ended September 30, 1995, was as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PRICE $
--------- -------
<S> <C> <C>
Outstanding at December 31, 1992........................ -- --
Granted............................................... -- --
Exercised............................................. -- --
Expired............................................... -- --
-------
Outstanding at December 31, 1993........................ -- --
Granted............................................... -- --
Exercised............................................. -- --
Expired............................................... -- --
-------
Outstanding at December 31, 1994........................ -- --
Granted............................................... 133,867 $5.25
Exercised............................................. -- --
Expired............................................... -- --
-------
Outstanding at September 30, 1995....................... 133,867 $5.25
=======
Exercisable at September 30, 1995....................... -- --
=======
</TABLE>
8. RELATED PARTY TRANSACTIONS
The Company sells extended service contracts to its customers. The
obligations of the Company under these contracts are transferred to Ideal
Insurance Company, Ltd. (Ideal) pursuant to an agreement between the Company
and Ideal dated as of January 1, 1994. Ideal reinsures 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 pays 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
receives a commission for each extended service contract that it sells. For
the years ended December 31, 1993 and 1994, and the nine-month period ended
September 30, 1995, extended service contract commissions totaled
approximately $-0-, $350,000 and $448,000, respectively.
9. 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.
10. SUBSEQUENT EVENTS
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.
F-17
<PAGE>
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SUBSEQUENT EVENTS (CONTINUED)
Effective December 14, 1995, the Company changed the stated par value of
each share of common stock from $.10 to $.01. The financial statements have
been restated to retroactively reflect the above change in par value.
In November 1995, the Board of Directors of the Company approved a 15 for 1
stock dividend for stockholders of record as of November 8, 1995.
In May 1996, the Board of Directors of the Company approved a 1 for 3 stock
dividend for stockholders of record as of May 3, 1996.
All share amounts presented in these financial statements have been restated
to retroactively reflect the above stock dividends.
Effective December 1, 1995, the Company acquired certain assets of Clay's
Boats & Motors, Inc. ("Clay's") in New Iberia, Louisiana. The assets acquired
included furniture, fixtures and equipment, all parts and accessories, all
leasehold improvements and certain other miscellaneous assets. The purchase
price was $328,741, of which $262,687 was paid in cash and $66,054 was
financed by the issuance of a note payable to the seller.
The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the operating results of Clay's have been
included in the consolidated financial statements from the date of
acquisition. The purchase price ($328,741) has been allocated to the tangible
net assets acquired ($240,669) and the resulting excess purchase price
($88,072) was assigned to goodwill.
F-18
<PAGE>
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 664,969
Accounts receivable.............................................. 4,455,289
Prepaid expenses................................................. 131,775
Inventories...................................................... 28,733,265
Deferred tax asset............................................... 76,160
-----------
Total current assets........................................... 34,061,458
Property and equipment:
Land............................................................. 1,815,718
Buildings and improvements....................................... 4,876,653
Furniture, fixture and equipment................................. 1,627,843
-----------
8,320,214
Less accumulated depreciation.................................... (1,761,154)
-----------
6,559,060
Cost in excess of net assets acquired.............................. 1,101,114
Other assets....................................................... 176,181
-----------
Total assets....................................................... $41,897,813
===========
</TABLE>
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 735,925
Accrued liabilities.............................................. 1,237,219
Federal income taxes payable..................................... 487,000
Unearned revenue................................................. 2,769,714
Current portion of notes payable and other short-term obliga-
tions........................................................... 26,216,072
-----------
Total current liabilities...................................... 31,445,930
Notes payable, less current portion................................ 5,397,066
Stockholders' equity:
Common stock, $.01 par value, 50,000,000 shares authorized,
2,683,506 shares issued and outstanding......................... 26,835
Paid-in capital.................................................. 138,511
Retained earnings................................................ 4,889,471
-----------
Total stockholders' equity......................................... 5,054,817
-----------
Total liabilities and stockholders' equity......................... $41,897,813
===========
</TABLE>
See accompanying notes.
F-19
<PAGE>
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Net sales............................................. $16,626,734 $22,016,532
Cost of good sold..................................... 12,852,973 16,445,167
----------- -----------
Gross profit.......................................... 3,773,761 5,571,365
Selling, general and administrative expenses.......... 3,216,600 4,301,986
Depreciation and amortization......................... 136,815 262,256
----------- -----------
3,353,415 4,564,242
----------- -----------
Operating income...................................... 420,346 1,007,123
Interest expense...................................... (370,659) (668,547)
Other income.......................................... 110,034 31,379
----------- -----------
Income before income taxes............................ 159,721 369,955
Income taxes.......................................... 61,512 127,000
----------- -----------
Net income............................................ $ 98,209 $ 242,955
=========== ===========
Net income per common share........................... $ .04 $ .09
=========== ===========
Weighted average common shares outstanding............ 2,683,506 2,683,506
</TABLE>
See accompanying notes.
F-20
<PAGE>
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
---------------------------
1995 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income....................................... $ 98,209 $ 242,955
Adjustments to reconcile net income to net cash (used in)
operating activities:
Depreciation and amortization.................. 136,815 262,256
Changes in operating assets and liabilities:
(Increase) in accounts receivable............ (1,209,236) (3,408,572)
(Increase) in prepaid assets................. (47,478) (83,216)
(Increase) in inventories.................... (8,592,777) (14,331,935)
(Increase) in other assets................... (11,601) (159,031)
Decrease in deferred tax asset............... -- 60,515
Increase in accounts payable................. 79,383 274,006
Increase in accrued liabilities.............. 247,937 48,864
(Decrease) in income taxes payable........... (500,000) (89,157)
Increase in unearned revenue................. -- 2,769,714
------------ -------------
Net cash (used in) provided by operating activi-
ties............................................ (9,798,748) (14,413,601)
INVESTING ACTIVITIES:
Purchase of business............................. -- (262,687)
Purchase of property and equipment............... (133,679) (883,515)
------------ -------------
Net cash used in investing activities............ (133,679) (1,146,202)
FINANCING ACTIVITIES:
Net increase in notes payable and other short-
term obligations................................ 9,388,893 15,228,714
Issuance of common stock......................... 10,230 --
Net proceeds (issuance) on notes receivable
stockholders.................................... 8,101 --
------------ -------------
Net cash provided by financing activities........ 9,407,224 15,228,714
Decrease in cash and cash equivalents............ (525,203) (331,089)
Cash and cash equivalents, beginning of period... 525,203 996,058
------------ -------------
Cash and cash equivalents, end of period......... $ -- $ 664,969
============ =============
Supplemental Cash Flow Information:
Interest paid.................................... $ 320,000 $ 746,000
Income taxes paid................................ $ 311,000 $ 190,000
</TABLE>
See accompanying notes.
F-21
<PAGE>
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six-months ended
March 31, 1996 may not be indicative of the results for the year ended
September 30, 1996.
2. NOTES PAYABLE AND OTHER SHORT-TERM OBLIGATIONS
Notes payable and other short-term obligations as of March 31, 1996 consist
of the following:
<TABLE>
<S> <C>
Floor plans payable.......................................... $24,233,120
Revolving lines of credit.................................... 650,000
Notes payable................................................ 6,730,018
-----------
Total notes payable and other short-term obligations....... 31,613,138
Less current portion......................................... 26,216,072
-----------
Total notes payable and other short-term obligations, less
current portion........................................... $ 5,397,066
===========
</TABLE>
The weighted average interest rate on floor plans payable and revolving
lines of credit outstanding as of March 31, 1996 is 5.3%.
3. ACQUISITION
Effective September 20, 1995, the Company acquired Red River Marine, Inc.
with retail store locations in Hot Springs and Heber Springs, Arkansas. The
acquisition included land and building (Hot Springs location) and boat, motor
and trailer inventory, as well as parts and accessories inventory of each
location. The purchase price was $2,517,417 of which approximately $1,600,000
was financed by the issuance of notes payable to the seller.
The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the operating results of Red River Marine, Inc.
have been included in the consolidated financial statements from the date of
acquisition. The purchase price ($2,517,417) and liabilities assumed
($437,150) have been allocated to the tangible net assets acquired
($1,904,567) based on their respective fair values at the date of acquisition.
The resulting excess purchase price ($1,050,000) was assigned to noncompete
agreement ($300,000) and goodwill ($750,000).
Effective December 1, 1995, the Company acquired certain assets of Clay's
Boats & Motors, Inc. ("Clay's") in New Iberia, Louisiana. The assets acquired
included furniture, fixtures and equipment, all parts and accessories, all
leasehold improvements and certain other miscellaneous assets. The purchase
price was $328,741, of which $262,687 was paid in cash and $66,054 was
financed by the issuance of a note payable to the seller.
The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the operating results of Clay's have been
included in the consolidated financial statements from the date of
acquisition. The purchase price ($328,741) has been allocated to the tangible
net assets acquired ($240,669) and the resulting excess purchase price
($88,072) was assigned to goodwill.
F-22
<PAGE>
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY
In November 1995, the Board of Directors of the Company approved a 15 for 1
stock dividend for stockholders of record as of November 8, 1995.
Effective December 14, 1995, the Company changed the stated par value of
each share of common stock from $.10 to $.01.
In May 1996, the Board of Directors of the Company approved a 1 for 3 stock
dividend for stockholders of record as of May 3, 1996.
The financial statements have been restated to retroactively reflect the
above stock dividend and change in par value.
5. RELATED PARTY TRANSACTIONS
The Company sells extended service contracts to its customers. The
obligations to the Company under these contracts are transferred to ideal
Insurance Company, Ltd. (Ideal) pursuant to an agreement between the Company
and Ideal dated as of January 1, 1994. Ideal reinsures 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 pays 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
receives a commission for each extended service contract that it sells. For
the six-month period ended March 31, 1995 and 1996, extended service contract
commissions totaled approximately $169,000 and $106,000, respectively.
F-23
<PAGE>
REPORT OF INDEPENDENT AUDITORS
December 5, 1995
To the Shareholder
Red River Marine, Inc.
Heber Springs, AR 72543
We have audited the accompanying consolidated statements of income, retained
earnings and cash flows of Red River Marine, Inc. and its subsidiary for the
two years ended September 30, 1995. 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
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 results of operations and cash
flows of Red River Marine, Inc. and its subsidiary for the two years ended
September 30, 1995, in conformity with generally accepted accounting
principles.
Turner, Burkett & Ring, P.A.
F-24
<PAGE>
RED RIVER MARINE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-----------------------
1994 1995
----------- -----------
<S> <C> <C>
Sales.................................................. $13,175,932 $14,085,084
Cost of sales.......................................... 10,296,129 11,316,009
----------- -----------
Gross profit......................................... 2,879,803 2,769,075
Operating expenses:
Salaries and wages................................... 1,156,314 1,572,556
Repairs and maintenance.............................. 64,516 45,685
Auto expense......................................... 56,805 68,406
Insurance............................................ 137,456 102,597
Telephone and utilities.............................. 86,809 98,319
Advertising.......................................... 15,038 31,322
Office supplies and postage.......................... 18,641 18,097
Travel and entertainment............................. 22,411 38,594
Professional services................................ 20,237 44,631
Other................................................ 63,074 60,361
Commissions.......................................... 85,155 36,383
Payroll taxes........................................ 101,982 123,205
Depreciation......................................... 63,013 67,893
Operating supplies................................... 37,915 48,133
Contract labor....................................... 44,754 19,312
Freight.............................................. 82,051 76,418
Rent................................................. -- 24,833
Taxes and licenses................................... -- 29,216
Bad debts............................................ 53,750 37,742
Show expense......................................... 24,624 30,187
Profit sharing contribution.......................... 20,000 --
----------- -----------
Total operating expenses........................... 2,154,545 2,573,890
Income from operations............................... 725,258 195,185
</TABLE>
<TABLE>
<S> <C> <C>
Other income (expense):
Interest expense................................... $ (224,418) $ (331,318)
Interest income.................................... 29,074 32,927
Other income....................................... 26,795 52,313
----------- -----------
Total other income (expense)..................... (168,549) (246,078)
Income (loss) before provision for income taxes...... 556,709 (50,893)
Provision for income taxes........................... 148,068 --
----------- -----------
Net income (loss).................................... 408,641 (50,893)
Retained earnings, beginning of period............... 1,184,438 1,593,079
----------- -----------
Retained earnings, end of year....................... $ 1,593,079 $ 1,542,186
=========== ===========
</TABLE>
The notes to the consolidated financial statements
are an integral part of this statement.
F-25
<PAGE>
RED RIVER MARINE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income (loss).................................. $ 408,641 $ (50,893)
Adjustment to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation..................................... 63,013 67,893
Deferred income taxes............................ (990) (11,025)
Gain on sale of assets........................... -- (10,575)
(Increase) decrease in:
Accounts receivable.............................. (386) (7,832)
Inventory........................................ (614,598) 2,698,098
Notes receivable................................. -- (801,073)
Prepaid expenses and other assets................ 18,554 (10,998)
Increase (decrease) in:
Trade accounts payable........................... 44,513 (74,919)
Notes payable--floor plan........................ 181,985 (1,821,723)
Other current liabilities........................ (402) (17,683)
Income taxes payable............................. 107,684 (117,112)
Accrued salaries and commissions................. 27,987 (43,250)
----------- -----------
Net cash provided (used) by operating activi-
ties.......................................... 236,001 (201,092)
Cash flows from investing activities:
Purchase of equipment.............................. (56,360) --
Net proceeds from sale of assets................... -- 465,377
----------- -----------
Net cash provided (used) by investing activi-
ties............................................ (56,360) 465,377
Cash flows from financing activities:
Decrease in financing reserves..................... 50,894 33,776
Reduction in notes payable......................... (57,501) (223,172)
----------- -----------
Net cash used by financing activities............ (6,607) (189,396)
Net increase in cash................................. $ 173,034 $ 74,889
Cash, beginning of year.............................. 1,032,306 1,205,340
----------- -----------
Cash, end of year.................................... $ 1,205,340 $ 1,280,229
=========== ===========
Supplemental cash flow information
Cash paid for interest............................. $ 221,219 $ 330,479
=========== ===========
Cash paid for income taxes......................... $ 41,374 $ 117,112
=========== ===========
</TABLE>
The notes to the consolidated financial statements are an integral part of this
statement.
F-26
<PAGE>
RED RIVER MARINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The financial statements include the accounts of Red River Marine, Inc. and
its wholly-owned subsidiary Red River Marine, Inc. #2 (the Company). All
intercompany accounts have been eliminated in consolidation. The financial
statements reflect the marine operations through September 20, 1995, the date
of sale as discussed in Note 2.
Depreciation
Depreciation is computed using the straight-line and accelerated methods
over the estimated useful lives of the assets as summarized below:
<TABLE>
<S> <C>
Land Improvements...................... 10 Years
Building and Improvements.............. 10 to 40 Years
Vehicles............................... 3 Years
Furniture and Equipment................ 5 to 10 Years
</TABLE>
Bad Debts
Bad debts are accounted for by the direct write-off method.
NOTE 2--NOTES RECEIVABLE
In September 1995, the Company sold its inventory, certain other assets and
real estate and rights to the use of its name. Payment is to be received at
approximately $30,100 per month including interest at 8.75%.
NOTE 3--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 30, 1995, consists of the
following:
<TABLE>
<S> <C>
Land............................................................ $483,662
Buildings and Leasehold Improvements............................ 364,798
Autos........................................................... 23,835
Land Improvements............................................... 83,315
--------
955,610
Less: Accumulated Depreciation.................................. (228,287)
--------
Total........................................................... $727,323
========
</TABLE>
NOTE 4--LONG-TERM DEBT
Long-term debt at September 30, 1995 is comprised as follows:
<TABLE>
<S> <C>
Heber Springs State Bank 9.5% (Secured by real estate and
guaranteed by FMHA)......................................... $449,582
--------
Total long-term debt......................................... 449,582
Less current portion......................................... (15,638)
--------
$433,944
========
</TABLE>
F-27
<PAGE>
RED RIVER MARINE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--LONG-TERM DEBT (CONTINUED)
Annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
-------------------------
<S> <C>
1996.......................................................... $ 15,638
1997.......................................................... 17,123
1998.......................................................... 18,750
1999.......................................................... 20,531
2000.......................................................... 22,482
Thereafter.................................................... 355,058
--------
$449,582
========
</TABLE>
NOTE 5--CONTINGENT LIABILITIES
The Company is contingently liable to financial institutions at September
30, 1995 as follows:
<TABLE>
<S> <C>
Heber Springs State Bank....................................... $210,356
First Commercial Bank.......................................... 743,294
--------
Total........................................................ $953,650
========
</TABLE>
These contingent liabilities are a result of financing agreements with
recourse on boat sales financed by the above financial institutions.
NOTE 6--FUTURE OPERATIONS
Red River Marine, Inc., as noted in Note 2, sold its inventory, certain
other assets and real estate and right to the use of its name to Travis
Boating Centers, Inc. The management of Red River Marine, Inc. and its
operating policies and procedures will not continue in the future. Therefore,
the degree of success that Travis Boats & Motors, Inc. will experience in the
market area of Red River Marine, Inc. will be totally dependent upon the
skills of the Travis Boats & Motors, Inc. management of the Red River Marine
stores.
F-28
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
PICTURES ARE INCLUDED AS FOLLOWS:
1. Photographs of boats
2. Copy of companies in-store price-signage
3. Company's logo
<PAGE>
[LOGO]
