SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD OF ________ TO ________.
Commission File Number 0-20757
TRAVIS BOATS & MOTORS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2024798
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5000 Plaza on the Lake, Suite 250, Austin, Texas 78746
(Address of principal executive offices)
Registrant's telephone number, including area code: (512) 347-8787
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that Registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock as of the latest practicable date.
Common Stock $.01 par value - 4,255,356 shares as of August 10,
1998.
<PAGE>
Item 1. Financial Statements
Travis Boats & Motors, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
( in thousands, except share data )
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $8,484 $5,816
Accounts receivable 12,240 3,915
Inventories 45,505 34,450
Prepaid expenses and other 1,358 544
Total current assets 67,587 44,725
Property and equipment:
Land 3,326 1,991
Buildings and improvements 7,711 6,366
Furniture, fixtures and equipment 3,847 3,162
14,884 11,519
Less accumulated depreciation (3,312) (2,750)
11,572 8,769
Intangibles and other assets :
Goodwill and noncompete agreements, net 5,986 5,376
Other assets 370 251
Total assets $85,515 $59,121
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,623 $2,238
Accrued liabilities 4,742 4,631
Federal and state income taxes payable 436 1,081
Unearned revenue 1,865 522
Current portion of notes payable and other 43,027 21,447
short-term obligations
Total current liabilities 52,693 29,919
Notes payable, less current portion 4,492 5,145
Stockholders' equity
Common Stock, $.01 par value, 50,000,000 authorized,
4,224,867 and 4,255,356 issued and outstanding
at September 30, 1997 and June 30, 1998,
respectively 43 42
Paid-in capital 13,367 13,004
Retained earnings 14,920 11,011
Total stockholders' equity 28,330 24,057
Total liabilities and stockholders' equity $85,515 $59,121
</TABLE>
See notes to unaudited condensed consolidated financial statements
<PAGE>
Travis Boats & Motors, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except share data and stores open)
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales...................................... $55,699 $37,348 $99,268 $67,072
Cost of goods sold............................. 41,514 27,817 73,368 49,796
Gross profit................................... 14,185 9,531 25,900 17,276
Selling, general and administrative............ 7,941 5,426 16,929 11,204
Depreciation and amortization.................. 348 232 1,027 653
8,289 5,658 17,956 11,857
Operating income............................... 5,896 3,873 7,944 5,419
Interest expense............................... (649) (412) (1,688) (1,041)
Other income/(expense)......................... 21 (1) 48 (9)
Income before income taxes..................... 5,268 3,460 6,304 4,369
Provision for income taxes..................... 2,001 1,288 2,395 1,621
Net Income..................................... $3,267 $2,172 $3,909 $2,748
Basic Earnings Per Share....................... $0.77 $0.53 $0.92 $0.66
Diluted Earnings Per Share..................... $0.74 $0.51 $0.88 $0.65
Weighted average common shares outstanding..... 4,254,788 4,136,506 4,245,962 4,136,506
Weighted average dilutive common shares
outstanding ........................... 4,439,224 4,239,234 4,418,976 4,238,664
Stores open at end of period................... 23 16 23 16
</TABLE>
See notes to unaudited condensed consolidated financial statements
<PAGE>
Travis Boats & Motors, Inc.and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flow
(in thousands)
<TABLE>
<CAPTION>
Nine months ended
June 30,
1998 1997
<S> <C> <C>
Operating activities:
Net Income $3,909 $2,748
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization......................... 1,027 653
Changes in operating assets and liabilities
(Increase) in accounts receivable.................. (8,325) (4,754)
(Increase) in prepaid expenses..................... (814) (36)
(Increase) in inventories.......................... (8,920) (5,056)
(Increase) in other assets......................... (119) (180)
Increase in accounts payable....................... 356 1,098
Increase in accrued liabilities.................... 1,541 1,332
Increase/(Decrease) in income taxes payable........ (645) 424
Increase/(Decrease) in unearned revenue............ 1,343 (289)
Net Cash used in by operating activities.............. (10,647) (4,060)
Investing Activities:
Purchase of businesses................................ (4,583) (2,519)
Purchase of property and equipment.................... (3,209) (1,344)
Net cash used in investing activities (7,792) (3,863)
Financing activities:
Net increase in notes payable and other short term
obligations...................................... 20,743 10,078
Sale of common stock 364 0
Net cash provided by financing activities............. 21,107 10,078
Increase/(Decrease) in cash and cash equivalents...... 2,668 2,155
Cash and cash equivalents, beginning of period........ 5,816 1,533
Cash and cash equivalents, end of period.............. $8,484 $3,688
See notes to unaudited condensed consolidated financial statements
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared from the records of Travis Boats &
Motors, Inc. and subsidiaries (collectively, the Company) without
audit. In the opinion of management, such financial statements
include all adjustments (consisting of only recurring accruals)
necessary to present fairly the financial position at June 30,
1998; and the interim results of operations and cash flows for the
three month and nine month periods ended June 30, 1998 and 1997.
The condensed consolidated balance sheet at September 30, 1997,
presented herein, has been prepared from the audited consolidated
financial statements of the Company for the fiscal year then
ended.
Accounting policies followed by the Company are described in Note
1 to the audited consolidated financial statements for the fiscal
year ended September 30, 1997. Certain information and footnote
disclosures normally included in financial statements have been
condensed or omitted for purposes of the condensed consolidated
interim financial statements. The condensed consolidated
financial statements should be read in conjunction with the
audited consolidated financial statements, including the notes
thereto, for the fiscal year ended September 30, 1997 included in
the Company's annual Report on Form 10-K.
The results of operations for the three month and nine month
periods ended June 30, 1998 are not necessarily indicative of the
results to be expected for the full year.
NOTE 2 - NET INCOME PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share.
Statement 128 replaced the previously reported primary and fully
diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been
presented, and restated where necessary, to conform to the
Statement 128 requirements.
<PAGE>
The following table sets forth the computation of basic and
diluted earnings per share:
Three Months Ended Nine Months Ended
June 30 June 30
1998 1997 1998 1997
Numerator:
Net income $3,267,000 $2,172,000 $3,909,000 $2,748,000
Denominator:
Denominator for basic
Earnings per share -
Weighted avg. shares 4,254,788 4,136,506 4,245,962 4,136,506
Effect of dilutive securities:
Employee stock options 184,436 102,728 173,014 102,158
_____________________________________________
Dilutive potential common shares ------- -------- ------- ------
Denominator for diluted earnings
Per share - adjusted
Weighted average shares 4,439,224 4,239,234 4,418,976 4,238,664
And assumed conversions
_____________________________________________
Basic earnings per share $.77 $.53 $.92 $.66
_____________________________________________
Diluted earnings per share $.74 $.51 $.88 $.65
_____________________________________________
NOTE 3 - YEAR 2000 ISSUES
The Year 2000 issue is the result of computer programs being
written using two digits rather than four (for example, "97" for
1997) to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. In some
cases, the new date will cause computers to stop operating, while
in other cases, incorrect output may result. Since the Company is
currently in the process of replacing and upgrading its computer
hardware and software systems to year 2000 compliant platforms,
the Company believes that there is little business risk
attributable to the Year 2000 issue.
NOTE 4 - ACQUISITIONS
Effective November 20, 1997, the Company acquired certain assets
of Southeastern Marine Group, Inc. ("Southeastern") which operated
a single retail store location in Hendersonville, Tennessee. This
acquisition included boat, motor and trailer inventory, as well as
parts and accessories inventory of the sellers. The purchase price
was $1,741,292 of which $184,000 was financed by the issuance of
notes payable to the sellers.
<PAGE>
The acquisition has been accounted for using the purchase method
of accounting and, accordingly, the operating results of
Southeastern have been included in the consolidated financial
statements from the date of
acquisition. The purchase price ($1,741,292) has been allocated to
the tangible net assets acquired ($1,489,887) based on their
respective fair values at the date of acquisition. The resulting
excess purchase price ($280,000) was allocated to noncompete
agreements and goodwill.
Effective December 15, 1997, the Company acquired certain assets
of Worthen Marine Sales and Service, Inc. ("Worthen") which
operated a single retail store location in Roswell, Georgia. This
acquisition included boat, motor and trailer inventory, as well as
parts and accessories inventory of the seller. The purchase price
of $286,666 was paid in cash.
The acquisition has been accounted for using the purchase method
of accounting and, accordingly, the operating results of Worthen
have been included in the consolidated financial statements from
the date of acquisition. The purchase price ($286,666) has been
allocated to the tangible net assets acquired ($141,666) based on
their respective fair values at the date of acquisition. The
resulting excess purchase price ($145,000) was allocated to
noncompete agreements and goodwill.
Effective March 15, 1998, the Company acquired certain assets of
HnR Marine, Inc. ("HnR") which operated a single retail store
location in Claremore, Oklahoma. This acquisition included boat,
motor and trailer inventory, as well as parts and accessories
inventory of HnR. The purchase price of $359,620 was paid in cash.
The acquisition has been accounted for using the purchase method
of accounting and, accordingly, the operating results of HnR have
been included in the consolidated financial statements from the
date of acquisition. The purchase price ($359,620) has been
allocated to the tangible net assets acquired ($284,620) based on
their respective fair values at the date of acquisition. The
resulting excess purchase price ($75,000) was allocated to
noncompete agreements and goodwill.
Effective April 23, 1998, the Company acquired certain assets of
Moore's Marine, Inc. ("Moore's") which operated a single retail
store location in Bossier City, Louisiana. This acquisition
included boat, motor and trailer inventory, as well as parts and
accessories inventory of Moore's. The purchase price of $777,303
was paid in cash.
The acquisition has been accounted for using the purchase method
of accounting and, accordingly, the operating results of Moore's
have been included in the consolidated financial statements from
the date of acquisition. The purchase price ($777,303) has been
allocated to the tangible net assets acquired ($376,303) based on
their respective fair values at the date of acquisition. The
resulting excess purchase price ($401,000) was allocated to
noncompete agreements and goodwill.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
General
- -------
Travis Boats & Motors, Inc. (''Travis Boats'' or the ''Company'')
is a leading multi-state superstore retailer of recreational
boats, motors, trailers and related marine accessories in the
southern United States. The Company, which currently operates 23
stores under the name Travis Boating Center in Texas, Arkansas,
Louisiana, Alabama, Tennessee, Mississippi, Florida, Georgia and
Oklahoma, 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.
Travis Boats was incorporated as a Texas corporation in 1979. As
used herein and unless otherwise required by the context, the
terms ''Travis Boats'' and the ''Company'' shall mean Travis Boats
& Motors, Inc. and its direct and indirect subsidiaries.
Since its founding as a single retail store in Austin, Texas, the
Company has grown both through acquisitions and the establishment
of new store locations. During the 1980's, the Company expanded
into San Antonio, Texas with the construction of a new store
facility. The Company subsequently made acquisitions of boat
retailers operating within the Texas markets of Midland, Dallas
and Abilene. It was during this initial period of expansion that
the Company began developing the systems necessary to manage a
multi-store operation and leveraging the economies of scale
associated with volume purchasing. The Company's success in these
areas led to the proprietary Travis Edition packaging concept and
the Company's pricing philosophy. Since 1990, Travis Boats has
opened or acquired additional store locations in the following
states: Texas (3), Arkansas (2), Louisiana (4), Alabama (2),
Tennessee (2), Mississippi (1), Florida (2), Georgia (1) and
Oklahoma (1).
The Company sells approximately 50 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. During fiscal 1997,
substantially all of the
boats sold range in size from 16 to 23 feet at prices ranging from
$7,500 to $23,000 with gross profit margins between approximately
21% and 23%. Approximately 4.5% of new boat sales are personal
watercraft with retail
prices generally ranging from $5,000 to $10,000 and approximately
3.2% of new boat sales are off-shore fishing boats and cruisers
with lengths of 27 feet or greater and ranging in retail price
from $50,000 to $300,000.
<PAGE>
The Company custom designs and pre-packages combinations of
popular brand-name boats, such as Larson, Sprint, Pro-Line and Sea
Ark boats 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.
The Company believes that it offers a selection of boat, motor and
trailer packages that fall within the price range of the majority
of all boats, motors and trailers sold in the United States. The
Company's product line generally consists of boat packages priced
from $7,500-$23,000 with approximate even distribution within this
price range. As the Company continues to operate in Florida and
enters other coastal type markets along the Gulf of Mexico or the
Atlantic coast, management believes that the distribution of off-
shore fishing boats and cabin cruisers will increase as a
percentage of net sales. Management believes that by combining
flexible financing arrangements with an even distribution of
products through a broad price range, the Company is able to offer
boat packages to customers with different purchasing budgets and
varying income levels.
Results of Operations
- ---------------------
Quarter Ended, June 30, 1998 Compared to the Quarter Ended, June
30, 1997 and Nine Months Ended, June 30, 1998 Compared to the Nine
Months Ended June 30, 1997
Net sales. Net sales increased by 49.1% to $55.7 million in
the third quarter of fiscal 1998 from $37.3 million in the third
quarter of fiscal 1997. For the nine months ended, June 30, 1998,
net sales increased by 48.0% to $99.3 million from $67.1 million
during the same period of the prior year. Of the increases in net
sales, approximately $3.0 million and $3.9 million were
attributable to a 11.3% and 9.1% growth in comparable store sales
for the quarter (11 stores in base) and nine months (10 stores in
base) ended June 30 1998, respectively.
General growth in overall sales volume was primarily the result of
the increased number of stores in operation during the periods (23
vs. 16), the participation in additional season opening boat and
recreation shows, and a favorable mix of Travis Edition boat sales
that has resulted in a higher average sales price (approximately
$15,000 versus $13,500 in fiscal 1997). A primary component in
the favorable mix of Travis Edition boat packages sold has been
the increase in sales of the Company's "Blue-water" (off-shore)
fishing boats and other Travis Edition boating packages introduced
during fiscal 1997. The "Blue-water" fishing boats, which are
typically 25-35 feet in length and designed for off-shore use, are
generally sold in the Company's store locations serving coastal
markets such as those store locations acquired in Louisiana (1),
Mississippi (1) and Florida (2) during fiscal 1997. As the
Company continues to operate in Florida and enters other coastal
type markets along the Gulf of Mexico or the Atlantic coast,
management believes that the distribution of off-shore fishing
boats and cabin cruisers will increase as a percentage of net
sales.
<PAGE>
During the quarter and the nine months ended June 30, 1998, the
Company also experienced an increase in net sales related to
parts/accessories, service labor and used boats. The Company has
continued to focus on renovating its store base to bring
additional store locations to its superstore standards. Inclusive
of the store locations recently renovated, the Company
has 16 of its 23 locations operating in facilities meeting its
superstore standards. These superstore locations provide larger
and more accessible areas to merchandise and showcase the
Company's parts/accessory product selection and conduct repair
work on boats. Used boat sales have also benefited from the
opening of a new used boat superstore location in Heber Springs,
Arkansas during the March 1998 quarter. The Company's other used
boat superstore, which opened in early fiscal 1997, is located on
the premises of its Beaumont, Texas store location.
Included within net sales is revenue that the Company earns
related to F&I Products. The Company, through relationships with
various national and local lenders, is able to place financing for
its customers' boating purchases. These lenders allow the Company
to ''sell'' the loan at a rate higher than a minimum rate
established by each such lender and the Company earns fees based
on the percentage increase in the loan rate over the lender's
minimum rate. The Company sells these loans without recourse
except that in certain instances the Company must return the fees
earned if the customer repays the loan or defaults in the first
120-180 days. The Company also sells, as a broker, certain types
of insurance (property/casualty, credit life, disability) and
extended service contracts. The Company may also sell these
products at amounts over a minimum established cost and earn
income based upon the profit over the minimum established cost.
Net sales attributable to F&I Products contributed $2.9 million,
or 5.3%, of net sales in the third quarter of fiscal 1998, as
compared to $1.6 million or 4.3%, of net sales for the third
quarter of the prior fiscal year. For the nine months ended, June
30, 1998, net sales attributable to F&I Products contributed $5.4
million, or 5.5% of net sales, compared to $3.0 million or 4.5% of
net sales, for the same period of the prior year. This
improvement was primarily due to higher net spreads achieved in
the placement of customer financing, as well as overall increases
in the percentage of customers buying these products (which is
referred to as ''sell-through''). This increase was enhanced by
the Company's continued emphasis on training of F&I employees and
achievement of established goals.
Comparable store sales increased by 11.3% for the quarter (11
stores in base) and 9.1% for the nine months (10 stores in base)
ended June 30 1998, respectively. In the prior year, comparable
store sales increased by 7.3% for the quarter (10 stores in base)
and 3.5% for the nine months (6 stores in base) ended June 30
1997, respectively. The Company's planned acquisition strategy
and subsequent renovation of stores to superstore standards is
expected to continue to negatively impact the number of stores
eligible for comparable store base calculations in relationship to
the total number of store locations operated. As such, comparable
store performance is expected to remain unstable until higher
percentages of the Company's stores are eligible for comparable
store calculations.
<PAGE>
Gross profit. Gross profit increased by 48.8% to $14.2
million in the third quarter of fiscal 1998 from $9.5 million in
the same quarter of fiscal 1997, while gross profit as a percent
of sales remained constant at 25.5% during the same periods. For
the nine months ended, June 30, 1998, gross profit increased 49.9%
to $25.9 million from $17.3 million in the same period of the
prior year, while the gross profit as a percent of sales increased
to 26.1% from 25.8%. The increase in gross profit as a percent of
sales was primarily related to enhanced revenues attributable to
traditionally higher gross profit sales categories such as: F&I
income, over the counter sales of parts & accessories and service
labor, as well as an overall favorable mix of boats sold.
The Company generally seeks to further leverage the margin through
sales of parts/accessories, service labor and F&I Products, all of
which generally produce gross profit margins in excess of 25%.
During the quarter and the nine months ended June 30, 1998, the
Company's gross profit margin was positively impacted by the
increased revenues derived from the parts/accessory, service labor
and used boat sales as discussed above in Net Sales.
Net sales attributable to F&I Products, which have a significant
impact on the gross profit margin, contributed $2.9 million, or
20.8%, of total gross profit in the third quarter of fiscal 1998,
as compared to $1.6 million or 17.0%, of total gross profit for
the third quarter of the prior fiscal year. For the nine months
ended, June 30, 1998, net sales attributable to F&I Products
accounted for $5.4 million, or 20.9% of the total gross profit,
compared to $3.0 million or 17.6%, for the same period of the
prior year. Net sales attributable to F&I Products are reported
on a net basis, therefore, all of such sales contribute directly
to the Company's gross profit. The costs associated with the sale
of F&I Products are included in selling, general and
administrative expenses.
Selling, general and administrative expenses. Selling,
general and administrative expenses increased by 46.4% to $7.9
million in third quarter of fiscal 1998 from $5.4 million for the
third quarter of fiscal 1997. Selling, general and administrative
expenses as a percent of net sales decreased to 14.3% in the third
quarter of fiscal 1998 from 14.5% for the third quarter of fiscal
1997.
Selling, general and administrative expenses in actual dollars
increased by 51.1% to $16.9 million for the nine months ended June
30, 1998, versus $11.2 million in the same period of the prior
fiscal year. In terms of both actual dollars and as a percentage
of net sales, the increase in selling, general and administrative
expenses was primarily attributable to increased expenses
associated with the operation of a larger store network, through
growth in the corporate-office staffing infrastructure and
increased advertising costs associated with introducing Travis
Boats and its Travis Edition products into new geographically
diverse regions. Rental expense also increased as a percent of
net sales as the Company expanded and relocated its Corporate
headquarters which had previously been located in the Austin,
Texas superstore facility. Opening and other start-up costs
associated with the relocation and renovation of store locations
also contributed to the increase in selling, general and
administrative expenses.
<PAGE>
Depreciation and amortization expenses. Depreciation and
amortization expenses increased by 50.0% to $348,000 in third
quarter of fiscal 1998 from $232,000 for the third quarter of
fiscal 1997. Depreciation and amortization expenses as a percent
of net sales remained constant at .62% in the third quarters of
fiscal 1998 and fiscal 1997. Depreciation and amortization
expenses in actual dollars increased by 57.3% to $1.0 million for
the nine months ended June 30, 1998, versus $653,000 in the same
period of the prior fiscal year.
Depreciation and amortization expenses, in actual dollars,
increased in the quarter and for the nine months ended, June 30,
1998, primarily as a result of the acquisitions which occurred in
fiscal 1997 and thus far in fiscal 1998, and through the
capitalization of costs such as leasehold or building improvements
associated with the conversion of certain existing stores to
superstore standards.
Interest expense. Interest expense, in actual dollars,
increased to $649,000 in third quarter of fiscal 1998 from
$412,000 in the third quarter of fiscal 1997, while interest
expense as a percent of net sales increased to 1.2% of net sales
from 1.1% of net sales in the third quarters of fiscal 1998 and
fiscal 1997, respectively. For the nine months ended June 30,
1998, interest expense increased to $1.7 million from $1.0 million
in the same period of the prior year and interest expense as a
percent of net sales increased to 1.7% from 1.6%. The increase
was primarily the result of the additional debt incurred in the
acquisitions occurring during fiscal fiscal 1998 and 1997 as well
as higher balances on the Company's floor plan and revolving bank
lines necessary to support inventory requirements for the larger
store network.
Net Income. The Company experienced a net income of $3.3
million for the third quarter of fiscal 1998. This represents an
increase of 50.4% from the net income of $2.2 million in the third
quarter of fiscal 1997. Net income as a percent of sales increased
to 5.9% net sales from 5.8% of net sales for the third quarters of
fiscal 1998 and 1997, respectively. For the nine months ended,
June 30, 1998, net income increased by 42.2% to $3.9 million from
$2.7 million in the same period of the prior year.
The improved net income has primarily been the result of the
Company generating higher net sales levels while attaining higher
gross profit margins.
<PAGE>
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 June 30,
1998, the Company had working capital of $14.9 million, including
$12.2 million in accounts receivable (primarily contracts in
transit from sales) and $45.5 million in inventories, offset by
approximately $7.8 million of accounts payable and accrued
liabilities, and $40.8 million in other short-term liabilities
including revolving/floorplan credit lines outstanding ($38.8
million), unearned income $1.9 million and customer deposits of
$2.2 million. As of June 30, 1998, the aggregate maximum
borrowing limits under floor plan and revolving lines of credit
were approximately $100 million, of which the Company was eligible
to borrow approximately $66 million pursuant to the Company's
borrowing formula.
Operating activities utilized cash flows of $10.6 million for the
first nine months of fiscal 1998 due primarily to the net
increases of $8.9 million in inventories to support increased
sales and $8.3 million in accounts receivable. In addition to
inventory from the locations acquired since September 30, 1997, it
is during the first and second quarter that the Company builds
inventory levels to support the selling season which begins with
the January and February boat shows. Inventory growth
traditionally slows during the third quarter and generally falls
to an annual low point during the fourth quarter. The increased
accounts receivable levels reported at June 30, 1998 were
primarily the result of contracts in transit, due from financial
institutions that handle the financing on customer purchases,
generated from the retail sale of a boat.
The Company used net cash in investing activities of approximately
$7.8 million in the first nine months of fiscal 1998. During the
first nine months of fiscal 1998, the Company acquired
substantially all of the assets of Southeastern Marine Group, Inc.
(net cash used of $1.6 million), Worthen Marine Sales and Service,
Inc. (net cash used of $0.3 million), HnR marine, Inc. (net cash
used of $0.4 million), Moore's Marine, Inc. (net cash used of $0.8
million and funded $1.4 million due on the September 30, 1997
acquisitions of Adventure Marine and Outdoor, Inc., Adventure
Marine South, Inc. and Adventure Boat Brokerage, Inc. The Company
also continued to renovate stores to superstore standards and
updated certain facilities with its standard superstore trade
dress awnings and neon. The acquisitions and other capital
expenditures have been substantially financed with advances made
under the Company's revolving credit lines and from working
capital.
Financing activities for the nine months ended June 30, 1998
provided $21.1 million of cash inflows primarily from the net
proceeds of advances under the Company's revolving and floor plan
lines of credit. These advances were used to fund the increase
in inventories, as well as certain acquisition related and other
capital expenditures. Effective October 31, 1997, the Company
increased its revolving line of credit agented by NationsBank of
Texas, N.A. from $15.0 million to $55.0 million. This line
provides for borrowing pursuant to a borrowing formula based upon
certain of the Company's inventory and account receivables.
Collateral consists of a security interest in specific inventories
(and proceeds thereof), accounts receivable and contracts in
transit. This line is renewable on October 31, 1999. Pricing is
at the prime rate minus 1.00%, with a fee of .125% on the unfunded
portion to be assessed quarterly. A comprehensive loan agreement
governs the line of credit. The loan agreement contains financial
covenants regulating debt service coverages, tangible net worth,
operating leverage and restrictions on dividends or distributions.
As of June 30, 1998, $21.5 million was drawn on the revolving line
and management believes the Company to be in compliance with the
terms and conditions of this loan agreement.
<PAGE>
The Company also maintains floor plan lines of credit with various
finance companies providing approximately $45.0 million in credit
limits. These floor plan lines generally have no stated maturity
and utilize subsidies from manufacturers to provide for certain
interest free periods each calendar year (usually August through
May). Certain of these floor plan lines of credit with finance
companies are governed by loan agreements containing various
financial covenants concerning, among others, ratios governing
tangible net worth and leverage. As of June 30, 1998,
approximately $17.3 million was outstanding under these floor plan
lines and management believes the Company was in compliance with
the terms and conditions of these loan agreements.
Merchandise inventories were $45.5 million and $34.5 million as of
June 30, 1998 and September 30, 1997, respectively. Costs in
excess of net assets acquired increased by approximately $610,000
to $6.0 million in the first nine months of fiscal 1998 due to the
acquisitions of the additional four store locations thus far in
fiscal 1998.
The Company's revolving credit facility, floor plan lines of
credit and internally generated working capital are expected by
the Company's management to be sufficient to meet the Company's
cash requirements at least through fiscal 1999.
Seasonality
- -----------
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. During fiscal years
1997 and 1996 collectively, the average annual net sales for the
quarterly periods ended March 31 and June 30 represented in excess
of 27% and 40%, respectively, of the Company's annual net sales.
With regard to net income, the Company historically generates
profits in three of its fiscal quarters and experiences operating
losses in the quarter ended December 31 due to a broad seasonal
slowdown in sales. During the quarter ended September 30,
inventory typically reaches its lowest levels and accumulated cash
reserves reach the highest levels. During the quarter ended
December 31, the Company generally builds inventory levels in
preparation for the upcoming selling season which begins with boat
and recreation shows occurring during January through March in
certain market areas in which the Company conducts business.
Travis Boats' operating results would be materially
and adversely affected if net sales were to fall significantly
below historical levels during the months of January through June.
The Company's business is also significantly affected by weather
patterns. Weather conditions that are unseasonable or unusual may
adversely affect the Company's results of operations. For example,
drought conditions or merely reduced rainfall levels, as well as
excessive rain, may affect the Company's sales 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.
<PAGE>
Quarterly results may fluctuate as a result of the expenses
associated with new store openings or acquisitions. The Company,
prior to fiscal 1997, had attempted to concentrate expansion
during the seasonal slowdown generally occurring in the quarter
ending December 31. During fiscal 1997, the Company modified its
acquisition strategy to acquire store locations through-out the
fiscal year. This was done to allow the Company the opportunity
to derive in-season sales from the acquisitions as well as to
provide a longer period in which to integrate the acquired store's
operations. Accordingly, the results for any quarterly period may
not be indicative of the expected results for any other quarterly
period.
Reliance on Manufacturers and Other Key Vendors
- -----------------------------------------------
The Company's success is dependent upon its relationship with, and
favorable pricing relationships 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.
The Company purchased approximately 100% of its outboard motors
for use on its Travis Edition boating packages in fiscal years
1996, 1997 and thus far in fiscal 1998 from Outboard Marine
Corporation ("OMC"), the manufacturer of Johnson outboard motors.
The Company has a multi-year agreement (the "Agreement") with OMC.
This Agreement, which is currently entering the second model year
of a five year renewal term, sets forth established discount
levels over the entire term of the Agreement. The Agreement
provides that Travis may purchase outboard motors including
outboard motors containing OMC's FICHT or other high performance
technology. OMC recently has notified Travis along with other
authorized OMC retail dealers that it intends to refocus its
outboard engine development to only place FICHT and other high
performance technology in another OMC outboard motor line,
Evinrude. In conjunction with this, OMC has reported it will
reposition its current Johnson outboard motor line as a line of
products aimed at a value-oriented buyer. As such, Johnson outboard
motors will retain carburetor fuel intakes while OMC's Evinrude line of
outboard motors will carry the newly developed FICHT technology.
OMC has offered Travis the opportunity to purchase from both its
Johnson and Evinrude lines of outboard motors.
Travis is currently evaluating the number, if any, of OMC's
Evinrude line of FICHT outboard motors Travis intends to purchase
in the upcoming 1999 model year or if the newly repositioned
Johnson line of outboard motors better fits with the value that
Travis seeks to provide in its Travis Edition models.
Travis and OMC are further evaluating the impact, if any, the
repositioning by OMC of FICHT technology exclusively into its
Evinrude line of outboard motors will have upon the Agreement
between the parties. OMC has notified Travis that if Travis
wishes to purchase Evinrude outboard motors that the
aforementioned Agreement with Travis must be amended. However, it
is belief of Travis management that the existing Agreement is
adequate and does not need to be amended. Accordingly, the
parties are in discussion regarding the type of outboard motors
covered by the existing Agreement and the type of amendment, if
any, necessary.
<PAGE>
As of the date of this report Travis Boats has not had any
material difficulties in obtaining necessary product from OMC and
further believes that existing stock in addition to planned
upcoming deliveries of outboard motors will be sufficient to meet
demand throughout the current fiscal year. It is not known what
impact, if any, OMC's repositioning of outboard motors will have upon
Travis or the Agreement. Travis management does not believe at this time
that OMC's repositioning efforts will result in the termination of
its longstanding relationship with the company. However, 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. Although the
Company believes that adequate alternate sources would ultimately
be available that could replace OMC, there can be no assurance
that such alternate manufacturers will be available at the time of
any future interruption, or that alternative products will be
available at comparable quality and prices.
Cautionary Statement for purposes of the Safe Harbor Provisions of
the Private Securities Litigation Reform Act of 1995.
Other than statements of historical fact, all statements contained
in this Report on Form 10-Q, including statements in ''Item 1.
Business'', and ''Management's Discussion and Analysis of
Financial Condition and Results of Operations'', are forward-
looking statements as that term is defined in Section 21E of the
Exchange Act that involve a number of uncertainties. The actual
results of the future events described in the forward-looking
statements in this Report on Form 10-Q could differ materially
from those stated in such forward-looking statements. Among the
factors that could cause actual results to differ materially are:
general economic conditions, competition and government
regulations, as well as the risks and uncertainties discussed in
the Companies annual Report on Form 10-K filed for the Company's
1997 fiscal year, including without limitation, the matters
discussed in ''Risk Factors'' and the uncertainties set forth from
time to time in the Company's other public reports, filings and
public statements. All forward-looking statements in this Report
on Form 10-Q are expressly qualified in their entirety by the
cautionary statements in this paragraph.
PART II. OTHER INFORMATION
Item 2.
(c) Securities Issued by Registrant
None
Item 6. Exhibits and reports on Form 8 - K
(a) Exhibits
10.40 Agreement dated October 3, 1997 with Outboard Marine
Corporation.
(b) Reports on Form 8 - K
No reports on Form 8 - K have been filed during the quarter
for which
this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its
behalf by the undersigned thereto duly authorized.
Date: August 13, 1998 Travis Boats & Motors, Inc.
By:______________________________
Michael B. Perrine
Chief Financial Officer, Treasurer and Secretary
(Principal Accounting and Financial Officer)
<PAGE>
[ARTICLE] 5
[MULTIPLIER] 1,000
<PERIOD TYPE> 9-MOS 12-MOS
<FISCAL YEAR-END> SEP-30-98 SEP-30-97
[PERIOD-START] OCT-01-97 OCT-01-96
[PERIOD-END] JUN-30-98 SEP-30-97
[CASH] 8,484 5,816
[SECURITIES] 0 0
[RECEIVABLES] 12,240 3,915
<ALLOWOWANCES> 0 0
[INVENTORY] 45,505 34,450
[CURRENT-ASSETS] 67,587 44,725
[PP&E] 14,884 11,519
[DEPRECIATION] 3,312 2,750
[TOTAL-ASSETS] 85,515 59,121
[TOTAL-LIABILITIES] 57,185 35,064
[BONDS] 4,492 5,145
[PREFERRED-MANDATORY] 0 0
[COMMON] 43 42
[OTHER-SE] 28,287 24,015
[TOTAL-LIABILITY-AND-EQUITY] 85,515 59,121
[SALES] 99,268 91,309
[TOTAL-REVENUES] 99,268 91,309
[CGS] <25,900> <67,354>
[TOTAL-COSTS] <25,900> <67,354>
[OTHER-EXPENSES] <16,929> <16,475>
[LOSS-PROVISION] 0 0
[INTEREST-EXPENSE] <1,688> <1,354>
[INCOME-PRETAX] 6,304 6,114
[INCOME-TAX] <2,395> <2,133>
[INCOME-CONTINUING] 3,909 3,982
[DISCONTINUED] 0 0
[EXTRAORDINARY] 0 0
[CHANGES] 0 0
[NET-INCOME] 3,909 3,982
[EPS-PRIMARY] .92 .94
[EPS-DILUTED] .88 .93
<PAGE>
EXHIBIT 10.40
AGREEMENT
THIS AGREEMENT is made this 3rd day of October , 1997
by and between TRAVIS BOATS & MOTORS, INC. and SUBSIDIARY
COMPANIES (collectively referred to as "TRAVIS") and
OUTBOARD MARINE CORPORATION ("OMC").
WHEREAS, TRAVIS desires to purchase Johnson outboard
motors, Johnson electric Motors and OMC Parts & Accessories
("PRODUCTS") from OMC under a multi-year agreement; and
WHEREAS, OMC desires to be the sole supplier to TRAVIS
of outboard motors;
NOW THEREFORE, in consideration of the promises
contained in this Addendum, the parties agree as follows:
1. TRAVIS agrees to purchase and OMC agrees to sell PRODUCTS
to TRAVIS according to the terms and conditions of this
Agreement and the various Dealer Agreements in effect
during the term of this Agreement.
2. TRAVIS intends to purchase a minimum of * outboard
motors per year or a total of * outboard motors
over the term of the Agreement.
3. During the term of this Agreement TRAVIS intends for OMC
to be its sole supplier of outboard motors, provided OMC
maintains a competitive position. It is OMC's intent to
maintain competitiveness within the market for outboard
motors with regard to its outboard motor pricing and
programs versus that of competitor's outboard motors with
substantially similar quality, features, technology,
horsepower and terms of purchase (including, but not
limited to warranty terms, financing terms and shipping
terms).
4. OMC agrees to use its best efforts to avoid "back orders"
on outboard motors desired to be purchased by TRAVIS.
OMC will do its best to fill Travis' orders on a timely
basis. OMC recognizes that its in its best interest to
do so.
5. TRAVIS shall purchase all outboard motors, including
outboards containing FICHT technology, at Bracket I or
the lowest price available for OMC dealers to purchase
outboard motors before program discounts or rebates per
the existing annual dealer programs. In addition, Travis
shall receive additional rebates on outboard motors
purchased during the term of this Agreement as follows:
Program Discounts *
Volume discount *
*Indicates Confidential Treatment Requested. The redacted
material has been separately filed with the commission.
<PAGE>
"Program Discounts" shall include those programs
available to all dealers including Annual volume planning
incentive, high horsepower growth incentive and Ca$hport
or similar programs available to dealers during the term
of this Agreement. Program Discounts provided herein
shall be consistent with the published programs available
to dealers. The parties intend that Travis maintain its
relative market position with OMC program and volume
discounts. Accordingly, Program and Volume Discounts may
increase for TRAVIS in the event OMC increases such
discounts. However, in no case shall Travis receive less
then * for the Program Discounts or * for Volume
Discounts for TRAVIS during the term of this Agreement.
Outboard Motors and electric Motors purchased by
TRAVIS shall be shipped free of freight in the situation
that TRAVIS fulfills OMC's minimum published order
requirements for such free freight shipments. OMC will
agree that during the term of this Agreement , the free
freight programs available to TRAVIS will, at a minimum,
be comparable to the free freight programs offered by OMC
to OMC dealers during the 1998 model year.
OMC will agree that the interest-free financing
programs on OMC outboard motors and elective motors
available to TRAVIS during the term of this Agreement
will, at a minimum, have similar "interest-free" periods
to the interest-free program(s) made available to OMC
dealers during the 1998 model year.
TRAVIS shall comply with program guidelines in order
to receive Program Discounts. Program Discounts and
Volume Discounts shall be paid in the form of monthly
rebates.
6. TRAVIS assembles its own packages, commonly referred to
as Travis Editions. To keep Travis Edition packages
competitive in the market place, OMC will pay TRAVIS an
additional * off of the Bracket I price or the lowest
dealer price for remote electric or tiller package
engines. TRAVIS has represented that it will not
purchase any blank boats that would otherwise qualify for
OMC pre-rig fees. TRAVIS agrees to provide OMC with a
letter from each boat manufacturer stating that such boat
manufacturer waives any pre-rigging fee which may be owed
by OMC with respect to boats sold to TRAVIS. If the
letter required is not furnished to OMC, TRAVIS agrees to
reimburse OMC up to the amount paid TRAVIS for any pre-
rigging payments OMC is required to make for boats
shipped to TRAVIS from boat builders. Payment pursuant
to this provision will be made by OMC on a quarterly
basis. Accordingly, only (a) those outboard motors
rigged on * boats and (b) those tiller handle outboard
motors that are not mounted on a boat, do not qualify for
this additional * rebate.
*Indicates Confidential Treatment Requested. The redacted
material has been separately filed with the commission.
<PAGE>
7. TRAVIS shall be eligible to participate in the co-op
advertising programs available to dealers during the term
of this Agreement. OMC agrees that the total co-op
accrual available to TRAVIS shall not be less than * of
the invoice price of the all outboard motors purchased by
TRAVIS.
8. TRAVIS agrees to increase its Parts & Accessories ("P&A")
business by * per year starting with a goal of * in
P&A purchases in model year 1998. TRAVIS will be allowed
to participate in all P&A programs and will receive a *
volume rebate per year during the term of this Agreement
provided the annual P&A purchase goals are met.
9. OMC will accept in each model year of this Agreement,
with no re-stocking fee, return of up to * of the total
P&A purchased by TRAVIS.
10. OMC agrees to sell to TRAVIS rigging items at the OEM
purchase price for the pre-rigging of Travis Edition
boats. These rigging items are not eligible for the *
P&A volume rebate. These rigging items will, however,
count toward TRAVIS' annual P&A purchase goals.
11. OMC agrees to sell TRAVIS Johnson Electric Trolling
Motors at * off dealer list price for Electric Trolling
Motors.
12. This Agreement will apply to all TRAVIS locations that
are now, or hereafter become, authorized Johnson
dealerships. OMC reserves the right to appoint any new
locations as authorized Johnson dealerships.
13. It is anticipated that TRAVIS will acquire dealerships
which sell competitive products. OMC will assist TRAVIS
with disposal of non-OMC products TRAVIS acquires through
dealership acquisitions. In no case, however, shall OMC
be obligated to the purchase of such products.
14. OMC reserves the right to modify, change or alter its
dealer programs to dealers during the term of this
Agreement.
15. The discounts and benefits described in this Agreement
are in lieu of any other and all discounts and benefits
which OMC may offer to its dealers. TRAVIS is not
entitled to receive any discounts, rebates or benefits
not specified in this Agreement.
16. TRAVIS agrees to OMC's normal dealer terms on PRODUCT
purchases of net 10 days or such other terms that may be
in effect during the course of this Agreement.
*Indicates Confidential Treatment Requested. The redacted
material has been separately filed with the commission.
<PAGE>
17. TRAVIS shall be subject to such price increases as OMC
may generally implement for PRODUCTS. OMC shall use its
best efforts to maintain competitive pricing on its
PRODUCTS. As practicable as possible, OMC shall provide
TRAVIS with the opportunity to place orders prior to the
effective date of any such price increases.
18. The term of this Agreement shall be for five (5) years
from Model Year 1998 beginning July 1, 1997 and expiring
at the end of the Model Year 2002 or June 30, 2002 unless
otherwise provided for in this Agreement.
19. This Agreement shall be considered an addendum to the
1998, 1999, 2000, 2001 and 2002 Dealer Agreements which
shall be executed by TRAVIS and OMC. If any of the
provisions of these Dealer Agreements conflict with this
Agreement, provisions of this Agreement shall apply.
20. TRAVIS agrees to abide by the terms and conditions of
the Dealer Agreements in effect during the term of this
Addendum including, but not limited to any provision
which prohibits the sale of Products to OMC and non-OMC
dealers without the consent of the Vice President of
Sales in Waukegan.
21. In the event of the termination of any Dealer
Agreement in effect during the term of this Agreement,
than this Agreement shall automatically termination with
respect to such Dealer Agreement.
22. The parties agree that this Agreement supersedes and
terminates all other agreements between the parties
relating to the purchase of PRODUCTS that have not been
made a part of this Agreement.
23. Should any provision of this Agreement be rendered by
any court of competent jurisdiction illegal or invalid,
the remaining provisions shall be considered the
Agreement and will not affect its validity. This
Agreement shall be inure to the benefit of the successors
of TRAVIS and OMC or any divisions or units of OMC that
manufacture or market marine products covered by the
terms of this Agreement.
<PAGE>
24. This Agreement shall be governed by the laws of the
State of Illinois.
TRAVIS BOATS & MOTORS, INC. OUTBOARD MARINE CORPORATION
By: /s/ Mark Walton By: /s/ Peter L. Schelle
Its: President Its: Vice President
Date: 10-7-97 Date: October 3, 1997
*Indicates Confidential Treatment Requested. The redacted
material has been separately filed with the commission.
</TABLE>
