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, 1999
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 - 4,290,063 shares as of August 13, 1999.
1
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Item 1. Financial Statements
Travis Boats & Motors, Inc. and Subsidiaries
Condensed Consolidated Balance
Sheets
(in thousands, except share data)
June 30, September 30,
1999 1998
------------ ----------------
(unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $7,826 $4,618
Accounts receivable 16,206 4,893
Inventories 73,039 38,934
Deferred tax asset 180 180
Prepaid federal income 0 425
taxes
Prepaid expenses and other 1,723 1,045
------------ ----------------
Total current assets 99,173 50,095
Property and equipment:
Land 5,136 3,516
Buildings and improvements 10,188 8,485
Furniture, fixtures and 6,054 4,109
equipment
------------ ----------------
21,378 16,110
Less accumulated (4,498) (3,417)
depreciation
------------ ----------------
16,880 12,693
Deferred tax asset 96 96
Intangibles and other assets :
Goodwill and non-compete agreements, 10,821 6,202
net
Other assets 176 30
------------ ----------------
Total assets $126,947 $69,116
============ ================
2
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $4,576 $1,697
Accrued liabilities 2,473 2,512
Amounts due for purchase of business 3,503 2,117
Unearned revenue 1,417 1,272
Floorplan and revolving line of 71,436 25,148
credit payable
Current portion of notes payable and 957 957
other short-term obligations
------------ ----------------
Total current liabilities 84,362 33,703
Notes payable, less current portion 7,455 4,980
Stockholders' equity
Common Stock, $.01 par value,
50,000,000 authorized, 4,290,063 and
4,285,063 issued and outstanding at
June 30, 1999 and September 30, 1998,
respectively 43 43
Paid-in capital 13,877 13,816
Retained earnings 21,210 16,574
----------- ----------------
Total stockholders' 35,130 30,433
equity
----------- ----------------
Total liabilities and stockholders' $126,947 $69,116
equity =========== ================
See notes to unaudited condensed consolidated financial statements
3
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Travis Boats & Motors,
Inc. and Subsidiaries
Unaudited Condensed Consolidated
Statements of Operations
(in thousands, except
share data and stores
open)
Three months ended Nine months ended
June 30, June 30,
1999 1998 1999 1998
------------ ------------ ------------ -------------
Net sales $74,890 $55,699 $130,952 $99,268
Cost of goods sold 55,981 41,514 97,743 73,368
------------ ------------ ------------ -------------
Gross profit 18,909 14,185 33,209 25,900
Selling, general and 10,129 7,941 21,886 16,929
administrative
Depreciation and 578 348 1,397 1,027
amortization
------------ ------------ ------------ -------------
10,707 8,289 23,283 17,956
Operating income 8,202 5,896 9,926 7,944
Interest expense (1,170) (649) (2,673) (1,688)
Other income 5 21 64 48
------------ ------------ ------------ -------------
Income before income 7,037 5,268 7,317 6,304
taxes
Provision for income 2,578 2,001 2,681 2,395
taxes
------------- ------------ ------------ -------------
Net Income $4,459 $3,267 $4,636 $3,909
============= ============ ============ =============
Basic earnings per share $1.04 $0.77 $1.08 $0.92
Diluted earnings per $1.01 $0.74 $1.05 $0.88
share
Weighted average common 4,289,907 4,254,788 4,287,832 4,245,962
shares outstanding
Weighted average
dilutive common shares 4,401,707 4,439,224 4,414,624 4,418,976
outstanding
Stores open at period end 37 23 37 23
============= ============ ============= ============
4
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Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
( $ in thousands)
Nine months ended
June 30,
1999 1998
------------ ------------
Operating activities:
Net Income $4,636 $3,909
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 1,397 1,027
Changes in operating assets and liabilities:
Accounts receivable (11,313) (8,325)
Prepaid assets (253) (814)
Inventories (24,286) (8,920)
Other assets (146) (119)
Accounts payable 963 356
Accrued liabilities (39) 1,541
Income taxes payable 1,916 (645)
Unearned revenue 145 1,343
------------ ------------
Net cash used in by operating activities (26,980) (10,647)
Investing Activities:
Purchase of businesses (4,383) (4,583)
Purchase of property and equipment (4,008) (3,209)
------------ ------------
Net cash used in investing activities (8,391) (7,792)
Financing activities:
Net increase in floorplan and revolving debt, notes
payable and other short term obligations 38,944 20,743
Issuance of common stock 61 364
------------ ------------
Net cash provided by financing activities 39,005 21,107
Change in cash and cash equivalents 3,208 2,668
Cash and cash equivalents, beginning of period 4,618 5,816
------------ ------------
Cash and cash equivalents, end of period $7,826 $8,484
============ ============
See notes to unaudited condensed consolidated financial
statements
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
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, 1999;
and the interim results of operations and cash flows for the three month and
nine month periods ended June 30, 1999 and 1998. The condensed consolidated
balance sheet at September 30, 1998, 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, 1998. 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, 1998 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, 1999 are not necessarily indicative of the results to be expected for the
full year.
6
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NOTE 2 - NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended Nine Months Ended
June 30 June 30
1999 1998 1999 1998
---- ---- ---- ----
Numerator:
Net income $4,459,000 $3,267,000 $4,636,000 $3,909,000
Denominator:
Denominator for basic
earnings per share -
weighted avg. shares 4,289,909 4,254,788 4,287,832 4,245,962
Effect of dilutive securities:
Employee stock options 111,798 184,436 126,792 173,014
-----------------------------------------------------------
Denominator for diluted
earnings Per share -
adjusted weighted 4,401,707 4,439,224 4,414,624 4,418,976
average shares and
assumed conversions ______________________________________________________
Basic earnings per share $1.04 $.77 $1.08 $.92
-----------------------------------------------
Diluted earnings per share $1.01 $.74 $1.05 $.88
-----------------------------------------------
As of June 30, 1999, the Company had issued and outstanding incentive stock
options to certain officers and employees equaling 52,500 shares which are anti
dilutive based upon their strike price and as such are not included in the above
chart. The 52,500 option shares have a weighted average strike price of $22.48
and a weighted average outstanding remaining life of 8.77 years.
7
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NOTE 3 - ACQUISITIONS
The chart below summarizes the acquisitions made by the Company during the nine
month period ended June 30, 1999 and during the fiscal years ended September 30,
1998, 1997 and 1996. Each of the acquisitions was completed through an asset
purchase (except for Adventure Marine in fiscal 1997 and Shelby Marine in fiscal
1999 which were stock purchases) and have been accounted for using the purchase
method of accounting. The operating results of the acquired companies have been
included in the consolidated financial statements from the respective date of
acquisition. The assets acquired generally include boat, motor and trailer
inventory, parts and accessories inventory and to a lesser extent, property,
plant and equipment. A summary of the acquisitions follows:
<TABLE>
<CAPTION>
Non-compete
Name of Company Date of Purchase Tangible Agreements Cash Liabilities Notes Stock
Acquisition Price Net Assets and Goodwill Paid Assumed Issued Issued
- -------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal 1999
- -----------
Amlin, Inc. dba 01/99 $2,090 $6,494 $1,090 $1,619 $5,494 $471 (a)
Magic Marine
Sportsman's Haven 01/99 1,510 2,343 650 931 1,483 579 (b)
Pier 68 Marina 02/99 415 2,224 556 86 2,365 329 (c)
DSA Marine Sales
& Service, Inc. 04/99 2,147 4,798 1,597 550 4,248 1,597 (d)
Shelby Marine 06/99 1,334 3,426 1,050 809 3,141 525 (e)
Fiscal 1998
- -----------
Southeastern 11/97 1,730 1,390 280 1,606 - 124 -
Marine
Worthen Marine 12/97 287 142 145 287 - - -
HnR Marine 04/98 359 359 - 359 - - -
Moore's Marine 05/98 777 376 401 777 - - -
Rodgers Marine 09/98 677 2,093 350 327 1,766 - 350
Fiscal 1997
- -----------
North Alabama 10/96 892 687 205 812 - 80 -
Watersports
Tri-Lakes Marine 11/96 1,243 1,892 644 643 1,937 600 -
Bent's Marine 02/97 1,519 840 679 1,064 - 455 -
McLeod Marine 08/97 958 730 228 958 - - -
Adventure Marine 09/97 3,023 5,536 2,690 1,430 5,203 115 1,478
Fiscal 1996
- -----------
Red River Marine 09/95 2,517 1,905 1,050 917 438 1,600 -
</TABLE>
8
<PAGE>
NOTES TO STOCK ISSUED
(a) Pursuant to the Purchase Terms, the Company has agreed to issue Amlin, Inc.
22,368 shares of its common stock valued at approximately $425,000 upon the
registration of such shares. The shares are not registered as of the date of
this Report. Until such time as the shares are registered, the Company has
classified the amount payable of $425,000 as a liability due to Amlin, Inc. The
Company valued the shares issued based upon the average closing price of the 15
trading days days prior to closing of the purchase. Had the Company used a
valuation period consistent with EITF 95-19, such as a period of 3 days prior to
and 3 days after the closing, the value of the issued shares would have been
approximately $22,390 greater.
(b) Pursuant to the Purchase Terms, the Company has agreed to issue Sportsmans
Haven, Inc. 26,316 shares of its common stock valued at approximately $500,000
upon the registration of such shares. The shares are not registered as of the
date of this Report. Until such time as the shares are registered, the Company
has classified the amount payable of $500,000 as a liability due to Sportsmans
Haven, Inc. The Company valued the shares issued based upon the average closing
price of the 15 trading days days prior to closing of the purchase. Had the
Company used a valuation period consistent with EITF 95-19, such as a period of
3 days prior to and 3 days after the closing, the value of the issued shares
would have been approximately $26,342 greater.
(c) Pursuant to the Purchase Terms, the Company has agreed to issue Pier 68
Marina, Inc. 15,792 shares of its common stock valued at approximately $329,000
upon the registration of such shares. The shares are not registered as of the
date of this Report. Until such time as the shares are registered, the Company
has classified the amount payable of $329,000 as a liability due to Pier 68
Marina, Inc. The Company valued the shares issued based upon the average closing
price of the 15 trading days days prior to closing of the purchase. Had the
Company used a valuation period consistent with EITF 95-19, such as a period of
3 days prior to and 3 days after the closing, the value of the issued shares
would have been reduced by approximately $9,349.
(d) Pursuant to the Purchase Terms, the Company agreed to issue DSA Marine Sales
& Service, Inc. either (i) 98,192 shares of its common stock valued at
approximately $1,596,893 upon the registration of such shares, or (ii) the cash
amount of $1,596,893. On August 9, 1999, the Company paid the equivalent cash
amount of $1,596,893, to DSA Marine Sales & Service, Inc. in lieu of electing to
issue 98,192 shares of its common stock.
As of June 30, 1999, the Company had classified the amount payable of $1,596,893
as a liability due to DSA Marine Sales & Service, Inc. If the Company elected to
issue its common stock in lieu of making a cash payment, the Company agreed to
value the shares issued based upon the average closing price of the 12 trading
days prior to closing of the purchase. Had the Company used a valuation period
consistent with EITF 95-19, such as a period of 3 days prior to and 3 days after
the closing, the value of the shares which would have been issued would have
been reduced by approximately $33,582.
9
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(e) Pursuant to the Purchase Terms, the Company has agreed to issue Shelby
Marine Center, Inc. 35,959 shares of its common stock valued at approximately
$525,000 upon the registration of such shares. The shares are not registered as
of the date of this Report. Until such time as the shares are registered, the
Company has classified the amount payable of $525,000 as a liability due to
Shelby Marine Center, Inc. The Company valued the shares issued based upon the
average closing price of the 15 trading days days prior to closing of the
purchase. Had the Company used a valuation period consistent with EITF 95-19,
such as a period of 3 days prior to and 3 days after the closing, the value of
the issued shares would have been reduced by approximately $5,034.
The Company's unaudited consolidated results of operations assuming all
acquisitions accounted for under the purchase method of accounting had occurred
on October 1, 1997 are as follows for the nine months ended June 30, 1998 and
1999, respectively:
9 Months 6/30/98 9 Months 6/30/99
Net Sales $54,820,000 $58,482,000
Net Income/(Loss) 341,490 (44,822)
Diluted earnings per share $0.08 ($0.01)
The unaudited pro forma results of operations are presented for informational
purposes only and may not necessary reflect the future results of operations of
the Company or what results of operations would have been had the Company owned
and operated the business as of October 1, 1997.
NOTE 4 - COMPREHENSIVE INCOME
For the quarter and the nine months ended June 30, 1999, Comprehensive Income
equalled Net Income.
10
<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 37 stores under the name Travis Boating Center in Texas,
Arkansas, Louisiana, Alabama, Tennessee, Mississippi, Florida, Georgia and
Oklahoma seeks to differentiate itself from competitors by providing customers a
unique superstore shopping experience that showcases a broad selection of high
quality boats, motors, trailers and related marine accessories at firm, clearly
posted low prices. Each superstore also offers complete customer service and
support, including in-house financing programs and full-service repair
facilities staffed by factory-trained mechanics.
History
Travis Boats was incorporated as a Texas corporation in 1979. As used
herein and unless otherwise required by the context, the terms "Travis Boats"
and the "Company" shall mean Travis Boats & Motors, Inc. and its direct and
indirect subsidiaries.
Since its founding as a single retail store in Austin, Texas, the
Company has grown both through acquisitions and the establishment of new store
locations. During the 1980's, the Company expanded into San Antonio, Texas with
the construction of a new store facility. The Company subsequently made
acquisitions of boat retailers operating within the Texas markets of Midland,
Dallas and Abilene. It was during this initial period of expansion that the
Company began developing the systems necessary to manage a multi-store operation
and leveraging the economies of scale associated with volume purchasing. The
Company's success in these areas led to the proprietary Travis Edition packaging
concept and the Company's pricing philosophy. Since 1990, Travis Boats has
opened or acquired 32 additional store locations in the following states: Texas
(3), Arkansas (4), Louisiana (4), Alabama (2), Tennessee (5), Mississippi (1),
Florida (11), Georgia (1) and Oklahoma (1).
The Company sells approximately 75 different Travis Edition models of
brand-name fishing, water-skiing and general recreational boats, along with
motors, trailers, accessories and related equipment. Personal watercraft,
off-shore fishing boats and cabin cruisers are also offered for sale at selected
store locations. During fiscal 1999 and 1998, substantially all of the boat
units sold range in size from 16 to 25 feet at prices ranging from $7,500 to
$25,000. In fiscal year 1998, approximately 1.7% of new boat sales are personal
watercraft with retail prices generally ranging from $5,000 to $10,000 and
approximately 6.7% of new boat sales are off-shore fishing boats and cruisers
with lengths of 27 feet or greater and ranging in retail price from $50,000 to
$300,000. The Company's retail pricing structure seeks to maintain a consistent
gross profit percentage for each of it's Travis Edition models.
The Company custom designs and pre-packages combinations of popular
brand-name boats, such as Larson, Sprint, Wellcraft and Sea Ark boats with
outboard motors generally manufactured by Outboard Marine Corporation or
Brunswick, along with trailers and numerous accessories, under its proprietary
Travis Edition product line. These signature Travis Edition packages, which
account for the vast majority of total new boat sales, have been designed and
developed in coordination with the manufacturers and often include
distinguishing features and accessories that have historically been unavailable
to, or listed as optional by, many competitors. These factors enable the Company
to provide the customer with an exceptional product that is conveniently
packaged for immediate enjoyment and is competitively priced.
11
<PAGE>
The Company believes that it offers a selection of boat, motor and
trailer packages that fall within the price range of the majority of all boats,
motors and trailers sold in the United States. The Company's product line
generally consists of boat packages priced from $7,500-$25,000 with approximate
even distribution within this price range. While the Company's sales have
historically been concentrated on boats with retail sales prices below $25,000,
the Company in limited market areas and quantities does sell boats that have
retail sales prices in excess of $200,000. Additionally, as the Company
continues to operate in Florida and enters other markets along the Gulf of
Mexico or coastal areas, management believes that the distribution of off-shore
fishing boats and cabin cruisers will continue to increase as a percentage of
net sales. Management believes that by combining flexible financing arrangements
with an even distribution of products through a broad price range, the Company
is able to offer boat packages to customers with different purchasing budgets
and varying income levels.
Results of Operations
Quarter Ended, June 30, 1999 Compared to the Quarter Ended, June 30, 1998 and
Nine Months Ended, June 30, 1999 Compared to the Nine Months Ended June 30,
1998.
Net sales. Net sales increased by 34.5% to approximately $74.9 million in the
third quarter of fiscal 1999 from $55.7 million in the third quarter of fiscal
1998. For the nine months ended, June 30, 1999, net sales increased by 31.9% to
$131.0 million from $99.3 million during the same period of the prior year. Of
the increase in net sales for the quarter ended June 30, 1999, approximately
$1.5 million was attributable to a 3.9% growth in comparable store sales. For
the nine months ended June 30, 1999, comparable store sales declined by
approximately .09%. For the quarter and nine months ended June 30, 1999, the
Company had 17 and 13 stores, respectively, included in the comparable store
base.
The Company believes that a primary component of the nominal percentage decline
in comparable store sales for the nine month period ended June 30, 1999 was
primarily related to the sales performances of its store locations in Dallas,
Texas and Hot Springs, Arkansas. The Company is currently researching the
dynamics of each market, including competitive product, in order to implement
appropriate steps to mitigate certain issues related to the markets. Comparable
store sales for the quarter and the nine months ended June 30, 1999 were also
negatively impacted by a difficult comparison to such sales in the same quarter
and nine month interim period of the prior fiscal year. In the respective prior
year periods, 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).
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.
General growth in overall sales volume was primarily the result of the increased
number of stores in operation during the periods (37 vs. 23), increased sales
related to the Company's "Blue-water" (off-shore) fishing boats and other Travis
Edition boating packages. 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, Mississippi and Florida. 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.
12
<PAGE>
During the quarter and the nine months ended June 30, 1998, the Company also
continued to experience an increase in net sales related to parts/accessories,
service labor and used boats. The increase in net sales of these revenue
components is primarily attributable to the Company locations which have been
constructed or renovated to its superstore standards. The Company has 20 of its
37 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 to conduct repair
work on boats. The Company's recent store acquisitions (including stores in
Knoxville, Tennessee; Little Rock, Arkansas; St. Petersburg, Clearwater and
Longwood, Florida; and Jacksonville, Florida) are not yet operating in
facilities meeting the Company's superstore standards and in certain instances
are operating in temporary facilities. Accordingly, these newly acquired store
locations have not contributed in a material amount to the aforementioned
increase in net sales of parts/ accessories, service labor and used boats.
Also, included within net sales is revenue that the Company earns related to F&I
("Finance and Insurance") 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 $3.1 million, or 4.1%, of net sales in the third quarter of fiscal
1999, as compared to $3.0 million or 5.3%, of net sales for the third quarter of
the prior fiscal year. For the nine months ended June 30, 1999, net sales
attributable to F&I Products contributed $5.6 million, or 4.3% of net sales,
compared to $5.4 million or 5.5% of net sales, for the same period of the prior
year. Consistent with issues arising in the March 1999 quarter, management
attributes the decline in net sales attributable to F&I products as a percentage
of net sales to: (i) the relative inexperience and unfamiliarity to Travis
operating procedures of numerous F&I managers hired for newly acquired store
locations, (ii) a shift to a higher average selling price of boats to customers
that were less desirous or in need of financing to fund their boat purchase and
(iii) active solicitation of boat loans from certain credit unions and other
"non-conventional" financing sources offering favorable interest rates and
financing terms. While the net sales attributable to F&I products was negatively
impacted during the quarter ended June 30, 1999 by the aforementioned factors,
the Company believes that its F&I product selection is competitive within the
industry. The Company plans to continue its emphasis on the training of F&I
employees and to provide incentives designed to promote customer loyalty and
compliment the achievement of established departmental goals.
Gross profit. Gross profit increased by 33.3% to $18.9 million in the third
quarter of fiscal 1999 from $14.2 million in the same quarter of fiscal 1998,
while gross profit as a percent of sales decreased to 25.3% from 25.5% during
the same periods. For the nine months ended, June 30, 1999, gross profit
increased 28.2% to $33.2 million from $25.9 million in the same period of the
prior year. During the period gross profit as a percent of sales decreased to
25.4% from 26.1%. The negative variance in gross profit as a percent of sales
for the quarter and nine months ended June 30, 1999 was primarily related to the
mix of revenues discussed above in Net Sales. Traditionally higher gross profit
sales categories such as: F&I income, over the counter sales of parts &
accessories and service labor provide additional gross profit margin to the
Company's overall boat sales. However, in the quarter and nine month period
ended June 30, 1999, the Company experienced higher than projected percentages
of larger, more expensive boats and a lower than projected percentage of
non-boat related revenues.
13
<PAGE>
As discussed above, net sales attributable to F&I Products have a significant
impact on the gross profit margin. Net sales of these products contributed $3.1
million, or 16.4%, of total gross profit in the third quarter of fiscal 1999, as
compared to $2.9 million or 20.4%, of total gross profit for the third quarter
of the prior fiscal year. For the nine months ended, June 30, 1999, net sales
attributable to F&I Products accounted for $5.6 million, or 16.9% of the total
gross profit, compared to $5.4 million or 20.8%, 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 27.6% to $10.1 million in third quarter of
fiscal 1999 from $7.9 million for the third quarter of fiscal 1998. However,
selling, general and administrative expenses as a percent of net sales decreased
to 13.5% in the third quarter of fiscal 1999 from 14.3% for the third quarter of
fiscal 1998.
Selling, general and administrative expenses in actual dollars increased by
approximately 29.3% to $21.9 million for the nine months ended June 30, 1999,
versus $16.9 million in the same period of the prior fiscal year. In the same
period selling, general and administrative expenses as a percent of net sales
decreased to 16.7% from 17.5%.
The decrease in selling, general and administrative expenses as a percentage of
net sales, for the quarter and nine months ended June 30, 1999 was primarily
attributable to economies of scale recognized in gross wages and avertising
expenses paid. The economies in gross wages were related to both corporate and
store infrastructures. In terms of the promotion and advertising expenses, the
Company consolidated various advertising formats and utilized manufacturer
advertising assistance for promotions and other marketing events.
Depreciation and amortization expenses. Depreciation and amortization expenses
increased by 66.1% to $578,000 in third quarter of fiscal 1999 from $348,000 for
the third quarter of fiscal 1998. Depreciation and amortization expenses as a
percent of net sales increased to .77% in the third quarter of fiscal 1999 from
.62% for the third quarter of fiscal 1998. Depreciation and amortization
expenses, as a percentage of net sales, increased to 1.1% for the nine months
ended June 30, 1999, versus 1.0% in the same period of the prior fiscal year.
Depreciation and amortization expenses increased as a percentage of net sales in
the quarter and for the nine months ended, June 30, 1999, primarily as a result
of the increased number of stores acquired and in operation during the periods.
14
<PAGE>
Interest expense. Interest expense, in actual dollars, increased to $948,000 in
third quarter of fiscal 1999 from $578,000 in the third quarter of fiscal 1998,
while interest expense as a percent of net sales increased to 2.2% from 1.7% of
net sales in the third quarter of fiscal 1999 and fiscal 1998, respectively. For
the nine months ended June 30, 1999, interest expense increased to $1.5 million
from $1.0 million in the same period of the prior year and interest expense as a
percent of net sales increased to 2.7% from 2.4%. The increase was primarily the
result of the additional debt incurred in the acquisitions occuring during
fiscal 1999 and 1998 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 posted net income of $4.5 million for the third quarter
of fiscal 1999 which represented an increase of 36.5% from the net income of
$3.3 million for third quarter of fiscal 1998. Net income as a percent of net
sales increased to 6.0% from 5.9% for the third quarter of fiscal 1999 and 1998,
respectively. For the nine month periods ended June 30, 1999 and 1998,
respectively, net income increased by approximately $1.7 million (18.6%) to $4.6
million from $3.9 million in the year earlier period.
The increased net income has primarily been the result of the Company generating
higher net sales levels while realizing a percentage reduction in selling,
general and administrative expenses as a result of the items discussed herein.
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, 1999, the Company had working capital of $14.6 million, including $16.2
million in accounts receivable (primarily contracts in transit from sales) and
$73.0 million in inventories, offset by approximately $8.7 million of accounts
payable and accrued liabilities, and $72.4 million in other short-term
liabilities including revolving/floorplan credit lines outstanding ($68.3
million) and unearned income ($1.4 million). As of June 30, 1999, the aggregate
maximum borrowing limits under floor plan and revolving lines of credit were
approximately $112 million, of which the Company was eligible to borrow
approximately $71.7 million pursuant to the Company's borrowing formula.
Operating activities utilized cash flows of $27.0 million for the first nine
months of fiscal 1999 due primarily to the net increases of $24.3 million in
inventories (exclusive of those inventories that were acquired in acquisitions
of approximately $9.8 million) and $11.3 million in accounts receivable. In
addition to inventory from the locations acquired since September 30, 1998, 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. The increased accounts receivable levels reported at June 30, 1999 were
primarily the result of contracts in transit generated from the retail sales of
the boat. Thus, the contracts in transit are generally due from financial
institutions that handle the financing on customer purchases.
15
<PAGE>
The Company used net cash in investing activities of approximately $8.4 million
in the first nine months of fiscal 1999. During the first nine months of fiscal
1999, the Company acquired substantially all of the assets of Amlin, Inc., Inc.
(net cash used of $1.6 million), Sportsman's Haven, Inc. (net cash used of $1.0
million), Pier 68 Marina, Inc. (net cash used of $0.1 million), DSA Marine Sales
& Service (net cash used of $0.6 million), Shelby Marine, Inc. (net cash used of
$0.8 million) and funded $0.4 million due to the September 26, 1998 acquisition
of Rodgers Marine, a division of Rodgers Cadillac, 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, 1999 provided $38.6
million of cash inflows primarily from the net proceeds of borrowings under the
Company's credit facilities. These borrowings were used to fund the increase in
inventories, as well as certain acquisition related and other capital
expenditures. The Company has a $55.0 million revolving line of credit agented
by Bank of America. 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 has a maturity
on October 31, 1999 and pricing is at the Company's election of the prime minus
1.00% or a LIBOR based price structure. There is a fee on the unused portion
assessed quarterly. A comprehensive loan agreement governs the line of credit.
The loan agreement contains financial covenants regulating debt service
coverages, tangible net worth, operating leverage and restrictions on dividends
or distributions. As of July 30, 1999, $29.0 million was drawn on the revolving
line and the Company could borrow an additional $26.0 million, of which $3.4
million was immediately available for borrowing based upon the revolving line's
borrowing formula. However, as the Company purchases inventory, the amount
purchased increases the borrowing base availability and typically the Company
makes a determination to borrow depending upon anticipated working capital
requirements. As the Company has increased its net sales levels related to its
boat, motor and trailer packages, a corresponding increase has resulted in the
level of accounts receivables related to the sales of such products.
Historically, the Company has not borrowed a material (a maximum of $1.5
million) amount under its revolving line of credit to support this increase in
accounts receivable levels. The Company approached Bank of America to
significantly increase its borrowing under these receivables, of which
management estimates approximately 80% are due from financial institutions
utilized by its customers to fund it purchase of boating products. Bank of
America amended the borrowing base to 50% of all receivables categorized as
contracts in transit from the financial institutions from the previous maximum
of $1.5 million of total accounts receivables.
The Company also maintains floor plan lines of credit with various finance
companies providing approximately $57.0 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, 1999, approximately $35.6 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.
16
<PAGE>
Merchandise inventories were $73.0 million and $38.9 million as of June 30, 1999
and September 30, 1998, respectively. Costs in excess of net assets acquired
increased by approximately $4.6 million to $10.2 million in the first nine
months of fiscal 1999 due to the acquisitions thus far in fiscal 1999.
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 through the remainder of
fiscal 1999. The Company is currently in discussions with Bank of America, as
agent of its bank group, to renew and increase its revolving credit facility
which matures on October 31, 1999. As part of increasing its revolving credit
facility, the Company is also evaluating its ability to supplement the revolving
credit line with additional long term, unsecured or subordinated financing in an
amount approximate between ten to twenty percent (10-20%) of its revolving
credit line commitment amount. Management believes that the long term financing
will supplement the Company's free working capital position by reducing certain
borrowings under its revolving credit line. Borrowings under the revolving
credit line are used by the Company to support general working capital
requirements, to supplement the purchase of inventory, to fund acquisition
assets and other general corporate purposes.
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. Over the previous five-year period, the average annual net sales for the
quarterly periods ended March 31 and June 30 represented approximately 27% and
41%, respectively, of the Company's annual net sales. With regard to net income,
the Company historically generates profits in three of its fiscal quarters and
experiences operating losses in the quarter ended December 31 due to a broad
seasonal slowdown in sales. During the quarter ended September 30, inventory
typically reaches its lowest levels and accumulated cash reserves reach the
highest levels. During the quarter ended December 31, the Company generally
builds inventory levels in preparation for the upcoming selling season which
begins with boat and recreation shows occurring during January through March in
certain market areas in which the Company conducts business. Travis Boats'
operating results would be materially and adversely affected if net sales were
to fall significantly below historical levels during the months of January
through June.
The Company's business is also significantly affected by weather
patterns. Weather conditions that are unseasonable or unusual may adversely
affect the Company's results of operations. For example, drought conditions or
merely reduced rainfall levels, as well as excessive rain, may affect the
Company's sale of boating packages and related products and accessories. 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.
17
<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.
Disclosure of YEAR 2000 Issues and Consequences
The Year 2000 Issue ("Y2K") is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using"00" as the year 1900 rather than the
year 2000. This could cause a system failure or miscalculations in the
Company's point of sale, accounting and other financial operations which could
cause disruptions of operations, including, among other things, could
result in a temporary inability to process financial transactions, or engage in
similar normal business or financial reporting activities. Similarly, material
suppliers to the Company may be unable to produce or ship product in the
ordinary course of their business operations.
Based on recent system evaluations, surveys, and on-site inventories, the
Company determined that it will be required to modify or replace minimal
portions of its software and certain hardware so that those systems will
properly utilize dates beyond December 31, 1999. As part of a previously planned
company-wide upgrade to its accounting systems initiated in March of 1998, the
Company is presently replacing its integrated accounting and point-of-sale
management information system ("MIS"). The new MIS system is currently operating
in twenty-six (26) store locations and the Company is planning to install the
system in all locations by the end of calendar 1999. The new MIS system was
selected in part due to its ability to allow the Company increased efficiencies
in its efforts to further centralize full financial and accounting operations.
The new MIS system is a Y2K compliant system. The Company's existing integrated
accounting and point of sale system in sixteen stores currently is not Y2K
compliant. The system's owner, Bell & Howell, Inc. has, in August of 1999,
delivered to the Company a Y2K compliant version of the software. The Company is
currently installing and testing the upgraded Y2K software. Testing and
implementation is expected to be complete by October 30, 1999. Having the
existing software Y2K compliant before year 2000 greatly reduces any risk of
delays in implementation of the new system.
The Company has one other key system that is not part of the integrated package.
The Company contracts with Automatic Data Processing ("ADP") for payroll
processing. ADP has provided the Company with separate software in which is used
to administer the company-wide payroll. The Human Resources department of the
Company has just completed installation of a year 2000 compliant version which
has been provide to the Company by ADP.
18
<PAGE>
A survey has been performed on all back office software packages. We have not
seen any material date macros or other date related functions that would be
materially affected by dates beyond December 31, 1999.
Significant non-technical systems and equipment that may contain
microcontrollers which are not Y2K compliant are being identified and addressed
if deemed critical. This includes, but is not limited to, telephone systems,
copiers, fax machines, point of sale credit card authorization terminals.
The Company has, and continues to utilize a written questionnaire specifically
designed to query significant vendors, including but not limited to, boat
suppliers, parts/accessory suppliers and wholesalers, and financial
institutions. Certain of the companies queried have responded to questionnaires
stating that their systems are Y2K compliant. The Company is monitoring the
status of the questionnaire respondents that have indicated that Y2K compliance
is not yet complete, but is anticipated to be complete during calendar year
1999. The Company has not received any questionnaires from companies that have
expressed an inability or business related purpose that would render them unable
to reach Y2K compliance. To date, the Company is not aware of any Y2K issue
that would materially impact the Company's results of operations, liquidity, or
capital resources. However, the Company has no means of ensuring that
significant vendors will be Y2K ready. The inability of vendors to complete
their Y2K resolution process in a timely fashion could materially impact the
Company. The effect of non-compliance by significant vendors is not
determinable.
While the Company believes its efforts will provide reasonable assurance that
material disruptions will not occur due to internal failure, the possibility of
interruption still exists.
In the ordinary course of business, the Company has acquired or plans to acquire
a significant amount of Y2K compliant hardware and software. These purchases
are part of specific operational and financial system enhancements with
completion dates during late 1999 that were planned without specific regard to
the Y2K issue. These system enhancements resolve many Y2K problems and have not
been delayed as a result of any additional efforts addressing the Y2K issue.
Minimal costs will be associated with Y2K issue. The Company does not expect the
year 2000 cost of unforeseen hardware or software applications to exceed
$10,000.
Management believes it has an effective program in place to resolve the Y2K
issue in a timely manner. In the event that the Company does not complete
implementation of its new system or installation of the Y2K version of its
existing software, it could experience disruptions in its operations. In
addition, disruptions in the economy generally resulting from the Y2K issues
could also result in a materially adverse affect to the Company.
The Company currently has assigned two (2) management level employees to further
identify risks and to develop contingency plans in the event the Company
does not complete all phases of the Y2K program. The Company continues to
evaluate the status of completion.
19
<PAGE>
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
forwardlooking statements. Among the factors that could cause actual results to
differ materially are: general economic conditions, competition and government
regulations, as well as the risks and uncertainties discussed in this
Report on Form 10-Q, including without limitation, the matters discussed in
"Risk Factors" and the uncertainties set forth from time to time in the
Company's other public reports, filings and public statements. All
forwardlooking 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 Issues by Registrant
On September 25, 1998, the Company consummated the acquisition of certain assets
of Rodgers Marine, a division of Rodgers Cadillac, Inc., which operated a retail
boating store location in Lenoir City, Tennessee. The total consideration for
Rodgers Marine consisted of cash and newly issued shares of Common Stock of the
Company. The Company issued an aggregate of 19,707 shares of its stock, with a
value of $350,000 to Rodgers Cadillac, Inc.
20
<PAGE>
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, 1999 Travis Boats & Motors, Inc.
By: /s/ Michael B. Perrine
------------------------------
Michael B. Perrine
Chief Financial Officer, Treasurer and Secretary
(Principal Accounting and Financial Officer)
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule for Travis Boats & Motors, Inc.
</LEGEND>
<CIK> 0001012734
<NAME> Travis Boats & Motors, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1998
<PERIOD-START> OCT-01-1998 OCT-01-1997
<PERIOD-END> JUN-30-1999 SEP-30-1998
<EXCHANGE-RATE> 1 1
<CASH> 7,826 4,618
<SECURITIES> 0 0
<RECEIVABLES> 16,206 4,893
<ALLOWANCES> 0 0
<INVENTORY> 73,039 38,934
<CURRENT-ASSETS> 98,974 50,095
<PP&E> 21,378 16,110
<DEPRECIATION> 4,498 3,417
<TOTAL-ASSETS> 126,947 69,116
<CURRENT-LIABILITIES> 91,817 38,683
<BONDS> 7,455 4,980
0 0
0 0
<COMMON> 43 43
<OTHER-SE> 35,087 30,390
<TOTAL-LIABILITY-AND-EQUITY> 126,947 69,116
<SALES> 130,952 131,740
<TOTAL-REVENUES> 130,952 131,740
<CGS> (97,743) (96,839)
<TOTAL-COSTS> (97,743) (96,839)
<OTHER-EXPENSES> (23,283) (23,890)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (2,673) (2,310)
<INCOME-PRETAX> 7,317 8,781
<INCOME-TAX> (2,681) (3,218)
<INCOME-CONTINUING> 4,636 5,563
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,636 5,563
<EPS-BASIC> 1.08 1.31
<EPS-DILUTED> 1.05 1.26
</TABLE>
