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 December 31, 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 - 4,288,063 shares as of February 4, 1998.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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Item 1. Financial Statements
Travis Boats & Motors, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
( in thousands, except share data )
December 31, September 30,
1998 1998
------------ -------------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $2,955 $4,618
Accounts receivable 5,231 4,893
Inventories 56,554 38,934
Deferred tax asset 180 180
Prepaid federal income taxes 1,256 425
Prepaid expenses and other 976 1,045
------- -------
Total current assets 67,152 50,095
Property and equipment:
Land 3,516 3,516
Buildings and improvements 8,664 8,485
Furniture, fixtures and equipment 4,271 4,109
------- -------
16,451 16,110
Less accumulated depreciation (3,661) (3,417)
------- -------
12,790 12,693
Deferred tax asset 96 96
Intangibles and other assets :
Goodwill and noncompete agreements, net 6,099 6,202
Other assets 98 30
------- -------
Total assets $86,235 $69,116
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank Overdraft $ $ -
Accounts payable 1,342 1,697
Accrued liabilities 1,464 2,512
Amounts due for purchase of business 0 2,117
Unearned revenue 1,134 1,272
Current portion of notes payable and other
short-term obligations 48,593 26,105
------- -------
Total current liabilities 52,533 33,703
Notes payable, less current portion 4,844 4,980
Stockholders' equity
Common Stock, $.01 par value, 50,000,000 authorized,
4,285,063 and 4,287,063 issued and outstanding at
December 31, 1998 and September 30, 1998,
respectively 43 43
Paid-in capital 13,840 13,816
Retained earnings 14,975 16,574
------- -------
Total stockholders' equity 28,858 30,433
------- -------
Total liabilities and stockholders' equity $86,235 $69,116
======= =======
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See notes to unaudited condensed consolidated financial statements
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<TABLE>
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Travis Boats & Motors, Inc.and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except share data and stores open)
Three months ended
December 31,
1998 1997
----------------------
<S> <C> <C>
Net sales........................................... $12,097 $10,142
Cost of goods sold.................................. 9,156 7,531
-------- --------
Gross profit........................................ 2,941 2,611
Selling, general and administrative................. 4,505 3,694
Depreciation and amortization....................... 415 333
-------- --------
4,920 4,027
Operating
Loss................................................ (1,979) (1,416)
Interest expense.................................... (555) (461)
Other Income........................................ 8 13
-------- --------
Loss before income taxes............................ (2,526) (1,864)
Income tax benefit.................................. (926) (708)
-------- --------
Net Loss............................................ ($1,600) ($1,156)
======== ========
Basic and Diluted Loss Per Share.................... ($0.37) ($0.27)
Weighted avg. basic and dilutive
common shares outstanding.......................... 4,285,579 4,224,867
Stores open at end of period........................ 24 21
========= =========
See notes to unaudited condensed consolidated financial statements
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Travis Boats & Motors, Inc.and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flow
(in thousands)
Three months ended
December 31,
1998 1997
-----------------------
<S> <C> <C>
Operating activities:
Net Loss ($1,600) ($1,156)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization......................... 415 333
Changes in operating assets and liabilities
Accounts Receivable................................ (338) 637
Prepaid Expenses................................... 69 (81)
Inventories........................................ (17,620) (15,202)
Other Assets....................................... (68) (89)
Accounts Payable................................... (355) (1,362)
Accrued Liabilities................................ (1,048) (21)
Income Tax Benefit................................. (831) (424)
Unearned Revenue................................... (138) 783
------- -------
Net Cash used in operating activities................. (21,514) (16,582)
Investing Activities:
Purchase of businesses................................ (2,185) (2,987)
Purchase of property and equipment.................... (341) (356)
------- -------
Net cash used in investing activities (2,526) (3,343)
Financing activities:
Net increase in notes payable and other short term obl 22,353 19,975
Sale of common stock 24 0
------- -------
Net cash provided by financing activities............. 22,377 19,975
Change in cash and cash equivalents................... (1,663) 50
Cash and cash equivalents, beginning of period........ 4,618 5,816
Cash and cash equivalents, end of period.............. $2,955 $5,866
======= =======
</TABLE>
See notes to unaudited condensed consolidated financial statements
<PAGE>
DECEMBER 31, 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 December 31, 1998; and the interim results of
operations and cash flows for the three month periods ended December 31,
1998 and 1997. 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 period ended December 31,
1998 are not necessarily indicative of the results to be expected for
the full fiscal 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 where necessary, restated to conform to
the Statement 128 requirements.
Statement 128 requires the calculation of earnings per share to exclude
common stock equivalents when the inclusion of such would be anti-
dilutive. In the quarters ended December 31, 1998 and 1997, the
inclusion of common stock equivalents would have been anti-dilutive
based upon the net loss posted by the Company. As such, all common
stock equivalents were excluded.
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended Three Months Ended
December 31, 1998 December 31, 1997
Numerator:
Net loss $(1,600,000) $(1,156,000)
___________________________________________
Denominator:
Denominator for basic
Earnings per share -
Weighted avg. shares 4,285,579 4,224,867
Effect of dilutive securities:
Employee stock options ------- -------
___________________________________________
Dilutive potential common shares ------- -------
Denominator for diluted earnings
Per share - adjusted
Weighted average shares 4,285,579 4,224,867
And assumed conversions
___________________________________________
Basic loss per share $(0.37) $(0.27)
___________________________________________
Diluted loss per share $(0.37) $(0.27)
___________________________________________
NOTE 3 - ACQUISITIONS
The chart below summarizes significant acquisitions made by the Company
has made various acquisitions during the fiscal years ended September
30, 1998, 1997 and 1996. Each of the acquisitions were completed
through asset purchases (except for Adventure Marine in fiscal 1997,
which was a stock purchase) and have been accounted for using the
purchase method of accounting. The operating results of the companies
acquired have been included in the consolidated financial statements
from the respective date of acquisition. The assets acquired generally
include boat, motor and trailer inventory, parts and accessories
inventory and to a lesser extent, property, plant and equipment. A
summary of the Company's significant acquisitions follows:
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Non-compete
Agreements
Date of Purchase Tangible and Cash Liabilities Notes Stock
Name of Company Acquisition Price Net Assets Goodwill Paid Assumed Issued Issued
- -----------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal 1998
- -----------
Southeastern
Marine 11/97 $1,730 $1,390 $ 280 $ 1,606 $ - $ 124 $ -
Worthen Marine 12/97 287 142 145 287 - - -
HnR Marine 04/98 359 359 - 359 - - -
Moore's Marine 05/98 777 376 401 777 - - -
Rodgers Marine 09/98 2,443 2,093 350 327 1,766 - 350
Fiscal 1997
- -----------
North Alabama
Watersports 10/96 892 687 205 812 - 80 -
Tri-Lakes Marine 11/96 3,180 1,892 644 643 1,937 600 -
Bent's Marine 02/97 1,519 840 679 1,064 - 455 -
McLeod Marine 08/97 958 730 228 958 - - -
Adventure Marine 09/97 8,226 5,536 2,690 1,430 5,203 115 1,478
Fiscal 1996
- -----------
Red River Marine 09/95 2,955 1,905 1,050 917 438 1,600 -
</TABLE>
Effective January 1, 1999, the Company acquired certain assets of Amlin,
Inc. dba Magic Marine, which operated store locations in Orlando,
Clearwater and St. Petersburg, Florida. This acquisition included boat,
motor and trailer inventory, as well as parts and accessories inventory
and certain fixed assets of the seller. The approximate purchase price
of $7.4 million was paid through the assumption of approximately $6.4
million in short term debt related to inventories acquired, cash and the
issuance of common stock.
Effective January 1, 1999, the Company acquired certain assets of
Sportsman's Haven, Inc., Sportsman's Haven II, Inc. and Sportsman's
Haven IV, Inc. (the 'Sportsman's Haven Entities'), which operated store
locations in Little Rock and Pine Bluff, Arkansas. This acquisition
included boat, motor and trailer inventory, as well as parts and
accessories inventory and certain fixed assets/real estate of the
seller. The approximate purchase price of $2.9 million was paid through
the assumption of approximately $1.9 million in short term debt related
to inventories acquired, cash and the issuance of common stock.
Effective January 1, 1999, the Company opened a new start-up location in
Ft. Walton Beach, Florida. The new store location will result in the
Company operating two stores in Ft. Walton Beach with each store
focusing on different boating lines.
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 30 stores (24 stores as of
December 31, 1998) 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 25 additional store locations in the following
states: Texas (3), Arkansas (4), Louisiana (4), Alabama (2), Tennessee
(3), Mississippi (1), Florida (6), Georgia (1) and Oklahoma (1)
As of the date of this Report on Form 10-Q, the Company operates 30
store locations under the name Travis Boating Center through the opening
or acquisition of six (6) locations in January of 1999. The new stores
include, two in Arkansas (Little Rock and Pine Bluff) and four in
Florida (Longwood, St. Petersburg, Clearwater, and Ft. Walton Beach).
The Company sells approximately 75 different Travis Edition models of
brand-name fishing, water-skiing and general recreational boats, along
with motors, trailers, accessories and related equipment. Personal
watercraft, off-shore fishing boats and cabin cruisers are also offered
for sale at selected store locations. During fiscal 1998, substantially
all of the boat units sold range in size from 16 to 25 feet at prices
ranging from $7,500 to $25,000. Approximately 1.7% of new boat sales are
personal watercraft with retail prices generally ranging from $5,000 to
$10,000 and approximately 6.7% of new boat sales are off-shore fishing
boats and cruisers with lengths of 27 feet or greater and ranging in
retail price from $50,000 to $300,000. The Company's retail pricing
structure seeks to maintain a consistent gross profit percentage for
each of it'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.
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, December 31, 1998 Compared to the Quarter Ended, December
31, 1997
Net sales. Net sales increased by 19.3% to $12.1 million in the first
quarter of fiscal 1999 from $10.1 million in the first quarter of fiscal
1998. The primary components of the increase in net sales have been the
result of newly opened or acquired store locations in fiscal 1998 and
positive comparable store sales. Accordingly, of the increase in net
sales, $1.4 million, or 70.0% was related to the store locations that
were (i) newly opened or acquired in fiscal 1998, or (ii) those
relocated or renovated to meet the Company's superstore standards during
fiscal 1998. The Company also benefited from growth in comparable store
sales. During the first quarter of fiscal year 1999, comparable store
sales increased by 8.7%, or $0.6 million, (14 stores in base) versus a
1.9% decrease in comparable store sales (11 stores in base) during the
first quarter of fiscal 1998.
Gross profit. Gross profit increased by 12.6% to $2.9 million in the
first quarter of fiscal 1999 from $2.6 million in the same quarter of
fiscal 1998, while gross profit as a percent of net sales decreased to
24.3% from 25.7% during the same periods. Gross profit margins on
boats, which the Company seeks to maintain consistent across its Travis
Edition product line, remained flat quarter to quarter. The decrease
in total gross profit as a percent of net sales was primarily related to
three areas: (1) The fiscal 1999 quarter had a sales transaction of
approximately $300,000 in bulk oil to a wholesale customer. As a
wholesale transaction, the sale of the bulk oil was below the Company's
standard retail profit margins thereby causing a disproportionate sales
mix impact in the December quarter. The Company does not to expect to
have other wholesale transactions during fiscal 1999 which would
materially effect total gross profit margins; (2) service revenues, as a
percentage of net sales, declined in the quarter ended December 31,
1999. Management believes that unseasonably warm weather resulted in
customers deferring normal 'off season' maintenance or winterization of
their boats; (3) Finance and Insurance revenue, which has also has a
major impact on gross profit, declined to 10.9% from 14.1%, as a
percentage of net sales, in the quarter ended December 31, 1998 and
1997, respectively. Management believes the decline was attributable
to a planned shift in the off-season months of October through December
to replace and realign certain of its store location's F&I managers.
The adjustments made during this period allow for training prior to the
main selling season which typically begins in January of each year.
Net sales attributable to F&I Products contributed $322,000, or 10.9%,
of total gross profit in the first quarter of fiscal 1999, compared to
$368,000, or 14.1%, of total gross profit for the first quarter of the
prior fiscal year. 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 22.0% to $4.5 million in first
quarter of fiscal 1999 from $3.7 million for the first quarter of fiscal
1998. Selling, general and administrative expenses as a percent of net
sales increased to 37.2% in the first quarter of fiscal 1999 from 36.4%
for the first quarter of fiscal 1998. This increase as a percent of net
sales was primarily the result of start-up and travel costs associated
with operating a larger store base, and increased promotion and
advertising associated with an expanded regional market presence.
Depreciation and amortization expenses, as a percent of net sales,
increased in the first quarter of fiscal 1999, to 3.4% from 3.3% in the
same quarter of the prior fiscal year. The increase was primarily a
result of the amortization costs of the acquisitions which occurred in
fiscal 1998, and higher depreciation costs on leasehold or building
improvements associated with the conversion of certain existing stores
to superstore standards.
Interest expense. Interest expense increased by 20.4% to $555,000 in
the first quarter of fiscal 1999 from $461,000 in the first quarter of
fiscal 1998. The increase was primarily the result of the additional
debt incurred in the acquisitions occurring during fiscal 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. Through increased sales and improved short term interest rates
tied to the Prime and LIBOR lending rates, interest expense as a percent
of net sales remained constant at 4.6% in the first quarter of fiscal
1999 when compared to the same quarter of the prior fiscal year. See
"Liquidity and Capital Resources", "Seasonality".
Net loss. The Company experienced a net loss of $1.6 million for the
first quarter of fiscal 1999. This represents an increase of 38.4% from
the net loss of $1.2 million in the first quarter of fiscal 1998. The
net loss as a percentage of net sales was 13.2% and 11.4% for the first
quarter of fiscal 1999 and 1998, respectively. While the Company
continued to benefit from increased sales, the reduction in gross profit
and increase in selling, general and administrative expenses resulted in
the increase in net loss as a percentage of sales. The Company expects
to continue to experience higher levels of net losses in the first
fiscal quarter based upon the seasonality of the recreational boating
industry in the states in which it operates. See "Liquidity and Capital
Resources", "Seasonality".
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 December 31, 1998, the Company
had working capital of $14.6 million, centered in $56.6 million in
inventories, offset by $46.6 million in short-term revolving/floorplan
credit lines outstanding. As of December 31, 1998, the aggregate
maximum borrowing limits under floor plan and revolving lines of credit
were approximately $112.0 million, of which the Company was eligible to
borrow approximately $50.0 million pursuant to the Company's borrowing
formula.
Operating activities used cash of $21.5 million for the first three
months of fiscal 1999 due primarily to the net increases of $17.6
million in inventories and the reported seasonal net loss. The first
quarter historically represents the off selling season for the Company
(see "Seasonality"). Inventory growth traditionally builds during the
first quarter in preparation for the selling season which begins with
boat and recreation shows occurring in January and February in certain
market areas in which the Company conducts business. This inventory
level generally falls to an annual low point during the fourth fiscal
quarter.
The Company used net cash in investing activities of approximately $2.5
million in the first three months of fiscal 1999. During the first three
months of fiscal 1999, the Company funded $2.1 million for the
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.
Financing activities for the three months ended, December 31, 1998
provided $22.4 million of cash flows primarily from the net proceeds of
borrowings under the Company's credit facilities. The Company has a
$55.0 million revolving line of credit agented by NationsBank of Texas,
N.A. The line provides for borrowing pursuant to a borrowing formula
based upon the certain of the Company's inventory and accounts
receivable. Collateral consists of a security interest in specific
inventories (and proceeds thereof), accounts receivable and contracts in
transit. The line has a maturity on October 31, 1999 and pricing is at
the Company's election of the prime rate minus 1.00% or on a LIBOR
based price structure. There is a fee on the unused portion assessed
quarterly. A comprehensive loan agreement governs the line of credit.
The agreement contains financial covenants regulating debt service
coverages, tangible net worth, operating leverage and restrictions on
dividends or distributions. As of December 31, 1998, $29.5 million was
drawn on the revolving line and the Company could borrow an additional
$25.5 million, of which approximately $3.2 million was immediately
available for borrowing based upon the revolving line's borrowing
formula. 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. Management believes the Company to be in
compliance with the terms and conditions of this loan agreement.
The Company also maintains floor plan lines of credit with various
finance companies 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 December
31, 1998, approximately $17.1 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 $56.6 million and $38.9 million as of
December 31, 1998 and September 30, 1998, respectively.
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 the remainder of 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. 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.
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 seven (7)
store locations and the Company is planning to install the system in
approximately 8 new store locations by the end of calendar 1999 and in
substantially each of the new store locations acquired in fiscal 1999.
The new MIS system was selected in part due to its ability to allow the
Company increased efficiencies in its efforts to further centralize full
financial and accounting operations. The new MIS system is a Y2K
compliant system. The Company's existing integrated accounting and point
of sale system currently is not Y2K compliant. The system's owner, Bell
& Howell, Inc. has notified the Company that the system is expected to
have a Y2K compliant version by the end of the first quarter of calendar
1999. Having the existing software Y2K compliant before year 2000
greatly reduces any risk of delays in implementation of the new system.
However, in the event the Bell & Howell system is not Y2K compliant by
the second quarter of 1999, the Company has determined that an immediate
evaluation by the Company's management and the Board of Directors will
be required to determine if the Company should accelerate its planned
implementation of the new MIS system. If acceleration of implementation
of the new MIS system occurs, the Company believes it would experience a
cost of approximately $200,000 in additional travel, training,
consulting, personnel and other costs. If the Company discontinued use
of its existing system it would also be required to expense all
unamortized system costs.
The Company has one other key system that is not part of the integrated
package. The Company contracts with Automatic Data Processing ('ADP')
for payroll processing. ADP has provided the Company with separate
software in which is used to administer the company-wide payroll. The
Human Resources department of the Company has just completed
installation of a year 2000 compliant version which has been provide to
the Company by ADP.
A survey has been performed on all back office software packages. We
have not seen any material date macros or other date related functions
that would be materially affected by dates beyond December 31, 1999.
Significant non-technical systems and equipment that may contain
microcontrollers which are not Y2K compliant are being identified and
addressed if deemed critical. This includes, but is not limited to,
telephone systems, copiers, fax machines, point of sale credit card
authorization terminals.
The Company has, and continues to utilize a written 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
plans to evaluate the status of completion in April 1999 and determine
whether formal implementation of such contingency plans are necessary.
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 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
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 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.
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: February 4, 1999 Travis Boats & Motors, Inc.
By:_/s/ Michael B. Perrine_____
Michael B. Perrine
Chief Financial Officer, Treasurer and Secretary
(Principal Accounting and Financial Officer)
