SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
AMENDMENT NO. 2 TO
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 31, 1999
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) (Zip Code)
(Not Applicable)
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 )
March 31, September 30,
1999 1998
------------ ----------------
(unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $6,391 $4,618
Accounts receivable 15,158 4,893
Inventories 74,096 38,934
Deferred tax asset 180 180
Prepaid federal income 341 425
taxes
Prepaid expenses and other 1,875 1,045
------------ ----------------
Total current assets 98,041 50,095
Property and equipment:
Land 3,866 3,516
Buildings and improvements 9,179 8,485
Furniture, fixtures and 4,910 4,109
equipment
------------ ----------------
17,955 16,110
Less accumulated (3,892) (3,417)
depreciation
------------ ----------------
14,063 12,693
Deferred tax asset 96 96
Intangibles and other assets :
Goodwill and non-compete agreements, 8,306 6,202
net
Other assets 237 30
------------ ----------------
Total assets $120,743 $69,116
============ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $3,793 $1,697
Accrued liabilities 3,345 2,512
Amounts due for purchase of business 1,379 2,117
Unearned revenue 1,623 1,272
Floorplan and revolving line of 73,365 25,148
credit payable
Current portion of notes payable and 984 957
other short-term obligations
------------ ----------------
Total current liabilities 84,489 33,703
Notes payable, less current portion 5,619 4,980
Stockholders' equity
Common Stock, $.01 par value,
50,000,000 authorized, 4,287,063 and
4,285,063 issued and outstanding at
March 31, 1999 and September 30, 1998,
respectively 43 43
Paid-in capital 13,840 13,816
Retained earnings 16,752 16,574
----------- ----------------
Total stockholders' 30,635 30,433
equity
----------- ----------------
Total liabilities and stockholders' $120,743 $69,116
equity
=========== ================
See notes to unaudited condensed consolidated financial statements
2
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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 Six months ended
March 31, March 31,
1999 1998 1999 1998
------------ ------------ ------------ -------------
Net sales $43,965 $33,427 $56,062 $43,569
Cost of goods sold 32,606 24,323 41,762 31,854
------------ ------------ ------------ -------------
Gross profit 11,359 9,104 14,300 11,715
Selling, general and 7,252 5,294 11,757 8,988
administrative
Depreciation and 404 346 819 679
amortization
------------ ------------ ------------ -------------
7,656 5,640 12,576 9,667
Operating income 3,703 3,464 1,724 2,048
Interest expense (948) (578) (1,503) (1,039)
Other income 51 14 59 27
------------ ------------ ------------ -------------
Income before income 2,806 2,900 280 1,036
taxes
Provision for income 1,029 1,102 103 394
taxes
------------- ------------ ------------ -------------
Net Income $1,777 $1,798 $177 $642
============= ============ ============ =============
Basic earnings per share $0.41 $0.42 $0.04 $0.15
Diluted earnings per $0.40 $0.41 $0.04 $0.15
share
Weighted average common 4,287,063 4,253,545 4,286,794 4,241,588
shares outstanding
Weighted average
dilutive common shares 4,429,629 4,423,316 4,421,564 4,405,348
outstanding
Stores open at period end 32 22 32 22
============= ============ ============= ============
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Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
( $ in thousands)
Six months ended
March 31,
1999 1998
------------ ------------
Operating activities:
Net Income $177 $642
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 819 679
Changes in operating assets and liabilities:
Accounts receivable (10,265) (5,220)
Prepaid assets (746) (694)
Inventories (24,916) (21,301)
Other assets (207) (75)
Accounts payable 2,027 (289)
Accrued liabilities 833 390
Income taxes payable 0 523
Unearned revenue 351 1,502
------------ ------------
Net cash used in by operating activities (31,927) (23,843)
Investing Activities:
Purchase of businesses (4,898) (3,696)
Purchase of property and equipment (1,128) (977)
------------ ------------
Net cash used in investing activities (6,026) (4,673)
Financing activities:
Net increase in floorplan and revolving debt, notes
payable and other short term obligations 39,702 31,361
Issuance of common stock 24 334
------------ ------------
Net cash provided by financing activities 39,726 31,695
Change in cash and cash equivalents 1,773 3,179
Cash and cash equivalents, beginning of period 4,618 5,816
------------ ------------
Cash and cash equivalents, end of period $6,391 $8,995
============ ============
See notes to unaudited condensed consolidated financial
statements
4
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 1999;
and the interim results of operations and cash flows for the three month and six
month periods ended March 31, 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 six month periods ended March
31, 1999 are not necessarily indicative of the results to be expected for the
full year.
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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 Six Months Ended
March 31 March 31
1999 1998 1999 1998
---- ---- ---- ----
Numerator:
Net income $1,777,000 $1,798,000 $ 177,000 $ 642,000
Denominator:
Denominator for basic
earnings per share -
weighted avg. shares 4,287,063 4,253,545 4,286,794 4,241,588
Effect of dilutive securities:
Employee stock options 141,610 169,771 134,770 163,760
----------------------------------------------------------
Denominator for diluted earnings
Per share - adjusted
weighted average shares 4,428,673 4,423,316 4,421,564 4,405,348
and assumed conversions ______________________________________________
Basic earnings per share $.41 $.42 $.04 $.15
----------------------------------------------
Diluted earnings per share $.40 $.41 $.04 $.15
----------------------------------------------
As of March 31, 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 strikeprice 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.
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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:
<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)
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>
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<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.
(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.
(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'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 six months ended March 31, 1998 and
1999, respectively:
6 Months 3/31/98 6 Months 3/31/99
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.
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Subsequent Events - Acquisitions
Effective April 30, 1999, the Company acquired certain assets of DSA Marine
Sales & Service, Inc. dba The Boatworks, which operated store locations in
Bradenton, Clearwater and Englewood, 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 $2.1
million was paid through cash of approximately $550,000 and the Company's
agreement to deliver to the Seller 98,192 shares of the Company's common stock
upon the Registration of such shares.
NOTE 4 - COMPREHENSIVE INCOME
For the quarter and the nine months ended June 30, 1999, Comprehensive Income
equalled Net Income.
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 35 stores (32 stores as of March 31, 1999) 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 30 additional store locations in the following states: Texas
(3), Arkansas (4), Louisiana (4), Alabama (2), Tennessee (3), Mississippi (1),
Florida (11), Georgia (1) and Oklahoma (1)
As of the date of this Report on Form 10-Q, the Company operates 35 store
locations under the name Travis Boating Center through the acquisition of three
(3) locations in April of 1999. The newly acquired stores are located in
Bradenton, Clearwater and Englewood, Florida .
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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.
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.
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Results of Operations
Quarter Ended, March 31, 1999 Compared to the Quarter Ended, March 31, 1998 and
Six Months Ended, March 31, 1999 Compared to the Six Months Ended March 31,
1998.
Net sales. Net sales increased by 31.5% to approximately $44.0 million in the
second quarter of fiscal 1999 from $33.4 million in the second quarter of fiscal
1998. For the six months ended, March 31, 1999, net sales increased by 28.7% to
$56.1 million from $43.6 million during the same period of the prior year. Of
the increases in net sales, approximately $1.7 million and $833,000 million were
attributable to a 6.2% and 2.6% growth in comparable store sales for the quarter
(17 stores in base) and six months (14 stores in base) ended March 31, 1999,
respectively.
General growth in overall sales volume was primarily the result of the increased
number of stores in operation during the periods (32 vs. 22), the participation
in additional season opening boat and recreation shows, and a favorable mix of
Travis Edition boat sales that has resulted in a higher average sales price
(approximately $18,500 versus $15,000 in fiscal 1998). A primary component in
the favorable mix of Travis Edition boat packages sold has been the increase in
sales of the Company's "Blue-water" (off-shore) fishing boats and other Travis
Edition boating packages. 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.
During the quarter and the six months ended March 31, 1998, the Company also
experienced 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 17 of its 32 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; Hot Springs and 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.
11
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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
$2.2 million, or 4.8%, of net sales in the second quarter of fiscal 1999, as
compared to $2.1 million or 6.3%, of net sales for the second quarter of the
prior fiscal year. For the six months ended March 31, 1999, net sales
attributable to F&I Products contributed $2.5 million, or 4.5% of net sales,
compared to $2.5 million or 5.7% of net sales, for the same period of the prior
year. 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 March 31, 1999 by the
aforementioned factors, the Company believes that its F&I product selection is
competitive within the industry. The Company plans to continue emphasis on the
training of F&I employees and provide incentive designed to compliment the
achievement of established departmental goals.
Comparable store sales increased by 6.2% for the quarter (17 stores in base) and
2.6% for the six months (14 stores in base) ended March 31, 1999, respectively.
In the prior year, comparable store sales increased by 10.1% for the quarter (11
stores in base) and 5.5% for the six months (10 stores in base) ended March 31,
1998, respectively. The Company's planned acquisition strategy and subsequent
renovation of stores to superstore standards is expected to continue to
negatively impact the number of stores eligible for comparable store base
calculations in relationship to the total number of store locations operated. As
such, comparable store performance is expected to remain unstable until higher
percentages of the Company's stores are eligible for comparable store
calculations.
Gross profit. Gross profit increased by 24.8% to $11.4 million in the second
quarter of fiscal 1999 from $9.1 million in the same quarter of fiscal 1998,
while gross profit as a percent of sales decreased to 25.8% from 27.2% during
the same periods. For the six months ended, March 31, 1999, gross profit
increased 22.1% to $14.3 million from $11.7 million in the same period of the
prior year. However, during the period gross profit as a percent of sales
decreased to 25.5% from 26.9%. The decrease in gross profit as a percent of
sales for the quarter and six months ended March 31, 1999 were primarily related
to the mix of revenues discussed above in Net Sales attributable to
traditionally higher gross profit sales categories such as: F&I income, over the
counter sales of parts & accessories and service labor, as well as the mix of
larger, more expensive boats sold during the periods.
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Notwithstanding the factors discussed in the above paragraph, net sales
attributable to F&I Products have a significant impact on the gross profit
margin. Net sales of these products contributed $2.2 million, or 19.3%, of total
gross profit in the second quarter of fiscal 1999, as compared to $2.1 million
or 23.1%, of total gross profit for the second quarter of the prior fiscal year.
For the six months ended, March 31, 1999, net sales attributable to F&I Products
accounted for $2.5 million, or 17.5% of the total gross profit, compared to $2.5
million or 21.2%, 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 37.0% to $7.3 million in second quarter of
fiscal 1999 from $5.3 million for the second quarter of fiscal 1998. Selling,
general and administrative expenses as a percent of net sales increased to 16.5%
in the second quarter of fiscal 1999 from 15.8% for the second quarter of fiscal
1998.
Selling, general and administrative expenses in actual dollars increased by
approximately 30.8% to $11.8 million for the six months ended March 31, 1999,
versus $9.0 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
increased to 21.0% from 20.6%. In terms of both actual dollars and as a
percentage of net sales, the increase in selling, general and administrative
expenses was primarily attributable to increased expenses associated with the
operation of a larger store network, including growth in the corporate-office
staffing infrastructure and increased advertising costs. Rental expense also
increased as a percent of net sales as the Company expanded and relocated its
Corporate headquarters which had previously been located in the Austin, Texas
superstore facility. Opening and other start-up costs associated with the
acquisition and start-up of eight (8) new store locations during the quarter
ended March 31, 1999, plus expenses of the relocation and renovation of various
store locations also contributed to the increase in selling, general and
administrative expenses. However, the increase in selling, general and
administrative expenses was partially offset by a reduction in gross wages to
11.7% from 12.3% of net sales for the six months ended March 31, 1999.
Depreciation and amortization expenses. Depreciation and amortization expenses
increased by 16.8% to $404,000 in second quarter of fiscal 1999 from $346,000
for the second quarter of fiscal 1998. Depreciation and amortization expenses as
a percent of net sales decreased to .92% in the second quarter of fiscal 1999
from 1.0% for the second quarter of fiscal 1998. Depreciation and amortization
expenses, as a percentage of net sales, decreased to 1.5% for the six months
ended March 31, 1999, versus 1.6% in the same period of the prior fiscal year.
Depreciation and amortization expenses decreased as a percentage of net sales in
the quarter and for the six months ended, March 31, 1999, primarily as a result
of the increased net sales related to the growth in the net sales resulting from
the increased number of stores in operation during the periods.
Interest expense. Interest expense, in actual dollars, increased to $948,000 in
second quarter of fiscal 1999 from $578,000 in the second quarter of fiscal
1998, while interest expense as a percent of net sales increased to 2.2% from
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1.7% of net sales in the second quarter of both fiscal 1999 and fiscal 1998,
respectively. For the six months ended March 31, 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 a net income of $1.8 million for the second
quarter of fiscal 1999 which remained flat from the same level of $1.8 million
for second quarter of fiscal 1998. Net income as a percent of net sales
decreased to 4.0% from 5.4% for the second quarter of fiscal 1999 and 1998,
respectively. For the six month periods ended March 31, 1999 and 1998,
respectively, net income declined by $465,000 from $642,000 to $177,000.
The diminished net income has primarily been the result of the Company
generating higher net sales levels while realizing decreased gross profit
margins 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 March
31, 1999, the Company had working capital of $13.6 million, including $15.2
million in accounts receivable (primarily contracts in transit from sales) and
$74.1 million in inventories, offset by approximately $7.1 million of accounts
payable and accrued liabilities, and $74.3 million in other short-term
liabilities including revolving/floorplan credit lines outstanding ($73.4
million) and unearned income ($1.6 million). As of March 31, 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 $73.4 million pursuant to the Company's borrowing formula.
Operating activities utilized cash flows of $31.9 million for the first six
months of fiscal 1999 due primarily to the net increases of $24.9 million in
inventories (exclusive of those inventories that were acquired in acquisitions
of approximately $10.3 million) and $10.3 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 March 31, 1999 were
primarily the result of contracts in transit generated from the retail sale of a
boat. Thus, the contracts in transit are generally due from financial
institutions that handle the financing on customer purchases.
The Company used net cash in investing activities of approximately $6.0 million
in the first six months of fiscal 1999. During the first six 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 $0.9
million), Pier 68 Marina, Inc. (net cash used of $0.1 million) and funded $2.1
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
14
<PAGE>
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
six months ended March 31, 1999 provided $39.7 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
March 31, 1999, $42.2 million was drawn on the revolving line and the Company
could borrow an additional $12.8 million, of which zero 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 has 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. To address this issue, Bank of America has advanced the
Company $5.0 million through May 31, 1999 while it continues its due diligence
on the Company's request to obtain financing consistent with its increased level
of sales and accounts receivable.
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 March 31, 1999, approximately $31.2 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 $74.1 million and $38.9 million as of March 31,
1999 and September 30, 1998, respectively. Costs in excess of net assets
acquired increased by approximately $2.1 million to $8.3 million in the first
six 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.
15
<PAGE>
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
16
<PAGE>
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 upgraded version of the software. The
Company is currently installing and testing the system upgrade. Testing and
implementation are expected to be completed prior to 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.
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
17
<PAGE>
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.
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.
18
<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 23, 1999 Travis Boats & Motors, Inc.
By:/s/ Michael B. Perrine
--------------------------------------------------
Michael B. Perrine
Chief Financial Officer, Treasurer and Secretary
(Principal Accounting and Financial Officer)
19
<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> 6-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1998
<PERIOD-START> OCT-01-1998 OCT-01-1997
<PERIOD-END> MAR-30-1999 SEP-30-1998
<EXCHANGE-RATE> 1 1
<CASH> 6,391 4,618
<SECURITIES> 0 0
<RECEIVABLES> 15,158 4,893
<ALLOWANCES> 0 0
<INVENTORY> 74,096 38,934
<CURRENT-ASSETS> 98,041 50,095
<PP&E> 17,955 16,110
<DEPRECIATION> 3,892 3,417
<TOTAL-ASSETS> 120,743 69,116
<CURRENT-LIABILITIES> 90,108 38,683
<BONDS> 5,619 4,980
0 0
0 0
<COMMON> 43 43
<OTHER-SE> 30,592 30,390
<TOTAL-LIABILITY-AND-EQUITY> 120,743 69,116
<SALES> 56,062 131,740
<TOTAL-REVENUES> 56,062 131,740
<CGS> (41,762) (96,839)
<TOTAL-COSTS> (41,762) (96,839)
<OTHER-EXPENSES> (12,576) (23,890)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (1,503) (2,310)
<INCOME-PRETAX> 280 8,781
<INCOME-TAX> (103) (3,218)
<INCOME-CONTINUING> 177 5,563
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 177 5,563
<EPS-BASIC> .04 1.31
<EPS-DILUTED> .04 1.26
</TABLE>
