Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
---
OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year Ended September 30, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-20757
TRAVIS BOATS & MOTORS, INC.
(Exact name of registrant as specified in its charter)
TEXAS
(State or other jurisdiction of
incorporation or organization)
74-2024798
(I.R.S. Employer
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Report on Form 10-K or
any amendment to this Report on Form 10-K. _____
The aggregate market value of the voting stock (which consists solely
of shares of Common Stock) held by non-affiliates of the Registrant as of
December 23, 1999, (based upon the last reported price of $10.25 per share) was
approximately $29,973,050 on such date.
The number of shares of the issuer's Common Stock, par value $.01 per
share, outstanding as of December 23, 1999 was 4,326,022, of which 2,924,200
shares were held by non-affiliates.
Documents Incorporated by Reference: Portions of Registrant's Proxy
Statement relating to the 2000 Annual Meeting of Shareholders to be held in
March 2000, have been incorporated by reference herein (Part III).
1
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
----
PART I.........................................................................................................7
Item 1. Business...........................................................................................7
Item 2. Properties........................................................................................12
Item 3. Legal Proceedings.................................................................................14
Item 4. Submission of Matters to a Vote of Security Holders...............................................14
PART II.......................................................................................................14
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters..............................14
Item 6. Selected Financial Data...........................................................................15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................24
Item 8. Financial Statements..............................................................................26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..............27
PART III......................................................................................................27
Item 10. Directors and Executive Officers..................................................................27
Item 11. Executive Compensation............................................................................27
Item 12. Security Ownership of Certain Beneficial Owners and Management....................................27
Item 13. Certain Relationships and Related Transactions....................................................27
PART IV.......................................................................................................27
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...................................27
2
RISK FACTORS
Some of the information in this Report on Form 10-K contains
forward-looking statements that involve substantial risks and uncertainties. You
can identify these statements by forward-looking words such as "may," "will,"
"expect," "anticipate," "believe," "estimate," and "continue" or similar words.
You should read statements that contain these words carefully because they (1)
discuss our future expectations; (2) contain projections of our future results
of operation or of our future financial condition; or (3) state other
"forward-looking" information. We believe it is important to communicate our
expectations to people that may be interested. However, unexpected events may
arise in the future that we are not able to predict or control. The risk factors
that we describe in this section, as well as any other cautionary language in
this Report on Form 10-K, give examples of the types of uncertainties that may
cause our actual performance to differ materially from the expectations we
describe in our forward- looking statements. You should know that if the events
described in this section and elsewhere in this Report on Form 10-K occur, they
could have a material adverse effect on our business, operating results and
financial condition.
WE DEPEND ON STRONG SALES IN THE FIRST HALF OF THE YEAR. Our business,
and the recreational boating industry in general, is very seasonal. Our
strongest sales period begins in January, because many boat and recreation shows
are held in that month. Strong sales demand continues from January through the
summer months. Of our average annual net sales over the last three years, over
27% occurred in the quarter ending March 31 and over 41% occurred in the quarter
ending June 30. With the exception of our store locations in Florida, our sales
are generally much lower in the quarter ending December 31. Because the overall
sales level in the December quarter are much less than in the months with warmer
weather, we generally do not make a profit in the quarter ending December 31.
Because of the difference in sales in the warm spring and summer months versus
the cold fall and winter months, if our sales in the months of January through
June are significantly lower than we expect, we may not earn profits or we may
lose money and have a net loss. This experience may lead to a material adverse
effect on our business, our operating results and our financial condition. See
"Our Sales Depend on Good Weather" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
OUR SALES DEPEND ON GOOD WEATHER. Our business also depends on
favorable weather conditions. For example, too much or too little rain, either
of which may result in dangerous or inconvenient boating conditions, can force
boating areas to close and severely limit our sales. A long winter can also
reduce our selling season. Hurricanes and other storms could result in the
disruption of our operations or result in damage to our inventories and
facilities. We purchase insurance for storm damage, but the amount of insurance
purchased or coverages we purchase may not repay us for all weather related
damages or disruptions to our operations. Bad weather conditions in the future
may decrease customer demand for our boats, which may decrease our sales and
could significantly lower the trading price of our common stock.
GENERAL ECONOMIC CONDITIONS IN THE UNITED STATES AND IN THE AREAS WHERE
WE HAVE STORES AFFECT OUR SALES. Our industry, like many other retail
industries, depends on the local, regional and national economy. High interest
rates, unfavorable economic developments, volatility or declines in the stock
market, changes to the tax law such as the imposition of a luxury tax, or a
major employer's decision to leave a certain city can all significantly decrease
the amount of money consumers are willing to spend. When these situations arise,
consumers often decide not to purchase relatively expensive, "luxury" items like
recreational boats. For example, from 1988 to 1990, our business suffered
dramatically because of the declines in the financial, oil and gas and real
estate markets in Texas. If similar downturns in the national or in local
economies arise in the future, we may suffer significant operating losses. Also,
changes in federal and state tax laws, such as the imposition of luxury taxes on
new boat purchases also could influence consumers' decisions to purchase
products we sell and could have a negative effect on our
3
sales. For example, during 1991 and 1992 the federal government imposed a luxury
tax on new recreational boats with sales prices in excess of $100,000. This
luxury tax coincided with a sharp decline in boating industry sales from a high
of $17.9 billion in the late 1980s to a low of $10.3 billion in 1992.
OUR GROWTH DEPENDS ON OUR ABILITY TO ACQUIRE AND OPEN NEW STORES. We
have grown primarily through the acquisition of recreational boat dealerships.
Our growth strategy involves significant risks. We began with one store in Texas
in 1979 and, since then, have opened or acquired 37 new stores in Alabama,
Arkansas, Florida, Georgia, Louisiana, Mississippi, Oklahoma, Tennessee and
Texas. Stores that we acquired or opened since we went public in June of 1996
have accounted for 25.1% of our net sales in fiscal year 1997, 46.0% of our net
sales in fiscal year 1998 and 60.2% of our net sales in fiscal year 1999. By
comparison, our comparable store sales (which are sales in stores that are open
in the same location for two consecutive years) have increased 5.7% in fiscal
year 1997, 6.6% in fiscal year 1998 and 1.9% in fiscal 1999. We expect our
comparable store sales to fluctuate from the impact of (i) when and where we
acquire new store locations, (ii) the number of store locations that we remodel
or relocate to superstores, and (iii) the market conditions in the areas or
cities in which our stores are located. Although we expect our existing stores
to have sales growth and to remain profitable, most of our sales growth is from
newly added store locations and we may not be able to continue to grow or
purchase new store locations at the same rapid pace or on terms and conditions
favorable to us.
We may continue to make acquisitions depending upon, among other
things, the availability of suitable acquisition opportunities and our ability
to finance these transactions. Our success in these acquisitions will depend on
our financial strength at the time of acquisition, our ability to hire and
retain qualified employees and our ability to identify markets in which we can
successfully sell our products. In addition, once we identify a store that meets
our criteria, our success will depend on our ability to sell the store's
remaining inventory, to convert the store to a Travis Boating Center and to
attract new customers to the store after the conversion. Our inability to meet
our planned growth potential will severely impact our business, operating
results and financial condition.
Besides acquiring existing stores and converting them into Travis
Boating Centers, we plan to build new stores in certain cities or towns that do
not have other boat retailers that we can purchase or would like to purchase.
Our success in building and operating new facilities will depend on whether we
obtain reliable information about each potential market, such as how many and
what type of boats have previously been sold in the market. We must then be
certain that the prices of our boats are competitive with other boat dealers
that sell boats in the market so that we can sell enough boats to operate our
store profitably. We cannot promise or be certain that we will be able to open
and operate new stores in a time frame that we are expected to by our
shareholders or that we can operate stores on a profitable basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations. "
OUR SUCCESS WILL DEPEND ON HOW WELL WE MANAGE OUR GROWTH. We have
undergone a period of rapid growth and, consequently, we have spent much time
and effort in acquiring and opening new stores. Although we believe that our
systems, procedures and controls are adequate to support our growth, we cannot
assure that this is the case. In addition, our growth will impose substantial
added responsibilities on our existing senior management including the need to
identify, recruit and integrate new senior level managers. Management may not be
able to oversee the growth efficiently or to implement effectively our growth
and operating strategies. Our inability to manage our growth would result in a
significant and severe financial impact on our business, operating results and
financial condition.
WE ARE INSTALLING A NEW MIS SYSTEM IN EACH OF OUR STORES, WHICH MAY NOT
OPERATE EFFECTIVELY. Beginning in fiscal year 1998, we purchased and began
installing a new management information system to monitor and manage our
geographically dispersed stores. This system is now operational in each of our
38 stores. We believe that our company is among the first to install this
4
management information system on a large scale, fully centralized network
architecture. Accordingly, we are testing the continued application of the
system in a large scale multiple user network that will accommodate future
growth in the number of store locations we operate. Any faults, defects or
networking limitations in this system could harm our ability to operate our
stores and would result in a significant impact on our business, operating
results and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Disclosure of Year 2000 Issues
and Consequences."
OUR SUPPLIERS COULD INCREASE THE PRICES THEY CHARGE US OR COULD DECIDE
NOT SELL TO US. We have entered into non-exclusive dealer agreements with our
key manufacturers. Most of these agreements are renewable each year and contain
other conditions that are standard in the industry. Because of our relationship
with these manufacturers and the volumes we purchase, we receive volume price
discounts and other favorable terms; however, the manufacturers may change the
prices they charge us for any reason at any time or could decide not to sell
their products to us. A change in manufacturer's prices or changes in industry
regulations could have a material adverse effect on our business, financial
conditions and results of operations.
WE RELY ON SEVERAL KEY MANUFACTURERS FOR ALMOST ALL OF OUR INVENTORY
PURCHASES. Our success depends to a significant extent on the continued quality
and popularity of the products of our manufacturers. We purchase almost all of
our outboard motors from two manufacturers. In fiscal years 1998 and 1997, we
purchased nearly all of the outboard motors we use on our Travis Edition line of
recreational boats from Outboard Marine Corporation, which makes Johnson
outboard motors. In fiscal year 1999 we also purchased outboard motors from
Brunswick Corporation, which makes Mercury outboard motors. We have three-year
master agreements with Outboard Marine Corporation and Brunswick Corporation
that provide volume price discounts and reimbursement for certain marketing
expenses. Each agreement is currently in the second year. Either of these
agreements may be canceled, however, if we do not buy certain minimum quantities
or if the manufacturer cannot supply the quantity we need. Cancellation or
modification of our agreements to purchase outboard motors could have a material
adverse effect on our business, financial condition and results of operations.
We also buy much of our boat inventory from Genmar Industries, Inc., or
Genmar. For example, in fiscal year 1997 we purchased 34.3% of our inventory
from Genmar, in fiscal year 1998 we purchased 17.7%, and in fiscal year 1999 we
purchased 12.0% from Genmar. The purchases of boats from this supplier are also
made based on the terms of a three-year master agreement with volume price
discounts. In addition, we purchase a large percentage of the annual production
of several other boat manufacturers. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
If our sales increase, these key manufacturers may need to increase
their production or we may need to locate other sources to purchase outboard
motors or boats. If our suppliers cannot produce more or decide not to renew
their contracts with us, and we cannot find alternative sources at similar
quality and prices, we would experience inventory shortfalls which, if severe
enough, could cause significant disruptions and delays in our sales and,
therefore, harm our financial condition. In addition the timing, structure, and
amount of manufacturer sales incentives could impact the timing and
profitability of our sales.
CERTAIN LAWS AND CONTRACTS MAY KEEP US FROM ENTERING NEW MARKETS. We
may be required to obtain the permission of manufacturers to sell their product
before we enter new markets. We received permission from some key manufacturers,
including Outboard Marine Corporation, to sell their product in the areas where
we have recently expanded. We have not, however, received universal approval to
sell all of our products in all new markets. If our manufacturers do not give us
permission to sell their products in markets where we plan to expand, we will be
forced to find alternative supply sources. Besides these manufacturers'
restrictions, there are also legal restrictions on our business. For example,
the state of
5
Oklahoma has adopted laws that restrict the locations of competing boat dealers.
While these types of laws are not common, they could have a significant effect
on our industry if other states pass similar restrictions.
WE MAY NOT BE ABLE TO RESPOND EFFECTIVELY TO THE SIGNIFICANT
COMPETITION WE FACE. We operate in very competitive conditions. We must compete
generally with other businesses trying to sell discretionary consumer products
and also face intense competition from other recreational boat dealers for
customers, quality products, store locations and boat show space. We rely
heavily on boat shows to generate sales. If we are limited in or prevented from
participating in boat shows in its markets or in markets we are targeting, this
limited participation could have a negative effect on our business, financial
condition and results of operation.
Within our industry, our main competitors are single location boat
dealers. We compete with other dealers based on the quality of available
products, the price and value of the products and customer service. To a lesser
extent, we also compete with national specialty marine stores, catalog
retailers, sporting good stores and mass merchants, especially with respect to
parts and accessories. We face significant competition in the markets where we
currently operate and in the markets we plan to enter. We believe that the trend
in the boating industry is for manufacturers to include more features as
standard equipment on boats and for other dealers to offer packages comparable
to our packages. Some of our competitors, especially those that sell boating
accessories, are large national or regional chains that have substantially
greater financial, marketing and other resources than we do. We cannot give any
assurances that we will be able to effectively compete in the retail boating
industry in the future.
OUR SUBSTANTIAL INDEBTEDNESS COULD RESTRICT OUR OPERATIONS AND MAKE US
MORE VULNERABLE TO ADVERSE ECONOMIC CONDITIONS. We have had and will continue to
have a significant amount of indebtedness. Our growth strategy may require us to
secure significant additional capital. Our future capital requirements will
depend upon the size, timing and the structure of future acquisitions and our
working capital. Any borrowings to finance future operations, asset purchases or
acquisitions could make us more vulnerable to a downturn in our operating
results, a downturn in economic conditions or increases in interest rates on
portions of debt that have variable interest rates.
Our ability to make payments on our indebtedness depends on our ability
to generate cash flow in the future. If our cash flow from operations is
insufficient to meet our debt service requirements, we could be required to sell
additional equity securities, refinance our obligations or dispose of assets in
order to meet our debt service requirements. In addition, our credit
arrangements generally will contain financial and operational covenants and
other restrictions with which we must comply. Adequate financing may not be
available if and when we need it or may not be available on terms acceptable to
us. Our failure to achieve required financial and other covenants or to obtain
sufficient financing on favorable terms and conditions could have a material
adverse effect on our business, financial condition and results of operations
and prospects.
WE MAY ISSUE ADDITIONAL SECURITIES IN CONNECTION WITH ACQUISITIONS THAT
WILL DILUTE OUR CURRENT SHAREHOLDERS AND IMPACT OUR EARNINGS PER SHARE. If we
choose to finance future acquisitions in whole or in part through the issuance
of common stock or debt instruments convertible into our common stock, our
existing shareholders would experience dilution and our earnings per share could
also be impacted by the issuance of additional shares of capital stock in
connection with future acquisitions.
WE ARE REFINANCING OUR CREDIT LINE AND MAY NOT OBTAIN FAVORABLE TERMS.
One of our current credit facilities for borrowings of up to $55 million matures
on January 31, 2000. We currently are in technical default under this credit
facility based upon a financial ratio required under the terms of this facility.
We are currently in the process of refinancing and increasing this credit
facility to provide for borrowings of up to $125 million with several financial
lenders including certain lenders that currently
6
provide a portion of the $55 million loan. However, no assurance can be given
that we will be able to complete this refinancing on favorable terms and
conditions. The failure to refinance the $55 million credit facility or to
obtain other sufficient financing on favorable terms and conditions could have a
material adverse effect on our business ,operating results and financial
conditions.
MUCH OF OUR INCOME IS FROM FINANCING, INSURANCE AND EXTENDED SERVICE
CONTRACTS, WHICH IS DEPENDENT ON THIRD PARTY LENDERS AND INSURANCE COMPANIES. We
receive a substantial part of our income from the fees we receive from banks and
other lending companies. We call this type of income Finance and Insurance
income, or F&I income. If our customers desire to borrow money to finance the
purchase of their boat, we help the customers obtain the financing by referring
them to certain banks that have offered to provide financing for boat purchases.
The bank or other lending company pays a fee to our company for each loan that
they are able to provide as a result of our referral.
When we sell boats we also offer our customers the opportunity to
purchase (i) a Service Contract that generally provides up to four years of
additional warranty coverage on their boat's motor after the manufacturer's
original warranty expires, and (ii) various types of insurance policies that
will provide money to pay a customer's boat loan if the customer dies or is
physically disabled. We sell these products as a broker for unrelated companies
that specialize in these type of issues, and we are paid a fee for each product
that we sell. Since we only broker these products on behalf of other providers,
our responsibility and/or financial risk for paying claims or expenses that are
eligible to be insured by these Service Contracts or other insurance policies is
limited.
F&I income for fiscal year 1999 was 4.3% of our net sales, and we
estimate 18.8% of our net profits. In fiscal year 1998, these services accounted
for 5.4% of our net sales and approximately 20.3% of our net profits. This
arrangement carries several potential risks. For example, the lenders we arrange
financing through may decide to lend to our customers directly rather than to
work through us. If the customer goes directly to the bank to apply for a loan
to purchase their boat we would not receive a fee for referral. Second, the
lenders we currently refer customers to may change the criteria or terms they
use to make loan decisions, which could reduce the number of customers that we
can refer. Also, our customers may use the Internet or other electronic methods
to find financing alternatives. If either of these events occur, we would lose a
significant portion of our income and profit.
OUR SUCCESS DEPENDS ON OUR MANAGEMENT TEAM. Our company depends greatly
on our key management, including Mark T. Walton, Chairman of the Board and
President; Ronnie L. Spradling, Executive Vice President-New Store Development;
Michael B. Perrine, Chief Financial Officer, Secretary and Treasurer; and other
key employees. We have bought and are the beneficiary of key-man life insurance
policies on Mr. Walton and Mr. Perrine in the amount of $1,000,000, each, and on
Mr. Spradling in the amount of $500,000. However, if any of these employees or
other key employees died, became disabled or left Travis Boats for other
reasons, their loss could have a significant negative effect on our operations
and our financial performance.
IF OUR PRODUCTS ARE DEFECTIVE, WE COULD BE SUED. Because we sell,
service and custom package boats, motors and other boating equipment, we may be
exposed to lawsuits for personal injury and property damage if any of our
products are defective and cause personal injuries or property damage.
Manufacturers that we purchase product from generally maintain product and
general liability insurance and we carry third party product liability
insurance. We have avoided any significant liability for these risks in the
past. However, if a situation arises in which a claim is not covered under our
insurance policy or is covered under our policy but exceeds the policy limits,
it could have a significant and material adverse effect on our financial
condition.
OUR FAILURE AND THE FAILURE OF PARTIES WITH WHOM WE DO BUSINESS TO
ADDRESS THEIR YEAR 2000 ISSUES COULD NEGATIVELY IMPACT OUR OPERATING RESULTS.
The Year 2000 issue is the result of computer
7
program being written using two digits rather than four to define the applicable
year. Computer equipment and software and devices with embedded technology that
are time-sensitive may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
If all Year 2000 issues are not properly identified, or if assessment,
remediation and testing are not effected timely with respect to Year 2000
problems that are identified, there can be no assurance that the Year 2000 issue
will not materially adversely impact our financial position or results of
operations or adversely affect our relationships with customers, vendors or
others. Additionally, there can be no assurance that the Year 2000 issues of
other entities will not have a material adverse impact on our systems or results
of operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Disclosure of Year 2000 Issues and Consequences."
OUR STOCK PRICE MAY BE VOLATILE. The price of our common stock may be
highly volatile for several reasons. First, a limited number of shares of our
stock are owned by the public. This may effect trading patterns which generally
occur when a greater number of shares are traded. Second, the quarterly
variations in our operating results, as discussed above, may result in the
increase or decrease of our stock price. Third, independent parties may release
information regarding pending legislation, analysts' estimates or general
economic or market conditions that effect the price of our stock. Also, our
stock price may be effected by the demand and the market performance of small
capitalization stocks. Any of these situations may have a significant effect on
the price of our common stock or our ability to raise additional equity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
IF WE ISSUE MORE STOCK, OUR STOCK PRICE MAY DECLINE. The sale of a
large number of shares of our common stock in the public market could have a
material adverse effect on the market price of the common stock. As of December
23, 1999, we own or control, together with our officers and directors and large
shareholders, approximately 1,401,822 shares of common stock. Our sale of a
large portion of these shares may decrease the price of our common stock.
OUR CORPORATE DOCUMENTS MAY PREVENT OR INHIBIT A TAKEOVER OF THE
COMPANY. Our Articles of Incorporation permit us to issue up to 1,000,000 shares
of preferred stock, either all at once or in a series of issuances. Our Board of
Directors has the power to set the terms of this preferred stock. If we issued
this preferred stock, it could delay or prevent a change in control of the
company. Also, our Articles of Incorporation permit the Board of Directors to
determine the number of directors and do not specify a maximum or minimum
number. Our Bylaws currently provide that the Board of Directors is divided into
three classes with staggered terms. This arrangement could delay shareholders
from replacing current board members and could delay or prevent a takeover that
you may consider to be in your best interest.
8
PART I
Some of the information in this Report on Form 10-K, including
statements in "Item 1. Business," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate," and "continue" or similar words. You should
read statements that contain these words carefully because they (1) discuss our
future expectations; (2) contain projections of our future results of operation
or of our future financial condition; (3) state other "forward-looking"
information. We believe it is important to communicate our expectations to
people that may be interested. However, unexpected events may arise in the
future that we are not able to predict or control. 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-K, 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-K are expressly
qualified in their entirety by the cautionary statements in this paragraph.
ITEM 1. BUSINESS
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 38 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 in 1979 as a single retail store in Austin, Texas,
the Company has grown both through acquisitions and the establishment of new
store locations. During the 1980s, 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 33 additional store locations in the following states: Texas
(3), Arkansas (4), Louisiana (4), Alabama (2), Tennessee (5), Mississippi (1),
Florida (12), 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, substantially all of the boat units sold
range in size from 16
9
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 generally 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 its Travis
Edition models. See "Business Strategy - Travis Edition Concept."
The Company custom designs and pre-packages combinations of popular
brand-name boats, such as Larson, Wellcraft, Bayliner, Sprint, 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 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 to $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 other new 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.
Business Strategy
The Company has developed a multi-state, chain superstore merchandising
strategy in the recreational boating business. The Company's objective is to
continue to grow as one of the dominant retailers of recreational boats, motors,
trailers and marine accessories in the southern United States. As such the
Company's strategy is to increase its store location count in the southern
United States while also maintaining a focus on possible expansion into other
regions. Management's merchandising strategy is based on providing customers
with a comprehensive selection of quality, brand name boats and boating products
in a comfortable superstore environment. The Company intends to continue to
build brand identity by placing the Travis Edition name on complete boating
packages. Travis Boats has developed and implemented a business strategy
designed to increase its market penetration within both existing and new market
areas through a variety of advertising and promotional events. The Company
intends to emphasize the following key elements of its business strategy:
Travis Boating Center superstore. Travis Boating Center superstores
have a distinctive and stylish trade dress accented with deep blue awnings, a
nautical neon building decoration, expansive glass storefronts and brightly lit
interiors. The stores range in size from approximately 2,000 (temporary store
locations) to over 33,000 square feet and management estimates the average store
size at approximately 21,000 square feet. The superstore locations present
customers with a broad array of boats and often over 9,000 parts and accessories
in a clean, well-stocked, air-conditioned shopping environment. All boats are
typically displayed fully rigged with motor, trailer and a complete accessory
package, giving a "ready to take home" impression. Professionally-trained
mechanics operate service bays, providing customers with quality and reliable
maintenance and repair service.
10
Travis Edition concept. The Company uses extensive market research,
combined with the design resources of its manufacturers, to develop custom
Travis Edition boating packages. The Company's significant purchasing power and
consequent ability to coordinate designs with manufacturers have enabled the
Company to obtain products directly from the factory at the lowest prices, with
favorable delivery schedules and with distinguishing features and accessories
that have historically been unavailable to, or listed as optional by, many
competitors. The Company can also add certain additional features after receipt
of the product to enhance the Company's Travis Edition packages. Each Travis
Edition is a complete, full-feature package, including the boat, motor, trailer
and numerous additional accessories and design features often not found on
competitors' products, thus providing customers with superior value. These
features often may include enhanced styling such as additional exterior colors,
complete instrumentation in dashboards, transoms warranted for life, canopy
tops, trolling motors, upgraded interiors with stereos, wood grain dashboards,
in-dash depth finders, stainless steel motor propellers and enhanced hull design
not available on other models. In addition, Travis Edition boats are generally
identified by the Company's attractive private label logo as well as the
respective manufacturer's logo.
Unlike most recreational boat dealers, the Company establishes firm
prices on its Travis Edition packages and generally maintains such prices for an
entire season. Prices are advertised and clearly posted so that the customer
receives the same price at any Travis Boating Center. The Company's selling
philosophy is designed to eliminate customer anxiety associated with bargaining
or negotiation and result in a price at or below prices generally available from
competitors. The Company believes this pricing strategy and low-pressure sales
style provide the customer with the comfort and confidence of having received a
better boat with more features at a lower price. In the Company's view, this
approach has promoted good customer relationships and enhanced the Company's
reputation in the industry as a leading provider of quality and value.
Acquisitions. The Company has made various acquisitions during the
three year period ended September 30, 1999. All of the acquisitions were asset
purchases (except for Adventure Marine and Shelby Marine, which were stock
purchases) 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 and equipment. A summary
of the Company's acquisitions follows:
Non-compete
Date of Purchase Tangible Agreements Cash Liabilities Notes Stock
Name of Company Acquisition Price Net Assets and Goodwill Paid Assumed Issued Issued
--------------- ----------- -------- ---------- ------------ ---- ----------- ------ ------
(In Thousands)
Fiscal 1999
- - -----------
AMLIN, INC. DBA MAGIC 01/99 $1,639 $6,019 $1,090 $1,639 $5,470 $ --- $---
MARINE
SPORTSMAN'S HAVEN 01/99 1,748 2,624 514 1,098 1,390 650 ---
PIER 68 MARINA 02/99 738 2,218 562 408 2,043 329 ---
DSA MARINE SALES & 04/99 2,147 4,798 1,597 2,147 4,248 --- ---
SERVICE DBA THE
BOATWORKS
SHELBY MARINE, INC. 06/99 1,334 3,426 1,050 809 3,142 --- 525
THE NEW 3 SEAS, INC. 09/99 1,103 1,419 1,100 0 1,416 1,103 ---
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 09/98 677 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
11
Boat Show Participation. The Company also participates in boat shows,
typically held in January through March, in each of its markets and in certain
markets of close proximity. These shows are normally held at convention centers,
with all area dealers purchasing space to display their respective product
offerings. Boat shows and other offsite promotions generate a significant amount
of interest in products and often have an immediate impact on sales at a nominal
incremental cost. Although total boat show sales are difficult to assess,
management attributes a significant portion of the second fiscal quarter's net
sales to such shows.
F&I Products. In the Travis Edition boat packages the Company offers
customers the ability to purchase extended service contracts and insurance
coverages, including credit life and accident/disability coverages (collectively
"F&I Products"). The Company also offers to assist the customer in obtaining
financing for their boat purchase through a diversified group of financial
institutions with which the Company maintains financing agreements. The Company
earns commissions on these F&I Products based upon the Company's mark-up over
the cost of the products. F&I Products account for a substantial portion of the
Company's income, the most significant component of which is the income
resulting from the Company's origination of customer financing.
Operations
Purchasing. The Company believes it is among the largest volume buyers
of outboard motors in the United States. Until fiscal year 1999, the Company
purchased substantially all of its outboard motors from Outboard Marine
Corporation ("OMC"), which is the manufacturer of Johnson outboard motors.
Beginning with the 1999 fiscal year, the Company elected to further diversify
its outboard motor selection and entered into an agreement to purchase Mercury
outboard motors from Brunswick Corporation ("Brunswick"). The Company is also
among the largest domestic volume buyer of boats from many of the boat
manufacturers it represents. As a result, the Company has significant access to
the manufacturers and substantial input into the design process for the new
boats that are introduced to the market each year by such manufacturers. In
addition, the Company has designed and developed, in coordination with its
manufacturers, signature Travis Edition boating packages which account for the
vast majority of its total new boat sales.
The Company typically deals with each of its manufacturers pursuant to
an annually renewable, non-exclusive dealer agreement which does not contain any
contractual provisions concerning product pricing or purchasing levels. Pricing
is generally established on an annual basis, but may be changed at the
manufacturer's sole discretion. The Company's agreements with OMC and Brunswick
to purchase outboard motors, as well as its agreements to purchase boats from
GenMar Industries, Inc. ("Genmar"), unlike its other dealer agreements, are
multi-year in nature. These current agreements include volume discounts from the
then prevailing dealer net price over the entire term of the respective
agreement. This dealers agreement typically may be canceled by either party if
volume of product purchased or available to be purchased is not maintained at
pre-established levels.
Approximately 12% and 18% of the Company's net purchases in fiscal
years 1999 and 1998, respectively, were products manufactured by boat
manufacturers owned by Genmar. Genmar's boat lines purchased by the Company
include Larson, AquaSport, Wellcraft, Scarab, and Carver. OMC supplied products
that represented approximately $32.4 million, or 36.3%, and $17.7 million, or
42.1%, of the Company's net purchases during fiscal years 1999 and 1998,
respectively. Brunswick supplied Mercury
12
outboard motors that represented approximately $32.4 million, or 36.3%, of the
Company's net purchases during the 1999 fiscal year.
The Company's right to display some product lines or prices in certain
markets, including the Internet, may be restricted by arrangements with certain
manufacturers.
Floor plan and other inventory financing. The Company acquires a
substantial portion of its inventory through floor plan and other financing
agreements. Inventory is generally purchased under floor plan lines of credit
(secured by such inventory) maintained with third party finance companies or
under revolving lines of credit maintained with commercial banks, depending upon
the type of product purchased. The seasonal nature of the recreational boating
industry impacts the production schedules of the manufacturer's that produce
marine products. During the fall and winter months, retail sales of recreational
boats diminish significantly as compared to sales during the warm spring and
summer months. To provide recreational boating retailers, such as Travis Boats,
extra incentive to purchase boating products in the "off-season," manufacture's
typically offer product for sale at a price that includes an interest subsidy.
Since retail boat dealers typically utilize floor plan financing to provide
working capital to purchase inventory, the interest subsidy is intended to
assist the retail dealer in stocking the product until the selling season. The
terms of the interest subsidy or assistance vary by manufacturer, with
substantially all manufacturers in the marine industry offering such programs.
Management believes that these financing arrangements are standard within the
industry. As of September 30, 1999, the Company and its subsidiaries owed an
aggregate of approximately $68.6 million pursuant to the floor plan and
revolving lines of credit.
Competition. The Company operates in a highly competitive environment.
In addition to facing competition generally from businesses seeking to attract
discretionary spending dollars, the recreational boat industry itself is highly
fragmented, resulting in intense competition for customers, access to quality
products, access to boat show space in new markets and suitable store locations.
The Company relies heavily on boat shows to generate sales. If the Company is
impeded in its ability to participate in boat shows in its existing or targeted
markets, it could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company competes primarily with single location or single state
boat dealers and, to a lesser degree, with national specialty marine stores,
catalog retailers, sporting goods stores and mass merchants, particularly with
respect to parts and accessories. Dealer competition, which includes one other
publicly traded multi-state retailer of recreational boats, continues to
increase based on the quality of available products, the price and value of the
products and attention to customer service. There is significant competition
both within markets currently being served by the Company and in new markets
into which the Company plans to enter. While the Company generally competes in
each of its markets with retailers of brands of boats not sold by the Company in
that market, it is common for other competitive retailers to sell the same
brands of outboard motors. Management believes that a trend in the industry is
for independent dealers to attempt to form alliances or buyer's groups, for
manufacturers to include more features as standard equipment on boats and
consequently, and for competitive dealers to offer packages comparable to those
offered by the Company as its Travis Edition lines. In addition, several of the
Company's competitors, especially those selling boating accessories, are large
national or regional chains that may have substantially greater financial,
marketing and other resources than the Company. There can be no assurance that
the Company will be able to compete successfully in the retail marine industry
in the future.
Impact of Environmental and Other Regulatory Issues. On October 31,
1994, the U.S. Environmental Protection Agency ("EPA") announced proposed
emissions regulations for outboard marine motors. The proposed regulations would
require a 75% average reduction in hydrocarbon emissions for outboard motors and
set standards for carbon monoxide and nitrogen oxide emissions as
13
well. Under the proposed regulations, manufacturers began phasing in low
emission models in 1998 and had approximately nine years to achieve full
compliance. Certain states, such as California, are proposing and adopting
legislation that would require low emission outboards and other engines on
certain bodies of water or more aggressive schedules than the EPA. The Company's
primary outboard motor suppliers, Outboard Marine Corporation ("OMC") and
Brunswick each have begun the phase-in process for the new EPA compliant
outboard motors. However, in fiscal 1999 and 1998, the Company only purchased
minimal quantities of the new EPA compliant outboard motors as a result of a
lack of supply of the new product since these manufacturers are still in the
initial stages of the new product's release. The Company's boat models sold with
the new EPA compliant outboards in fiscal 1999 and 1998 generally were priced
approximately $2,000 higher than those with traditional outboard motors.
Management anticipates retail prices to generally be from $500 to $1,500 higher
for the new EPA compliant outboards depending on the motor's horsepower.
Management, based upon discussions with OMC and Brunswick, believes that the
higher retail costs will be offset by enhanced fuel efficiency and acceleration
speed, as well as reduced maintenance costs of the new EPA compliant outboard
motors. Costs of comparable new models, if materially more expensive than
previous models, or the manufacturer's inability to deliver responsive, fuel
efficient outboard motors that comply with EPA requirements, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company, in the ordinary course of its business, is required to
dispose of certain waste products that are regulated by state or federal
agencies. These products include waste motor oil, tires, batteries and certain
paints. It is the Company's policy to use appropriately licensed waste disposal
firms to handle this refuse. If there were improper disposal of these products,
it could result in potential liability for the Company. Although the Company
does not own or operate any underground petroleum storage tanks, it currently
maintains several above-ground tanks, which are subject to registration, testing
and governmental regulation.
Additionally, certain states have required or are considering requiring
a license in order to operate a recreational boat or personal watercraft. While
such licensing requirements are not expected to be unduly restrictive,
regulations may discourage potential first-time buyers, thereby limiting future
sales, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
Trademarks and service marks. The Company does not hold any registered
trade or service marks at this time but has trademark applications pending with
the U.S. Patent and Trademark Office for the names "Travis Boating Center" and
"Travis Edition," for its corporate logo and for the overall appearance and
trade dress of its Travis Boating Centers. There can be no assurance that any of
these applications will be granted. However, based on a number of years of use,
the Company believes it has common law rights to these marks at least in its
current market areas. Notwithstanding the foregoing, the Company has entered
into an agreement with a marine dealership operating in Knoxville, Tennessee not
to use the names "Travis," "Travis Boating Center" or "Travis Edition" in
certain types of uses or situations in Knoxville, Tennessee and a 50 mile radius
therefrom.
Web site. The Company operates a Web site under the name
"travisboatingcenter.com." The Company owns the URL name for this name and
numerous derivations thereof.
Employees. As of September 30, 1999, the Company's staff consisted of
708 employees, 668 of whom are full time. The full-time employees include 37 in
store level management and 51 in corporate administration and management. The
Company is not a party to any collective bargaining agreements and is not aware
of any efforts to unionize its employees. The Company considers its relations
with its employees to be good.
ITEM 2. PROPERTIES
The Company leases its corporate offices which are located at 5000
Plaza on the Lake, Suite 250, Austin, Texas. The Company also owns numerous
other Travis Boating Center locations. The remaining facilities are leased under
leases with original lease terms generally ranging from five to ten years with
additional multi-year renewal options. The Company typically pays a fixed rent
and in substantially all of the leased locations the Company is responsible for
the payment of taxes, insurance, repairs and maintenance.
14
The chart below reflects the status and approximate size of the various
Travis Boating Center locations operated as of December 23, 1999.
Building Land Owned or Year of Market
Location Square Footage* Acreage* Leased Entry
-------- --------------- -------- -------- ---------------
AUSTIN, TEXAS(1)......................... 20,000 3.5 Owned 1979
SAN ANTONIO, TEXAS(1)(3)................. 15,500 1.9 Leased 1982
SAN ANTONIO, TEXAS(5).................... 6.5 Owned 1999
MIDLAND, TEXAS(1)........................ 18,750 3.8 Owned 1982
DALLAS, TEXAS(1)......................... 20,000 4.2 Owned 1983
ABILENE, TEXAS(2)........................ 24,250 3.7 Owned 1989
HOUSTON, TEXAS(2)........................ 15,100 3.0 Leased 1991
BATON ROUGE, LOUISIANA(2)................ 33,200 7.5 Owned 1992
BEAUMONT, TEXAS(2)....................... 25,500 6.5 Owned 1994
ARLINGTON, TEXAS(2)...................... 31,000 6.0 Leased 1995
HEBER SPRINGS, ARKANSAS(2)............... 26,000 9.0 Leased 1995
HOT SPRINGS, ARKANSAS(2)................. 20,510 3.0 Owned 1995
NEW IBERIA, LOUISIANA(4)................. 24,000 3.3 Leased 1995
FLORENCE, ALABAMA(2)..................... 22,500 6.0 Leased 1996
HUNTSVILLE, ALABAMA(3)................... 2,000 3.0 Leased 1996
WINCHESTER, TENNESSEE(2)................. 28,000 3.5 Leased 1996
METAIRIE, LOUISIANA(2)................... 30,000 3.5 Leased 1997
PASCAGOULA, MISSISSIPPI(2)............... 28,000 4.1 Owned 1997
KEY LARGO, FLORIDA(4).................... 3,000 1.4 Owned 1997
KEY LARGO, FLORIDA(3)(4)................. 3,000 1.4 Owned 1999
FT. WALTON BEACH FL. - SALES(4).......... 7,000 2.9 Leased 1997
FT. WALTON BEACH FL. - SALES(4).......... 7,000 2.9 Leased 1999
FT. WALTON BEACH FL. - SERVICE(4)........ 7,500 2.0 Leased 1997
HENDERSONVILLE, TENNESSEE(2)............. 31,320 3.6 Leased 1997
GWINNETT, GEORGIA(1)..................... N/A 5.0 Owned 1998
CLAREMORE, OKLAHOMA(4)................... 15,000 2.0 Owned 1998
BOSSIER CITY, LOUISIANA(2)............... 30,000 8.6 Owned 1998
KNOXVILLE, TENNESSEE(4).................. 30,000 6.5 Leased 1998
LITTLE ROCK, ARKANSAS(4)................. 16,400 3.0 Owned 1999
PINE BLUFF, ARKANSAS(4).................. 16,812 2.9 Leased 1999
LONGWOOD, FLORIDA(4)..................... 10,000 3.1 Leased 1999
CLEARWATER, FLORIDA(4)................... 21,000 5.0 Owned 1999
CLEARWATER, FLORIDA(4)................... 9,000 3.7 Leased 1999
JACKSONVILLE, FLORIDA(4)................. 8,000 1.5 Leased 1999
MIAMI, FLORIDA(3)........................ 12,000 1.0 Leased 1999
BRADENTON, FLORIDA(4).................... 20,000 5.0 Leased 1999
ENGLEWOOD, FLORIDA(4).................... 3,000 4.5 Leased 1999
MEMPHIS, TENNESSEE(2).................... 24,000 4.3 Leased 1999
PICKWICK DAM, TENNESSEE(2)............... 48,000 5.0 Leased 1999
FT. MYERS, FLORIDA(4).................... 6,000 4.0 Leased 1999
- - --------------------------
* Square footage and acreage are approximate.
(1) Newly constructed store.
(2) Facility acquired/leased and converted to superstore.
(3) Temporary facility. To be relocated.
(4) Acquired/leased facility
(5) Raw land. Superstore under construction.
15
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings. The
Company is, however, involved in various legal proceedings arising out of its
operations in the ordinary course of business. The Company believes that the
outcome of all such proceedings, even if determined adversely, would not have a
material adverse effect on its business, financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the Company
during the fourth quarter of the fiscal year ended September 30, 1999.
PART II
ITEM 1. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the Nasdaq Stock Market under the
symbol: TRVS. As of December 23, 1999, the Company believes its shares are
beneficially owned by more than 400 shareholders. On December 23, 1999, the last
reported sales price of the common stock on the NASDAQ National Market System
was $10.25 per share.
The following table sets forth for the period indicated, on a per share
basis, the range of high and low sales prices for the Company's common stock
during fiscal years 1999 and 1998 as quoted by the NASDAQ. These price
quotations reflect inter-dealer prices, without adjustment for retail mark-ups,
mark-downs or commissions and may not necessarily represent actual transactions:
Fiscal 1999 Sales Price Fiscal 1998 Sales Price
----------------------- -----------------------
Quarter Ended High Low Ending High Low Ending
------------- ---- --- ------ ---- --- ------
December 31.................... $20.50 $12.25 $20.50 $24.125 $18.75 $24.125
March 31....................... $23.00 $16.50 $18.00 $26.75 $22.375 $26.625
June 30........................ $18.00 $14.00 $14.50 $29.125 $24.50 $24.50
September 30................... $16.25 $ 9.625 $ 9.625 $26.875 $15.00 $15.50
The Company has never declared or paid cash dividends on its Common
Stock and presently has no plans to do so. Any change in the Company's dividend
policy will be at the sole discretion of the Board of Directors and will depend
on the Company's profitability, financial condition, capital needs, future loan
covenants, general economic conditions, future prospects and other factors
deemed relevant by the Board of Directors. The Company currently intends to
retain earnings for use in the operation and expansion of the Company's business
and does not anticipate paying cash dividends in the foreseeable future. Certain
covenants contained in the Company's loan agreements effectively restrict the
payment of any dividends without the lender's prior consent.
16
ITEM 2. SELECTED FINANCIAL DATA
The following selected consolidated financial information should be
read in conjunction with and is qualified in its entirety by reference to the
consolidated financial statements of the Company and the notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, included elsewhere in this Report on Form 10-K:
FISCAL YEAR ENDED SEPTEMBER 30,
1995(1)(5) 1995(2) 1996(1)(5) 1997(1)(5) 1998(1)(5) 1999(1)(5)
---------- ------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT STORE AND SHARE DATA)
Consolidated Statement of
Operations Data:
Net Sales....................... $ 41,442 $ 44,617 $ 64,555 $ 91,309 $ 131,740 $ 182,259
Gross Profit.................... 10,306 10,815 16,483 23,955 34,901 46,634
Selling, general and
Administrative Expense.......... 6,353 7,526 10,857 15,562 22,630 30,978
Operating income............... 3,736 3,004 5,061 7,480 11,011 13,689
Interest expense............... 670 845 1,289 1,354 2,310 3,808
Net income..................... 2,050 1,486 2,383 3,982 5,563 6,573
Basic earnings per share....... $ 0.76 $ 0.55 $ 0.78 $ 0.96 $ 1.31 $ 1.53
Diluted earnings per share..... $ 0.76 $ 0.55 $ 0.78 $ 0.94 $ 1.26 $ 1.49
Weighted avg. common
Shares outstanding - basic..... 2,672 2,663 3,043 4,137 4,250 4,291
Weighted avg. common
Shares outstanding - diluted... 2,672 2,663 3,043 4,252 4,417 4,409
Store Data:
Stores open at period end...... 11 11 12 19 24 38
Average sales per store (6).... $ 4,886 $ 5,283 $ 5,617 $ 5,775 $ 6,383 $ 6,055
Percentage increase in
Comparable store sales(4)..... 5.0% 12.2% 4.3% 5.7% 6.6% 1.9%
FISCAL YEAR ENDED SEPTEMBER 30,
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(In Thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents............... $ 996 $ 1,533 $ 5,816 $ 4,618 $ 4,125
Working capital......................... 2,808 15,263 14,806 16,392 12,117
Total assets............................ 23,357 31,350 59,121 69,116 125,931
Short-term debt, including current
maturities of long-term debt......... 11,443 4,661 21,447 26,105 69,547
Long-term debt less current maturities.. 4,876 4,334 5,145 4,980 6,897
Shareholders' equity.................... 4,812 18,598 24,058 30,433 37,592
- - ---------------------
(1) The Company's fiscal years ended on December 31 in 1994, and on September 30
in 1995, pursuant to a change adopted in 1995, resulting in a nine-month 1995
fiscal year. The Consolidated Statement of Operations Data for the fiscal years
ended September 30, 1995, 1996, 1997, 1998 and 1999 has been derived from the
audited consolidated financial statements of the Company. All other financial
and store data has been derived from the Company's unaudited consolidated
financial statements.
(2) Reflects inclusion of nine-month audited financial statements for the fiscal
year ended September 30, 1995 and the three-month unaudited financial statements
for the quarter ended December 31, 1994, in order to provide a basis for
comparing 12 months of operations in 1995 to fiscal 1996 operations.
(3) Includes only those stores open for the entire preceding 12-month period.
(4) New stores or upgraded facilities are included in the comparable store base
at the beginning of the store's thirteenth complete month of operations.
(5) Includes the operations of acquired store locations from each respective
date of acquisition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
17
ITEM 3. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO INCLUDED
ELSEWHERE IN THIS REPORT ON FORM 10-K. THE DISCUSSION IN THIS SECTION OF THIS
REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS SECTION, THOSE
DISCUSSED IN "RISK FACTORS" AND THOSE DISCUSSED ELSEWHERE IN THIS REPORT ON FORM
10-K.
Overview
The following discussion compares fiscal years 1999 and 1998, which
reflects the inclusion of the audited consolidated financial statements for the
fiscal years ended September 30, 1999 and 1998, respectively. The results of the
acquisitions listed in the chart below, from their respective dates of
acquisition, are included in the discussion below of the fiscal year in which
such acquisition occurred.
A summary of the Company's acquisitions follows:
Non-compete
Date of Purchase Tangible Agreements Cash Liabilities Notes Stock
Name of Company Acquisition Price Net Assets and Goodwill Paid Assumed Issued Issued
--------------- ----------- -------- ---------- ------------ ---- ----------- ------ ------
(In Thousands)
FISCAL 1999
- - -----------
AMLIN, INC. DBA MAGIC 01/99 $1,639 $6,019 $1,090 $1,639 $5,470 $----- $-----
MARINE
SPORTSMAN'S HAVEN 01/99 1,748 2,624 514 1,098 1,390 650 ---
PIER 68 MARINA 02/99 738 2,218 562 408 2,043 329 ---
DSA MARINE SALES & 04/99 2,147 4,798 1,597 2,147 4,248 --- ---
SERVICE DBA THE BOATWORKS
SHELBY MARINE, INC. 06/99 1,334 3,426 1,050 809 3,142 --- 525
THE NEW 3 SEAS, INC. 09/99 1,103 1,419 1,100 0 1,416 1,103 ---
FISCAL 1998
- - -----------
SOUTHEASTERN MARINE 11/97 $1,730 $1,390 $ 280 $1,606 $ - $ $ -
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 WATERSPORTS 10/96 892 687 205 812 - 80 -
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
The following table sets forth for the periods indicated certain financial data
as a percentage of net sales:
FISCAL YEAR ENDED SEPTEMBER 30,
1996 1997 1998 1999
---- ---- ---- ----
NET SALES 100.0% 100.0% 100.0% 100.0%
COSTS OF GOODS SOLD 74.5 73.8 73.5 74.4
----- ----- ----- -----
GROSS PROFIT 25.5 26.2 26.5 25.6
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 16.8 17.0 17.2 17.0
OPERATING INCOME 7.8 8.2 8.4 7.5
INTEREST EXPENSE 2.0 1.5 1.8 2.1
OTHER INCOME 0.0 0.0 0.1 0.3
----- ----- ----- -----
INCOME BEFORE INCOME TAXES 5.9 6.7 6.7 5.7
INCOME TAX EXPENSE 2.2 2.3 2.5 2.1
----- ----- ----- -----
NET INCOME 3.7% 4.4% 4.2% 3.6%
===== ===== ===== =====
18
RESULTS OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO THE FISCAL YEAR ENDED SEPTEMBER
30, 1998
Highlights
Fiscal year 1999 was a record year for the Company, which included the
following achievements compared to fiscal 1998:
* Net sales increased 38.4% to $182.3 million.
* Net income increased by 18.1% to $6.6 million from $5.6 million.
* Diluted earnings per share increased by 18.3% to $1.49 from $1.26.
Net sales. Net sales increased by 38.4% to $182.3 million in fiscal
1999 from $131.7 million in fiscal 1998. The primary component of the increase
in net sales during the 1999 and 1998 fiscal years has been the result of
newly-opened or acquired store locations. Accordingly, of the fiscal 1999
increase in net sales, $39.7 million, or 78.5%, is related to the 14 store
locations that were newly opened or acquired. The Company also benefited from
growth in comparable store sales. During fiscal year 1999, comparable store
sales increased by 1.9%, or $1.5 million, (14 stores in base) versus 6.6%, or
$3.7 million, (9 stores in base) during fiscal 1998. See "Risk Factors - Our
Growth Depends on Our Ability to Acquire and Open New Stores."
Growth in overall sales volume resulted, in part, from additional new
Travis Edition boating packages introduced during fiscal 1999 and 1998. These
new additions included the Pro-Line and Polar brand boats in 1998 and Wellcraft,
Bayliner and Fishmaster boat models in fiscal 1999, as well as Mercury Motors in
November 1999.
During fiscal 1999, the Company experienced increased parts/accessories
and service labor sales of 38% and 45%, respectively, primarily through an
increased store network. Parts/accessory sales increased to $15.6 million, or
8.6% of net sales, from $11.3 million, or 8.6% of net sales, in fiscal years
1999 and 1998, respectively. Service labor sales increased to $6.9 million, or
3.8% of net sales, from $4.7 million, or 3.6% of net sales, in fiscal years 1999
and 1998, respectively. Net sales also benefited from increased used boat sales
in both dollars and as a percentage of sales. Used boat sales increased by 52.5%
to $11.1 million (6.1% of total sales) in fiscal 1999, from $7.3 million (5.5%
of total sales) in fiscal 1998. The Company plans to continue to explore the
used boat market and potential sites for used boat superstores and brokerage
facilities.
Net sales from comparable stores in fiscal 1999 and 1998, which had 14
and 9 stores respectively, included in the base for calculation, increased by
1.9% and 6.6% in fiscal 1999 and 1998, respectively. The Company relocated or
renovated three stores and opened or acquired an additional 12 stores during
fiscal years 1999 and 1998 rendering such locations to be excluded from the
comparable store 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 includable in comparable store base
calculations in relationship to the total number of store locations operated.
See "Risk Factors--Our Growth Depends on Our Ability to Acquire and Open New
Stores." As such, comparable store performance is expected to remain unstable
until higher percentages of the Company's stores are includable in comparable
store calculations.
19
Included within net sales is revenue that the Company earns related to
F&I Products. The Company, through relationships with various national and local
lenders, is able to place financing for its customers' boating purchases. These
lenders allow the Company to "sell" the loan at a rate higher than a minimum
rate established by each such lender, and the Company earns fees based on the
percentage increase in the loan rate over the lender's minimum rate. The Company
sells these loans without recourse, except that in certain instances the Company
must return the fees earned if the customer repays the loan or defaults in the
first 120-180 days. The Company also sells, as a broker, certain types of
insurance (property/casualty, credit life, disability) and extended service
contracts. The Company may also sell these products at amounts over a minimum
established cost and earn income based upon the profit over the minimum
established cost.
Net sales attributable to F&I Products increased by 9.2% to
approximately $7.8 million in fiscal 1999 from $7.1 million in fiscal 1998, In
fiscal 1999, F&I income as a percentage of net sales decreased from 5.4% in
fiscal 1998 to 4.3% in fiscal 1999 due to competitive pressures on finance rates
(which resulted in lower net spreads achieved in the placement of customer
financing), as well as overall decreases in the percentage of customers buying
these products (which is referred to as "sell-through"), and a reduced demand in
certain insurance products.
Gross profit. Gross profit increased by 33.6% to approximately $46.6
million in fiscal 1999 from $34.9 million in fiscal 1998. Gross profit as a
percent of sales decreased to 25.6% in fiscal 1999 from 26.5% in fiscal 1998.
The Company generally seeks to maintain a gross profit margin of 21% to 23% on
its boating packages and is able to further leverage the margin through sales of
parts/accessories, service labor and F&I Products, all of which generally
produce gross profit margins in excess of 25%. During fiscal 1999, the Company's
gross profit margin was negatively impacted by a temporary reduced revenue mix
in its boating package margins as a result of acquisition boat inventory that
liquidated at below Company standard margins, thus, driving the Company's new
boating package margins down to 20.7% and used margins down to 13.4% (Company
standard of 18-20%). This, combined with the 110 basis point reduction in high
yielding F&I income, as a percentage of net sales, caused the 90 basis point
drop in gross profit margin as a percentage of sales.
Net sales attributable to F&I Products, which have a significant impact
on the gross profit margin, contributed $7.8 million, or 16.7%, of total gross
profit in fiscal 1999, as compared to $7.1 million, or 20.3%, of total gross
profit for fiscal 1998. Net sales attributable to F&I Products are reported on a
net basis and 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 36.9% to $31.0 million in fiscal 1999 from
$22.6 million for fiscal 1998. Selling, general and administrative expenses as a
percent of net sales decreased by 18 basis points to 17.00% in fiscal 1999 from
17.18% for fiscal 1998. In absolute dollars, the increase in selling, general
and administrative expenses was primarily attributable to increased expenses
associated with the operation of a larger store network, growth in the
corporate-office staffing infrastructure and increased advertising and insurance
costs associated with introducing Travis stores into new geographically diverse
regions.
Interest expense. Interest expense, in absolute dollars, increased by
64.9% to $3.8 million in fiscal 1999 from $2.3 million in fiscal 1998. Interest
expense as a percent of net sales, increased to 2.1% in fiscal 1999 from 1.8% in
fiscal 1998.
20
Subsequent to the Company's Initial Public Offering in June of 1996, capital
expenditures and growth in operating assets (primarily inventory) have been
financed with borrowings from various commericla banks and finance companies.
The growth in assets is the result of the Company's larger store network,
continued implementation of its management information system and its planned
renovation of store locations to conform with its superst The higher debt levels
have resulted in the increase in interest expense in actual dollars and as a
percentage of sales in fiscal years 1999 and 1998. The Company anticipates
continuing to utilize bank financing to support the growth in assets necessary
to operate a larger store network and accordingly, the resulting increases in
interest expense associated with such borrowings. Operations and Make Us More
Vulnerable to Adverse Economic Conditions" and "Qualitative and Quantitative
Disclosures About Market Risk." See "Risk Factors--Our Substantial Indebtedness
Could Restrict Our standards.
Net income. Net income increased by 18.1% to approximately $6.6 million
in fiscal 1999 from $5.6 million in fiscal 1998. While the Company continued to
benefit from increased sales and controlled SG&A expenses in fiscal 1999,
reduced margins, as a percentage of sales, and the increase in interest expense
both in actual dollars and as a percent of net sales resulted in net income as a
percent of sales decreasing to 3.6% from 4.2% during the same periods. Net
income attributable to F&I Products increased by 9.2% to approximately $1.24
million (18.8% of net income) in fiscal 1999 from $1.13 million (20.3% of net
income) in fiscal 1998. The calculation of net income attributable to F&I
Products is based on an allocation of gross profit after adjusting for costs
which management believes are directly allocable to F&I Products.
FISCAL YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO THE FISCAL YEAR ENDED SEPTEMBER
30, 1997
Net sales. Net sales increased by 44.3% to $131.7 million in fiscal
1998 from $91.3 million in fiscal 1997. The primary component of the increase in
net sales during the 1998 and 1997 fiscal years has been the result of newly
opened or acquired store locations. Accordingly, of the increase in net sales,
$36.6 million, or 90.6% is related to the store locations that were (i) newly
opened or acquired (12), or (ii) those relocated or renovated (3) to meet the
Company's superstore standards during fiscal 1998 or 1997. The Company also
benefited from growth in comparable store sales. During fiscal year 1998,
comparable store sales increased by 6.6%, or $3.7 million, (9 stores in base)
versus 5.7%, or $2.1 million, (6 stores in base) during fiscal 1997. See "Risk
Factors-Our Success Will Depend on How Well We Manage Our Growth."
Growth in overall sales volume was also in part the result of
additional new Travis Edition boating packages introduced during fiscal 1998 and
1997. This included the new addition of the Pro- Line and Polar brand boats as
well as new boat models introduced by the Company's existing boat manufacturers.
These additional new Travis Edition boat lines have allowed the Company to
further broaden its boat line-up in an effort to continue to address the needs
and desires of the recreational boating population. During fiscal 1998, the
Company experienced increased parts/accessories and service labor sales as an
increased percentage of the Company's store base was relocated or renovated to
superstore standards which provide larger and more accessible areas to
merchandise its product selection and conduct repair work on boats. This
resulted in enhanced sales of parts/accessories and service labor both in actual
dollars and as a percentage of net sales. Parts/accessory sales increased to
$11.3 million, or 8.6% of net sales, from $8.6 million, or 9.4% of net sales, in
fiscal years 1998 and 1997, respectively. Service labor sales increased to $4.7
million, or 3.6% of net sales, from $3.3 million, or 3.6% of net sales, in
fiscal years 1998 and 1997, respectively. Net sales also benefited from used
boat sales including those used boat sales from the Company's used boat
superstores located at its Beaumont, Texas and Heber Springs, Arkansas store
locations. The used boat sales in fiscal 1998 and fiscal 1997, were
approximately $7.3 million and $4.0 million, respectively. The Company plans to
continue to explore the used boat market and potential sites for used boat
superstores.
Net sales from comparable stores, which had 9 stores included in the
base for calculation, increased by 6.6% and 5.7% in fiscal year 1998 and 1997,
respectively. The Company relocated or renovated 3 stores and opened or acquired
an additional twelve stores during fiscal years 1998 and 1997 rendering such
locations to be excluded from the comparable store base. The Company's planned
acquisition strategy and subsequent renovation of stores to superstore standards
is expected to continue to
21
negatively impact the number of stores includable in comparable store base
calculations in relationship to the total number of store locations operated.
See "Risk Factors--Our Growth Depends on Our Ability to Acquire and Open New
Stores." As such, comparable store performance is expected to remain unstable
until higher percentages of the Company's stores are includable in comparable
store calculations.
Included within net sales is revenue that the Company earns related to
F&I Products. The Company, through relationships with various national and local
lenders, is able to place financing for its customers' boating purchases. These
lenders allow the Company to "sell" the loan at a rate higher than a minimum
rate established by each such lender and the Company earns fees based on the
percentage increase in the loan rate over the lender's minimum rate. The Company
sells these loans without recourse except that in certain instances the Company
must return the fees earned if the customer repays the loan or defaults in the
first 120-180 days. The Company also sells, as a broker, certain types of
insurance (property/casualty, credit life, disability) and extended service
contracts. The Company may also sell these products at amounts over a minimum
established cost and earn income based upon the profit over the minimum
established cost. Net sales attributable to F&I Products increased by 78.2% to
approximately $7.1 million in fiscal 1998 from $4.0 million in fiscal 1997. This
improvement was primarily due to higher net spreads achieved in the placement of
customer financing, as well as overall increases in the percentage of customers
buying these products (which is referred to as "sell-through"). This increase
was enhanced by the Company's continued emphasis on training of F&I employees
and achievement of established goals. See "Risk Factors--Much of Our Income Is
from Financing, Insurance and Extended Service Contracts, Which is Dependent on
Third Party Lenders and Insurance Companies."
Gross profit. Gross profit increased by 45.7% to approximately $34.9
million in fiscal 1998 from $24.0 million in fiscal 1997. Gross profit as a
percent of sales increased to 26.5% in fiscal 1998 from 26.2% in fiscal 1997.
The Company generally seeks to maintain a gross profit margin of 21% to 23% on
its boating packages and is able to further leverage the margin through sales of
parts/accessories, service labor and F&I Products, all of which generally
produce gross profit margins in excess of 25%. During fiscal 1998, the Company's
gross profit margin was positively impacted by the increased revenues derived
from the parts/accessory, service labor and used boat sales as discussed above
in Net Sales.
Net sales attributable to F&I Products, which have a significant impact
on the gross profit margin, contributed $7.1 million, or 20.3%, of total gross
profit in fiscal 1998, as compared to $4.0 million, or 16.6%, of total gross
profit for fiscal 1997. Net sales attributable to F&I Products are reported on a
net basis and 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.
22
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 45.4% to $22.6 million in fiscal 1998 from
$15.6 million for fiscal 1997. Selling, general and administrative expenses as a
percent of net sales increased by 14 basis points to 17.18% in fiscal 1998 from
17.04% for fiscal 1997. In absolute 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, growth in the corporate-office staffing infrastructure and
increased insurance costs associated with introducing Travis stores into new
geographically diverse regions. Rental expense also increased as a percent of
net sales as the Company expanded and relocated its Corporate headquarters,
which had previously been located in the Austin, Texas superstore facility, in
June 1997.
Interest expense. Interest expense, in absolute dollars, increased by
70.6% to $23 million in fiscal 1998 from $1.4 million in fiscal 1997. Interest
expense as a percent of net sales, increased to 1.8% in fiscal 1998 from 1.5% in
fiscal 1997. Subsequent to the Company's Initial Public Offering in June of
1996, capital expenditures and growth in operating assets (primarily inventory)
have been financed with borrowings from various commericla banks and finance
companies. The growth in assets is the result of the Company's larger store
network, continued implementation of its management information system and its
planned renovation of store locations to conform with its super stores. The
higher debt levels have resulted in the increase in interest expense in actual
dollars and as a percentage of sales in fiscal years 1999 and 1998. The Company
anticipates continuing to utilize bank financing to support the growth in assets
necessary to operate a larger store network and accordingly, the resulting
increases in interest expense associated with such borrowings. Operations and
Make Us More Vulnerable to Adverse Economic Conditions" and "Qualitative and
Quantitative Disclosures About Market Risk." See "Risk Factors--Our Substantial
Indebtedness Could Restrict our standards.
Net income. Net income increased by 39.7% to approximately $5.6 million
in fiscal 1998 from $4.0 million in fiscal 1997. While the Company continued to
benefit from enhanced gross profit margins in fiscal 1998, the increase in
interest expense both in actual dollars and as a percent of net sales resulted
in net income as a percent of sales decreasing to 4.2% from 4.4% during the same
periods. Net income attributable to F&I Products increased by 33.3% to
approximately $1.6 million in fiscal 1998 from $1.2 million in fiscal 1997. The
calculation of net income attributable to F&I Products is based on an allocation
of gross profit after adjusting for costs which management believes are directly
allocable to F&I Products.
Quarterly Data and Seasonality
The following table sets forth certain unaudited quarterly financial
data for each of the Company's last eight quarters and such data expressed as a
percentage of the Company's net sales for the respective quarters. The
information has been derived from unaudited financial statements that, in the
opinion of management, reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such quarterly
information. The operating results for any quarter are not necessarily
indicative of the results to be expected for any future period.
23
QUARTER ENDED
------------------------------------------------------------
Fiscal Year 1998 Fiscal Year 1999
---------------- ----------------
DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30
------- -------- ------- -------- ------- -------- ------- --------
(IN THOUSANDS)
NET SALES................... $10,142 $33,427 $55,699 $32,472 $12,097 $43,965 $74,890 $51,307
GROSS PROFIT................ 2,611 9,104 14,185 9,001 2,941 11,359 18,909 13,425
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES.. 3,694 5,294 7,941 5,701 4,505 7,252 10,129 9,092
OPERATING INCOME (LOSS)..... (1,416) 3,464 5,896 3,067 (1,979) 3,703 8,202 3,763
INTEREST EXPENSE............ 461 578 649 622 555 948 1,170 1,135
NET INCOME (LOSS)........... (1,156) 1,798 3,267 1,654 (1,600) 1,777 4,459 1,936
BASIC EARNINGS (LOSS) PER
SHARE.................... (.27) .42 .77 .39 (.37) .41 1.04 .45
DILUTED EARNINGS (LOSS) PER
SHARE.................... (.27) .41 .74 .38 (.37) .40 1.01 .44
WTD. AVG. COMMON SHARES
OUTSTANDING - BASIC...... 4,225 4,254 4,255 4,260 4,286 4,288 4,290 4,300
WTD. AVG. COMMON SHARES
OUTSTANDING - DILUTED.... 4,225 4,423 4,439 4,409 4,286 4,430 4,402 4,391
AS A PERCENTAGE OF NET SALES
-----------------------------------------------------------------------------
NET SALES................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------ ------ ------ ------ ------
GROSS PROFIT................ 25.7 27.2 25.5 27.7 24.3 25.8 25.3 26.2
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES.. 36.4 15.8 14.3 17.6 37.2 16.5 13.5 17.7
OPERATING INCOME (LOSS)..... (14.0) 10.4 10.6 9.5 (16.4) 8.4 11.0 7.3
INTEREST EXPENSE............ 4.5 1.7 1.2 1.9 4.6 2.2 1.6 2.2
NET INCOME (LOSS)........... (11.4) 5.4 5.9 5.1 (13.2) 4.0 6.0 3.8
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 three-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.
24
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. See
"Risk Factors -We Depend on Strong Sales in the First Half of the Year" and "Our
Sales Depend on Good Weather."
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.
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 floor plan and
revolving credit lines (collectively the "credit facilities"). At September 30,
1999, the Company had working capital of $12.1 million, including $4.1 million
in cash, $12.4 million in accounts receivable (primarily contracts in transit
from sales) and $75.7 million in inventories, offset by approximately $6.8
million of accounts payable and accrued liabilities, $35.4 million outstanding
under floor plan lines of credit, approximately $33.2 million under revolving
lines of credit and $6.8 million in other current liabilities and short-term
indebtedness including current maturities of long-term debt. Contracts in
transit are amounts receivable from a customer or a customer's financial
institution related to that customer's purchase of a boat. As of September 30,
1999, the aggregate maximum borrowing limits under floor plan and revolving
lines of credit were approximately $54.0 million and $55.0 million,
respectively.
In fiscal 1998, operating activities generated cash flows of $2.9
million due primarily to increased net profits, controlled inventory growth and
proceeds received on unearned manufacturer rebate revenues. Management believes
that store inventory levels at September 30, 1998 were below standard stocking
levels as the Company was in the process of contract discussions with its
primary outboard motor supplier, Outboard Marine Corporation. The Company was
also in discussions with a new alternate outboard motor supplier, Mercury
Marine. The Company could not order outboard motor powered boats until a
determination of what type of outboard motor was to be placed on the boat. The
Company agreed in principal to agreements with Outboard Marine Corporation and
Mercury Marine in November of 1998 and the Company has since re-stocked its
store locations to levels that management believes are historically appropriate.
In fiscal 1999, operating activities utilized cash flows of $13.3
million due primarily to an increase of $18.0 million and $7.3 million in
inventories and accounts receivable, respectively. These amounts were offset
partially by net income, before depreciation and amortization, of $8.5 million,
an increase in accrued liabilities of $667,000 and an increase in income tax
payables of $3.2 million.
Investing activities utilized cash flows of $13.8 million due primarily
to the 14 new store locations, either newly opened or acquired in fiscal 1999,
along with the construction of a new facility in Gwinnett County, Georgia. In
addition, the Company purchased real estate in Clearwater, Florida (for the
relocation of the St. Petersburg, Florida location), Key Largo, Florida and San
Antonio, Texas (to take the place of the existing one). These activities were
funded through the mix of the Company's revolving line of credit facility, with
Bank of America (formerly NationsBank of Texas, N.A.) as agent, mortgage debt
and internal cash.
25
Financing activities in fiscal 1999 provided $26.6 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
Bank of America (formerly NationsBank of Texas, N.A.) This line of credit
provides for borrowing pursuant to a borrowing formula based upon certain of the
Company's inventory and accounts receivable. Collateral for this indebtedness
consists of a security interest in specific inventories (and proceeds thereof),
accounts receivable and contracts in transit. The line has a maturity on January
31, 2000 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 15, 1998, $41.5 million was drawn on the revolving
line and the Company could borrow an additional $13.5 million, of which
approximately $5.4 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. The Company is presently out of compliance with one of the
financial ratios of the current revolving line of credit. The Company, however,
is currently in the process of refinancing and increasing this credit facility
to provide for borrowings up to $125.0 million with several financial lenders,
including certain lenders that currently provide a portion of the $55.0 million
loan. This refinancing is expected to occur on or before February 1, 2000 and
will not include the ratio that is out of compliance at the present time.
Management believes the Company to be in compliance with all other terms and
conditions of the current loan agreement and all proposed terms and conditions
being set forth in the new refinanced line of credit.
The Company also maintains floor plan lines of credit with various
finance companies totaling approximately $54.0 million in credit limits, which
generally have no stated maturity and utilize subsidies from manufacturers to
provide for certain interest free periods each calendar year (usually August
through at least May). Certain floor plan lines of credit with finance companies
are governed by loan agreements containing financial covenants concerning, among
others, minimum tangible net worth and leverage ratios. As of December 15, 1999,
approximately $46.2 million was drawn under the floor plan lines. Management
believes the Company is in compliance with the terms and conditions of these
loan agreements.
Merchandise inventories were $38.9 million and $75.7 million as of
September 30, 1998 and September 30, 1999, respectively. Accounts receivable
increased by approximately $7.5 million to $12.4 million at the end of fiscal
1999 from a year earlier. The receivables amount represents primarily contracts
in transit generated from sales. Costs in excess of net assets acquired
increased to by approximately $5.4 million to $11.6 million in fiscal 1999 due
to the acquisitions during fiscal 1999 discussed previously in the section
Overview.
The Company had capital expenditures of approximately $7.7 million in
fiscal 1999 and approximately $4.3 million in fiscal 1998. Capital expenditures
during fiscal 1998 and 1999 included the acquisitions of the store locations
discussed previously in the section Overview, the renovation of several
facilities to the Company's superstore standards and expenditures related to the
roll-out of the Company's management information systems in certain store
locations. The Company also acquired real estate in San Antonio, Texas, Key
Largo, Florida, Clearwater, Florida and is under the construction of a new
superstore located in Gwinnett County, Georgia (relocating the Roswell, Georgia
temporary store location). The fiscal 1998 and 1999 capital expenditures were
primarily financed under the Company's credit facilities, mortgages and internal
cash.
The Company's proposed refinanced $125.0 revolving credit facility,
which includes enhanced advance rates on new and used boat inventories and
certain accounts receivable, existing floorplan lines of credit and internally
generated working capital should be sufficient to meet the Company's cash
requirements in the near future.
26
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 has replaced its integrated accounting and point-of-sale management
information system ("MIS"). The new MIS system is currently operating in all 38
store locations. 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 Company has received assurances
that new MIS system is a Y2K compliant 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, which
is used to administer the company-wide payroll. The Human Resources department
of the Company has completed installation of a year 2000 compliant version that
has been provided 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 that are not Y2K compliant are being identified and have been
addressed if deemed critical. This includes, but is not limited to, telephone
systems, copiers, fax machines and point of sale credit card authorization
terminals.
The Company has utilized 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 was 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 a
significant amount of Y2K compliant hardware and software. These purchases were
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 to address the Y2K issue. The
Company expects that Minimal costs will be associated with Y2K issue. The
Company does not expect the Y2K cost of unforeseen hardware or software
applications to exceed $100,000.
27
Management believes it has an effective program in place to resolve the
Y2K issue. However, 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 three management level employees to
further identify risks and carry out contingency plans in the event the Company,
or its vendors, does not complete all phases of the Y2K program.
New Accounting Standards
In September 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. Because of the Company's minimal use of derivative financial
instruments, management does not anticipate that the adoption of SFAS No. 133
will have a material impact on the Company's consolidated results of operations,
financial position or cash flows.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-Up
Activities. The SOP requires costs of start-up activities and organization costs
to be expensed as incurred, and is effective for fiscal years beginning after
December 15, 1998. The effects of adoption must be reported as a cumulative
change in accounting principle. The Company expects that the impact of adoption
will not be material to its financial position or results of operations.
Inflation
The Company believes that inflation generally has not had a material
impact on its operations or liquidity to date.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At September 30, 1999, approximately 84.5% of the Company's notes
payable and other short term obligations bear interest at variable rates,
generally tied to a reference rate such as the prime rate of interest of certain
banks. During the fiscal year ended September 30, 1999, the average rate of
interest of such variable rates was 5.47%. Increases in the variable interest
rates result in increased interest expense and decreased earnings and cashflow.
Assuming the same level of borrowings for the year ended September 30, 1999,
which averaged approximately $46,853,000, an increase of 2% in the average rate
of interest would result in an increase in 1999 interest expense of
approximately $937,060 and a decrease in 1999 net income and after-tax cashflow
of approximately $592,878. Similarly, a decrease in the average rate of interest
would result in a decrease in interest expense and an increase in net income and
after-tax cashflow.
ITEM 8. FINANCIAL STATEMENTS
For the financial statements and supplementary data required by this
Item 8, see the Index to Consolidated Financial Statements and Schedules.
28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 1. DIRECTORS AND EXECUTIVE OFFICERS
There is incorporated herein by reference that portion of the Company's
proxy statement for the 2000 Annual Meeting of Shareholders which appears
therein under the captions "Item 1: Election of Directors" and "Information
Concerning Directors."
ITEM 2. EXECUTIVE COMPENSATION
There is incorporated in this Item 11 by reference that portion of the
Company's definitive proxy statement for the 2000 Annual Meeting of Shareholders
which appears under the caption "Executive Compensation."
ITEM 3. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is incorporated in this Item 12 by reference that portion of the
Company's definitive proxy statement for the 2000 Annual Meeting of Shareholders
which appears under the caption "Securities Holdings of Principal Shareholders,
Directors, Nominees and Officers."
ITEM 4. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is incorporated in this Item 13 by reference that portion of the
Company's definitive proxy statement for the 2000 Annual Meeting of Shareholders
which appears under the captions "Certain Relationships and Related
Transactions" and "Compensation Committee Interlocks and Insider
Participation."
PART IV
ITEM 1. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company are
included following the Index to Consolidated Financial Statements and Schedules
on page F-1 of this Report.
REPORT OF INDEPENDENT AUDITORS................. F-2
CONSOLIDATED BALANCE SHEETS.................... F-3
CONSOLIDATED STATEMENTS OF INCOME.............. F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS.......... F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..... F-9
29
(A) 2. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are not applicable, not
required under the instructions, or the information requested is set forth in
the consolidated financial statements or related notes thereto.
(A) 3. EXHIBITS
The following Exhibits are incorporated by reference to the filing or
are included following the Index to Exhibits.
INDEX TO EXHIBITS
(a) Exhibits:
3.1 --Restated Articles of Incorporation of the Registrant, as
amended.(1)
3.2 --Restated Bylaws of the Registrant, as amended.(1)
10.2(a)[Intentionally left blank]
10.2(b)--Dealer Agreement dated as of October 13, 1995, between the
Company and Outboard Marine Corporation.(1)
10.3 --[Intentionally left blank]
10.4 --Dealer Agreement dated as of August 17, 1995, between the
Company and Mastercrafters Corporation.(1)(6) 10.5(a) --Inventory
Security Agreement and Power of Attorney dated as of November 30,
1993, Between Bombardier Capital Inc. and the Company.(1)
10.5(b) --Inventory Security Agreement and Power of Attorney dated as
of November 30, 1993, Between Bombardier Capital Inc. and Falcon
Marine Abilene, Inc.(1)
10.6(a) --Agreement for Wholesale Financing dated as of August 17,
1995, by and among Deutsche Financial Services Corporation, the
Company and its subsidiaries; and Amendment to Agreement for
Wholesale Financing dated as of September 22, 1995.(1)
10.6(b) --Agreement for Wholesale Financing dated as of August 17,
1995, between Deutsche Financial Services Corporation and Travis
Boats & Motors Baton Rouge, Inc.(1)
10.7(a) --Inventory Loan Agreement dated as of September 20, 1995,
between TBC Arkansas, Inc. And Hibernia National Bank.(1)
10.7(b) --Commercial Security Agreement dated September 1, 1995,
between TBC Arkansas, Inc. and Hibernia National Bank.(1)
10.8(a) --Inventory Loan Agreement dated as of December 17, 1992,
between Travis Boats & Motors Baton Rouge, Inc. and Hibernia
National Bank; and First Amendment to Inventory Loan Agreement
dated as of February 7, 1994.(1)
10.8(b) --Promissory Note dated May 30, 1995, in the original
principal amount of $100,000, payable By Travis Boats & Motors
Baton Rouge, Inc. to Hibernia National Bank.(1)
10.8(c) --Promissory Note dated May 30, 1995, in the original
principal amount of $800,000, payable By Travis Boats & Motors
Baton Rouge, Inc. to Hibernia National Bank.(1)
10.8(d) --Promissory Note dated July 14, 1995, in the original
principal amount of $480,000, payable By Travis Boats & Motors
Baton Rouge, Inc. to Hibernia National Bank.(1)
10.8(e) --Business Loan Agreement dated July 14, 1995, between Travis
Boats & Motors Baton Rouge, Inc. and Hibernia National Bank.(1)
30
10.8(f) --Commercial Security Agreement dated July 14, 1995, between
Travis Boats & Motors Baton Rouge, Inc. and Hibernia National
Bank.(1)
10.8(g) --Collateral Mortgage dated July 14, 1995, from Travis Boats &
Motors Baton Rouge, Inc. to Hibernia National Bank.(1)
10.8(h) --Assignment of Leases and Rents dated July 14, 1995, between
Travis Boats & Motors Baton Rouge, Inc. and Hibernia National
Bank.(1)
10.8(i) --Pledge of Collateral Mortgage Note dated July 14, 1995, from
Travis Boats & Motors Baton Rouge, Inc. to Hibernia National
Bank.(1)
10.9(a) --Promissory Note dated September 1, 1995, in the original
principal amount of $3,000,000, Payable by TBC Arkansas, Inc. to
Hibernia National Bank.(1)
10.9(b) --Commercial Guaranty dated September 1, 1995 by the Company
in favor of Hibernia National Bank guarantying a $3,000,000
Promissory Note.(1)
10.9(c) --Promissory Note dated September 1, 1995, in the original
principal amount of $250,000, Payable by TBC Arkansas to Hibernia
National Bank.(1)
10.10(a) --Amended and Restated Loan Agreement dated as of September
15, 1995, by and among NationsBank of Texas, N.A., the Company
and its subsidiaries.(1)
10.10(b) --Security Agreement dated July 31, 1995, by and among
NationsBank of Texas, N.A., the Company and its subsidiaries.(1)
10.11--General Promissory Note dated August 31, 1995, in the original
principal amount of $300,000, payable by the Company to Amerisure
Property & Casualty, Ltd.(1)
10.12--General Promissory Note dated August 31, 1995, in the original
principal amount of $100,000, payable by the Company to Capitol
Commerce Reporter, Inc.(1)
10.13--General Promissory Note dated August 31, 1995, in the original
principal amount of $75,000, payable by the Company to Capitol
Commerce Reporter, Inc.(1)
10.14--General Promissory Note dated August 31, 1995, in the original
principal amount of $50,000, payable by the Company to Joe
Simpson and Pat Simpson.(1)
10.15--Asset Purchase Agreement dated as of September 20, 1995, by
and among Red River Marine, Inc., Red River Marine, Inc. #2, and
TBC Arkansas, Inc.(1)
10.16--Promissory Note dated September 20, 1995, in the original
principal amount of $800,000, Payable by TBC Arkansas, Inc. to
Benny Hargrove.(1)
10.17(a) --Promissory Note dated as of September 20, 1995, in the
original principal amount of $462,145.53, payable by TBC
Arkansas, Inc. to Red River Marine, Inc. #2.(1)
10.17(b) --Mortgage With Power of Sale (Realty) dated September 20,
1995, from TBC Arkansas, Inc. to Red River Marine, Inc. #2.(1)
10.18--Promissory Note dated September 20, 1995, in the original
principal amount of $230,177.16, payable by TBC Arkansas, Inc. to
Red River Marine, Inc. and Red River Marine, Inc. #2.(1)
10.19--Promissory Note dated September 20, 1995, in the original
principal amount of $108,750, Payable by TBC Arkansas, Inc. to
Red River Marine, Inc. and Red River Marine, Inc. #2.(1)
10.20 --Travis Boats and Motors, Inc. 1995 Incentive Plan.(1)
10.21--[Intentionally left blank]
10.22--Form of Option Agreement dated May 17, 1995, between the
Company and Michael B. Perrine, Ronnie L. Spradling and Mark T.
Walton.(1)
10.23--Form of Indemnification Agreement for Directors and Officers
of the Company.(1) 10.24 --Management Agreement dated December
14, 1995, by and among TBC Management, Ltd., the Company and its
subsidiaries.(1)
10.25 --[Intentionally left blank]
10.26(a) --First Lien Promissory Note dated September 15, 1995, in the
original principal amount of $679,000, payable by Travis Snowden
Marine, Inc. to NationsBank of Texas, N.A.(1)
10.26(c) --First Lien Deed of Trust, Assignment, Security Agreement
and Financing Statement dated September 15, 1995, from Travis
Snowden Marine, Inc. to Michael F. Hord, Trustee.(1)
31
10.27(a) --Second Modification and Extension Agreement dated April 26,
1994, between the Company and NationsBank of Texas, N.A.(1)
10.27(b) --"504" Note dated April 28, 1994, in the original principal
amount of $454,000, payable by the Company to Cen-Tex Certified
Development Corporation.(1)
10.27(c) --Deed of Trust, Assignment, Security Agreement and Financing
Statement dated March 5, 1993, from the Company to Michael F.
Hord, Trustee.(1) 10.27(d) --Deed of Trust dated April 28, 1994,
from the Company to Wm. H. Harrison, Jr., Trustee.(1) 10.28
--Trust Agreement dated December 31, 1994, by and among Ideal
Insurance Company, Ltd. and the Company.(1)
10.29(a) --Revolving Credit Agreement dated as of December 12, 1996,
in the original principal Amount of $15,000,000 by and among the
Company, its Subsidiaries and NationsBank of Texas, N.A. as
agent.(2)
10.29(b) --Commercial Security Agreement dated as of December 12, 1996
by and among the Company, its Subsidiaries and NationsBank of
Texas, N.A. as agent.(2)
10.29(c)--Promissory Note dated as of December 12, 1996 in and
original principal amount of $9,000,000 among the Company, its
subsidiaries and NationsBank of Texas, N.A., as agent.(2)
10.29(d) --Promissory Note dated as of December 12, 1996 in the
original principal amount of $6,000,000 among the Company, its
subsidiaries and NationsBank of Texas, N.A. as agent.(2)
10.30--Asset Purchase Agreement dated as of November 1, 1996 between
Travis Boating Center Tennessee, Inc. and Tri-Lakes Marine,
Inc.(2)
10.31--Asset Purchase Agreement dated as of November 1, 1996 between
Travis Boating Center Alabama, Inc. and Tri-Lakes Marine, Inc.(2)
10.32--Asset Purchase Agreement dated as of February 19, 1997 between
Travis Boating Center Louisiana, Inc. and Bent's Marine, Inc.(3)
10.33--Asset Purchase Agreement dated as of August 1, 1997 between
Travis Boating Center Mississippi, Inc. and McLeod Marine,
Inc.(4)
10.34--Stock Purchase Agreement dated as of September 30, 1997 among
Travis Boating Center Florida, Inc. and Frederic D. Pace and John
W. Reinhold providing for the purchase of 100% of the common
stock of Adventure Boat Brokerage, Inc. (4)
10.35--Stock Purchase Agreement dated as of September 30, 1997 among
Travis Boating Center Florida, Inc. and John W. Reinhold
providing for the purchase of 100% of the common stock of
Adventure Marine & Outdoors, Inc.(4)
10.36--Stock Purchase Agreement dated as of September 30, 1997 among
Travis Boating Center Florida, Inc. and Frederic D. Pace and John
W. Reinhold providing for the purchase of 100% of the common
stock of Adventure Marine South, Inc.(4)
10.37--First Amendment to Revolving Credit Agreement dated as of
October 31, 1997, in the original principal amount of $55,000,000
by and among the Company, its Subsidiaries and NationsBank of
Texas, N.A. as agent.(4)
10.38--Asset Purchase Agreement dated as of November 20, 1997 between
Travis Boating Center Tennessee, Inc. and Southeastern Marine
Group, Inc.(4)
10.39--Travis Boats & Motors, Inc. 1995 Incentive Plan.(5)
10.40--Employment Agreement dated November 16, 1999 between TBC
Management, Ltd. and Mark T. Walton.
10.41--Employment Agreement dated November 16, 1999 between TBC
Management, Ltd. and Michael B. Perrine.
10.42--Employment Agreement dated November 16, 1999 between TBC
Management, Ltd. and Ronald L. Spradling.
10.43--Wellcraft Master Dealer Agreement effective September 29. 1998
between the Company and Wellcraft Marine Corp. (6)
32
10.44--Aquasport Master Dealer Agreement effective September 29, 1998
between the Company and Aquasport, a division of Wellcraft Marine
Corp. (6)
10.45--Outboard Marine Corporation Private Label/Retail Store
Agreement dated November 13, 1998 between the Company and
Outboard Marine Corporation.(6)
10.46--Product Supply Agreement dated June 29, 1999 between the
Company, its subsidiaries and Mercury Marine, a division of
Brunswick Corporation. (6)
10.47--Larson Master Dealer Agreement effective September 29, 1999
between the Company and Larson/Glastron Boats, Inc. (6)
16 --Letter re: change in certifying accountant(1)
21.1 --List of Subsidiaries of Registrant.
23.1 --Consent of Independent Auditors of Registrant, dated December
27, 1999.
27.1 --Financial Data Schedule
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 effective June 26, 1996 (File No. 333-03283).
(2) Incorporated by reference to the Company's Annual Report on Form 10-K filed
December 31. 1006 (File No. 000-20757)
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
filed May 15, 1997 ..(File No. 000-2057).
(4) Incorporated by reference to the Company's Annual Report on Form 10-K filed
December 29, 1997 (File No. 000-20757).
(5) Incorporated by reference to the Company Registration Statement on Form S-8
(File No. 333-41981).
(6) Portions of this exhibit have been omitted and are subject to an
application for confidential treatment filed separately with the
Commission.
No annual report or proxy material has been sent to security holders as
of the date of this Form 10-K; however, the Company anticipates sending the
annual report and proxy materials on or before any applicable deadlines. When
such a report and proxy materials are furnished, the Registrant will furnish
copies of such materials to the Commission.
[THIS SPACE INTENTIONALLY LEFT BLANK]
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TRAVIS BOATS & MOTORS, INC.
Date: December 24, 1999 By: /s/ Mark T. Walton
- - ------------------------ -----------------------
Mark T. Walton
Chairman of the Board
And President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date Signed
- - ---- ----- -----------
/S/ MARK T. WALTON Chairman of the Board, President and December 24, 1999
- - -------------------- Director (Principal Executive Officer)
Mark T. Walton
/S/ MICHAEL B. PERRINE Chief Financial Officer, Secretary and December 24, 1999
- - ------------------------- Treasurer (Principal Financial and
Michael B. Perrine Accounting Officer)
/S/ RONNIE L. SPRADLING Executive Vice President-New Store December 24, 1999
- - ------------------------
Ronnie L. Spradling Development Director
/S/ STEVEN W. GURASICH, JR. Director December 24, 1999
- - ----------------------------
Steven W. Gurasich, Jr.
_____________________ Director December __, 1999
Zach McClendon, Jr.
/S/ ROBERT C. SIDDONS Director December 24, 1999
- - ----------------------------
Robert C. Siddons
/S/ JOSEPH E. SIMPSON Director December 24, 1999
- - ---------------------
Joseph E. Simpson
34
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Financial Statements
Years ended September 30, 1999, 1998 and 1997
CONTENTS
Report of Independent Auditors...............................................F-2
Audited Consolidated Financial Statements
Consolidated Balance Sheets..................................................F-3
Consolidated Statements of Income............................................F-5
Consolidated Statements of Stockholders' Equity..............................F-6
Consolidated Statements of Cash Flows........................................F-7
Notes to Consolidated Financial Statements...................................F-9
F-1
Report of Independent Auditors
The Board of Directors
Travis Boats & Motors, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Travis Boats &
Motors, Inc. and Subsidiaries as of September 30, 1999 and 1998 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended September 30, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Travis Boats &
Motors, Inc. and Subsidiaries as of September 30, 1999 and 1998 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1999, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
-----------------------
December 8, 1999
Austin, Texas
F-2
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
SEPTEMBER 30,
1999 1998
----------------- ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,125 $ 4,618
Accounts receivable, net of allowance
for doubtful accounts of
$247 in 1999 and $0 in 1998 12,421 4,893
Prepaid expenses 1,177 1,045
Prepaid income taxes --- 425
Inventories 75,700 38,934
Deferred tax asset 136 180
----------------- ------------------
Total current assets 93,559 50,095
Property and equipment:
Land 5,819 3,516
Buildings and improvements 11,069 8,485
Furniture, fixtures and equipment 8,056 4,109
----------------- ------------------
24,944 16,110
Less accumulated depreciation (4,529) (3,417)
----------------- ------------------
20,415 12,693
Deferred tax asset 121 96
Goodwill, net of accumulated amortization
of $591 in 1999 and $290 in 1998 9,110 4,910
Noncompete agreements, net of accumulated
amortization of $703 in 1999 and $396 in 1998 2,527 1,292
Other assets 199 30
----------------- ------------------
Total assets $ 125,931 $ 69,116
================= ==================
F-3
SEPTEMBER 30,
1999 1998
----------------- ------------------
LIABILITIES
Current liabilities:
Accounts payable $ 3,613 $ 1,697
Accrued liabilities 3,179 2,512
Amounts due for purchase of businesses 2,134 2,117
Income taxes payable 2,820 -
Unearned revenue 149 1,272
Floor plan and revolving line of credit payable 68,558 25,148
Current portion of notes payable and other
short-term obligations 989 957
Total current liabilities 81,442 33,703
Notes payable, less current 6,897 4,980
portion
Stockholders' equity:
Serial preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares issued or outstanding - -
Common stock, $.01 par value, 50,000,000 shares authorized,
4,326,022 and 4,285,063 issued and outstanding at
September 30, 1999 and 1998, respectively 43 43
Paid-in capital 14,402 13,816
Retained earnings 23,147 16,574
----------------- ------------------
Total stockholders' equity 37,592 30,433
----------------- ------------------
Total liabilities and stockholders' equity $ 125,931 $ 69,116
================= ==================
See accompanying notes.
F-4
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except share data)
Year ended September 30,
1999 1998 1997
--------------------------------------------------------
Net sales $ 182,259 $ 131,740 $ 91,309
Cost of sales 135,625 96,839 67,354
--------------------------------------------------------
Gross profit 46,634 34,901 23,955
Selling, general and administrative expenses 30,978 22,630 15,562
Depreciation and amortization 1,967 1,260 913
--------------------------------------------------------
32,945 23,890 16,475
Operating income 13,689 11,011 7,480
Interest expense (3,808) (2,310) (1,354)
Gain on sale of asset 457 --- ---
Other income (expenses) 80 80 (12)
---------------------------------------------------------
Income before income taxes 10,419 8,781 6,114
Income taxes 3,846 3,218 2,132
---------------------------------------------------------
Net income $ 6,573 $ 5,563 $ 3,982
Earnings per share:
Basic $ 1.53 $ 1.31 $ .96
=================== =================== ===================
Diluted $ 1.49 $ 1.26 $ .94
=================== =================== ===================
See accompanying notes.
F-5
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(in thousands)
Common Stock
------------ Paid-in Retained
Shares Amount Capital Earnings Total
------------------------------------------------------------------------
Balance at September 30, 1996 4,137 $41 $11,527 $ 7,029 $18,597
Issuance of common stock in purchase
of business 88 1 1,477 - 1,478
Net income - - - 3,982 3,982
------------------------------------------------------------------------
Balance at September 30, 1997 4,225 42 13,004 11,011 24,057
Issuance of common stock 40 1 462 - 463
Issuance of common stock in purchase
of business 20 - 350 - 350
Net income - - - 5,563 5,563
------------------------------------------------------------------------
Balance at September 30, 1998 4,285 43 13,816 16,574 30,433
Issuance of common stock 5 - 61 - 61
Issuance of common stock in purchase
of business 36 - 525 - 525
Net income - - - 6,573 6,573
------------------------------------------------------------------------
Balance at September 30, 1999 4,326 $43 $14,402 $23,147 $37,592
------------------------------------------------------------------------
See accompanying notes.
F-6
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Year ended September 30,
1999 1998 1997
--------------------------------------------------
OPERATING ACTIVITIES
Net income $ 6,573 $ 5,563 $ 3,982
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation 1,359 807 780
Amortization 608 453 133
Changes in operating assets and
liabilities:
Accounts receivable (7,315) (978) (1,995)
Prepaid assets (132) (674) (244)
Inventories (17,990) (416) (5,166)
Other assets (123) 105 (18)
Deferred tax asset 19 17 (92)
Accounts payable 925 (570) 1,453
Accrued liabilities 667 (689) 884
Prepaid income taxes/ income tax
payable 3,245 (1,506) 128
Unearned revenue (1,123) 750 (653)
---------------------------------------------------
Net cash provided by (used in) operating
activities (13,287) 2,862 (808)
INVESTING ACTIVITIES
Purchase of businesses (6,101) (4,522) (3,477)
Purchase of property and equipment (7,725) (4,301) (2,256)
Net cash used in investing activities (13,826) (8,823) (5,733)
F-7
Travis Boats & Motors, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Year ended September 30,
1999 1998 1997
--------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in notes payable and
other short-term obligations $26,559 $4,300 $10,824
Net proceeds from issuance of common
stock 61 463 -
--------------------------------------------------
Net cash provided by financing activities 26,620 4,763 10,824
Change in cash and cash equivalents (493) (1,198) 4,283
Cash and cash equivalents, beginning of
year 4,618 5,816 1,533
--------------------------------------------------
Cash and cash equivalents, end of year $ 4,125 $4,618 $ 5,816
==================================================
SUPPLEMENTAL DISCLOSURE OF DEBT AND STOCK ISSUED IN PURCHASE OF BUSINESSES
- - --------------------------------------------------------------------------
Year ended September 30,
1999 1998 1997
--------------------------------------------------
Debt issued in purchase of businesses $ 2,082 $ 124 $1,250
Stock issued in purchase of businesses 525 350 1,478
SEE ACCOMPANYING NOTES.
F-8
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND CONSOLIDATION
Travis Boats & Motors, Inc. (the "Company") based in Austin, Texas, is a
retailer of boats, motors, trailers and related watersport accessories. The
Company operates locations in the southern region of the United States. The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
COMPREHENSIVE INCOME
In September 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
("SFAS No. 130"). SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general-purpose
financial statements. The adoption of SFAS No. 130 by the Company had no impact
as the Company had no items of comprehensive income for all years presented.
SEGMENTS
Effective October 1, 1998, the Company adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS No. 131"). SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to stockholders. The adoption of SFAS No. 131
did not have a significant effect on the disclosure of segment information as
the Company continues to consider its business activities to be in a single
segment.
REVENUE RECOGNITION
The Company records revenue on sales of boats, motors, trailers, and related
watersport parts and accessories upon delivery to or acceptance by the customer
at the closing of the transaction. The Company records revenues from service
operations at the time repair or service work is completed.
The Company refers customers to various financial institutions to assist the
customers in obtaining financing for their boat purchase. For each loan the
financial institutions are able to fund as a result of the referral, the Company
receives a fee. Revenue earned by the Company for financing referrals is
recognized when the related boat sale is recognized. The fee amount is generally
based on the loan amount and the term. Generally, the Company must return a
portion of the fee amount received if the customer repays the loan or defaults
on the loan within a period of up to 180 days from the initial loan date. The
Company records such refunds, which are not significant, in the month in which
they occur.
F-9
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenues from insurance and extended service agreements are recorded at the time
such agreements are executed which generally coincides with the date the boat,
motor and trailer is delivered. Such revenues are not deferred and amortized
over the life of the insurance or extended service agreement policies, because
the Company sells such policies on behalf of third party vendors or
administrators. At the time of sale, the Company records a fee for insurance and
extended service agreements net of the related fee that is paid to the
third-party vendors or administrators. Since its inception, the Company has
incurred no additional costs related to insurance or extended service agreements
beyond the fees paid to the third party vendors at the time of sale.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
investments with maturities of ninety days or less when purchased to be cash
equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable potentially expose the Company to concentrations of credit
risk, as defined by the Statement of Financial Accounting Standards No. 105,
Disclosure of Information about Financial Instruments with Off-Balance Sheet
Risk and Financial Instruments with Concentrations of Credit Risk. Accounts
receivable consist primarily of amounts due from financial institutions upon
sales contract funding and amounts due from vendors under rebate
programs.
The accounts receivable balances consisted of the following as of September 30,
1999 and 1998 (in thousands):
1999 1998
------------ --------------
Trade receivables............... $ 7,793 $3,708
Amounts due from manufacturers.. 4,593 1,139
Other receivables............... 282 46
Allowance for doubtful accounts. (247) 0
------------- ---------------
$12,421 $4,893
============= ===============
Activity in the Company's allowance for doubtful accounts is as follows (in
thousands):
Balance at September 30, 1996.......... $ -0-
Additions charged to costs
and expenses.................. -0-
Write-offs of uncollectible
accounts...................... -0-
---------------------------------------
Balance at September 30, 1997.......... -0-
Additions charged to costs
and expenses.................. -0-
Write-offs of uncollectible
accounts...................... -0-
---------------------------------------
Balance at September 30, 1998.......... -0-
Additions charged to costs
and expenses.................. 247
Write-offs of uncollectible
accounts...................... -0-
---------------------------------------
Balance at September 30, 1999.......... 247
===
F-10
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories consist of boats, motors, trailers and related watersport parts and
accessories. Inventories are carried at the lower of cost or market. Cost for
boats, motors and trailers is determined using the specific identification
method. Cost for parts and accessories is determined using the first-in,
first-out method.
Inventories consisted of the following as of September 30, 1999 and 1998 (in
thousands):
1999 1998
------------ -----------
New boats, motors and trailers........ $63,874 $32,089
Used boats, motors, and trailers...... 4,932 2,559
Parts, accessories and other.......... 7,273 4,559
Valuation allowance................... (379) (273)
------------ ------------
$75,700 $38,934
============ ============
Balance at September 30, 1996.......... $ -0-
Additions charged to costs
and expenses.................. 74
Write-offs of uncollectible
accounts...................... -0-
---------------------------------------
Balance at September 30, 1997.......... 74
Additions charged to costs
and expenses.................. 199
Write-offs of uncollectible
accounts...................... -0-
---------------------------------------
Balance at September 30, 1998.......... 273
Additions charged to costs
and expenses.................. 106
Write-offs of uncollectible
accounts...................... -0-
---------------------------------------
Balance at September 30, 1999.......... 379
===
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Provisions for depreciation are
determined using double-declining balance and straight-line methods. The Company
uses estimated useful lives of 5 - 20 years for buildings and improvements and 5
- - - 10 years for furniture, fixtures and equipment.
INCOME TAXES
In accordance with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, deferred income taxes are provided for temporary
differences between the basis of assets and liabilities for financial reporting
purposes and for income tax return purposes.
INTANGIBLE ASSETS
Amounts assigned to intangible assets are amortized over the respective
estimated useful lives using the straight-line method as follows:
Noncompete agreements 5 to 7 years
Goodwill 15 to 25 years
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of,"
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset in
question may not be recoverable. The Company groups long-lived assets by store
location for purposes of assessing the recoverability of carrying value and
measuring potential impairment.
F-11
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS (CONTINUED)
To date, the Company has not experienced any events or changes in circumstances
that indicate that the recoverability of the carrying amount of an individual
store should be assessed.
Goodwill and other intangible assets are recorded at the lower of unamortized
cost or fair value. Management reviews the valuation and amortization of
intangible assets on a periodic basis, taking into consideration any events or
circumstances which might result in diminished fair value. If this review
indicates goodwill will not be recoverable, as determined by the undiscounted
cash flows of the entity acquired over the remaining amortization period, the
carrying value of the goodwill is reduced by the estimated shortfall of cash
flows.
PRE-OPENING COSTS
Pre-opening costs related to new store locations are expensed as incurred.
SIGNIFICANT SUPPLIERS
The Company purchased substantially all of its new outboard motors for use on
its Travis Edition boat packages from two outboard motor manufacturers, Outboard
Marine Corporation and the Brunswick Corporation, in fiscal 1999, and from a
single outboard motor manufacturer, Outboard Marine Corporation, in fiscal years
1998 and 1997.
Approximately 12%, 18% and 34% of the Company's net purchases (including product
purchased in acquisitions) in fiscal 1999, 1998 and 1997, respectively, were
manufactured by boat suppliers with common ownership.
ADVERTISING COSTS
Advertising costs are expensed as incurred and were approximately $1,192,000,
$643,000 and $829,000 during the fiscal years ended September 30, 1999, 1998 and
1997, respectively.
NOTES PAYABLE AND OTHER SHORT-TERM OBLIGATIONS
Interest expense on notes payable and other short-term obligations is recorded
as incurred. The Company receives interest assistance on certain floor plan
payables from various boat and motor manufacturers to subsidize the carrying
cost of inventory. Accordingly, no interest expense is recorded during portions
of the year on floor plan payables which include noninterest bearing payment
terms. Discontinuance of the interest assistance payments could result in an
increase in interest expense.
UNEARNED REVENUE
Amounts received from vendors in connection with agreed upon rebates or
discounts are deferred until the related product is sold and such rebate or
discount is earned.
F-12
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER COMMON SHARE
YEAR ENDED SEPTEMBER 30,
1999 1998 1997
-------------- -------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Numerator:
Net income $ 6,573 $ 5,563 $ 3,982
=============================================
Denominator:
Denominator for basic earnings per share - weighted
average shares 4,291 4,250 4,137
Effect of dilutive securities:
Employee stock options 118 168 115
---------------------------------------------
Denominator for diluted earnings per share - adjusted
weighted average shares and assumed conversions 4,409 4,418 4,252
=============================================
Basic earnings per share $ 1.53 $ 1.31 $ .96
Diluted earnings per share $ 1.49 $ 1.26 $ .94
Options to purchase 97,500 shares of common stock with a weighted average strike
price of $21.18 and a weighted average outstanding remaining life of 7.79 years
were excluded from the computation of diluted EPS for the period ended September
30, 1999 as the option's exercise prices were greater than the average market
price of the Company's common stock during the fiscal year then ended. There
were no option shares excluded from the computation of diluted EPS for the
fiscal years ended September 30, 1998 and 1997.
2. NOTES PAYABLE AND OTHER SHORT-TERM OBLIGATIONS
Notes payable and other short-term obligations consist of the following (in
thousands):
SEPTEMBER 30,
1999 1998
----------------- ------------------
Floor plans payable to commercial
finance companies under revolving
line of credit agreements with
interest ranging from 0% to prime
minus 1.00% (7.25% at September 30,
1999) with no stated maturity date. $ 35,408 $ 10,148
Note payable to bank under a $55
million revolving line of credit
agreement with interest ranging
from prime minus 1.00% to prime
minus 1.60% (7.25% at September 30,
1999), due January 31, 2000. 33,150 15,000
Notes payable (see terms below) 7,886 5,937
----------------- ------------------
Total notes payable and other
short-term obligations 76,444 31,085
Less current portion (69,547) (26,105)
----------------- ------------------
Total notes payable, less current
portion $ 6,897 $ 4,980
================= ==================
F-13
2. NOTES PAYABLE AND OTHER SHORT-TERM OBLIGATIONS (CONTINUED)
The floor plans payable are secured by specific boat, motor and trailer
inventory, as well as general security filings on all inventory and certain
equipment. The floor plans payable to commercial finance companies include
noninterest bearing payment terms for part of the calendar year (typically the
months of August through May). As of September 30, 1999 and 1998, the amount of
noninterest bearing floor plans payable to finance companies were $9,896,260 and
$3,488,888, respectively.
Floor plans payable of certain of the Company's subsidiaries are guaranteed by
the Company. The Company is significantly limited as to annual dividends for
preferred and common stock.
As of September 30, 1999, the Company was in violation of a financial ratio
covenant related to its $55 million revolving line of credit agreement with a
bank. The Company has not requested a waiver from the bank regarding such
violation as the line of credit expires on January 31, 2000. Management of the
Company is currently negotiating revolving credit facilities with two commercial
financial companies in the amount of approximately $125 million. The new credit
facilities would be used to refinance the expiring $55 million line of credit
and to provide additional borrowing capacity.
The weighted average interest rate on floor plan payables and revolving lines of
credit outstanding as of September 30, 1999 and 1998 was 5.5% and 4.8%,
respectively.
Notes payable consist of the following:
SEPTEMBER 30,
1999 1998
----------------- ------------------
(IN THOUSANDS)
Mortgage notes payable to various banks,
organizations and individuals under
deeds of trust with interest ranging
from 6.0% to prime plus 1%, due in
monthly principal and interest
installments ranging from $1,493 to
$10,289, maturing beginning in
February 2000. $6,045 $3,480
Notes payable to various banks, a
corporation and an individual for
vehicles, equipment and leasehold
improvements with interest ranging
from 7.1% to 8.5%, due in principal
installments ranging from $486,
including interest, monthly
to $62,500, plus interest
quarterly, maturing beginning in
February 2000. 757 1,030
Acquisition related notes payable to
individuals and corporations with
interest ranging from 8.25% to 8.75%,
due in monthly principal and interest
installments ranging from $291 to
$12,770, maturing beginning in
February 2000. 1,084 1,427
----------------- ------------------
Total notes payable $7,886 $5,937
================= ==================
Certain notes payable are secured by assets of the Company including inventory,
accounts receivable, equipment, leasehold improvements, vehicles, land and
buildings. Notes payable of certain of its subsidiaries are guaranteed by the
Company.
F-14
2. NOTES PAYABLE AND OTHER SHORT-TERM OBLIGATIONS (CONTINUED)
At September 30, 1999 and 1998, approximately 84.5% and 64.8% respectively of
the Company's notes payable and other short-term obligations bear interest at
variable rates, generally tied to a reference rate such as the prime rate of
interest of certain banks. Accordingly, the Company believes that the carrying
amount of the notes payables and other short term obligations approximates their
fair value.
Interest paid approximates interest expense during 1999, 1998 and 1997.
Aggregate annual maturities required on notes payable at September 30, 1999 are
as follows (in thousands):
Year ending
September 30
- - ------------
2000 $ 989
2001 990
2002 1,437
2003 661
2004 603
Thereafter 3,206
-----------
$ 7,886
===========
3. LEASES
The Company leases various facilities under operating leases. Rent expense was
$2,031,000 in 1999, $1,188,000 in 1998 and $546,000 in 1997. Generally, the
leases provide for renewals for various periods at stipulated rates. Future
minimum rentals due under noncancelable leases are as follows for each of the
years ending September 30 (in thousands):
2000 $ 2,489
2001 2,427
2002 1,813
2003 1,275
2004 886
Thereafter 1,902
---------
$10,792
=========
4. ACQUISITIONS
The Company has made various acquisitions during the three year period ended
September 30, 1999. All of the acquisitions were asset purchases (except for
Adventure Marine and Shelby Marine, which were stock purchases) 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 and equipment. A summary of the
Company's acquisitions follows:
F-15
4. ACQUISITIONS (CONTINUED)
Non-compete
Date of Purchase Tangible Agreements Cash Liabilities Notes Stock
NAME OF COMPANY Acquisition Price Net Assets and Goodwill Paid Assumed Issued Issued
--------------- ------------- ---------- ----------- -------------- --------- ------------ -------- ---------
(In Thousands)
------------------------------------
FISCAL 1999
- - -----------
Amlin, Inc. dba Magic 01/99 $1,639 $6,019 $1,090 $1,639 $5,470 $ --- $ ---
Marine
Sportsman's Haven 01/99 1,748 2,624 514 1,098 1,390 650 ---
Pier 68 Marina 02/99 738 2,218 562 408 2,043 329 ---
DSA Marine Sales & Service 04/99 2,147 4,798 1,597 2,147 4,248 --- ---
dba The Boatworks
Shelby Marine, Inc. 06/99 1,334 3,426 1,050 809 3,142 --- 525
The New 3 Seas, Inc. 09/99 1,103 1,419 1,100 0 1,416 1,103 ---
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 09/98 677 2,093 350 327 1,766 - 350
FISCAL 1997
- - -----------
North Alabama Watersports 10/96 892 687 205 812 - 80 -
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
Pursuant to the purchase terms of The New 3 Three Seas acquisition, the Company
has agreed to issue 86,005 shares of its common stock valued at approximately
$1.1 million upon the registration of such shares with the Securities and
Exchange Commission pursuant to the Securities Act of 1933. The shares of common
stock were not registered as of the fiscal year ended September 30, 1999.
Accordingly, the Company has classified the amount payable of $1.1 million as a
liability due to The New 3 Seas, Inc.
The Company determines the valuation of the securities issued in its purchase
transactions in accordance with Emerging Issues Task Force 95-19.
The Company's unaudited consolidated results of operations assuming all
acquisitions accounted for under the purchase method of accounting had occurred
on October 1, 1998 are as follows for the fiscal years ended September 30, 1999
and 1998:
F-16
YEAR ENDED SEPTEMBER 30,
1999 1998
Net Sales $206,994,000 $197,365,000
Net Income 7,667,972 $7,192,790
Diluted earnings per share 1.74 1.63
The unaudited pro forma results of operations are presented for informational
purposes only pursuant to APB 16 and may not necessarily 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, 1998.
5. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows (in thousands):
September 30,
1999 1998
----------------- ------------------
Deferred tax assets:
Book over tax depreciation $ 121 $ 96
Accrued salaries and wages 136 180
----------------- ------------------
Total deferred tax assets 257 276
Valuation allowance for deferred
tax assets - -
Net deferred tax assets $ 257 $ 276
================= ==================
Significant components of the provisions for income taxes are as follows (in
thousands):
Year ended September 30,
1999 1998 1997
---------------------------------------------------
Current expense:
Federal $3,424 $2,791 $1,993
State 403 410 231
Total current expense 3,827 3,201 2,224
Deferred expense (benefit):
Federal 19 17 (83)
State - - (9)
---------------------------------------------------
Total deferred expense
(benefit) 19 17 (92)
---------------------------------------------------
Total provision for income
taxes $3,846 $3,218 $2,132
===================================================
The differences between the effective tax rate and the U.S. federal statutory
rate of 34% are reconciled as follows (in thousands):
Year ended September 30,
1999 1998 1997
-------------- -------------- --------------
Income tax expense
at the federal
statutory rate $3,542 $2,986 $2,079
State income taxes 403 410 223
Other (99) (178) (170)
-------------------------------------------------------
$3,846 $3,218 $2,132
=======================================================
F-17
5.INCOME TAXES (CONTINUED)
Income taxes paid were approximately $1,563,000; $4,207,000 and $1,900,000 in
the fiscal years ended September 30, 1999, 1998 and 1997, respectively.
6.STOCKHOLDERS' EQUITY
In March 1995, the Company granted options to purchase shares of the Company's
common stock to certain officers of the Company which vest over five years.
In December 1995, the Company adopted an Incentive Stock Option Plan (the
"Plan") which originally provided for the issuance of up to 200,000 shares of
the Company's common stock. The Plan provides for the granting of options
(incentive stock options or non-statutory), stock appreciation rights and
restricted shares to officers, key employees, non-employee directors and
consultants to purchase shares of the Company's common stock.
In March 1998, the Company amended its 1995 Incentive Stock Option Plan to
provide that the aggregate number of shares of common stock that may be issued
or transferred pursuant to awards under the Plan shall increase automatically
effective on April 1 of each calendar year for the duration of the Plan so that
the aggregate number of shares of common stock that may be issued or transferred
pursuant to awards under the Plan is equal to 10% of the total number of shares
of common stock issued and outstanding on April 1 of that year. Notwithstanding
this provision, the amendment provides that (i) the aggregate number of shares
of common stock that may be issued or transferred pursuant to awards under the
Plan shall not be reduced in the event the total number of shares issued and
outstanding decreases in any year, or (ii) the aggregate number of shares of
common stock that may be issued or transferred pursuant to awards under the Plan
shall not exceed 1,000,000 shares of common stock over the life of the Plan. As
of September 30, 1999, the Company was eligible to issue or transfer up to an
additional 109,525 shares of common stock pursuant to the Plan.
Total option activity for the years ended September 30, 1999, 1998 and 1997:
Weighted
Range of Average
Number of Exercise Prices Exercise
Shares Price
-------------------------------------- ---------------
Outstanding at September 30, 1996 231,533 $5.25 - $9.00 $ 6.83
Granted 38,500 $10.00-$17.00 $12.37
Exercised - - -
Forfeited (5,000) $ 9.00 $ 9.00
------------------
Outstanding at September 30, 1997 265,033 $5.25 -$17.00 $ 7.58
Granted 100,750 $15.00-$22.50 $20.83
Exercised (36,200) $5.25-$13.125 $ 6.42
Forfeited (6,300) $9.00-$13.125 $12.76
------------------
Outstanding at September 30, 1998 323,281 $5.25 -$22.50 $11.75
Granted 7,500 $14.50-$20.00 $18.60
Exercised (5,000) $9.00 $ 9.00
Forfeited (6,500) $13.125-$19.00 $17.93
------------------
Outstanding at September 30, 1999 319,281 $5.25 -$22.50 $11.84
==================
Exercisable at September 30, 1999 173,083 $5.25- $22.50 $ 8.82
==================
Options available for grant at September 30, 1999 109,525
==================
Common stock reserved for issuance at September
30, 1999 428,806
==================
F-18
6. STOCKHOLDERS' EQUITY (CONTINUED)
The weighted-average remaining contractual life of options at September 30, 1999
and 1998 is approximately 6.94 and 7.91 years, respectively.
Options outstanding at September 30, 1999, are comprised of the following:
OUTSTANDING EXERCISABLE
----------- -----------
Weighted Avg.
Range of Weighted Avg. Contractual Number of Weighted Avg.
OPTIONS Exercises Prices Exercises Prices Life in Years Options Exercise Price
- - ----------------- ---------------------------------------- ------------------ ---------------------------------------
108,865 $5.25 $5.25 5.62 82,092 $5.25
75,666 $9.00 $9.00 6.74 57,666 $9.00
35,250 $9.50-$15.00 $12.19 7.70 13,825 $12.10
99,500 $16.13-$22.50 $21.03 8.19 19,500 $21.03
- - ---------------------------------------------------------------------------------------------------------------------
319,281 $5.25-$22.50 $11.84 6.94 173,083 $8.82
- - ---------------------------------------------------------------------------------------------------------------------
The Company has elected to follow Accounting Principles Board No. 25, Accounting
for Stock Issued to Employees (APB 25), and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock- Based Compensation (Statement 123), requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals market price of the underlying stock on the date of grant,
no compensation expense is recognized.
The assumptions used by the Company to determine the pro forma information
regarding net income and earnings per share required by Statement No. 123 are as
follows using the Black-Sholes model:
YEAR ENDED SEPTEMBER 30,
1999 1998 1997
---------------- ---------------- ----------------
Risk-free interest rate 6.00% 6.00% 6.42%
Dividend yield 0% 0% 0%
Expected life 5 years 5 years 5 years
Volatility 39.3% 39.3% 34.3%
The pro forma amounts under Statement No. 123 are as follows:
YEAR ENDED SEPTEMBER 30,
1999 1998 1997
---------------- ---------------- ----------------
Net income as reported
(000's) $6,572 $5,563 $3,982
Pro forma net income
(000's) $6,467 $5,467 $3,968
Diluted EPS - as
reported $ 1.49 $ 1.26 $ .94
Pro forma - Diluted EPS $ 1.47 $ 1.24 $ .93
7. COMMITMENTS AND CONTINGENCIES
The Company is currently involved in several matters regarding pending or
threatened litigation in the normal course of business. Management does not
expect the ultimate resolution of these matters to have a material adverse
effect on the Company's consolidated financial statements.
F-19
8. BENEFIT PLAN
In January 1995, the Company adopted a 401(k) retirement plan which is available
to all full-time employees. The Company may, in its discretion, make matching
contributions which the Company, in its discretion, determines from year to
year. The Company's expenses related to the plan were not significant in the
years ended September 30, 1999, 1998 and 1997.
9. NEW ACCOUNTING PRONOUNCEMENTS
In September 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. Because of the
Company's minimal use of derivative financial instruments, management does not
anticipate that the adoption of SFAS No. 133 will have a material impact on the
Company's consolidated results of operations, financial position or cash flows.
In April 1998, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") 98-5, Reporting on the Costs of Start-Up Activities. The SOP
requires costs of start-up activities and organization costs to be expensed as
incurred, and is effective for fiscal years beginning after December 15, 1998.
The effects of adoption must be reported as a cumulative change in accounting
principle. The Company expects that the impact of adoption will not be material
to its financial position or results of operations.
10. SUBSEQUENT EVENTS
In October 1999, the Company entered into a sale leaseback transaction with a
leasing company covering substantially all of its motor vehicle fleet. Vehicle
leases generally range from 24 to 60 months in term and provide for various
residual balances of approximately 20% of the initial lease amount.
In October 1999, the Company entered into a real estate term loan with a
commercial bank providing for up to $4 million of financing for the Company's
land and buildings in Dallas and San Antonio, Texas and Atlanta, Georgia.
In November 1999, the Company completed the registration of 86,005 shares of
common stock on Form S-3 with the Securities and Exchange Commission issued
pursuant to the acquisition of The New Three Seas, Inc.
(September 1999).
In November 1999, the Company entered into a transaction with a finance company
providing for up to $5.0 million of financing for the Company's used boat, motor
and trailer inventory pursuant to a specific borrowing base formula.
F-20