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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1996
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-20757
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TRAVIS BOATS & MOTORS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2024798
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Indentification Number)
13045 RESEARCH BLVD., AUSTIN, TEXAS 78750
(Address of principal executive offices)
Registrant's telephone number, including area code: (512) 250-8103
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)
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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 preceeding 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 definitve proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this 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, 1996, (based upon the last reported price of $13.00 per share)
was approximately $29,654,989 on such date.
The number of shares of the issuer's Common Stock, par value $.01 per share,
outstanding as of December 23, 1996 was 4,136,506 of which 2,281,153 shares
were held by non-affiliates.
Documents Incorporated by reference: Portions of Registrant's Proxy
Statement relating to the 1997 Annual Meeting of Stockholders to be held in
March 1997, have been incorporated by reference herein (Part III).
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TRAVIS BOATS & MOTORS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10--K
TABLE OF CONTENTS
PAGE
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RISK FACTORS....................................................................................... 1
PART I
Item 1. Business................................................................................. 6
Item 2. Properties............................................................................... 10
Item 3. Legal Proceedings........................................................................ 10
Item 4. Submission of Matters to a Vote of Security Holders...................................... 10
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters..................... 11
Item 6. Selected Financial Data.................................................................. 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 13
Item 8. Financial Statements..................................................................... 19
Item 9. Changes in and Disagreements with Accountants and Financial Disclosure................... 19
PART III
Item 10. Directors and Executive Officers......................................................... 20
Item 11. Executive Compensation................................................................... 20
Item 12. Security Ownership of Certain Beneficial Owners and Management........................... 20
Item 13. Certain Relationships and Related Transactions........................................... 20
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................... 21
Index to Consolidated Financial Statements............................................... 21
RISK FACTORS
This 10K Report 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, the factors set forth below, those discussed
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and those discussed elsewhere in this 10K Report.
Impact of Seasonality and Weather on Operations. The Company's business, as
well as the entire recreational boating industry, is 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 six-year
period, the average net sales for the quarterly periods ended March 31 and
June 30 represented in excess of 27% and 37%, respectively, of the Company's
average annual net sales. If, for any reason, the Company's sales were to be
substantially below those normally expected during these periods, the
Company's business, financial condition and results of operations would be
materially and adversely affected. The Company generally realizes
significantly lower sales in the quarterly period ending December 31,
resulting in operating losses during that quarter.
The Company's business is also significantly affected by weather patterns
which may adversely impact the Company's operating results. For example,
drought conditions or merely reduced rainfall levels, as well as excessive
rain, may force area lakes to close or render boating dangerous or
inconvenient, thereby curtailing customer demand for the Company's products.
In addition, unseasonably cool weather and prolonged winter conditions may
lead to a shorter selling season in certain locations. Although the Company's
geographic expansion has reduced, and is expected to continue to reduce, the
overall impact on the Company of adverse weather conditions in any one market
area, such conditions will continue to represent potential, material adverse
risks to the Company and its future financial performance. Due to the
foregoing factors, among others, the Company's operating results in some
future quarters may be below the expectations of stock market analysts and
investors. In such event, there could be an immediate and significant adverse
effect on the trading price of the Common Stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Impact of General Economic Conditions and Discretionary Consumer
Spending. The Company's operations are dependent upon a number of factors
relating to or affecting consumer spending. The Company's operations may be
adversely affected by unfavorable local, regional or national economic
developments or uncertainties regarding future economic prospects that reduce
consumer spending in the markets served by the Company's stores. Consumer
spending on non-essential goods such as recreational boats can also be
adversely affected due to declines in consumer confidence levels, even if
prevailing economic conditions are positive. In an economic downturn, consumer
discretionary spending levels are also reduced, often resulting in
disproportionately large declines in the sale of high-dollar items such as
recreational boats. For example, during the Company's 1988-1990 fiscal years,
the Texas economy was severely depressed due to declines in the financial, oil
and gas and real estate markets. While the Company remained profitable during
these periods, its operating performance declined. There can be no assurance
that a similar economic downturn might not recur in Texas or any other market
or that the Company could remain profitable during any such period. In fact,
the State of Texas and other southern states have recently experienced severe
drought conditions which, in addition to causing potential restrictions on
boating activities on certain area lakes, are expected to materially and
adversely impact the regional economies of the affected states. There can be
no assurance that these drought conditions in the regional markets served by
the Company will not have a material adverse effect on the operations of
certain of the Company's locations and, accordingly, the Company's business,
financial condition and results of operations. Similarly, rising interest
rates could have a negative impact on consumers' ability or willingness to
obtain financing from third-party lenders, which could also adversely affect
the ability of the Company to sell its products. Changes in federal and state
tax laws including, without limitation, the imposition or proposed adoption of
luxury or similar taxes on certain consumer products, also influence
consumers' decision to purchase products offered by the Company and could have
a negative effect on the Company's sales. Local influences such as
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corporate downsizing, military base closings and the Mexican peso devaluation
have adversely affected and may continue to influence the Company's operations
in certain markets.
Dependence Upon Expansion. A significant portion of the Company's growth has
resulted from, and will continue to be increasingly dependent upon, the
addition of new stores and continued sales and profitability from existing
stores. Since October 1991, at which time the Company operated five stores in
Texas, the Company has opened or acquired ten new store locations in Texas,
Arkansas, Louisiana, Alabama and Tennessee. During the time period of fiscal
1991 through fiscal 1996, these new stores collectively accounted for
approximately 40.2% of the Company's aggregate net sales and approximately
47.7% of aggregate pre-tax income. Comparable store sales increased 12.2% for
the twelve months ended September 30, 1995 and 4.3% in fiscal 1996. Recent
rates of comparable store sales and net income growth are not necessarily
indicative of the comparable store performance that may be achieved by the
Company in the foreseeable future. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
The Company intends to continue to pursue a strategy of growth into new
markets through acquiring existing boat retailers, converting compatible
facilities to Travis Boating Centers and building new store facilities.
Accomplishing these goals for expansion will depend upon a number of general
factors, including the identification of new markets in which the Company can
obtain approval to sell its existing or substantially similar product lines,
the Company's financial capabilities, the hiring, training and retention of
qualified personnel and the timely integration of new stores into existing
operations. The acquisition strategy will further depend upon the Company's
ability to locate suitable acquisition candidates at a reasonable cost and to
dispose, timely and effectively, of the acquired entity's remaining inventory,
as well as the ability of the Company to sell its Travis Edition product line
to the customer base of the previous owner. There can be no assurance that the
Company can identify suitable acquisition candidates or complete acquisitions
on terms and conditions favorable to the Company.
The strategy of growth through conversion of compatible facilities to Travis
Boating Centers or the construction of new Travis Boating Centers will further
depend upon the Company's ability (i) to locate and construct suitable
facilities at a reasonable cost in those new markets in which the Company
believes it can obtain adequate market penetration at standard operating
margins without the acquisition of an existing dealer, (ii) to obtain the
reliable data necessary to determine the size and product preferences of such
potential markets and (iii) to introduce successfully its Travis Edition line.
There can be no assurance that the Company will be able to open and operate
new stores on a timely or profitable basis. Moreover, the costs associated
with opening such stores may adversely affect the Company's profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Management of Growth. The Company has undergone a period of rapid growth.
Management has expended and expects to continue to expend significant time and
effort in acquiring and opening new stores. There can be no assurance that the
Company's systems, procedures and controls will be adequate to support the
Company's expanding operations. The inability of the Company to manage its
growth properly could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company has recently deployed a new management information system to
improve its ability to monitor and manage its geographically dispersed stores.
This system is operational in each of the Company's 15 stores. There can be no
assurance that the system will function as planned or that the system can be
integrated smoothly with new store openings and acquisitions.
The Company's planned growth will also impose significant added
responsibilities on members of senior management, including the need to
identify, recruit and integrate new senior level managers, and the ability to
maintain or expand Travis Edition's and Travis Boating Center's successful
appeal to consumers. There is no assurance that any additions to management
can be readily and successfully achieved or that the Company will be able to
continue to grow its business.
Reliance on Manufacturers and Other Key Vendors. The Company's success is
dependent upon its relationship with, and favorable pricing arrangements from,
a limited number of major manufacturers. In the
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event these arrangements were to change or terminate for any reason, including
changes in competitive, regulatory or marketing practices, the Company's
business, financial condition and results of operations could be adversely
affected.
As is typical in the industry, the Company deals with each of its
manufacturers pursuant to an annually renewable, non-exclusive, dealer
agreement that does not contain any contractual provisions concerning product
pricing or required purchasing levels. Pricing is generally established on a
model year basis, but is subject to change at the manufacturer's sole
discretion.
The Company purchased 100% of its new outboard motors in 1995 and 1996 from
Outboard Marine Corporation ("OMC"), the manufacturer of Johnson outboard
motors. Unlike the Company's other dealer agreements, the Company's agreement
with OMC is multi-year in nature. This agreement, which is in the second of
three years, sets forth an established discount level from the then prevailing
dealer net price over the entire term of the agreement. This dealer agreement
may be canceled by either party if the volume of product purchased or
available to be purchased is not maintained at pre-established levels. If the
Company's contract with OMC were canceled or modified, it could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Approximately 22.7% of the Company's net purchases in fiscal 1996 were from
a single boat supplier. The Company also currently purchases a high percentage
of the annual production of a limited number of boat manufacturers. To ensure
adequate inventory levels to support the Company's expansion, it may be
necessary for such manufacturers to increase production levels or allocate a
greater percentage of their production to the Company. In the event that the
operations of the Company's manufacturers were interrupted or discontinued,
the Company could experience temporary inventory shortfalls, or disruptions or
delays with respect to any unfilled purchase orders then outstanding. Although
the Company believes that adequate alternate sources would be available that
could replace a manufacturer as a product resource, there can be no assurance
that such alternate sources will be available at the time of any such
interruption or that alternative products will be available at comparable
quality and prices. The unanticipated failure of any manufacturer or supplier
to meet the Company's requirements with regard to volume or design
specifications, the Company's inability to locate acceptable alternative
manufacturers or suppliers, the Company's failure to have dealer agreements
renewed or to meet certain volume requirements with regard to purchasing, or
any substantial increase in the manufacturer's pricing to the Company, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Limitations to Market Entry. Under certain of its dealer agreements, the
Company must obtain permission from its manufacturers to sell products in new
markets. While the Company has received permission to sell Johnson motors and
various boat lines in its immediate expansion markets, manufacturers have not
granted such permission to the Company in each of its broader target markets.
While the Company believes it can sell products of other manufacturers in new
markets, there can be no assurance that all of the Company's current
manufacturers will grant permission for the Company to sell in new markets, or
if unable to obtain such permission, that the Company can obtain suitable
alternative sources of supply.
Unlike other states the Company has targeted for expansion, the State of
Oklahoma has had restrictions on the location of competing marine dealers that
limit the ability of new entrants in the retail boat industry to compete in
Oklahoma. There can be no assurance that other states will not pass similar or
other restrictions limiting new competition.
Income from Financing, Insurance and Extended Service Contracts. A
substantial portion of the Company's income results from the origination and
placement of customer financing and the sale of insurance products and
extended service contracts (collectively, "F&I Products"), the most
significant component of which is the income resulting from the Company's
origination of customer financing. For example, during fiscal 1996, F&I
Products accounted for approximately 4.2% of net sales and approximately 16.5%
of gross profit. The Company's lenders may choose to pursue this business
directly, rather than through intermediaries such as the
3
Company. Moreover, lenders may impose terms in their boat financing
arrangements with the Company that may be materially unfavorable to the
Company or its customers. For these and other reasons, the Company could
experience a significant reduction in income resulting from reduced demand for
its customer financing programs. In addition, if profit margins are reduced on
sales of F&I Products, or if these products are no longer available, it would
have a material adverse effect on the Company's business, financial condition
and results of operations. Furthermore, under optional extended service
contracts with customers, the Company may experience significant breach of
warranty claims that may, in the aggregate, be material to the Company's
business.
Availability of Financing. The Company currently has significant floor plan
and other inventory lines of credit from financial institutions and other
lenders, which the Company believes reflect competitive terms and conditions.
While the Company believes it will continue to obtain comparable financing
from these or other lenders, there can be no assurance that such financing
will be available to the Company. The failure to obtain sufficient financing
on favorable terms and conditions could have a material adverse effect on the
business, financial condition and results of operations of the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Dependence on Key Personnel. The Company believes its success depends, in
large part, upon the continued services of key management personnel, including
Mark T. Walton, Chairman of the Board and President; Ronnie L. Spradling,
Executive Vice President--New Store Development; and Michael B. Perrine, Chief
Financial Officer, Secretary and Treasurer; and other key employees. Although
the Company has employment agreements through TBC Management, Ltd. (an
affiliated partnership of the Company) with each of Messrs. Walton, Spradling
and Perrine expiring in June 1999, the loss of any of these individuals could
materially and adversely affect the Company, including its business expansion
plans. The Company maintains and is the beneficiary of key-man life insurance
policies on Messrs. Walton and Perrine in the amount of $1.0 million each, and
on Mr. Spradling in the amount of $500,000.
Product and Service Liability Risks. Products sold or serviced by the
Company may expose it to potential liability for personal injury or property
damage claims relating to the use of those products. Additionally, as a result
of the Company's activities in custom packaging its Travis Edition lines, the
Company may be included as a defendant in product liability claims relating to
defects in manufacture or design. Historically, the resolution of product
liability claims has not materially affected the Company's business. The
Company generally requires manufacturers from which it purchases products to
supply proof of product liability insurance. Although the Company maintains
third-party product liability insurance that it believes to be adequate, there
can be no assurance that the Company will not experience legal claims in
excess of its insurance coverage, or claims that are ultimately not covered by
insurance. Furthermore, if any significant claims are made against the
Company, the Company's business, financial condition and results of operations
may be adversely affected by related negative publicity.
Control by Officers and Directors. The executive officers and directors of
the Company own approximately 50.9% of the issued and outstanding shares of
the Company's Common Stock. As a result of such ownership, such officers and
directors will have the power effectively to control the Company, including
the election of directors, the determination of matters requiring stockholder
approval and other matters pertaining to corporate governance.
Volatility of Stock Price. Prior to the Company's initial public offering in
June 1996, there was no public trading market for the Company's Common Stock.
There can be no assurance of an ongoing active trading market or that the
market price of the Common Stock will not decline. It is anticipated that
there will be limited float in the market due to the relatively low number of
shares owned by the public and consequently, fluctuations in the market price
for the Common Stock could be significant. Recent market conditions for newly
public companies, as well as the Company's quarterly variations in operating
results due to seasonality and other factors, are likely to result in
significant fluctuations in the market price for the Common Stock. Future
announcements concerning the Company or its competitors, including government
regulations, litigation or
4
changes in earnings estimates or descriptive materials published by analysts,
may also cause the market price of the Common Stock to fluctuate
substantially. These fluctuations, as well as general economic, political and
market conditions, such as recessions, may adversely affect the market price
of the Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Shares Eligible for Future Sale. Sales of substantial amounts of the
Company's Common Stock in the public market, or the perception that such sales
may occur, could have a material adverse effect on the market price of the
Common Stock. The Company, its officers and directors and certain
stockholders, hold, in the aggregate, 2,683,506 shares of Common Stock. No
prediction can be made as to the effect, if any, that future sales of shares,
or the availability of shares for future sale, will have on the market price
of the Common Stock prevailing from time to time.
Anti-takeover Effect of Articles and Bylaw Provisions. The Company's
Articles of Incorporation provide that up to 1,000,000 shares of preferred
stock may be issued by the Company from time to time in one or more series.
The Board of Directors is authorized to determine the rights, preferences,
privileges and restrictions granted to and imposed upon any unissued series of
preferred stock and to fix the number of shares of any series of preferred
stock and the designation of any such series, without any vote or action by
the Company's stockholders. The Board of Directors may authorize and issue
preferred stock with voting or conversion rights that could adversely affect
the voting power or other rights of the holders of Common Stock. In addition,
the issuance of preferred stock could have the effect of delaying, deferring
or preventing a change in control of the Company. The Company's Articles of
Incorporation also allow the Board of Directors to fix the number of directors
in the Bylaws with no minimum or maximum number of directors required. The
Company's Bylaws currently provide that the Board of Directors shall be
divided into three classes of two or three directors each, with each class
elected for three-year terms expiring in successive years. The effect of these
provisions may be to delay or prevent a tender offer or takeover attempt that
a stockholder might consider to be in the stockholder's best interest,
including attempts that might result in a premium over the market price for
the shares held by the stockholders.
5
PART I
Other than statements of historical fact, all statements contained in this
10-K Report, including statements in "Item 1. Business," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," may
contain forward-looking statements. Forward-looking statements in this 10-K
Report generally are accompanied by words such as "anticipate," "believe,"
"estimate," "project," "of the opinion that," "expect" or similar statements.
Although the Company believes that the expectations reflected in such forward-
looking statements are reasonable, no assurance can be given that such
expectations are accurate. Factors that could cause the Company's results to
differ materially from the results discussed in such forward-looking
statements include the risks described under "Risk Factors." All forward-
looking statements in this Prospectus 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 15 superstores under the name Travis Boating Center in
Texas, Arkansas, Louisiana, Alabama and Tennessee, differentiates itself from
competitors by providing customers a unique superstore shopping experience
that showcases a broad selection of high quality boats, motors, trailers and
related marine accessories at firm, clearly posted low prices. Each superstore
also offers complete customer service and support, including in-house
financing programs and full-service repair facilities staffed by factory-
trained mechanics.
History
Travis Boats was incorporated as a Texas corporation in 1979. As used herein
and unless otherwise required by the context, the terms "Travis Boats" and the
"Company" shall mean Travis Boats & Motors, Inc. and its direct and indirect
subsidiaries.
Since its founding as a single retail store in Austin, Texas, the Company
has grown both through acquisitions and the establishment of new store
locations. During the 1980's, the Company expanded into San Antonio, Texas
with the construction of a new store facility. The Company subsequently made
acquisitions of boat retailers operating within the Texas markets of Midland,
Dallas and Abilene. It was during this initial period of expansion that the
Company began developing the systems necessary to manage a multi-store
operation and leveraging the economies of scale associated with volume
purchasing. The Company's success in these areas led to the proprietary Travis
Edition packaging concept and the Company's pricing philosophy. Since 1991,
Travis Boats has opened or acquired (through asset purchases) ten additional
store locations: Texas (3), Arkansas (2), Louisiana (2), Alabama (2) and
Tennessee (1).
Included in the new store acquisitions are the following transactions:
Effective September 20, 1995, the Company acquired substantially all of the
assets of Red River Marine, Inc. ("Red River Marine"). Red River Marine, a
leading boat retailer in Arkansas, operates stores in the resort communities
of Hot Springs and Heber Springs.
Effective December 1, 1995, the Company acquired substantially all of the
assets of Clay's Boats & Motors, Inc., the operator of a single store location
in New Iberia, Louisiana.
Subsequent to September 30, 1996, the Company has completed the acquisition
of two corporations operating three retail boating store locations. Effective
October 3, 1996, the Company acquired substantially all of the assets of North
Alabama Watersports, the operator of a single store location in Florence,
Alabama.
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Effective November 1, 1996, the Company acquired substantially all of the
assets of Tri-Lakes Marine, Inc., which operates store locations in Winchester,
Tennessee and Huntsville, Alabama
The Company sells approximately 40 different models of brand-name fishing,
water-skiing and general recreational boats, along with motors, trailers,
accessories and related equipment. Personal watercraft, off-shore fishing boats
and cabin cruisers are also offered for sale at selected store locations.
Substantially all of the boats sold range in size from 16 to 23 feet at prices
ranging from $7,500 to $23,000 with gross profit margins between approximately
21% and 23%. Approximately 6% of new boat sales are personal watercraft with
retail prices generally ranging from $5,000 to $8,000 and 3% of new boat sales
are cruisers ranging in price from $30,000 to $100,000. The Company custom
designs and pre-packages combinations of popular brand-name boats, such as
Aquasport, Cajun and Larson, with Johnson outboard and other motors, trailers
and numerous accessories, under its proprietary Travis Edition product line.
These signature Travis Edition packages, which account for the vast majority of
total new boat sales, have been designed and developed in coordination with the
manufacturers and often include distinguishing features and accessories that
have historically been unavailable to, or listed as optional by, many
competitors. These factors enable the Company to provide the customer with an
exceptional product that is conveniently packaged for immediate enjoyment and
competitively priced.
The Company believes that it offers a selection of boat, motor and trailer
packages that fall within the price range of the majority of all boats, motors
and trailers sold in the United States. The Company's product line generally
consists of boat packages priced from $7,500-$23,000 with approximate even
distribution within this price range. 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.
Effective September 30, 1995, the Company elected to change its fiscal year
end from December 31 to September 30. This change was made to establish a
fiscal year that more closely conforms to the business cycle of the Company.
Business Strategy
Management of the Company believes it is the first to have developed a multi-
state, chain superstore merchandising strategy in the recreational boating
business. The Company's objective is to become the dominant retailer of
recreational boats, motors, trailers and marine accessories in the southern
United States. 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 6,000 to 33,200 square feet and
average approximately 21,000 square feet. Each superstore presents customers
with a broad array of boats and 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.
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
7
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 include enhanced styling such as
additional exterior colors, complete instrumentation in dashboards, transoms
warrantied 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 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
eliminates customer anxiety associated with bargaining or negotiation and
results 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.
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 second
quarter net sales to such shows.
F&I Products. In the Company's efforts to maintain customer service and
support for customers purchasing its Travis Edition boat packages it also
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
obtain 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 these products. These 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 is the largest volume buyer in the United States of
Johnson outboard motors from Outboard Marine Corporation ("OMC") and is the
largest domestic volume buyer of boats from substantially all 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's purchasing power
allows it to purchase boats that are pre-rigged for the Company's Travis
Edition lines. Approximately 20.1% and 22.7% of the Company's net purchases in
fiscal 1995 and 1996, respectively, were from GenMar Industries which
manufactures the AquaSport, Cajun and Larson boat lines.
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 agreement with OMC, unlike its
other dealer agreements, is multi-year in nature. This agreement, which is in
the second of three years, sets forth an established discount level from the
then prevailing OMC dealer net price over the entire term of the agreement.
This dealer agreement may be canceled
8
by either party if volume of product purchased or available to be purchased is
not maintained at pre-established levels. OMC supplied products that
represented approximately $11.0 million, or 34.5% and $20.3 million, or 38.7%,
of the Company's net purchases during fiscal 1995 and 1996, respectively.
Pursuant to its arrangements with certain manufacturers, the Company's right
to display some product lines in certain markets may be restricted.
Floor plan financing. The Company acquires a substantial portion of its
inventory through floor plan financing agreements. Inventory is generally
purchased under floor plan lines of credit (secured by such inventory)
maintained with third party finance companies and/or commercial banks,
depending upon the type of product purchased. The finance companies maintain
relationships with certain manufacturers that allow the Company to obtain
several months of interest-free financing, generally from August of one year
through May of the following year. Management believes that these financing
arrangements are standard within the industry. As of September 30, 1996, the
Company and its subsidiaries owed an aggregate of approximately $3.5 million
pursuant to the floor plan financing agreements.
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 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 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. The Company competes in each of its markets with retailers of
brands of boats and motors not sold by the Company in that market. Management
believes that a trend in the industry is for manufacturers to include more
features as standard equipment on boats and for 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 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 well. Under the
proposed regulations, manufacturers would begin phasing in low emission models
in 1998 and have nine years to achieve full compliance. The EPA estimates that
its proposed regulations, if enacted, will result in an increase in the average
price of an outboard marine motor of $700 after full implementation of the
regulations in the year 2006. Costs of comparable new models, if materially
more expensive than previous models, or the manufacturer's inability to 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
one above-ground tank, which is subject to registration, testing and
governmental regulation.
9
Additionally, certain states have required or are considering requiring a
license in order to operate a recreational boat. 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.
Employees. As of September 30, 1996, the Company's staff consisted of 232
employees, 219 of whom are full time. The full-time employees include 13 in
store level management and 16 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 owns its corporate offices located in the Travis Boating Center
in Austin, Texas. The Company also owns and operates Travis Boating Center
locations in Abilene, Dallas, Midland and San Antonio, Texas; Baton Rouge,
Louisiana; and Hot Springs, Arkansas. The remaining facilities are leased under
short-term leases that generally contain multi-year renewal options. In all
such cases, the Company pays a fixed rent. In substantially all of the leased
locations, the Company is responsible for taxes, insurance, repairs and
maintenance.
The chart below reflects the status and approximate size of the various
Travis Boating Centers operated as of November 30, 1996.
LOCATION SQUARE FOOTAGE* ACREAGE* OWNED OR LEASED YEAR OF MARKET ENTRY
-------- --------------- -------- --------------- --------------------
Austin, Texas(1)........ 20,000 3.5 Owned 1979
San Antonio, Texas(1)... 15,500 1.9 Owned 1982
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 2.2 Leased 1991
Baton Rouge,
Louisiana(2)........... 33,200 7.5 Owned 1992
Beaumont, Texas(2)...... 25,500 6.5 Leased 1994
Arlington, Texas(3)..... 6,000 1.0 Leased 1995
Heber Springs,
Arkansas(4)............ 26,000 9.0 Leased 1995
Hot Springs,
Arkansas(4)............ 20,510 3.0 Owned 1995
New Iberia,
Louisiana(4)........... 24,000 3.3 Leased 1995
Florence,
Alabama(4)(5).......... 22,500 6.0 Leased 1996
Huntsville,
Alabama(4)(5).......... 2,000 3.0 Leased 1996
Winchester,
Tennessee(4)(5)........ 25,000 3.5 Leased 1996
- --------
* Square footage and acreage are approximate.
(1) Newly constructed store.
(2) Facility acquired and converted to superstore.
(3) Temporary facility. To be relocated.
(4) Acquired facility.
(5) Acquired subsequent to September 30, 1996.
10
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, 1996.
PART II
ITEM 5. 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. At December 27, 1996, the Company had 35 shareholders of record;
however the Company believes its shares are beneficially owned by more than
400 shareholders. On December 23, 1996, the last reported sales price of the
common stock on the NASDAQ National Market System was $13.00 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
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:
SALES PRICE
---------------------
QUARTER ENDED HIGH LOW ENDING
------------- ------ ------ -------
June 30, 1996.......................................... $9 1/2 $ 9.00 $ 9 1/8
September 30, 1996..................................... $13.00 $8 1/4 $12 3/8
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.
11
ITEM 6. SELECTED CONSOLIDATED 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
included elsewhere in this Form 10K:
FISCAL YEAR ENDED FISCAL YEAR TWELVE MONTHS TWELVE MONTHS FISCAL YEAR
DECEMBER 31,(1) ENDED ENDED ENDED ENDED
------------------------- SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1992 1993 1994 1995(1) 1995(3) 1995(2) 1996(1)(4)
------- ------- ------- ------------- ------------- ------------- -------------
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net sales.............. $18,317 $25,757 $37,225 $41,442 $44,617 $45,006 $64,555
Gross profit........... 4,193 5,946 8,734 10,306 10,815 11,254 16,483
Selling, general and
administrative
expenses.............. 3,293 4,496 6,333 6,353 7,526 7,904 10,857
Operating income....... 767 1,270 2,135 3,736 3,004 3,007 5,061
Interest expense....... 462 449 629 670 845 946 1,289
Net income............. 255 596 1,023 2,050 1,486 1,408 2,383
Net income per share... $ 0.10 $ 0.23 $ 0.39 $ 0.76 $ 0.55 $ 0.53 $ 0.78
Weighted avg. shares
outstanding........... 2,564 2,564 2,600 2,672 2,663 2,675 3,043
STORE DATA:
Stores open at period
end................... 7 7 8 11 11 12 12
Average sales per
store(5).............. $ 3,025 $ 3,679 $ 4,653 $ 4,886 $ 5,283 $ 4,946 $ 5,617
Percentage increase in
comparable store
sales(6).............. 7.4% 25.6% 28.4% 5.0% 12.2% 16.0% 4.3%
DECEMBER 31,
------------------- SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1992 1993 1994 1995 1995 1996
----- ------ ------ ------------- ------------ -------------
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash equiva-
lents................. $ 104 $ 139 $ 259 $ 996 $ 673 $1,533
Working capital........ 874 11 1,866 2,808 1,855 15,263
Total assets........... 9,727 14,088 17,434 23,357 35,590 31,350
Short-term debt,
including current
maturities
of long-term debt..... 6,798 10,608 10,977 11,443 24,776 4,661
Long-term debt less
current maturities.... 1,538 1,013 2,588 4,876 5,426 4,334
Stockholders' equity... 814 1,485 2,562 4,812 4,097 18,598
- --------
(1) The Company's fiscal years ended on December 31 in 1992, 1993 and 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 December 31, 1993 and 1994 and
September 30, 1995 and 1996 has been derived from the 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, 1995, in order to
provide a basis for comparing 12 months of operations in 1995 to prior
fiscal years.
(3) 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.
(4) The operations of Red River Marine, Inc. acquired in September 1995 and
Clay's Boats & Motors, Inc. acquired in December 1995 are included for the
fiscal 1996 period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 4 of Notes to Consolidated
Financial Statements.
(5) Includes only those stores open for the entire preceeding 12-month period.
(6) New stores or upgraded facilities are included in comparable store base at
the beginning of the store's thirteenth complete month of operations.
12
ITEM 7. 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
the 10-K Report. The discussion in this section of the 10K Report 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 10K report.
Overview
The Company acquired substantially all of the assets of Red River Marine,
Inc. ("Red River Marine") on September 20, 1995 and also acquired substantially
all of the assets of Clay's Boats & Motors, Inc. on December 1, 1995. The
results of Red River Marine and Clay's Boats & Motors from their respective
acquisition dates through September 30, 1996 are included in the discussion
below.
Effective September 30, 1995, the Company elected to change its fiscal year
end from December 31 to September 30. This change was made to establish a
fiscal year that more closely conforms to the business cycle of the Company.
The following discussion compares fiscal year 1996 to the 12 month period ended
September 30, 1995, which reflects the inclusion of the nine-month audited
consolidated financial statements for the fiscal year ended September 30, 1995
and the three-month unaudited consolidated financial statements for the quarter
ended December 31, 1994 in order to provide a basis for comparing 12 months of
operations.
The following discussion also compares fiscal 1994 to calendar year 1995,
which reflects the inclusion of the nine-month audited consolidated financial
statements for the fiscal year ended September 30, 1995 and the three-month
unaudited consolidated financial statements for the quarter ended December 31,
1995 in order to provide a basis for comparing 12 months of operations.
13
The following table sets forth for the periods indicated certain financial
data as a percentage of net sales:
FISCAL YEARS ENDED
--------------------------
TWELVE MONTHS TWELVE MONTHS FISCAL YEAR
ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1994 1995 1995 1995 1996
------------ ------------- ------------- ------------- -------------
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of goods sold..... 76.5 75.1 75.8 75.0 74.5
----- ----- ----- ----- -----
Gross profit............ 23.5 24.9 24.2 25.0 25.5
Selling, general and
administrative
expenses............... 17.0 15.3 16.9 17.6 16.8
Operating income........ 5.7 9.0 6.7 6.7 7.8
Interest expense........ 1.7 1.6 1.9 2.1 2.0
Other income............ 0.2 0.3 0.0 0.0 0.0
----- ----- ----- ----- -----
Income before income
taxes.................. 4.2 7.7 5.2 4.9 5.9
Income tax expense...... 1.5 2.8 1.9 1.9 2.2
----- ----- ----- ----- -----
Net income.............. 2.7% 4.9% 3.3% 3.1% 3.7%
===== ===== ===== ===== =====
RESULTS OF OPERATIONS
Highlights
Fiscal year 1996 was a record year for the Company, which included the
following achievements compared to the 12 month period ended September 30,
1995:
--Net sales increased 45% to $64.6 million.
--Gross profit margins increased by 1.3% from 24.2% to 25.5%.
--Operating income increased as a percentage of net sales by 1.1% from 6.7%
to 7.8%.
--Net income increased by 60% from $1.5 million to $2.4 million.
--Earnings per share increased by 42% from $.55 to $.78.
FISCAL YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO THE TWELVE MONTHS ENDED
SEPTEMBER 30, 1995
Net sales. Net sales increased by 45% to $64.6 million in fiscal 1996 from
$44.6 million in the twelve months ended September 30, 1995. Of this increase,
$780,000 was attributable to 4.3% growth in comparable store sales (4 stores
in base) and $16.6 million, or 83.0% is related to the four stores acquired or
newly opened in 1995 and $2.5 million, or 12.5% is related to the four store
existing store locations which relocated or upgraded facilities to meet the
Company's superstore standards during fiscal 1996. General growth in overall
sales volume was in part the result of growth in new boating packages
introduced in fiscal 1996 and in the expanded offering of boating packages
introduced in 1995 along with increased sales of parts/accessories, service
labor and F&I Products. Net sales also benefitted from the Company's
participation in additional season-opening boat shows and a new sales program
featuring weekend sales shows in the parking lots of local Sam's Clubs or
certain other large retailers. The "parking lot" program which was initiated
with several shows in late 1995, expanded during fiscal 1996 to include a
full-time travelling sales team and participation in approximately 35 parking
lot shows (primarily during the second and third fiscal quarters) which
generated net sales of approximately $2.5 million.
Net sales from comparable stores, which had 4 stores included in the base
for calculation, increased 4.3% in fiscal 1996. The Company relocated or
renovated 4 stores and acquired or opened an additional 4 stores during fiscal
years 1995 and 1996 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
14
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--Dependence on Expansion." 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 75.3% to $2.7 million in fiscal 1996 from $1.6 million
in the twelve months ended September 30, 1995. 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.
Gross profit. Gross profit increased by 52.8% to $16.5 million in fiscal
1996 from $10.8 million in the twelve months ended September 30, 1995. Gross
profit as a percent of sales increased to 25.5% in fiscal 1996 from 24.2% in
the twelve months ended September 30, 1995. 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%.
Net sales attributable to F&I Products, which have a significant impact on
the gross profit margin, contributed $2.7 million, or 16.4%, of total gross
profit in fiscal 1996, as compared to $1.6 million, or 14.8%, of total gross
profit for the twelve months ended September 30, 1995. 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 45.3% to $10.9 million in fiscal 1996
from $7.5 million for the twelve months ended September 30, 1995. Selling,
general and administrative expenses as a percent of net sales decreased to
16.8% in fiscal 1996 from 16.9% for the twelve months ended September 30,
1995. The decrease in selling, general and administrative expenses as a
percent of net sales was the result of the economies of operating a larger
store base and regional market presence, particularly in the leveraging of
advertising, insurance, rents and depreciation/amortization expenses. In terms
of dollars, the increase in selling, general and administrative expenses was
primarily attributable to increased expenses associated with the operation of
a larger store network, the Company's participation in additional season-
opening boat shows and the expenses related to completing the implementation
of the Company's management information system in all of its stores operating
as of September 30, 1996. Additionally, the Company's management information
system has been implemented in the three store locations acquired since
September 30, 1996.
Interest expense. Interest expense, in actual dollars, increased by 45.7% to
$1.3 million in fiscal 1996 from $845,000 in the twelve months ended September
30, 1995. However, interest expense as a percent of net sales remained flat at
1.9% and 2.0% in the 1995 and 1996 periods, respectively. The Company incurred
additional debt levels in the acquisition of Red River Marine and Clay's Boats
& Motors as well as higher balances on the Company's floor plan lines of
credit necessary to support inventory requirements for the additional stores
and actual increase in net sales. Effective with the funding of the Company's
Initial Public Offering in late June of
15
1996 and an additional 140,500 shares in the over-allotment options, the
Company reduced certain revolving indebtedness and certain long term
indebtedness. This reduction of debt in the Company's third and fourth fiscal
quarters provided for the containment of interest expense and its percentage
decrease as a percent of net sales. The Company intends to reborrow under its
revolving credit lines as necessary to fund future acquisitions and to support
working capital needs. See "Liquidity and Capital Resources."
Net income. Net income increased by 60.3% to $2.4 million in fiscal 1996
from $1.5 million in the twelve months ended September 30, 1995. Net income as
a percent of sales increased to 3.7% from 3.4% during the same periods. Net
income attributable to F&I Products increased by 73.8% to $810,000 in fiscal
1996 from $466,000 in the twelve months ended September 30, 1995. 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.
CALENDAR YEAR 1995 COMPARED TO FISCAL 1994
Net sales. Net sales increased by 21.0% to $45.0 million in calendar year
1995 from $37.2 million in fiscal 1994. Of this increase, $4.4 million was
attributable to 16.0% growth in comparable store sales in calendar 1995 and
$3.4 million of this increase was due to the operations of stores that were
built, upgraded or acquired in 1995 and therefore were not yet includable in
comparable store sales. Net sales attributable to F&I Products increased by
45% to $1.6 million in calendar 1995 from $1.1 million in fiscal 1994.
The increase in comparable store sales was primarily the result of the
Company's introduction of several new Travis Edition boat lines appealing to
customer groups previously not successfully captured by the Company. These new
boat lines included a line of high performance bass boats manufactured by
Viper Boats, the Aquasport line of off-shore fishing boats and the Sea Ark
line of aluminum fishing boats. These lines collectively accounted for $2.7
million of calendar 1995 net sales.
Notwithstanding these increases, the rate of increase in comparable store
sales in 1995 reflected diminished growth from the rates of increase for
fiscal 1994 and 1993. Management attributes the substantial growth in
comparable store sales during fiscal 1994 and 1993 primarily to the small
number of stores includable in the comparable store base and the significant
increase in the number of models of Travis Edition packages made available for
sale resulting from the Company having entered into sales agreements with
additional new manufacturers and through the development of additional models
with existing manufacturers. While the Company expects comparable store sales
growth to continue due to planned enhancements in product lines, this growth
is not expected to continue at historical levels.
Gross profit. Gross profit increased by 29.9% to $11.3 million in calendar
1995 from $8.7 million in fiscal 1994. This increase was primarily due to the
increase in net sales and because gross profit as a percent of net sales
increased to 25.0% from 23.5% during the period.
Gross profit attributable to sales of F&I Products was $1.6 million, or
14.2%, of total gross profit in calendar 1995 compared to $1.1 million, or
12.6%, of total gross profit in fiscal 1994. This increase was primarily due
to increased revenues from the origination and placement of customer
financing, partially caused by selected lenders offering more beneficial
programs.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by approximately 25.4% to $7.9 million in
calendar 1995 from $6.3 million in fiscal 1994. Selling, general and
administrative expenses as a percent of net sales increased to 17.6% in
calendar 1995 from 17.0% in fiscal 1994. The increase, both in terms of
dollars and as a percent of net sales, was primarily the result of the
increased variable expenses related to the net sales increase and, to a lesser
extent, those expenses attributable to integrating the three recently acquired
stores. During calendar 1995, corporate overhead expenses and store management
salaries accounted for approximately $1.4 million of total selling, general
and administrative expenses compared to approximately $1.1 million for fiscal
1994. The majority of Travis Boats' work force is compensated by
16
commission; accordingly, increased sales volume leads to higher commissions
and payroll taxes. Due to the significant increase in net sales, however,
gross wages as a percent of net sales declined to approximately 10.0% of net
sales in calendar 1995 from approximately 11.4% of net sales in fiscal 1994.
Interest expense. Interest expense increased by approximately 50.4% to
$946,000 in calendar 1995 from $629,000 in fiscal 1994. This resulted in an
increase of interest expense as a percent of net sales to 2.1% in calendar
1995 from 1.7% in fiscal 1994. The increase in interest expense was primarily
the result of higher balances outstanding on the Company's floor plan lines of
credit to support the increased sales levels and higher effective interest
rates during calendar 1995. Interest expense was also affected by the
incremental interest expense associated with the indebtedness incurred in
connection with the acquisition of the new stores in Arkansas and Louisiana.
Net income. Net income increased by 40.0% to $1.4 million in calendar 1995
from $1.0 million in fiscal 1994. This increase in net income was due
primarily to the increased sales volume, greater sell-through of F&I Products
and improved leverage of general and administrative expenses. Net income
attributable to F&I Products increased by 28% to $475,000 in calendar 1995
from $371,000 in fiscal 1994. The Company's net income as a percent of net
sales increased to 3.1% in calendar 1995 from 2.7% in fiscal 1994.
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.
QUARTER ENDED
FISCAL -----------------------------------------------------------------
YEAR FISCAL YEAR 1995 FISCAL YEAR 1996
1994 --------------------------- ------------------------------------
DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30
------- -------- ------- -------- ------- -------- ------- --------
(IN THOUSANDS)
Net sales............... $3,175 $13,452 $17,048 $10,942 $3,564 $18,453 $26,445 $16,093
Gross profit............ 508 3,266 4,300 2,740 948 4,623 6,613 4,299
Selling, general and
administrative
expenses............... 1,173 2,044 2,347 1,962 1,551 2,751 3,767 2,788
Operating income
(loss)................. (732) 1,152 1,883 701 (729) 1,736 2,705 1,349
Interest expense........ 174 196 265 209 276 393 424 196
Net income (loss)....... (564) 662 1,046 342 (642) 885 1,416 724
Net Income per Share.... (.21) .24 .39 .13 (.24) .32 .52 .18
Wtd. Average Shares
Outstanding............ 2,636 2,648 2,684 2,684 2,684 2,684 2,741 4,097
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............ 16.0 24.3 25.2 25.0 26.6 25.1 25.0 26.7
Selling, general and
administrative
expenses............... 36.9 15.2 13.8 17.9 43.5 14.9 14.2 17.3
Operating income
(loss)................. (23.1) 8.6 11.0 6.4 (20.5) 9.4 10.2 8.4
Interest expense........ 5.5 1.5 1.6 1.9 7.7 2.1 1.6 1.2
Net income (loss)....... (17.8) 4.9 6.1 3.1 (17.9) 4.8 5.4 4.5
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
17
through July. Over the previous five-year period, the average annual net sales
for the quarterly periods ended March 31 and June 30 represented in excess of
27% and 37%, 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 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 in January and February in
certain market areas in which the Company conducts business. Travis Boats'
operating results would be materially and adversely affected if net sales were
to fall significantly below historical levels during the months of January
through June.
The Company's business is also significantly affected by weather patterns.
Weather conditions that are unseasonable or unusual may adversely affect the
Company's results of operations. For example, drought conditions or merely
reduced rainfall levels, as well as excessive rain, may affect the Company's
sale of boating packages and related products and accessories. While management
believes that the Company's quarterly net sales will continue to be impacted by
seasonality, quarterly results may become less susceptible to certain regional
weather conditions as expansion occurs throughout the southern United States.
Quarterly results may fluctuate as a result of the expenses associated with
new store openings or acquisitions. The Company historically has attempted to
concentrate expansion during the seasonal slowdown generally occurring in the
quarter ending December 31. Stores opened during this time period will generate
additional operating losses, at a minimum, until the second quarter.
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 credit facilities.
At September 30, 1996, the Company had working capital of $15.3 million,
including $1.3 million in accounts receivable (primarily contracts in transit
from sales) and $20.6 million in inventories, offset by approximately $1.6 of
accounts payable and accrued liabilities, $3.5 million outstanding under floor
plan lines of credit, approximately $500,000 under open lines of credit and
$1.5 million in other short-term indebtedness including current maturities of
long-term debt. Contracts in transit are amounts receivable from a customer's
financial institution related to that customer's purchase of a boat. As of
September 30, 1996, the aggregate maximum borrowing limits under floor plan and
working capital lines of credit were approximately $30.0 million and $575,000,
respectively.
Operating activities provided cash flows of $2.7 million for the fiscal year
ended September 30, 1995 due primarily to net income of $2.1 million and
changes in working capital. In fiscal 1996, operating activities utilized cash
flows of $2.1 million due primarily to increase of $6.2 million in inventories,
offset partially by unearned revenue of $1.2 million relating to a volume
purchase from a manufacturer (which is not expected to occur in future
periods). Of the increase in inventories, approximately $4.4 million is related
to stocking of the newly acquired store locations since they are generally
acquired in the off-season and have little remaining inventory to be purchased.
Subsequently, the Company maintains a representative level of stocking of its
Travis Edition boating packages and generally over 9,000 stock keeping units in
parts/accessories.
Financing activities in fiscal 1996 provided $4.0 million of cash flows
primarily from the net proceeds of the initial public offering of $11.4 million
which were offset by the prepayment of certain amounts of in long term debt and
revolving credit lines. Prior to the initial public offering increases in
inventories were financed with borrowings under the Company's floor plan and
working capital lines of credit. Effective December 12, 1996, the Company
entered into a new $15.0 million revolving line of credit agented by
NationsBank of Texas, N.A. This credit facility replaces the previously
existing floor plan lines of credit and revolving credit lines totalling
approximately $13.8 million with Hibernia Bank and NationsBank. The line
provides for borrowing
18
pursuant to a borrowing formula based upon the certain of the Company's
inventory and accounts receivable. Collateral consists of a security interest
in specific inventories (and proceeds thereof), accounts receivable and
contracts in transit. The line is annually renewable with the initial maturity
on October 31, 1997 and pricing is at the prime rate minus .375%, with a fee of
.125% on the unused portion to be 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 24,
1996, $12,000,000 was drawn on the revolving line and management believes the
Company to be in compliance with the terms and conditions of this loan
agreement.
The Company also maintains floor plan lines of credit with various finance
companies totalling approximately $22 million 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 May).
Certain floor plan lines of credit with finance companies are governed by loan
agreements containing certain financial covenants concerning, among others,
minimum tangible net worth and leverage ratios. As of September 30, 1996,
approximately $3.5 million was drawn under the floor plan lines and management
believes the Company was in compliance with the terms and conditions of these
loan agreements.
Merchandise inventories were $14.3 million and $20.6 million as of September
30, 1995 and September 30, 1996, respectively. Accounts receivable increased by
approximately $300,000 to $1.3 million at the end of fiscal 1996 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 $13,000 to $1.1 million in fiscal 1996 due to the acquisition of
Clay's Boats & Motors in December 1995.
The Company had net capital expenditures of approximately $2.8 million in the
12 months ended September 30, 1995, and approximately $1.4 million in fiscal
1996. During fiscal 1995, the Company purchased the facility previously leased
in Baton Rouge, Louisiana for approximately $590,000, completed construction of
the superstore in Lewisville (Dallas), Texas and acquired substantially all of
the assets of Red River Marine. During fiscal 1996 the Company acquired
substantially all of the assets of Clay's Boats & Motors, substantially
renovated facilities in Beaumont, Houston and San Antonio to superstore
standards and completed the installation of its new management information
systems in its existing store locations. These capital expenditures were
substantially financed with long-term debt provided by commercial banks and
individuals at fixed interest rates.
The Company's revolving credit facility, floor plan lines of credit and
internally generated working capital should be sufficient to meet the Company's
cash requirements in the near future.
New Accounting Standards
In March 1995, the Financial Accounting Standards Board (FASB) issues
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement No. 121 also
addresses the accounting for long-lived assets that are held for disposition.
The Company adopted Statement No. 121 effective October 1, 1995 No material
impact to the Company's results of operations or financial position resulted
from such adoption.
In October 1995, the FASB issued statement No. 123, "Accounting for Stock-
Based Compensation," which prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options. The
Company must adopt the provisions of Statement No. 123 during the year ended
September 30, 1997. Under such provisions, the Company may elect to expense the
fair value of stock-based compensation or provide pro-forma disclosures of what
net income would have been had the Company adopted the new fair value method
for recognition purposes. The Company continues to evaluate the provisions of
Statement No. 123 and has not determined whether it will adopt the Statement
for expense recognition purposes.
19
Inflation
The Company believes that inflation generally has not had a material impact
on its operations or liquidity to date.
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
There is incorporated herein by reference that portion of the Company's proxy
statement for the 1997 Annual Meeting of Stockholders which appears therein
under the captions "Item 1: Election of Directors" and "Information Concerning
Directors."
ITEM 11. EXECUTIVE COMPENSATION
There is incorporated in this Item 11 by reference that portion of the
Company's definitive proxy statement for the 1997 Annual Meeting of
Stockholders which appears under the caption "Executive Compensation."
ITEM 12. 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 1997 Annual Meeting of
Stockholders which appears under the caption "Securities Holdings of Principal
Stockholders, Directors, Nominees and Officers."
ITEM 13. 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 1997 Annual Meeting of
Stockholders which appears under the captions "Certain Relationships and
Related Transactions" and "Compensation Committee Interlocks and Insider
Participation."
20
PART IV
ITEM 14. 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 Ernst & Young LLP, Independent Auditors........................ F-1
Consolidated Balance Sheets.............................................. F-2
Consolidated Statements of Income........................................ F-3
Consolidated Statements of Shareholder's Equity.......................... F-4
Consolidated Statements of Cash Flows.................................... F-5
Notes to Consolidated Financial Statements............................... F-6
(A) 2. FINANCIAL STATEMENT SCHEDULES
All other 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.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits: Except as otherwise noted, all Exhibits have been previously
filed with Registrant's S-1 Dated June 1996.
3.1 Restated Articles of Incorporation of the Registrant, as amended.
3.2 Restated Bylaws of the Registrant, as amended.
10.2(a)+ Agreement dated as of August 11, 1995, between the Company and
Outboard Marine Corporation.
10.2(b) Dealer Agreement dated as of October 13, 1995, between the Company
and Outboard Marine Corporation.
10.3+ Dealer Agreement dated as of August 17, 1995, between the Company
and Larson Boats, a division of Larson/Glastron Boats, Inc., a
subsidiary of Genmar Industries, Inc.
10.4+ Dealer Agreement dated as of August 17, 1995, between the Company
and Mastercrafters Corporation.
10.5(a) Inventory Security Agreement and Power of Attorney dated as of
November 30, 1993, between Bombardier Capital Inc. and the
Company.
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.
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.
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.
10.7(a) Inventory Loan Agreement dated as of September 20, 1995, between
TBC Arkansas, Inc. and Hibernia National Bank.
10.7(b) Commercial Security Agreement dated September 1, 1995, between TBC
Arkansas, Inc. and Hibernia National Bank.
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.
21
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.
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.
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.
10.8(e) Business Loan Agreement dated July 14, 1995, between Travis Boats &
Motors Baton Rouge, Inc. and Hibernia National Bank.
10.8(f) Commercial Security Agreement dated July 14, 1995, between Travis
Boats & Motors Baton Rouge, Inc. and Hibernia National Bank.
10.8(g) Collateral Mortgage dated July 14, 1995, from Travis Boats & Motors
Baton Rouge, Inc. to Hibernia National Bank.
10.8(h) Assignment of Leases and Rents dated July 14, 1995, between Travis
Boats & Motors Baton Rouge, Inc. and Hibernia National Bank.
10.8(i) Pledge of Collateral Mortgage Note dated July 14, 1995, from Travis
Boats & Motors Baton Rouge, Inc. to Hibernia National Bank.
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.
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.
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.
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.
10.10(b) Security Agreement dated July 31, 1995, by and among NationsBank of
Texas, N.A., the Company and its subsidiaries.
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.
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.
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.
10.14 General Promissory Note dated August 31, 1995, in the original
principal amount of $150,000, payable by the Company to Joe
Simpson and Pat Simpson.
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.
10.16 Promissory Note dated September 20, 1995, in the original principal
amount of $800,000, payable by TBC Arkansas, Inc. to Benny
Hargrove.
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.
10.17(b) Mortgage With Power of Sale (Realty) dated September 20, 1995, from
TBC Arkansas, Inc. to Red River Marine, Inc. #2.
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.
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.
10.20 Travis Boats and Motors, Inc. 1995 Incentive Plan.
10.21 Form of Amended and Restated Employment Agreement dated May 7,
1996, between the Company and Mark T. Walton, Ronnie L. Spradling
and Michael B. Perrine.
10.22 Form of Option Agreement dated May 17, 1995, between the Company
and Michael B. Perrine, Ronnie L. Spradling and Mark T. Walton.
22
10.23 Form of Indemnification Agreement for Directors and Officers of the
Company.
10.24 Management Agreement dated December 14, 1995, by and among TBC
Management, Ltd., the Company and its subsidiaries.
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.
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.
10.27(a) Second Modification and Extension Agreement dated April 26, 1994,
between the Company and NationsBank of Texas, N.A.
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.
10.27(c) Deed of Trust, Assignment, Security Agreement and Financing
Statement dated March 5, 1993, from the Company to Michael F.
Hord, Trustee.
10.27(d) Deed of Trust dated April 28, 1994, from the Company to Wm. H.
Harrison, Jr., Trustee.
10.28 Trust Agreement dated December 31, 1994, by and among Ideal
Insurance Company, Ltd. and the Company.
16 Letter re change in certifying accountant.
INDEX TO EXHIBITS
INSERT "E" TO COME
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.
- --------
+ Portions of this exhibit have been omitted and are subject to an application
for confidential treatment filed separately with the Commission.
(b) Financial Statement Schedules: None.
The following exhibits are filed herewith
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.
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
10.29(c) Promissory Note dated as of December 12, 1996 in ane original
principal amount of $9,000,000 among the Company, its subsidiaries
and NationsBank of Texas, N.A., as agent
10.29(d) Promissory Note dated as of December 12, 1996 in the koriginal
principal amount of $6,000,000 among the Company, its subsidiaries
and NationsBank of Texas, N.A. as agent.
10.30 Asset Purchase Agreement dated as of November 1, 1996 between
Travis Boating Center Tennessee, Inc. and Tri-Lakes Marine, Inc.
10.31 Asset Purchase Agreement dated as of November 1, 1996 between
Travis Boating Center Alabama, Inc. and Tri-Lakes Marine, Inc.
21.1 List of Subsidiaries of Registrant.
23
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.
/s/ Mark T. Walton
By: _________________________________
CHAIRMAN OF THE BOARD AND
PRESIDENT
Date: December 27, 1996
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 CAPACITY DATE SIGNED
/s/ Mark T. Walton Chairman of the December 27,
- ------------------------------------- Board, President 1996
MARK T. WALTON and Director
(Principal
Executive Officer)
/s/ Michael B. Perrine Chief Financial December 27,
- ------------------------------------- Officer, Secretary 1996
MICHAEL B. PERRINE and Treasurer
(Principal
Financial and
Accounting Officer)
/s/ Ronnie L. Spradling Executive Vice December 27,
- ------------------------------------- President-New Store 1996
RONNIE L. SPRADLING Development and
Director
/s/ E. D. Bohls Director December 27,
- ------------------------------------- 1996
E. D. BOHLS
/s/ Steven W. Gurasich, Jr. Director December 27,
- ------------------------------------- 1996
STEVEN W. GURASICH, JR.
/s/ Zach McClendon, Jr. Director December 27,
- ------------------------------------- 1996
ZACH MCCLENDON, JR.
/s/ Robert C. Siddons Director December 27,
- ------------------------------------- 1996
ROBERT C. SIDDONS
/s/ Joseph E. Simpson Director December 27,
- ------------------------------------- 1996
JOSEPH E. SIMPSON
24
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, 1996 and 1995 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year ended September 30, 1996, the nine-month period ended
September 30, 1995, and the year ended December 31, 1994. 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, 1996 and 1995 and the
consolidated results of their operations and their cash flows for the year
ended September 30, 1996, the nine-month period ended September 30, 1995, and
the year ended December 31, 1994 in conformity with generally accepted
accounting principles.
November 25, 1996, except for Note 2, as to which the date is December 23,
1996
F-1
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30
------------------------
1996 1995
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 1,532,942 $ 996,058
Accounts receivable................................ 1,330,642 1,046,717
Prepaid expenses................................... 102,094 48,559
Inventories........................................ 20,554,166 14,270,312
Deferred tax asset................................. 160,815 115,375
----------- -----------
Total current assets............................. 23,680,659 16,477,021
Property and equipment:
Land............................................... 1,815,718 1,815,718
Buildings and improvements......................... 4,908,861 4,183,718
Furniture, fixture and equipment................... 1,847,086 1,351,449
----------- -----------
8,571,665 7,350,885
Less accumulated depreciation...................... (2,024,953) (1,559,693)
----------- -----------
6,546,712 5,791,192
Deferred tax asset................................... 39,187 21,300
Goodwill, net of accumulated amortization of $32,037
in 1996 and $-0- in 1995............................ 806,035 750,000
Noncompete agreement, net of accumulated amortization
of $42,857 in 1996 and $-0- in 1995................. 257,143 300,000
Other assets......................................... 20,672 17,150
----------- -----------
Total assets..................................... $31,350,408 $23,356,663
=========== ===========
LIABILITIES
Current liabilities:
Accounts payable................................... $ 239,852 $ 461,919
Accrued liabilities................................ 1,388,810 1,188,355
Federal income taxes payable....................... 953,523 576,157
Unearned revenue................................... 1,174,159 --
Current portion of notes payable and other short-
term obligations.................................. 4,661,104 11,442,625
----------- -----------
Total current liabilities........................ 8,417,448 13,669,056
Notes payable, less current portion.................. 4,334,494 4,875,745
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, 4,136,506 and 2,683,506 issued and
outstanding at September 30, 1996 and 1995,
respectively...................................... 41,365 26,835
Paid-in capital.................................... 11,527,498 138,511
Retained earnings.................................. 7,029,603 4,646,516
----------- -----------
Total stockholders' equity....................... 18,598,466 4,811,862
----------- -----------
Total liabilities and stockholders' equity..... $31,350,408 $23,356,663
=========== ===========
See accompanying notes.
F-2
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30 SEPTEMBER 30 DECEMBER 31
1996 1995 1994
------------ ------------- -----------
Net sales............................ $64,555,273 $41,442,349 $37,224,643
Cost of sales........................ 48,072,499 31,136,555 28,490,216
----------- ----------- -----------
Gross profit......................... 16,482,774 10,305,794 8,734,427
Selling, general and administrative
expenses............................ 10,857,413 6,352,844 6,332,883
Depreciation and amortization........ 563,991 216,965 266,299
----------- ----------- -----------
11,421,404 6,569,809 6,599,182
Operating income..................... 5,061,370 3,735,985 2,135,245
Interest expense..................... (1,289,064) (670,020) (628,685)
Other income......................... 60,781 133,849 61,348
----------- ----------- -----------
Income before income taxes........... 3,833,087 3,199,814 1,567,908
Income taxes......................... 1,450,000 1,149,621 544,439
----------- ----------- -----------
Net income........................... $ 2,383,087 $ 2,050,193 $ 1,023,469
=========== =========== ===========
Net income per common share.......... $ .78 $ .76 $ .39
=========== =========== ===========
Weighted average common shares
outstanding......................... 3,043,329 2,672,919 2,600,098
See accompanying notes.
F-3
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK NOTES
----------------- PAID-IN RETAINED RECEIVABLE--
SHARES AMOUNT CAPITAL EARNINGS STOCKHOLDERS TOTAL
--------- ------- ----------- ---------- ------------ -----------
Balance at December 31,
1993................... 2,564,331 $25,643 $ 5,947 $1,572,854 $(119,225) $ 1,485,219
Issuance of common
stock................ 71,534 715 60,723 -- -- 61,438
Net income............ -- -- -- 1,023,469 -- 1,023,469
Net proceeds
(issuance) on notes
receivable--
stockholders......... -- -- -- -- (7,899) (7,899)
--------- ------- ----------- ---------- --------- -----------
Balance at December 31,
1994................... 2,635,865 26,358 66,670 2,596,323 (127,124) 2,562,227
Issuance of common
stock................ 47,641 477 71,841 -- -- 72,318
Net income............ -- -- -- 2,050,193 -- 2,050,193
Net proceeds on notes
receivable--
stockholders......... -- -- -- -- 127,124 127,124
--------- ------- ----------- ---------- --------- -----------
Balance at September 30,
1995................... 2,683,506 26,835 138,511 4,646,516 -- 4,811,862
Issuance of common
stock................ 1,453,000 14,530 13,062,470 -- -- 13,077,000
Common stock issuance
costs................ -- -- (1,673,483) -- -- (1,673,483)
Net income............ -- -- -- 2,383,087 -- 2,383,087
--------- ------- ----------- ---------- --------- -----------
Balance at September 30,
1996................... 4,136,506 $41,365 $11,527,498 $7,029,603 $ -- $18,598,466
========= ======= =========== ========== ========= ===========
See accompanying notes.
F-4
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30 SEPTEMBER 30 DECEMBER 31
1996 1995 1994
------------ ------------ -----------
OPERATING ACTIVITIES
Net income........................... $ 2,383,087 $ 2,050,193 $ 1,023,469
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization...... 563,991 216,965 266,299
Loss on disposal of assets......... -- -- 19,381
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable...................... (283,925) (823,109) 151,895
(Increase) decrease in prepaid
assets.......................... (53,535) 24,631 62,687
(Increase) decrease in
inventories..................... (6,152,835) 349,830 (2,790,629)
(Increase) decrease in other
assets.......................... (3,522) 23,017 9,700
Increase in deferred tax asset... (63,327) (136,675) --
Increase (decrease) in accounts
payable......................... (222,067) 265,863 (141,593)
Increase in accrued liabilities.. 200,455 404,190 586,597
Increase in federal income taxes
payable......................... 377,366 349,622 25,296
Increase in unearned revenue..... 1,174,159 -- --
Decrease in deferred charges..... -- -- (21,011)
----------- ----------- -----------
Net cash provided by (used in)
operating activities................ (2,080,153) 2,724,527 (807,909)
INVESTING ACTIVITIES
Purchase of business................. (262,687) (916,345) --
Purchase of property and equipment... (1,134,967) (1,885,345) (937,004)
----------- ----------- -----------
Net cash used in investing
activities.......................... (1,397,654) (2,801,690) (937,004)
FINANCING ACTIVITIES
Net increase (decrease) in notes
payable and other short-term
obligations......................... (7,388,826) 715,027 1,935,964
Net proceeds from issuance of common
stock............................... 11,403,517 72,268 61,488
Redemption of preferred stock........ -- (100,000) (125,000)
Net proceeds (issuance) on notes
receivable--stockholders............ -- 127,174 (7,949)
----------- ----------- -----------
Net cash provided by financing
activities.......................... 4,014,691 814,469 1,864,503
Increase in cash and cash
equivalents......................... 536,884 737,306 119,590
Cash and cash equivalents, beginning
of year............................. 996,058 258,752 139,162
----------- ----------- -----------
Cash and cash equivalents, end of
year................................ $ 1,532,942 $ 996,058 $ 258,752
=========== =========== ===========
See accompanying notes.
F-5
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Consolidation
Travis Boats & Motors, Inc. (the "Company") is a retailer of boats, motors,
trailers and related watersport accessories. The Company operates 12 locations
in Texas, Louisiana and Arkansas. 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. In 1995, the Company changed its fiscal year end from December
31 to September 30 to coincide with the seasonal cycle of its business.
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.
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.
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.
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. The Company
capitalized interest of approximately $80,000 during the nine months ended
September 30, 1995 in connection with the construction of a store location. No
interest was capitalized in the years ended September 30, 1996 and December
31, 1994.
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 agreement........................................ 7 years
Goodwill.................................................... 15 to 25 years
F-6
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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. There was no allowance for doubtful accounts recorded at
September 30, 1996 and 1995.
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 in 1996,
1995 and 1994 from a single outboard motor manufacturer.
Approximately 20% of the Company's net purchases in fiscal 1996, 1995 and
1994 were from a single boat supplier.
Advertising Costs
Advertising costs are expensed as incurred and were approximately $508,382,
$353,000 and $334,000 during the year ended September 30, 1996, the nine
months ended September 30, 1995, and the year ended December 31, 1994.
Notes Payable and Other Short-Term Obligations
Interest expense on notes payable and other short-term obligations is
recorded as incurred. No interest expense is recorded during portions of the
year on certain floor plan payables which include noninterest bearing payment
terms.
Net Income per Common Share
Net income per common share is based on the weighted average number of
common shares outstanding during the period. The effect of common stock
equivalents is not significant.
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-7
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement No. 121 also
addresses the accounting for long-lived assets that are held for disposition.
The Company adopted Statement No. 121 effective October 1, 1995. No material
impact to the Company's results of operations or financial position resulted
from such adoption.
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-
Based Compensation," which prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options. The
Company must adopt the provisions of Statement No. 123 during the year ended
September 30, 1997. Under such provisions, the Company may elect to expense
the fair value of stock-based compensation or provide pro forma disclosures of
what net income would have been had the Company adopted the new fair value
method for recognition purposes. The Company continues to evaluate the
provisions of Statement No. 123 and has not determined whether it will adopt
the Statement for expense recognition purposes.
2. NOTES PAYABLE AND OTHER SHORT-TERM OBLIGATIONS
Notes payable and other short-term obligations consist of the following:
SEPTEMBER 30
-------------------------
1996 1995
----------- ------------
Floor plans payable.............................. $ 3,474,398 $ 10,302,562
Revolving lines of credit........................ 500,000 667,143
Notes payable.................................... 5,021,200 5,348,665
----------- ------------
Total notes payable and other short-term
obligations................................... 8,995,598 16,318,370
Less current portion............................. (4,661,104) (11,442,625)
----------- ------------
Total notes payable and other short-term
obligations, less current portion............. $ 4,334,494 $ 4,875,745
=========== ============
Floor plans payable consist of the following:
SEPTEMBER 30
-------------------------
1996 1995
----------- ------------
Floor plan payable to bank under a $7,500,000
revolving line of credit agreement with interest
floating at prime minus .375%, maturing October
1997............................................ $ -- $ 2,163,267
Floor plan payable to bank under revolving line
of credit agreements totaling $5,725,000 with
interest floating at prime plus .50%, maturing
August 1996 through November 1996............... -- 1,224,389
Floor plans payable to commercial finance
companies under revolving line of credit
agreements with interest ranging from 0% to
prime plus 4.75% with no stated maturity date... 3,474,398 6,914,906
----------- ------------
Total floor plans payable...................... $ 3,474,398 $ 10,302,562
=========== ============
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 finance companies include noninterest
F-8
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
bearing payment terms for part of the calendar year (typically the months of
August through May). As of September 30, 1996 and 1995, the amount of
noninterest bearing floor plans payable to finance companies was $3,274,781 and
$6,522,829, respectively.
Floor plans payable of certain of the Company's subsidiaries are guaranteed
by the Company. Certain floor plans payable are guaranteed in limited dollar
amounts by various stockholders of the Company. The Company is significantly
limited as to annual dividends for preferred and common stock.
Borrowings under revolving lines of credit consist of the following:
SEPTEMBER 30
-----------------
1996 1995
-------- --------
Note payable to bank under a revolving line of credit
agreement with interest at prime minus .375%, due October
1997..................................................... $500,000 $470,000
Note payable to bank under revolving line of credit
agreements with interest at prime plus 1%, due September
1996 and November 1996................................... -- 197,143
-------- --------
Borrowings under revolving lines of credit................ $500,000 $667,143
======== ========
The weighted average interest rate on floor plan payables and revolving lines
of credit outstanding as of September 30, 1996 and 1995 is 3.7% and 5.3%,
respectively.
Notes payable consist of the following:
SEPTEMBER 30
---------------------
1996 1995
---------- ----------
Mortgage notes payable to various banks,
organizations and individuals under deeds of trust
with interest ranging from 5.0% to prime plus 1% due
in installments ranging from $1,225 monthly
including interest to $30,114 semiannually plus
interest, maturing beginning in April 1998.......... $3,729,458 $3,266,475
Notes payable to various banks, a corporation and an
individual for vehicles, equipment and leasehold im-
provements with interest ranging from 6.99% to
9.75%, due in monthly installments ranging from $333
to $3,062, maturing beginning in December 1996...... 449,472 580,524
Notes payable to individuals with interest at prime
plus 1% fixed annually, due in annual principal in-
stallments of $20,000 (aggregate) plus interest, ma-
turing October 1997, collateralized by approximately
90,000 shares of the Company's outstanding common
stock owned by certain directors and officers of the
Company............................................. -- 60,000
Notes payable (unsecured) to corporation(s) owned by
various stockholders of the Company and to stock-
holder's individually, with interest due quarterly
at various rates at or below prime plus 1%, maturing
October 1996........................................ -- 641,666
Note payable to an individual with interest at 8.75%,
due in monthly principal and interest installments
of $12,770, maturing November 2002.................. $ 735,582 $ 800,000
Note payable to an individual with interest at 8.75%
due in monthly principal and interest installments
of $3,057, maturing March 1998...................... 56,688 --
---------- ----------
Total notes payable.................................. $5,021,200 $5,348,665
========== ==========
F-9
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 and certain other notes payable are guaranteed in
limited dollar amounts by various stockholders of the Company.
Interest paid approximates interest expense plus interest capitalized, if
any, during 1996, 1995 and 1994.
Aggregate maturities required on notes payable at September 30, 1996 are as
follows:
YEAR ENDING
SEPTEMBER 30
------------
1997.......................................................... $ 686,706
1998.......................................................... 657,698
1999.......................................................... 513,438
2000.......................................................... 543,004
2001.......................................................... 353,569
Thereafter.................................................... 2,266,785
----------
$5,021,200
==========
Effective December 12, 1996, the Company entered into a new $15.0 million
revolving line of credit agreement with a bank which replaces certain
previously existing floor plans payable and revolving lines of credit.
3. LEASES
The Company leases various facilities under operating leases. Rent expense
was $263,710 in 1996, $188,581 in 1995 and $214,421 in 1994. 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:
1997.............................................................. $169,566
1998.............................................................. 138,450
1999.............................................................. 140,250
2000.............................................................. 136,200
2001.............................................................. 72,000
Thereafter........................................................ --
In addition, under most of the Company's leases, the Company has renewal
options at varying terms.
4. ACQUISITIONS
Red River Marine, Inc.
Effective September 20, 1995, the Company acquired Red River Marine, Inc.
with retail store locations in Hot Springs and Heber Springs, Arkansas. This
acquisition included land and building (Hot Springs location) and boat, motor
and trailer inventory, as well as parts and accessories inventory of each
location. The purchase price was $2,517,417, of which $1,600,000 was financed
by the issuance of notes payable to the seller.
The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the operating results of Red River Marine, Inc.
have been included in the consolidated financial statements from the date of
acquisition. The purchase price ($2,517,417) and liabilities assumed
($437,150) have been allocated to the tangible net assets acquired
($1,904,567) based on their respective fair values at the date of acquisition.
The resulting purchase price ($1,050,000) was allocated to a noncompete
agreement ($300,000) and goodwill ($750,000).
F-10
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Clay's Boats and Motors, Inc.
Effective December 1, 1995, the Company acquired certain assets of Clay's
Boats and Motors, Inc. ("Clay's") in New Iberia, Louisiana. The assets
acquired included furniture, fixtures and equipment, all parts and
accessories, all leasehold improvements and certain other assets. The purchase
price was $328,741, of which $262,687 was paid in cash and $66,054 was
financed by the issuance of a note payable to the seller.
The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the operating results of Clay's have been
included in the consolidated financial statements from the date of
acquisition. The purchase price ($328,741) has been allocated to the tangible
net assets acquired ($240,669) and the resulting excess purchase price
($88,072) was assigned to goodwill.
5. INCOME TAXES
In 1992, the Financial Accounting Standards Board issued Statement No. 109,
"Accounting for Income Taxes." The Company adopted the provisions of the new
standard in its financial statements for the year ended December 31, 1994. The
cumulative effect as of January 1, 1994 of adopting the Standard was
immaterial and the prior year financial statements have not been restated to
reflect the change in accounting method.
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:
SEPTEMBER 30
-----------------
1996 1995
-------- --------
Deferred tax assets:
Book over tax depreciation.............................. $ 39,187 $ 21,300
Accrued salaries and wages.............................. 160,815 115,375
-------- --------
Total deferred tax assets............................. 200,002 136,675
Valuation allowance for deferred tax assets............... -- --
-------- --------
Net deferred tax assets............................... $200,002 $136,675
======== ========
Significant components of the provisions for income taxes are as follows:
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30,
1996 1995 1994
------------ ------------ -------------
Current expense:
Federal.......................... $1,342,327 $1,243,371 $523,589
State............................ 171,000 42,925 20,850
---------- ---------- --------
Total current expense.......... 1,513,327 1,286,296 $544,439
Deferred expense (benefit):
Federal.......................... (56,171) (130,900) --
State............................ (7,156) (5,775) --
---------- ---------- --------
Total deferred expense
(benefit)..................... (63,327) (136,675) --
---------- ---------- --------
Total provision for income
taxes....................... $1,450,000 $1,149,621 $544,439
========== ========== ========
F-11
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The differences between the effective tax rate and the U.S. federal
statutory rate of 34% are reconciled as follows:
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30 SEPTEMBER 30 DECEMBER 31
1996 1995 1994
------------ ------------- -----------
Income tax expense at the federal
statutory rate.................... $1,303,250 $1,087,937 $533,089
State income taxes................. 163,844 37,150 20,850
Other.............................. (17,094) 24,534 (9,500)
---------- ---------- --------
$1,450,000 $1,149,621 $544,439
========== ========== ========
Income taxes paid were approximately $1,088,000, $855,000 and $528,000 in
the year ended September 30, 1996, the nine months ended September 30, 1995
and the year ended December 31, 1994, respectively.
6. STOCKHOLDERS' EQUITY
In March 1994, the Board of Directors of the Company approved a 199 to 1
stock dividend for stockholders of record as of March 31, 1994.
In November 1995, the Board of Directors of the Company approved a 15 to 1
stock dividend for stockholders of record as of November 8, 1995.
In May 1996, the Board of Directors of the Company approved a 1 for 3 stock
dividend for stockholders of record as of May 3, 1996.
All share amounts presented in these financial statements have been restated
to retroactively reflect the above stock dividends.
Effective December 14, 1995, the Company changed the stated par value of
each share of common stock from $.10 to $.01. The financial statements have
been restated to retroactively reflect the above changes in par value.
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.
Effective December 14, 1995, the Company adopted an Incentive Stock Option
Plan which provides for the granting of options to directors, officers, and
key employees to purchase shares of the Company's common stock. The Company
has reserved 200,000 shares of common stock for issuance under such plan.
F-12
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total option activity for the year ended September 30, 1996, the nine months
ended September 30, 1995 and the year ended December 31, 1994, was as follows:
NUMBER OF
SHARES PRICE $
--------- -----------
Outstanding at December 31, 1994..................... -- --
Granted............................................ 133,867 $5.25
Exercised.......................................... -- --
Expired............................................ -- --
-------
Outstanding at September 30, 1995.................... 133,867 $5.25
Granted............................................ 110,999 $9.00
Exercised.......................................... -- --
Expired............................................ (13,333) $9.00
-------
Outstanding at September 30, 1996.................... 231,533 $5.25-$9.00
=======
Exercisable at September 30
1996............................................... 53,439 $5.25-$9.00
Options available for grant at September 30
1996............................................... 102,334
Common stock reserved for issuance at September 30,
1996................................................ 333,867
7. RELATED PARTY TRANSACTIONS
The Company sells extended service contracts to its customers. For the
period from January 1, 1994 through June 27, 1996, the obligations of the
Company under these contracts were transferred to Ideal Insurance Company,
Ltd. ("Ideal") pursuant to an agreement between the Company and Ideal dated as
of January 1, 1994. Ideal reinsured these risks with Amerisure Property &
Casualty, Ltd. ("Amerisure"), a company wholly owned by certain principal
shareholders of the Company. These contracts are administered by First
Extended Service Corporation ("FESC"), which contracts are insured by FESC's
affiliate, FFG Insurance Co. ("FFG"). In conjunction with these agreements,
the Company paid Amerisure an agreed amount for each extended service contract
which is insured and, in the event of claims under any extended service
contracts, Amerisure reimburses the repair facility for the amount of covered
claims. Amerisure is then financially responsible for any repairs required
pursuant to the extended service contract. The Company received a commission
for each extended service contract that it sold. For the year ended September
30, 1996, the nine months ended September 30, 1995 and the year ended December
31, 1994, extended service contract commissions received from Amerisure
totaled approximately $411,000, $448,000 and $350,000, respectively. The
Company transferred the obligations under the extended service contracts sold
subsequent to June 27, 1996 to entities other than Ideal and Amerisure.
8. 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.
9. SUBSEQUENT EVENTS
Effective October 3, 1996, the Company acquired certain assets of North
Alabama Watersports, Inc. ("NAWS"). This acquisition included land and
building and boat, motor and trailer inventory, as well as parts and
accessories inventory of each location. The purchase price was $892,255, of
which $79,707 was financed by the issuance of notes payable to the seller.
F-13
TRAVIS BOATS & MOTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the operating results of NAWS have been included
in the consolidated financial statements from the date of acquisition. The
purchase price ($892,255) has been allocated to the tangible net assets
acquired ($687,255) based on their respective fair values at the date of
acquisition. The resulting excess purchase price ($205,000) was allocated to a
noncompete agreement and goodwill.
Effective November 1, 1996, the Company acquired Tri-Lakes Marine, Inc.
("Tri-Lakes") with retail store locations in Tennessee and Alabama. The
acquisition included land, building, furniture, fixtures and equipment, boat,
motor and trailer inventory, as well as all parts and accessories. The
purchase price was $1,242,924, of which $642,924 was paid in cash and $600,000
was financed by the issuance of a note payable to the seller.
The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the operating results of Tri-Lakes have been
included in the consolidated financial statements from the date of
acquisition. The purchase price ($1,242,924) and liabilities assumed
($1,937,279) have been allocated to the tangible net assets acquired
($2,536,092) based on their respective fair values at the date of acquisition.
The resulting excess purchase price ($644,111) was allocated to a noncompete
agreement and to goodwill.
F-14