SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
(Amendment No. 3)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD OF ________ TO ________.
Commission File Number 0-20757
TRAVIS BOATS & MOTORS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2024798
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12116 Jekel Circle, Suite 102, Austin, Texas 78727
(Address of principal executive offices)
Registrant's telephone number, including area code: (512) 347-8787
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock as of the latest practicable date.
Common Stock $.01 par value: 4,299,727 shares as of February 17, 2004.
INDEX
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited, except as noted):
Condensed Consolidated Balance Sheets:
December 31, 2003 and September 30, 2003 (audited).........1
Condensed Consolidated Statements of Operations:
Three Months Ended December 31, 2003 and 2002..............3
Condensed Consolidated Statements of Cash Flows:
Three Months Ended December 31, 2003 and 2002..............4
Notes to Condensed Financial Statements....................5
Item 2: Management's Discussion and Analysis of Financial
Conditions and Results of Operations......................10
Item 3: Quantitative and Qualitative Disclosures About Market Risk...........22
Item 4: Controls and Procedures..............................................23
PART II - OTHER INFORMATION
Item 1: Legal Proceedings....................................................23
Item 5: Other Information....................................................24
Item 6: Exhibits and Reports on Form 8-K.....................................25
SIGNATURE....................................................................26
EXHIBIT INDEX................................................................26
EXPLANATORY NOTE
This Amendment No. 3 on Form 10-Q/A (this "Amendment") amends our Amendment No.
2 on Form 10-Q/A for the quarter ended December 30, 2003 filed on February 20,
2004 ("Amendment No. 2"). Travis Boats & Motors, Inc. (the "Company") has filed
this Amendment to revise Part I, Item 4 "Controls and Procedures" to identify
the limitation cited by the Company regarding the timeliness of certain
Commission filings, and to explain that such limitation did not impact the
Company's overall conclusion that disclosure controls and procedures were
effective at a reasonable level. The Company has also filed this Amendment to
provide correct certifications as Exhibits 31.1 and 31.2.
Other information contained herein has not been updated. Therefore, this
Amendment should be read together with other documents that the Company has
filed with the Securities and Exchange Commission subsequent to the filing of
Amendment No. 2. Information in such reports and documents updates and
supersedes certain information contained in this Amendment. The filing of this
Amendment shall not be deemed an admission that our Amendment No. 2 or any of
our previous filings, when made, included any known, untrue statement of
material fact or knowingly omitted to state a material fact necessary to make a
statement not misleading.
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Travis Boats & Motors, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share data)
December 31, September 30,
2003 2003
------------------- ------------------
(unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $1,035 $3,414
Accounts receivable, net 4,366 5,655
Inventories, net 38,242 30,970
Prepaid expenses and other 1,031 914
------------------- ------------------
Total current assets 44,674 40,953
Property and equipment:
Land 4,924 5,124
Buildings and improvements 13,477 13,611
Furniture, fixtures and equipment 9,060 9,134
------------------- ------------------
27,461 27,869
Less accumulated depreciation (10,871) (10,634)
------------------- ------------------
16,590 17,235
Intangibles and other assets:
Non-compete agreements, net 630 731
Other assets 736 203
------------------- ------------------
Total assets $62,630 $59,122
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,834 $2,258
Accrued liabilities 2,249 2,001
Current portion of deferred gain on sale of 107 87
real property
Floor plan and revolving line of credit 35,116 28,658
Current portion of notes payable, convertible subordinated
notes and other short-term obligations 2,284 4,723
------------------- ------------------
Total current liabilities 41,590 37,727
Deferred gain on sale of real property, net of 937 963
current portion
1
Notes payable, less current portion 6,664 1,591
Convertible subordinated notes, less current portion --- 1,300
Stockholders' equity
Serial Preferred stock, $100 par value, 1,000,000 8,000 8,000
shares authorized, 80,000 shares outstanding
Common Stock, $.01 par value, 50,000,000 authorized,
4,299,727 and 4,299,727 issued and outstanding at
December 31, 2003 and September 30, 2003, respectively 43 43
Paid-in capital 15,094 15,094
Retained deficit (9,698) (5,596)
------------------- ------------------
Total stockholders' equity 13,439 17,541
------------------- ------------------
Total liabilities and stockholders' equity $ 62,630 $ 59,122
=================== ==================
See notes to unaudited condensed consolidated financial statements
2
Travis Boats & Motors, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except share and store data)
Three Months Ended
December 31,
2003 2002
-------------------------
Net sales........................................... $13,275 $17,887
Cost of goods sold.................................. 10,625 14,370
---------- -----------
Gross profit........................................ 2,650 3,517
Selling, general and administrative................. 5,457 7,481
Depreciation and amortization....................... 537 657
---------- -----------
5,994 8,138
Operating loss...................................... (3,344) (4,621)
Interest expense.................................... (678) (812)
Other income........................................ 40 20
---------- -----------
Loss before income taxes............................ (3,982) (5,413)
Income tax benefit.................................. --- 1,830
---------- -----------
Net Loss............................................ ($3,982) ($3,583)
---------- -----------
Preferred stock dividends........................... ($120) ($120)
---------- -----------
Net loss attributable to common
shareholders........................................ ($4,102) ($3,703)
========== ===========
Basic and Diluted Loss Per Share before preferred
stock dividends..................................... ($0.93) ($0.83)
Preferred stock dividends........................ ( 0.03) ( 0.03)
---------- -----------
Basic and Diluted Loss Per Share.................... ($0.96) ($0.86)
========== ===========
Weighted Average Basic and Dilutive
common shares outstanding........................... 4,299,727 4,329,727
See notes to unaudited condensed consolidated financial statements
3
Travis Boats & Motors, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
Three months ended
December 31,
2003 2002
----------------------------------
Operating activities:
Net Loss ($3,982) ($3,583)
Adjustments to reconcile net loss to net cash used in
Operating activities:
Depreciation............................................................ 434 549
Amortization............................................................ 103 108
Changes in operating assets and liabilities
Accounts receivable................................................ 1,289 2,021
Prepaid expenses................................................... (117) (159)
Inventories........................................................ (7,272) (8,908)
Other assets....................................................... (533) 22
Accounts payable................................................... (424) 46
Accrued liabilities................................................ 248 762
Deferred gain on sale of real property............................. (6) ---
Income tax recoverable............................................. 0 (1,767)
-------------- ---------------
Net Cash used in operating activities...................................... (10,260) (10,909)
Investing Activities:
Purchase of property and equipment...................................... (166) (123)
Proceeds from sale of property and equipment............................ 375 ---
-------------- ---------------
Net cash provided by/(used in) investing activities........................ 209 (123)
Financing activities:
Net increase in floorplan; revolving and other short term
obligations............................................................ 6,250 7,786
Proceeds from real estate refinance note............................... 5,300 ---
Repayment of real estate note.......................................... (3,758) ---
Preferred stock dividends.............................................. (120) (120)
-------------- ---------------
Net cash provided by financing activities................................. 7,672 7,666
Change in cash and cash equivalents.................................... (2,379) (3,366)
Cash and cash equivalents, beginning of period......................... 3,414 4,253
-------------- ---------------
Cash and cash equivalents, end of period.................................. $ 1,035 $ 887
============== ===============
See notes to unaudited condensed consolidated financial statements
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared from the records of Travis Boats & Motors, Inc. and subsidiaries
(collectively, the "Company") in accordance with generally accepted accounting
principals for interim financial information. In the opinion of management, such
financial statements include all adjustments (consisting of only recurring
accruals) necessary to present fairly the financial position at December 31,
2003, and the interim results of operations and cash flows for the three month
periods ended December 31, 2003 and 2002. The condensed consolidated balance
sheet at September 30, 2003, presented herein, has been derived from the audited
consolidated financial statements of the Company for the fiscal year then ended.
Certain information and footnote disclosures normally included in financial
statements have been condensed or omitted for purposes of the condensed
consolidated interim financial statements. The condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements, including the notes thereto, for the fiscal year ended September 30,
2003 included in the Company's annual Report on Form 10-K/A filed with the
Securities and Exchange Commission on February 2, 2004. Accounting policies
followed by the Company are described in Note 2 to the audited consolidated
financial statements for the fiscal year ended September 30, 2003 included in
the Company's annual report on Form 10-K/A.
The results of operations for the three month period ended December 31,
2003 are not necessarily indicative of the results to be expected for the full
fiscal year.
Controlling Shareholder
As of January 7, 2003, TMRC, LLP, ("Tracker"), pursuant to certain
agreements for assistance in financing and other matters (the "Agreements"),
assumed effective control of the Company. Tracker and affiliated entities have
operations in marine and outdoor lifestyle retail and manufacturing. Tracker is
the manufacturer of various pleasure boatlines including: Tracker, Mako, Nitro,
ProCraft, Fisher and numerous other popular models.
Prior to the Agreements, pursuant to its holding 80,000 shares of Series A
Preferred Stock, Tracker beneficially owned approximately 43%, or 3,252,825
shares, of the Company's common stock on a fully-diluted, as-converted basis
(See Note 6 - Series A Preferred Stock). As a result of the Agreements, Tracker
now has voting control of approximately 57%, or 4,611,119 shares, on a
fully-diluted, as-converted basis. Tracker also has the right to designate four
of seven members of the Company's Board of Directors. Tracker currently has two
representatives on the Board of Directors pursuant to its ownership of 80,000
shares of the Company's Series A Preferred Stock, and has not yet designated two
additional representatives.
5
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN 46"), which clarifies the application of
Accounting Research Bulletin No. 51, Consolidated Financial Statements. FIN 46
requires variable interest entities (VIE) to be consolidated by a company if
that company is subject to a majority of the risk of loss from the VIE
activities or entitled to receive a majority of the entity's residual returns or
both. A company that consolidates a VIE is called the primary beneficiary of
that entity. FIN 46 also requires disclosures about VIE that a company is not
required to consolidate but in which it has a significant variable interest. In
December 2003, the FASB completed its deliberations regarding the proposed
modification to FIN 46 and issued Interpretation Number 46R, Consolidation of
Variable Interest Entities - an Interpretation of ARB No. 51 ("FIN 46R"). The
decisions reached included a deferral of the effective date and provisions for
additional scope exceptions for certain types of variable interests. Application
of FIN 46R is required in financial statements of public entities that have
interests in VIE or potential VIE commonly referred to as special-purpose
entities for periods ending after December 15, 2003. Application by public
entities (other than small business issuers) for all other types of entities is
required in financial statements for periods ending after March 15, 2004. We do
not expect adoption of FIN 46R to have a material impact on our financial
position, results of operations or cash flows.
In May 2003, the FASB issued Statement 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
Statement 150 requires that certain financial instruments that are settled in
cash, including certain types of mandatorily redeemable securities, be
classified as liabilities rather than as equity or temporary equity. Statement
150 is effective for financial instruments entered into or modified after May
31, 2003, and otherwise is effective at the beginning of the first interim
period after June 15, 2003. The adoption of this Standard had no effect on the
Company's financial position, results of operations or cash flows.
NOTE 3 - LOSS PER SHARE
(in thousands, except share)
Three Months Ended
December 31,
2003 2002
----------------- --------------
NUMERATOR
Net loss before preferred stock dividends........... $ (3,982) $ (3,583)
Preferred stock dividends........................... (120) (120)
--------------------------------
Net loss attributable to common shareholders........ $ (4,102) $ (3,703)
Weighted average basic and diluted
common shares outstanding........................... 4,299,727 4,329,727
Basic and diluted loss per share before
preferred stock dividends........................... (.93) (.83)
6
Preferred stock dividends........................... (.03) (.03)
Basic and diluted loss per share attributable ----------------- --------------
to common shareholders.............................. $ (0.96) $ (0.86)
================= ==============
At December 31, 2003, the Company had issued and outstanding incentive
stock options to certain employees totaling 57,600 shares which had an exercise
price equal to or exceeding the closing price of the Company's common stock on
such date. The 57,600 option shares have a weighted average exercise price of
$6.56 and a weighted average outstanding remaining life of 6.3 years.
The Company also has excluded 528,584 shares of common stock subject to
issuance pursuant to $1.3 million in outstanding convertible subordinated notes
(see Note 5) and 3,252,826 shares of common stock subject to issuance pursuant
to 80,000 shares of Series A Preferred Stock. For the three month periods ended
December 31, 2003 and 2002, the conversion price of approximately $2.46 per
share of both issuances exceeded the Company's average market price of its
common stock.
NOTE 4 - STOCKHOLDERS' EQUITY
During fiscal 2000, the Company established a program to repurchase
outstanding shares of its common stock in the open market from time to time. The
Company has made purchases of its common stock pursuant to this program and has
retired all such common shares repurchased.
The Company did not repurchase any shares of common stock during the three
months ended December 31, 2003 and 2002.
Repurchased shares of common stock during the three previous fiscal years
consisted of the following:
Year Ended September 30,
2003 2002 2001
---------------------------------------------
Shares Repurchased (000's) 30 29 40
Total Purchase Price (000's) $15 $56 $122
Average Price per Share $0.50 $1.90 $3.07
The Company accounts for its employee stock-based compensation using the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, and related Interpretations.
The Company makes disclosures regarding employee stock-based compensation using
the fair value method in accordance with Statement of Financial Accounting
Standards ("Statement")148, Accounting for Stock-Based Compensation-Transition
and Disclosure. The Company has calculated the fair value of options granted in
these periods using the Black-Scholes option-pricing model and has determined
the pro forma impact on net loss.
7
The following table illustrates the effect on net loss and loss per share
if the Company had applied the fair value recognition provisions of Statement
123 to stock-based compensation for all periods presented (in thousands, except
per share data):
Three Months Ended Dec 31,
2003 2002
REPORTED NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (4,102) $ (3,703)
Add: Total stock based employee compensation - -
expense included in the determination of net
loss as reported, net of related tax effects
Less: Total stock based employee compensation (29) (58)
expense determined under the fair value
method for all awards, net of related tax effects
-------------- --------------
Pro forma net loss attributable to common shareholders $ (4,131) $ (3,761)
BASIC AND DILUTED LOSS PER SHARE
Reported net loss per share attributable to
common shareholders $ (0.96) $ (0.86)
Pro forma net loss per share attributable to
common shareholders $ (0.96) $ (0.87)
The compensation expense associated with the fair value of the options
calculated in the quarters ended December 31, 2003 and 2002 is not necessarily
representative of the potential effects on reported net income/(loss) in future
periods.
NOTE 5 - CONVERTIBLE SUBORDINATED NOTES AND NOTES PAYABLE
The Company has outstanding Convertible Subordinated Notes (the "Notes") in
the aggregate amount of $1.3 million originally issued in December 2001. The
Notes, which mature in December 2004, are unsecured and accrue interest at
10.75%, fixed. The principal and interest amounts payable pursuant to the Notes
are subordinated, in substantially all respects, to the Company's borrowing
agreements with the commercial finance companies providing inventory and working
capital financing for the Company (see Note 7 - Short Term Borrowings). The
principal amount of the Notes may be converted at any time without restriction
by the holders into the Company's common stock at a conversion price of
approximately $2.46 per share provided that the Company has not sent a prior
notice of its intent to redeem. If not first converted into the Company's common
stock, the Notes are redeemable by the Company at any time on or prior to
maturity.
The Company entered into a real estate loan during November 2003 in the
original principal amount of $5.3 million. The loan has a three year maturity.
Interest payments are due monthly based upon interest at 12%, and all principal
is repayable at maturity. Proceeds of the loan were used to refinance other real
estate indebtedness maturing December 31, 2003 in the approximate amount of $3.7
8
million and the remainder was used for transaction expenses and general working
capital.
NOTE 6 - SERIES A PREFERRED STOCK
The Company has issued 80,000 shares of 6% Series A Cumulative Convertible
Preferred Stock (the "Preferred Stock") pursuant to an agreement with TMRC,
L.L.P. ("Tracker"), a wholly-owned subsidiary of Tracker Marine, L.L.C. The
issue price of the Preferred Stock is $100 per share. Each share may be
converted into the Company's common stock at a conversion price of approximately
$2.46 per share. The Preferred Stock is governed by a comprehensive agreement
that provides, among other components, the right to name certain directors and
re-pricing options in the event of the issuance of other equity securities or
debt with more favorable conversion prices or terms.
NOTE 7 - SHORT TERM BORROWINGS
Inventory Borrowing Agreements
The Company finances substantially all of its inventory pursuant to
borrowing agreements with two commercial finance companies -- Transamerica
Commercial Finance Corporation ("TCFC") and GE Commercial Distribution Finance
Corporation ("GE") (formerly known as Deutsche Financial Services Corporation
("DFS")). The agreements contain substantially similar terms and financial
covenants. As of December 31, 2003, the maximum aggregate borrowing availability
was limited to a maximum credit limit of $60.0 million at various prime based or
LIBOR based interest rates (varying from 4.12% to 4.75%) and approximately $35.1
million was outstanding. The borrowing agreements are primarily for the purchase
of inventories and, to a lesser extent, provide available amounts for general
working capital requirements. As we purchase inventory, we authorize our lenders
to remit payment directly to the manufacturers pursuant to our borrowing
agreements. Based on the terms of the borrowing agreements we can request for
the lenders to advance funds to manufacturers for additional inventory purchases
up to the remaining available credit limit. Substantially all inventory,
accounts receivable, furniture, fixtures, equipment, real estate (junior liens)
and intangible assets collateralize these borrowing agreements. The terms of the
borrowing agreements also provide for fees for administrative monitoring and for
any unused portions of available credit. Also, various manufacturers provide us
or our lenders with interest expense assistance under the inventory borrowing
agreements in order to subsidize the carrying cost of inventory. Accordingly, no
interest expense is recorded during portions of the year (generally August
through May) for certain limited borrowings under these agreements.
Discontinuance of these agreements could result in an increase to interest
expense. Acquisitions, the payment of common stock dividends or repurchases of
our common stock are also substantially limited without prior consent.
The borrowing agreements, which originated in fiscal 2000, expired during
fiscal 2003 and were subsequently extended for various interim periods pending
each lender's review of our request for a 12 month renewal term. As of the date
of this Report on Form 10-Q/A, we have been notified by each lender that our
9
request has been reviewed and subject to appropriate documentation, and no
defaults or material adverse changes prior thereto, our new expiration date will
be in October 2004. The renewed borrowing agreements are expected to include
loan agreements containing various loan covenants and borrowing restrictions,
including, but not limited to, minimum financial ratios governing net worth,
inventory turn, accounts receivable turn and percentage levels of operating
expenses.
NOTE 8 - CONTINGENCIES
From time to time, our Company is involved in litigation relating to claims
arising from its normal business operations. Currently, our Company is a
defendant in several lawsuits. Some of these lawsuits involve claims for
substantial amounts.
There is no guarantee that our Company will prevail in defense of these
lawsuits. If any lawsuit were to result in a substantial unfavorable verdict or
resolution for the Company it could have a material adverse impact on the
results of operations.
NOTE 9 - SUBSEQUENT EVENTS
On February 6, 2004, the Company agreed to terms with its controlling
shareholder, TMRC, LLP, ("Tracker") (See Note - 1), for a $500,000 line of
credit. The terms of the line of credit are set forth in a promissory note
payable to Tracker on demand at any time on or after May 5, 2004 (the "Note").
The note provides that the Company, at the discretion of the Operating Committee
of its Board of Directors, may request advances up to the aggregate amount of
$500,000. Advances made pursuant to the Note will bear interest at a rate of 10%
until the earlier of the date demand is made by Tracker for repayment or January
5, 2005 at which time the rate will increase to 18% on any unpaid principal and
accrued, but unpaid, interest amounts. The Note is generally unsecured, subject
to Tracker retaining a right of offset with respect to any cash, credits,
rebates, deposits, accounts, securities, and any other property of the Company
in Tracker's possession, custody or control.
As of the date this report on Form 10-Q/A, the Company has received
$200,000 from Tracker under the Note.
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE
PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
Some of the information in this Report on Form 10-Q/A contains
forward-looking statements that involve substantial risks and uncertainties. You
can identify these statements by forward-looking words such as "may," "will,"
"expect," "anticipate," "believe," "estimate," and "continue" or similar words.
You should read statements that contain these words carefully because they (1)
discuss our future expectations; (2) contain projections of our future results
of operations or of our future financial condition; or (3) state other
10
"forward-looking" information. We believe it is important to communicate our
expectations to people that may be interested. However, unexpected events may
arise in the future that we are not able to predict or control. The information
that we describe in this section, as well as any other cautionary language in
this Report on Form 10-Q/A, give examples of the types of uncertainties that may
cause our actual performance to differ materially from the expectations we
describe in our forward-looking statements and therefore result in a material
adverse effect on our business, operating results and financial condition. For a
more comprehensive discussion of these and the numerous other Risk Factors
affecting our business and operations see the Company's Report on Form 10-K/A
filed for the fiscal year ended September 30, 2003, and other documents filed of
record with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
Overview
Travis Boats & Motors, Inc. Travis Boats & Motors, Inc. ("Travis Boats,"
the "Company" or "we") is a multi-state superstore retailer of recreational
boats, motors, trailers and related marine accessories in the southern United
States. Our Company currently operates 30 stores under the name Travis Boating
Center in Texas (8), Arkansas (2), Louisiana (4), Alabama (1), Tennessee (3),
Mississippi (1), Florida (9), Georgia (1) and Oklahoma (1).
The Company was incorporated as a Texas corporation in 1979. Since our
founding as a single retail store in Austin, Texas, we have grown both through
acquisitions and the opening of new "start-up" store locations. It was during
the early period of store growth that we began developing the systems necessary
to manage a multi-store operation and maximizing our inventory purchases to
obtain increased volume discounts. Our significant inventory stocking
requirements for multi-stores allowed us to maximize volume discounts and
introduce our own proprietary Travis Edition packaging concept and our
philosophy of clearly posting price signs on each of our Travis Edition boats
held for sale.
Based on sales trends from the cities and states where we operate store
locations, we design and pre-package combinations of popular brand-name boats,
such as Mako, Cobalt, Ranger, Caravelle, Bayliner, Fisher, ProCraft, Fishmaster,
Sea Pro and Starcraft with outboard motors generally manufactured by Suzuki or
Brunswick Corporation, along with trailers and numerous accessories, under our
own proprietary Travis Edition label. 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 to often include
distinguishing features/branded models and accessories within the base Travis
Edition price. It is the Company's belief that these features/branded models and
accessories have historically been unavailable to, or listed as optional, by
many of our competitors. We also sell small cruisers, such as Crownline, that
range in length to over 25 feet in length. By providing many different types of
boats with many types of standard features, we attempt to offer the customer an
exceptional boat at a competitive price that is ready for immediate use and
enjoyment. Although we sell pleasure boats at many different retail prices, we
attempt to price our product to maintain a consistent gross profit percentage
for each of our Travis Edition models. We also sell motors, trailers,
accessories and related equipment.
11
We believe that our Company 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. Our Travis Edition product line
generally consists of boat packages priced from $7,500 to $75,000 with
approximate even distribution within this price range. Our management believes
that by combining flexible financing arrangements with many types of boats
having broad price ranges, we are able to offer boat packages to customers with
different purchasing budgets and varying income levels.
The Company seeks to provide customers with 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.
Fiscal Quarter Ended December 31, 2003. The Company reported a pre-tax loss
of approximately $4.0 million, on net sales of $13.3 million, for the three
months ended December 31, 2003 versus a pre-tax loss of approximately $5.4
million, on net sales of $17.9 million for the same quarter of the prior fiscal
year. Due to the seasonal nature of our business, our sales have traditionally
been significantly lower in the quarter ending December 31 and increase
following the conclusion of our boat show season, which usually begins in
January and continues through the end of March. In addition, some of the
operating losses experienced during the quarter ended December 31, 2003 are
attributable to implementation of a number of key initiatives designed to
ultimately improve the Company's financial condition. These initiatives include,
but are not limited to, the consolidation of our vendor relationships to improve
inventory turns, assortments and product consistency in our stores. Management
is optimistic that the Company's recent efforts related to product and brand
transition, reductions in obsolete inventory, and improved supply chain will
have long-term positive impact on performance.
Quarter Ended December 31, 2003 Compared to the Quarter Ended December 31, 2002
Net Sales. Net sales in the first quarter of fiscal 2004 decreased to $13.3
million, compared to net sales of $17.9 for the first quarter of fiscal 2003.
The decrease in net sales during the quarter ended December 31, 2003
included approximately $1.1 million in reduced sales as a result of the impact
of fewer stores in operation (30 versus 34) and a decrease in comparable store
sales. Comparable store sales decreased by approximately 21.0% (30 stores in
base) for the quarter ended December 31, 2003. Management believes the decrease
in comparable store sales was related to various factors including, but not
limited to significant product and brand transition. This included the
previously announced decision to eliminate yacht sales which reduced revenue by
approximately $1.5 million. Additionally, during the fall of 2003, the Company
began the introduction of new models of off-shore fishing boats to replace its
previously carried comparable product line. The Company's significant initial
stocking requirements contributed to only a limited assortment and selection of
the new boats being received by the Company during the quarter. The impact to
net sales of yachts and off-shore fishing boats from these and other related
issues was a decrease of approximately $3.3 million in sales for the quarter
ended December 31, 2003 versus the same quarter of the prior fiscal year.
12
Comparable store sales excluding the impact of the sale of yachts and off-shore
fishing boats declined by approximately 1.6%.
Management believes that the impact of the significant product and brand
transition on net sales will begin to diminish in the quarter ended March 31,
2004. As of the date of this Report on Form 10-Q/A, the Company has received
additional stocking levels of new products and the Company expects to continue
to receive significant additional stocking levels of these new products in
advance of the summer sales season.
Gross Profit. Gross profit, in actual dollars, decreased to approximately
$2.7 million in the first quarter of fiscal 2004 from $3.5 million in the same
quarter of fiscal 2003. However, gross profit, as a percent of net sales,
increased to 20.0% during the quarter ended December 31, 2003 from 19.7% for the
same quarter of the prior fiscal year.
The increase in gross profit as a percent of net sales was primarily
related to (i) increases in the sale of parts and accessories as a percent of
net sales and (ii) increased income related to Finance and Insurance products as
a percent of net sales. We believe that gross profit, as a percent of net sales,
may continue to benefit during fiscal 2004 from these items since the Company's
average retail price of boats sold is expected to decline because of
discontinuing sales of yachts and certain similar boats (see F&I Products).
F&I Products. We offer our customers the ability to purchase extended
service contracts and insurance coverages, including credit life and
accident/disability coverages (collectively "F&I Products"). The extended
service contracts provide customers with coverage for mechanical engine
breakdown for a period (usually 36 or 48 months) beginning after the stated
warranty term of the original manufacturer expires. The insurance coverages
provide the customer with funds to repay a portion or all of their boat loan in
the event of death, disability or other covered event.
Since we have business relationships with numerous financial lenders we
also offer to assist our customers in obtaining financing for their boat
purchase. If the customer purchases F&I Products or utilizes financing we have
helped arrange, we earn commissions based upon our total volume of sales or the
amount of mark-up we charge over the cost of the products sold.
Net sales of F&I products contributed approximately $313,000, or 11.8%, of
total gross profit in the first quarter of fiscal 2004, as compared to $397,000
or 11.3%, of total gross profit for the first quarter of the prior fiscal year.
Net sales attributable to F&I Products are reported on a net basis, therefore,
all of such sales contribute directly to the Company's gross profit. The costs
associated with the sale of F&I Products are included in selling, general and
administrative expenses. Management attributes the improvement in F&I income, as
a percentage of total gross profit, to (i) improved training and (ii)
implementing processes that allow for remote handling of F&I functions in
several markets which had previously under-performed relative to certain of our
Company benchmarks and goals. Additionally, in fiscal 2003, our sales of larger,
more expensive yachts over 35 feet in length declined and we eliminated yachts
from our product offering. We believe this is a benefit to F&I income as a
percent of our net sales since the percentage of customers buying F&I products
13
(which is referred to as "penetration"), is historically greater among
purchasers of our Travis Edition boats that are less than 25 feet in length.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $5.5 million in the first quarter of fiscal
2004 from $7.5 million for the first quarter of fiscal 2003. As a percent of net
sales, selling, general and administrative expenses decreased to 41.1% in the
first quarter of fiscal 2004 from 41.8% for the first quarter of fiscal 2003.
The decrease in selling, general and administrative expenses, in actual
dollars, for the quarter ended December 31, 2003 versus the same quarter of the
prior year was primarily attributable to decreases in certain expenses,
including wages, rents, taxes insurance and advertising expenses. These
reductions in expenses were generally related to operating fewer store locations
(30 vs. 34) and the expense containment strategies adopted in fiscal 2003 in
conjunction with the business plan implemented by the Company to (i) eliminate,
or in the alternative, materially reduce the operating losses experienced during
the past several fiscal years, and (ii) to allow the Company to generate
additional cash reserves. Although rent expenses declined in actual dollars,
this was somewhat offset by increased rents resulting from new leases on two (2)
stores pursuant to sale/leaseback transactions completed in September 2003 (see
Depreciation and Amortization Expenses).
Depreciation and Amortization Expenses. Depreciation and amortization
expenses decreased to $537,000 in the first quarter of fiscal 2004 from $657,000
for the first quarter of fiscal 2003. Depreciation and amortization expenses, as
a percentage of net sales, were 4.0% for the first quarter of fiscal 2004,
compared to 3.7% in the same quarter of the prior fiscal year.
The decrease in depreciation and amortization expenses, in actual dollars,
was primarily attributable to reductions in fixed assets (buildings) related to
the sale of two (2) stores pursuant to sale/leaseback transactions effective in
September 2003 (see Selling, General and Administrative Expenses).
Interest Expense. Interest expense decreased to $678,000 in the first
quarter of fiscal 2004 from $812,000 in the first quarter of fiscal 2003.
Interest expense, as a percent of net sales, increased to 5.1% from 4.5% of net
sales in the same periods.
The decreased interest expense, in actual dollars, was primarily the result
of significantly lower balances on our inventory based lines of credit due to
the significant reductions in the levels of inventory held and the product
transition discussed in Net Sales. The Company has successfully reduced
inventory levels to reflect sales trends and as a result of the sell-through of
aged and discontinued inventories during fiscal 2003.
Although our strategy is to maintain lower inventory levels and improve
inventory turns, we anticipate continuing to utilize significant amounts of
third party financing sources to support our inventories and other assets.
Accordingly, we are subject to the impact of increases in interest expenses and
other costs associated with such borrowings.
Income Taxes. Our federal income tax return for the 12 months ended
December 30, 2002 fully exhausted all available refunds of federal income taxes
14
previously paid by our Company. Beginning with the quarter ended March 31, 2003,
the Company has not recognized any income tax benefits on our books from
operating losses, due to uncertainties associated with the utilization of the
operating loss carry-forwards in future periods. Accordingly, the Company did
not record an income tax benefit for the three month period ended December 31,
2003.
Net Loss. For the quarter ended December 31, 2003, the Company, after
preferred stock dividends, reported a net loss of $4.1 million ($.96 per basic
and diluted share). Comparatively, for the quarter ended December 31, 2002, the
Company, after inclusion of an income tax benefit of $1.8 million and preferred
stock dividends, reported a net loss of $3.7 million ($.86 per basic and diluted
share).
Liquidity and Capital Resources
Our short-term cash needs are primarily for working capital to support
operations, including inventory requirements, off-season liquidity and store
infrastructure. These short-term cash needs have historically been financed with
cash from operations and further supplemented by borrowings under our floor plan
and revolving credit lines (collectively the "Borrowing Agreements").
On December 31, 2003, we had approximately $1.0 million in cash, $4.4
million in accounts receivable (primarily contracts in transit from sales,
manufacturer rebates receivable and other amounts due from manufacturers) and
$38.2 million in inventories. Contracts in transit are amounts receivable from a
customer or a customer's financial institution related to that customer's
purchase of a boat. These asset balances were offset by approximately $4.1
million of accounts payable and accrued liabilities, $35.1 million outstanding
under our Borrowing Agreements and approximately $2.3 million in short-term
indebtedness including current maturities of notes payable of approximately
$984,000 and convertible subordinated promissory notes in the $1.3 million (see
also Contractual Commitments and Commercial Commitments).
On December 31, 2003, we had working capital of approximately $3.1 million.
Working capital, as of that date, was negatively impacted by the net loss and
the aforementioned $2.3 million in short-term indebtedness.
For the three months ended December 31, 2003, operating activities utilized
cash flows of $10.3 million due primarily to an increase of $7.3 million in
inventories. The Company historically builds inventory balances during the
quarter ended December 31, in advance of the seasonal boat shows. The boat shows
generally begin during January and continue through March of each year.
Historically, inventory continues to increase through the March quarter based on
boat show volumes and seasonal sales increases. Inventories generally fall to a
seasonal low in the September quarter.
For the three months ended December 31, 2003, investing activities provided
cash flows of $209,000. This was primarily a result of the Company selling the
land and buildings associated with a location in Little Rock, Arkansas that had
been closed during the prior 2003 fiscal year.
15
Financing activities during the quarter ended December 31, 2003 provided
cash flows of $7.7 million primarily from the net proceeds of funds borrowed
under our inventory borrowing agreements for the purchase of our off-season and
boat show inventories. Our primary financing agreements are for the purchase of
our boat, motor and trailer inventories.
Inventory Borrowing Agreements. We finance substantially all of our
inventory pursuant to borrowing agreements with two commercial finance companies
- -- Transamerica Commercial Finance Corporation ("TCFC") and GE Commercial
Distribution Finance Corporation ("GE") (formerly known as Deutsche Financial
Services Corporation ("DFS")). The agreements contain substantially similar
terms and financial covenants. As of December 31, 2003, the maximum aggregate
borrowing availability was limited to a maximum credit limit of $60.0 million at
various prime based or LIBOR based interest rates (varying from 4.12% to 4.75%)
and approximately $35.1 million was outstanding. The borrowing agreements are
primarily for the purchase of inventories and, to a lesser extent, provide
available amounts for general working capital requirements. Based on the terms
of the borrowing agreements we could request for the lenders to advance funds to
manufacturers for additional inventory purchases up to the remaining available
credit limit. As we purchase inventory, we authorize our lenders to remit
payment directly to the manufacturers pursuant to our borrowing agreements.
Substantially all inventory, accounts receivable, furniture, fixtures,
equipment, real estate (junior liens) and intangible assets collateralize these
borrowing agreements. The terms of the borrowing agreements also provide for
fees for administrative monitoring and for any unused portions of available
credit. Also, various manufacturers provide us or our lenders with interest
expense assistance under the inventory borrowing agreements in order to
subsidize the carrying cost of inventory. Accordingly, no interest expense is
recorded during portions of the year (generally August through May) for certain
limited borrowings under these agreements. Discontinuance of these agreements
could result in an increase to interest expense. Acquisitions, the payment of
common stock dividends or repurchases of our common stock are also substantially
limited without prior consent.
The borrowing agreements, which originated in fiscal 2000, expired during
fiscal 2003 and were subsequently renewed through October 15, 2003 pending each
lender's review of our request for a 12-month renewal term. In January 2004, we
were notified by each lender that, subject to appropriate documentation and no
defaults or material adverse changes prior thereto, our new expiration date will
be in October 2004. The renewed borrowing agreements are expected to include
loan agreements containing various loan covenants and borrowing restrictions,
including, but not limited to, minimum financial ratios governing net worth,
inventory turn, accounts receivable turn and percentage levels of operating
expenses. The Company believes that it will successfully complete and execute
renewed inventory borrowing agreements that will provide financing amounts that
are sufficient for the Company's planned level of operations and with terms and
conditions that are acceptable to the Company. However there can be no assurance
that such agreements will be completed or if completed that they will have final
terms acceptable to the Company. Also, any material shortfalls or variances from
anticipated performance or the timing of certain expenses or revenues could
require us to seek further amendment to our borrowing agreements, additional
equity capitalization or alternate sources of financing.
16
As of the date of this report on Form 10-Q/A, management believes the
Company to be in compliance with all terms and conditions of its borrowing
agreements.
During the quarter ended December 31, 2003 and in the period prior to the
date of this Report on Form 10-Q/A, the Company also entered into additional
note payable transactions.
$5,300,000 Real Estate Loan. The Company entered into a real estate loan
during November 2003 in the original principal amount of $5.3 million. The loan
has a three year maturity. Interest payments are due monthly based upon interest
at 12%, and all principal is repayable at maturity. Proceeds of the loan were
used to refinance other real estate indebtedness maturing December 31, 2003 in
the approximate amount of $3.7 million and the remainder was used for
transaction expenses and general working capital. The loan is secured by a first
lien on the land and buildings of the Company's store locations in Atlanta,
Georgia; Clearwater, Florida, San Antonio, Texas; Claremore, Oklahoma;
Pascagoula, Mississippi; and Bossier City, Louisiana and Baton Rouge, Louisiana.
$500,000 Line of Credit From Tracker. Due in part to the additional working
capital requirements needed to facilitate the Company's significant product and
brand transition (primarily the introduction of off-shore fishing boat models
and elimination of its yacht sales) and the seasonal decline in sales
experienced during the quarter ended December 31, 2003, management and the
Company's controlling shareholder determined that additional working capital
financing was necessary to enhance general working capital prior to the
Company's historic seasonal volume increases in net sales from the boat shows
beginning in January and also to adequately prepare the Company for the increase
in demand traditionally associated with the spring and summer months.
Thus, on February 6, 2004, the Company agreed to terms with its controlling
shareholder, TMRC, LLP, ("Tracker") (See Note - 1), for a $500,000 line of
credit. The terms of the line of credit are set forth in a promissory note
payable to Tracker on demand at any time on or after May 5, 2004 (the "Note"),
The note provides that the Company, at the discretion of the Operating Committee
of its Board of Directors, may request advances up to the aggregate amount of
$500,000. Advances made pursuant to the Note will bear interest at a rate of 10%
until the earlier of the date demand is made by Tracker for repayment or January
5, 2005 at which time the rate will increase to 18% on any unpaid principal and
accrued, but unpaid, interest amounts. The Note is generally unsecured, subject
to Tracker retaining a right of offset with respect to any cash, credits,
rebates, deposits, accounts, securities, and any other property of the Company
in Tracker's possession, custody or control.
As a pre-condition to the Note, Tracker required that the Company take the
following actions, all of which were approved by the Company's board of
directors on February 6, 2004:
o Declare that the dividend in the aggregate amount of $240,000 to the holder
of the Corporation's 6% Series A Cumulative Convertible Preferred Stock
(Tracker) with respect to the regular quarterly dividends for the quarters
ended September 30, 2003, and December 31, 2003, will be a cash dividend
payable, together with interest accrued thereon, on or before May 5, 2004.
17
o Re-establish the Operating Committee of its Board of Directors. The
Operating Committee, which consists of Kenneth N. Burroughs, Robert Ring,
and Richard Birnbaum, is to: (i) determine whether additional borrowings
are necessary pursuant to the Note; and with respect thereto to review the
overall financial operations and expenses of the Company, and (ii) carry
out such duties without the necessity of further actions or approval by the
entire Board of Directors.
As of the date of this report on Form 10-Q/A, the Company has received
$200,000 from Tracker under the Note.
As evidenced by management's decision to seek additional financing in the
form of the Note, material shortfalls or variances from anticipated performance
or the timing of certain expenses or revenues may result in an adverse impact on
our business, financial condition and results of operations requiring us to seek
additional equity capitalization, borrowings or other alternate sources of
financing.
Contractual Commitments and Commercial Commitments
The following table sets forth a summary of our material contractual
obligations and commercial commitments as of December 31, 2003:
Year Ended September 30, Line of Long-Term Convertible Operating Total
(000's) Credit Debt Notes Leases
- ------------------------ --------- -------------- ------------- -------------- ------------
2004 $ 35,116(1) $ 902 $ 2,201 $ 38,219
2005 251 $ 1,300(2) 2,378 3,929
2006 656 1,952 2,608
2007 5,687 1,406 7,093
2008 44 932 976
Thereafter 108 2,177 2,285
--------- -------------- ------------- -------------- ------------
Total $ 35,116 $ 7,648 $ 1,300 $ 11,046 $ 55,110
========= ============== ============= ============== ============
(1) Our inventory Borrowing Agreement matured in October 2003. As of the
date of this Report on Form 10-Q/A, we have been notified by each lender that
subject to appropriate documentation our new expiration date will be in October
2004.
(2) Convertible promissory notes mature in December 2004. The Notes
originated in 2001 and accrue interest at 10.75%, fixed. The principal and
interest amounts payable pursuant to the Notes are subordinated, in
substantially all respects, to the Company's Borrowing Agreements with the
commercial finance companies providing inventory and working capital financing
for the Company. The Notes are redeemable by the Company, and if not redeemed
the principal amount of the Notes may be converted by the holders into the
Company's common stock at a conversion price of approximately $2.46 per share.
18
Seasonality
Our business, as well as the sales demand for various types of boats, tends
to be highly seasonal. Our strongest sales period historically begins in
January, because many boat and recreation shows are held in that month. Strong
sales demand continues from January through the summer months. Of our average
annual net sales over the last three fiscal years, over 27% occurred in the
quarter ending March 31 and over 37% occurred in the quarter ending June 30.
With the exception of our store locations in Florida, our sales are generally
significantly lower in the quarter ending December 31. Because the overall sales
levels (in most stores) in the December quarter are much less than in the months
with warmer weather, we generally have a substantial operating loss in the
quarter ending December 31. Because of the difference in sales levels in the
warm spring and summer months, versus the cold fall and winter months, if our
sales in the months of January through June are weak as a result of lackluster
consumer demand, timing of boat shows, bad weather or lack of inventory we will
likely suffer significant additional operating losses.
Our business is also significantly affected by weather patterns. Weather
conditions that are unseasonable or unusual may adversely affect our results of
operations. For example, drought conditions or merely reduced rainfall levels,
as well as excessive rain, may affect our sale of boating packages and related
products and accessories.
Quarterly results may fluctuate due to many factors. Some of these factors
include, weather conditions, timing of special events such as boat shows,
availability of product and the opening or closing of store locations. The
Company also believes that the net sales for the quarter ended December 31, 2003
were impacted by the significant product and brand transition. This included the
elimination of yacht sales and the Company's introduction of new models of
off-shore fishing boats. Accordingly, the results for any quarterly period may
not be indicative of the expected results for any other quarterly period (see
Management's Discussion and Analysis - Net sales).
CRITICAL ACCOUNTING POLICIES
We have identified the policies below as critical to our business
operations and the understanding of our results of operations. The impact and
any associated risks related to these policies on our business operations is
discussed throughout Management's Discussion and Analysis of Financial Condition
and Results of Operations when such policies affect our reported and expected
financial results.
In the ordinary course of business, we have made a number of estimates and
assumptions relating to the reporting of results of operations and financial
condition in the preparation of our financial statements in conformity with
accounting principles generally accepted in the United States. We base our
estimates on historical experience and on various other assumptions that we
believe are reasonable under the circumstances. The results form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results could differ
19
significantly from those estimates under different assumptions and conditions.
We believe that the following discussion addresses our most critical accounting
policies, which are those that are most important to the portrayal of our
financial condition and results of operations and require our most difficult,
subjective, and complex judgments, often as a result of the need to make
estimates about the effect of matters that are inherently uncertain.
Revenue Recognition
We record revenue on sales of boats, motors, trailers, and related
watersport parts and accessories upon delivery and acceptance by the customer at
the closing of the transaction. We record revenues from service operations at
the time repair or service work is completed.
We refer customers to various financial institutions to assist the
customers in obtaining financing for their boat purchase. For each loan the
financial institutions are able to fund as a result of the referral, we receive
a fee. Revenue that we earn for financing referrals is recognized when the
related boat sale is recognized. The fee amount is generally based on the loan
amount and the term. Generally, we must return a portion of the fee amount
received if the customer repays the loan or defaults on the loan within a period
of up to 180 days from the initial loan date. We record such refunds, which are
not significant, in the month in which they occur.
Revenues from insurance and extended service agreements are recorded at the
time such agreements are executed which generally coincides with the date the
boat, motor and trailer is delivered. Such revenues are not deferred and
amortized over the life of the insurance or extended service agreement policies,
because we sell such policies on behalf of third party vendors or
administrators. At the time of sale, we record a fee for insurance and extended
service agreements net of the related fee that is paid to the third-party
vendors or administrators. Since our inception, we have incurred no additional
costs related to insurance or extended service agreements beyond the fees paid
to the third party vendors at the time of sale.
Allowance for Doubtful Accounts
Accounts receivable consist primarily of amounts due from financial
institutions upon sales contract funding, amounts due from manufacturers or
vendors under rebate programs, amounts due from manufacturers or vendors under
warranty programs and amounts due from customers for services. The Company
routinely evaluates the collectibility of accounts receivable focusing on
amounts due from manufacturers, vendors and customers. If events occur and
market conditions change, causing collectibility of outstanding accounts
receivable to become unlikely, the Company records an increase to its allowance
for doubtful accounts. The Company evaluates the probability of collection of
outstanding accounts receivable based on several factors which include but are
not limited to the following: 1) age of the outstanding accounts receivable, 2)
financial condition of the manufacturer, vendor or customer, and 3) discussions
or correspondence with the manufacturer, vendor or customer. The Company
determines the allowance for doubtful accounts based upon both specific
identification and a general allowance for accounts outstanding for a specified
period of time.
20
Inventory Valuation
Our 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. If the carrying amount of our inventory exceeds its
fair value, we write down our inventory to its fair value. We utilize our
historical experience and current sales trends as the basis for our lower of
cost or market analysis. Changes in market conditions, lower than expected
customer demand, closing of additional store locations and changing technology
or features could result in additional obsolete inventory that is unsaleable or
only saleable at reduced prices, which could require additional inventory
reserve provisions.
Additional events and market conditions include but are not limited to the
following: 1) deteriorating financial condition of the manufacturer resulting in
discontinuance and lack of manufacturer's warranty for certain boats, motors or
other products, 2) introduction of new models or product lines by manufacturers
resulting in less demand for previous models or product lines, 3) Company
initiatives to promote unit sales and reduce inventory levels for new and/or
used inventory by reducing sales prices, and 4) Competing boat retailers in
various markets in which the Company operates may offer sales incentives such as
price reductions.
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. The Company routinely evaluates its
recorded deferred tax assets to determine whether it is more likely than not
that such deferred tax assets will be realized. During the quarter ended
September 30, 2002, the Company determined that for deferred tax assets that
could not be realized by carryback to prior tax years it was more likely than
not that such deferred tax assets would not be realized and accordingly a full
valuation allowance has been recorded for these deferred tax assets since that
time.
Impairment of Long-lived Assets
Long-lived assets consist primarily of property and equipment and
intangible assets. Property and equipment and other intangible assets are
carried on the Company's financial statements based on their cost less
accumulated depreciation or amortization. The Company evaluates property and
equipment and other intangible assets held and used by the Company for
impairment whenever events or changes in circumstances indicate that their net
book value may not be recoverable. When such factors and circumstances exist,
the Company compares the projected undiscounted future cash flows associated
with the future use and disposal of the related asset or group of assets to
their respective carrying amounts. Impairment, if any, is measured as the excess
of the carrying amount over the fair value, based on market value when
available, or discounted expected cash flows of those assets and is recorded in
the period in which the determination is made.
21
Other
For a more comprehensive list of our accounting policies, including those
which involve varying degrees of judgment, see Note 2, "Summary of Significant
Accounting Policies" in the consolidated audited financial statements of the
Company and notes thereto included in the Company's Report on Form 10-K/A filed
for the fiscal year ended September 30, 2003.
NASDAQ LISTING REQUIREMENTS
We must comply with listing requirements for the Nasdaq Stock Market. We
transferred our common stock to the Nasdaq Small Cap Market effective as of
October 25, 2002. We requested the transfer because our Company did not comply
with all of the requirements for trading on the Nasdaq National Market. By
letter dated as of February 14, 2003 we were notified by Nasdaq that the closing
price for our common stock for the 30 days prior thereto was below the minimum
$1.00 bid price required by Nasdaq Small Cap Market. Later, by letter dated as
of December 2, 2003 we were notified by Nasdaq that we had regained compliance.
By letter dated as of January 15, 2004 we were notified by Nasdaq that the
closing price for our common stock for the 30 days prior thereto had again
fallen below the minimum $1.00 bid price required by the Nasdaq Small Cap
Market. Nasdaq notified the Company that it can regain compliance if the bid
price for the Company's common stock closes at $1.00 per share or more for a
minimum of 10 consecutive trading days prior to July 13, 2004. Alternatively,
Nasdaq has notified the Company that in the event it meets the Nasdaq Small Cap
Market initial listing criteria that Nasdaq will grant the Company up to two (2)
grace periods of 180 additional days each to regain compliance with the minimum
bid price.
In addition, Nasdaq recently adopted a number of corporate governance
listing standards that must be satisfied to maintain listing on the Nasdaq Small
Cap Market. These standards require, among other things, that a company's audit
committee (i) have only "independent" members, and (ii) adopt a qualifying audit
committee charter. While the Company is exempt under Nasdaq Rule 4350(c)(5) and
Nasdaq IM-4350-4 from many of the new governance standards due to its status as
a "controlled company," it will nevertheless need to assess the need to comply
with certain other material requirements in advance of issuing its proxy
statement for the next annual meeting.
Failure to maintain the listing of our common stock on the NASDAQ Small Cap
Market would adversely impact the liquidity of the Company's common stock.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Changes in short-term interest rates on loans from financial institutions
could materially affect the Company's earnings because the interest rates
charged on certain underlying obligations are variable.
At December 31, 2003, a hypothetical 100 basis point change in interest
rates on the Company's Floor Plan and Revolving Line of Credit obligations would
22
result in a change of approximately $351,000 in annual pre-tax expenses of the
Company. The estimated change in expenses is based upon the change in interest
expense of the Company's variable rate Floor Plan and Revolving Line of Credit
obligations and assumes no change in the volume or composition of such debt at
December 31, 2003.
Item 4. Controls and Procedures
An evaluation as of the end of the period covered by this quarterly report
was carried out under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's "disclosure controls and procedures," which are defined under SEC
rules as controls and other procedures of a company that are designed to ensure
that information required to be disclosed by a company in the reports that it
files under the Exchange Act is recorded, processed, summarized and reported
within required time periods. Based upon that evaluation, the Company's Chief
Executive Officer and the Company's Chief Financial Officer concluded that,
while the Company's disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company required to be
included in the Company's periodic SEC filings, further efforts need to be made
to ensure that such filings are made within the time periods specified by the
SEC's rules and forms. Specifically, with respect to recent untimely filings,
the Company did not coordinate travel schedules of executive management and
Board members to allow for obtaining signatures prior to filing deadlines. The
Company has taken actions to ease this process.
The Company's management, including the Company's Chairman and Chief
Executive Officer and its Executive Vice President and Chief Financial Officer,
has evaluated any changes in the Company's internal control over financial
reporting that occurred during the quarterly period covered by this report, and
has concluded that there was no change during the Company's first quarter of its
2004 fiscal year that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, our Company is involved in litigation relating to claims
arising from its normal business operations. Currently, our Company is a
defendant in several lawsuits.
In January 2003, the Company received notice of a lawsuit filed in the U.S.
Bankruptcy Court for the Northern District of Illinois on behalf of the
bankruptcy estate for Outboard Marine Corporation ("OMC"). The Company has
denied the allegations in this lawsuit and finds them without merit. OMC was a
primary supplier of outboard engines to our Company prior to OMC's bankruptcy in
December of 2000. The suit alleges that the Company received payments from OMC
that were are deemed to be preferential payments under applicable bankruptcy
law, and demands the repayment thereof.
The Company, based upon review of the case and discussions with legal
counsel, believes the lawsuit to be similar to numerous filed against former OMC
dealers and that it is without merit. There is no guarantee that our Company
will prevail in defense of this or other lawsuits. If any lawsuit were to result
in a substantial unfavorable verdict or resolution for the Company it could have
a material adverse impact on the results of operations.
23
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
$500,000 Line of Credit From Tracker. Due in part to the additional working
capital requirements needed to facilitate the Company's significant product and
brand transition (primarily the introduction of off-shore fishing boat models
and elimination of its yacht sales) and the seasonal decline in sales
experienced during the quarter ended December 31, 2003, management and the
Company's controlling shareholder determined that additional working capital
financing was necessary to enhance general working capital prior to the
Company's historic seasonal volume increases in net sales from the boat shows
beginning in January and also to adequately prepare the Company for the increase
in demand traditionally associated with the spring and summer months.
Thus, on February 6, 2004, the Company agreed to terms with its controlling
shareholder, TMRC, LLP, ("Tracker") (See Note - 1), for a $500,000 line of
credit. The terms of the line of credit are set forth in a promissory note
payable to Tracker on demand at any time on or after May 5, 2004 (the "Note"),
The note provides that the Company, at the discretion of the Operating Committee
of its Board of Directors, may request advances up to the aggregate amount of
$500,000. Advances made pursuant to the Note will bear interest at a rate of 10%
until the earlier of the date demand is made by Tracker for repayment or January
5, 2005 at which time the rate will increase to 18% on any unpaid principal and
accrued, but unpaid, interest amounts. The Note is generally unsecured, subject
to Tracker retaining a right of offset with respect to any cash, credits,
rebates, deposits, accounts, securities, and any other property of the Company
in Tracker's possession, custody or control.
As a pre-condition to the Note, Tracker required that the Company take the
following actions, all of which were approved by the Company's board of
directors on February 6, 2004:
o Declare that the dividend in the aggregate amount of $240,000 to the holder
of the Corporation's 6% Series A Cumulative Convertible Preferred Stock
(Tracker) with respect to the regular quarterly dividends for the quarters
ended September 30, 2003, and December 31, 2003, will be a cash dividend
payable, together with interest accrued thereon, on or before May 5, 2004.
o Re-establish the Operating Committee of its Board of Directors. The
Operating Committee, which consists of Kenneth N. Burroughs, Robert Ring,
and Richard Birnbaum, is to: (i) determine whether additional borrowings
are necessary pursuant to the Note; and with respect thereto to review the
overall financial operations and expenses of the Company, and (ii) carry
out such duties without the necessity of further actions or approval by the
entire Board of Directors.
24
As of the date this report on Form 10-Q/A, the Company has received
$200,000 from Tracker under the Note.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Number Description Incorporated by Reference to:
10.91 Line of Credit Promissory Included herein.
Note from Travis Boats &
Motors, Inc. to TMRC, L.L.P.,
in the amount of $500,000,
dated February 2, 2004
31.1 Certification Pursuant to Not applicable.
Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification Pursuant to Not applicable.
Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant to Not applicable.
Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification Pursuant to Not applicable.
Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
During the quarter ended December 31, 2003 through the date of this Report
on Form 10-Q/A, the Company filed the following Reports on Form 8-K:
January 12, 2004 Report on Form 8-K for financial statements and exhibits
including incorporation of press releases dated May 6, 2003; August 4, 2003 and
December 2, 2003 issued by the Company.
February 3, 2004 Report on Form 8-K for financial statements and exhibits
including incorporation of press releases dated February 3, 2004 issued by the
Company.
February 20, 2004 Report on Form 8-K describing a change in the Company's
certifying accountant.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereto duly authorized.
Date: January 20, 2005 TRAVIS BOATS & MOTORS, INC.
By: /s/ Michael B. Perrine
------------------------------------------
Michael B. Perrine
Chief Financial Officer, Treasurer and Secretary
(Principal Accounting and Financial Officer)
EXHIBIT INDEX
The following exhibits are filed with this report.
Exhibit No. Exhibit Description
10.91 Line of Credit Promissory Note from Travis Boats & Motors,
Inc. to TMRC, L.L.P., in the amount of $500,000 dated
February 2, 2004 (Incorporated by reference to the Company's
Form 10-Q filed with the Commission on February 17, 2004
(file no. 000-20757)
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
26