UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM // TO //
COMMISSION FILE NO. 0-21451
BOWLIN OUTDOOR ADVERTISING & TRAVEL CENTERS INCORPORATED
(Name of small business issuer in its charter)
NEVADA 85-0113644
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
150 LOUISIANA NE, ALBUQUERQUE, NM 87108
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 505-266-5985
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
Title of each class Name of each exchange
on which registered
NONE NONE
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SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
COMMON STOCK, $.001 PAR VALUE
-----------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes /X/ No / /
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. / /
The issuer's revenues for its most recent fiscal year were $25,150,931.
The aggregate market value of the voting stock held by non-affiliates of the
registrant at April 21, 1997 was $9,113,775.
The number of shares of Common Stock, $.001 par value, outstanding as of
April 21, 1997: 4,384,848
DOCUMENTS INCORPORATED BY REFERENCE:
The following documents are incorporated by reference, in this report in the
Part(s) indicated: Information Statement for 1997 Annual Meeting of Stockholders
- - Part III.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-KSB constitute
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, and should be read in conjunction with the
Consolidated Financial Statements of BOWLIN Outdoor Advertising & Travel Centers
Incorporated, a Nevada Corporation (together with its subsidiaries the "Company"
or "BOWLIN") and the notes thereto. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors that could cause the
Company's actual results to differ materially from those contained in these
forward-looking statements, including those set forth under the heading "RISK
FACTORS" under ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
and the risks and other factors described elsewhere herein. The cautionary
factors, risks and other factors presented should not be construed as
exhaustive. The Company assumes no obligation to update these forward looking
statements to reflect actual results, changes in assumptions or changes in other
factors affecting such forward looking statements.
COMPANY OVERVIEW
The Company is a regional leader in the operation of travel centers and
outdoor advertising displays dedicated to serving the traveling public in rural
and smaller metropolitan areas of the Southwestern United States. The Company's
tradition of serving the public dates back to 1912, when the Company's founder,
Claude M. Bowlin, started trading goods and services with Native Americans in
New Mexico. BOWLIN currently operates fourteen full-service travel centers and
one free-standing Dairy Queen/Brazier restaurant along interstate highways in
Arizona and New Mexico where there are generally few gas stations, convenience
stores or restaurants. The Company advertises its travel centers through a
network of over 350 outdoor advertising display faces. In addition to a variety
of unique Southwestern merchandise, the Company's travel centers offer brand
name food and gasoline to the traveling public. The Company believes that its
"co-branding" strategy of offering complementary brand name food and gasoline
products results in increased customer traffic and it intends to continue to
actively pursue additional co-branding opportunities.
In addition to its travel centers, the Company operates over 1,780
revenue-generating outdoor advertising display faces for third party customers
such as hotels and motels, restaurants and consumer products. These display
faces are strategically situated along interstate highways primarily in Arizona
and New Mexico, and, to a lesser extent, in Colorado, Oklahoma and Texas. In
addition to the leasing of advertising space, the Company provides a
comprehensive range of outdoor advertising services to its clients, including
customized design and production services. Although the Company faces
substantial competition in each of its operational areas, the Company believes
that few of its competitors offer the same breadth of products and services
dedicated to the traveling public.
The Company was incorporated in New Mexico in 1953 and reincorporated under
the laws of Nevada in 1996. In December 1996, the Company completed an initial
public offering ("IPO") for the sale of 1,100,000 shares of common stock, $.001
par value, at a price of $8.00 per share. The net proceeds from the IPO were
used to reduce a portion of the Company's outstanding indebtedness and will be
used for general corporate purposes, including, but limited to, funding future
expansion of its outdoor advertising and travel center operations.
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RECENT DEVELOPMENTS
On April 1, 1997, the Company acquired all of the assets and assumed
certain liabilities of the outdoor advertising division of The McCarty Company
(known as Pony Panels) for $4.2 million cash. Brian McCarty, a member of the
company's Board of Directors, is the majority shareholder of The McCarty
Company. The purchased assets consisted primarily of accounts receivable,
prepaid assets, sign structures, vehicles, machinery, operating equipment,
office furniture and equipment, lease rights and goodwill. The liabilities
consisted primarily of trade accounts payable. The purchase price was funded
from working capital ($1.7 million) and bank debt ($2.5 million) provided by
Norwest Bank Minnesota, N.A. at the bank's prime rate (8.5% at closing and
matures on April 2, 2007. The bank debt is subject to certain financial and
other restrictive covenants.
INDUSTRY OVERVIEW
Outdoor Advertising Industry. According to recent estimates by the Outdoor
Advertising Association of America ("OAAA"), outdoor advertising generated total
revenues of approximately $1.8 billion in 1995, representing growth of
approximately 8.2% over 1994. Although outdoor advertising represents only
slightly over 1% of total U.S. advertising expenditures, this segment is growing
at a faster rate than such traditional advertising media as radio, television
and newspaper, which increased by 7.7%, 6.1% and 5.7%, respectively, during the
same period. Outdoor advertising offers repetitive impact and a relatively low
cost-per-thousand impressions as compared to broadcast media, newspapers,
magazines and direct mail marketing, making it attractive to both local
businesses targeting a specific geographic area or set of demographic
characteristics and national advertisers seeking mass market support. Outdoor
advertising services have recently expanded beyond billboards to include a wide
variety of out-of-home advertising media, including advertising displays in
shopping centers, malls, airports, stadiums, movie theaters and supermarkets, as
well as on taxis, trains, buses and subways. The OAAA estimates that total
out-of-home advertising revenues, including traditional billboard advertising,
exceeded $3.5 billion in 1995.
Outdoor advertising provides advertisers with a cost effective means of
reaching large audiences and is often used by businesses as part of an overall
multimedia advertising campaign to reach their target geographic or demographic
markets. In addition to its low cost-per-thousand impressions, because outdoor
advertising reaches potential customers close to the point-of-sale, restaurants,
motels, service stations and similar businesses find outdoor advertising
particularly effective. In addition, repeated viewing by people traveling the
same route on a daily basis makes outdoor advertising especially suitable for
companies such as banks, insurance companies, and soft drink manufacturers that
sell their products by promoting a particular image.
The outdoor advertising industry uses three standardized display formats:
traditional bulletin-style painted billboards (with a typical face size of 14
feet by 48 feet), 30-sheet posters (with a typical face size of 12 feet by 25
feet) and junior or 8-sheet posters (with a typical face size of 6 feet by 12
feet). Generally, the physical advertising structure is owned by the outdoor
advertising company and is built on locations either owned or leased by the
operator or on which it has a permanent easement. Traditionally, outdoor
advertising displays are leased to advertisers on a unit basis. Advertising
rates for outdoor advertising media are based on such factors as the size of the
advertising display, visibility, cost of leasing, construction and maintenance
and the number of people who have the opportunity to see the advertising
message.
The outdoor advertising market is highly fragmented but is dominated in the
large DMAs by a few sizable firms, several of which are subsidiaries of
diversified companies. In addition to the large outdoor advertising firms, there
are many smaller regional and local companies operating a limited number of
displays in a single or a few local markets. The OAAA estimates that there are
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approximately 1,000 companies in the industry operating a total of approximately
396,000 displays. There has been a trend toward consolidation in the outdoor
advertising industry in recent years and the Company expects this trend to
continue.
Travel Services Industry. The travel services industry in which the Company
competes includes convenience stores which may or may not offer gasoline, and
fast food and full-service restaurants located along rural interstate highways.
The Company believes that the current trend in the travel services industry is
toward strategic pairings at a single location of complementary products that
are noncompetitive, such as brand name gasoline and brand name fast food
restaurants. This concept, known as "co-branding," has recently seen greater
acceptance by both traditional operators and larger petroleum companies. The
industry has also been characterized in recent periods by consolidation or
closure of smaller operators.
The convenience store industry includes both traditional operators that
focus primarily on the sale of food and beverages but also offer gasoline and
large petroleum companies that offer food and beverages primarily to attract
gasoline customers. In 1995, the convenience store industry sold $46.8 billion
worth of merchandise and services and $66.3 billion worth of petroleum products.
The restaurant segment of the travel services industry is highly
competitive, most notably in the areas of consistency of quality, variety,
price, location, speed of service and effectiveness of marketing. The major
chains are aggressively increasing market penetration by opening new
restaurants, including restaurants at "special sites" such as retail centers,
travel centers and gasoline outlets. In addition, smaller quick-service
restaurant chains and franchise operations are focusing on brand and image
enhancement and co-branding strategies.
BUSINESS STRATEGY
Travel Services Business Strategy. The Company opened its first travel
center in 1953 and has since expanded to fourteen travel centers and one
free-standing Dairy Queen/Brazier restaurant. The Company's travel centers are
strategically located along well-traveled interstate highways in Arizona and New
Mexico where there are generally few gas stations, convenience stores or
restaurants. Each of the Company's travel centers has a unique Southwestern
theme, and extensive theme-oriented billboard advertising is used to attract
customers to stop and take advantage of their services.
Most of the Company's travel centers offer food and beverages, ranging form
ice cream and snack foods at some locations to full-service restaurants at
others. In addition to the Company's one free-standing Dairy Queen/Brazier
restaurant, the Company's food service operations at seven of the Company's
fourteen travel centers operate under the Dairy Queen/Brazier or Dairy Queen
trade names.
The Dairy Queen and Dairy Queen/Brazier restaurants feature the signature
Dairy Queen treat line of soft serve dairy products. In addition, the Dairy
Queen/Brazier restaurants offer a full line of hamburger combinations as well as
specialty chicken, fish and barbecue sandwiches.
The Company's travel centers also offer brand name gasolines such as CITGO,
Conoco, Chevron, Texaco and Diamond Shamrock. Effective October 1, 1995, the
Company became an authorized distributor of CITGO Petroleum Corporation, one of
the largest and fastest growing wholesalers of petroleum products in the United
States. The Company has converted six of its existing locations to CITGO
"superpumper" stations. The Company also intends to actively market CITGO
products to other retailers in Arizona and New Mexico.
In addition to offering food and gasoline, each of the Company's travel
center gift shops offers an extensive variety of Southwestern merchandise and
collectibles. Four of the Company's travel centers operate under the Stuckey's
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brand name. The Stuckey's specialty stores are family oriented shops that
feature the Stuckey's line of pecan confectioneries. Stuckey's is well-known
among travelers as a place to shop for souvenirs, gifts and toys and travel
games for children.
The Company's billboard advertising for its travel centers emphasizes this
wide range of unique Southwestern souvenirs and gifts available at the travel
centers, as well as the availability of gasoline and food. Merchandise at each
of the Company's stores is offered at prices intended to suit the budgets and
tastes of a diverse traveling population. The merchandise ranges from
inexpensive Southwestern gifts and souvenirs to unique hand-crafted jewelry,
rugs, pottery, kachina dolls and other gifts crafted specially for BOWLIN by
several Native American tribes. Some stores offer special categories of
collectibles, such as dolls and music boxes.
Outdoor Advertising Business Strategy. The Company operates over 1,780
revenue-generating advertising display faces, primarily in Arizona and New
Mexico and, to a lesser extent, in Colorado, Oklahoma and Texas. Approximately
93% of these display faces are traditional bulletin style and 7% are assorted
poster styles. The Company's bulletin style displays are located primarily on
interstate highways, while the smaller poster sizes are typically used in local
settings by advertisers who prefer to change the display message regularly. The
Company's outdoor advertising displays are strategically located in rural and
smaller metropolitan areas throughout the Southwest, where the dispersion of
population, outdoor lifestyles and leading tourist destinations have created a
strong dependence on highway travel.
The Company began its outdoor advertising operations in 1980 and has grown
into a regional leader in small to medium-sized outdoor advertising markets. The
Company offers its outdoor advertising customers a complete full-service source
for graphic design and printing for the outdoor billboards operated by the
Company. As a result, the Company is able to attract advertisers that have
historically relied on other media in marketing their products and services. The
Company believes it is one of the largest outdoor advertising companies in rural
interstate markets in the Southwest and, in 1995, the Company was ranked by the
OAAA as one of the top 40 outdoor advertising companies in the United States in
terms of gross revenues.
Most of the Company's advertising displays are travel and tourism oriented.
According to the U.S. Travel Data Center in Washington, D.C., nine out of ten
automobile travelers rely on billboards to locate gas, food, lodging and tourist
attractions. In addition, approximately two-thirds of rural market advertisers
are engaged in the travel-tourism industry and rely on billboards as their
primary means of advertising to the traveling public.
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GROWTH STRATEGY
Travel Centers. The Company is committed to expanding its travel center
operations through internal development as well as strategic acquisitions. The
Company plans to further expand its travel center operations in popular tourist
destinations, along heavily traveled interstate corridors and in smaller
metropolitan areas. The Company believes that the co-branding concept that it
has implemented at its travel centers has resulted in increased revenues, and
the Company intends to pursue opportunities to acquire rights to additional
brand name products. The Company is currently in the process of developing new
full service travel centers with CITGO superpumper dispensing facilities at
Picacho Peak, Arizona and near Albuquerque, New Mexico, and expects both of
these centers to be operational by the end of fiscal 1998.
+ The following are the primary components of the Company's strategy for
expanding its travel center operations:
+ Continuing to offer high quality brand name food and products in a clean,
safe environment designed to appeal to travelers on interstate highways.
+ Continuing to increase sales at existing locations through the upgrading of
facilities and the addition of products and services.
+ Pursuing complementary national food and/or merchandise brands to further
implement the Company's co-branding concept.
+ Expanding the Company's travel center operations through internal
development and strategic acquisitions in key tourist destinations, along
heavily traveled interstate highways and in smaller metropolitan areas.
Gasoline Wholesaling. Management believes that gasoline wholesaling
operations represent a potentially significant additional source of revenues to
the Company. The Company was granted a distributorship by CITGO, effective
October 1, 1995. CITGO is among the top five petroleum producers in the United
States and one of the fastest growing brand names of gasoline products in the
country. The Company has converted several of the fuel supply facilities at its
existing travel centers to CITGO superpumpers and, as a wholesaler, intends to
continue to actively market CITGO products to other retailers in New Mexico and
Arizona. The Company intends to target dealerships with annual sales volumes of
600,000 to 1.2 million gallons of gasoline per year.
In October 1995, the Company hired a Petroleum manager to create a plan for
marketing the Company's wholesale gasoline products. In February 1997, the
Company established its first CITGO gasoline products wholesale relationship.
The Company believes that its existing operations and personnel are adequate to
support its gasoline wholesaling operations for at least the next 12 to 18
months. The Company intends to enter into additional agreements with third party
retailers upon terms customary in the wholesale gasoline industry. Such
agreements generally require that retailers purchase gasoline products on an
exclusive basis for a limited term, although either party may terminate such
agreements upon 30 to 60 days written notice. The Company intends to offer its
wholesale gasoline products at a price equal to a certain percentage over the
then current price at which it purchases gasoline products from CITGO.
The CITGO distribution agreement allows the Company to streamline its
gasoline supply arrangements and take advantage of volume-driven pricing by
consolidating purchases from CITGO. The distribution agreement has a three-year
term which expires September 30, 1998, and automatically renews for three-year
terms thereafter. CITGO's ability to terminate or refuse to renew the agreement
with the Company is subject to the occurrence of certain events set forth in the
Petroleum Marketing Practices Act, which events currently include bankruptcy or
breach of the agreement by the Company or termination by CITGO of its petroleum
marketing activities in the Company's distribution area. Pursuant to the terms
of the distribution agreement, the Company is required to purchase certain
minimum quantities of gasoline during the term of the agreement, which includes
gasoline purchased for sale at the Company's travel centers. Since the effective
date of the distribution agreement, the Company's purchases of CITGO products
have substantially exceeded the required minimum quantities.
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Outdoor Advertising. As in the case of its travel centers, the Company
plans to increase its outdoor advertising operations through internal
development as well as acquisition. The Company increased its inventory of
billboard structures by 87 and 85, respectively, in fiscal years 1997 and 1996.
The Company plans to add new billboard structures at a higher incremental rate
each year after 1997, and, by 2001, the Company anticipates that it will be
adding approximately 250 new billboard structures per year to its operations
through internal development, subject to the availability of necessary working
capital and the Company's ability to comply with applicable regulations.
In addition to internal development, the Company plans to increase its
outdoor advertising operations by pursuing strategic acquisitions of outdoor
advertising assets and small to medium-sized outdoor advertising operators (such
as the Company's acquisition of Pony Panels) when appropriate. In accordance
with this growth strategy, the Company routinely engages in discussions with
third parties regarding potential acquisitions. Any such acquisitions would be
subject to the negotiation and execution of definitive agreements, appropriate
financing arrangements, performance of due diligence, approval of the Company's
Board of Directors, the receipt by the Company of unqualified audited financial
statements, and the satisfaction of other customary closing conditions,
including the receipt of third party consents.
Consistent with its past practices, the Company intends to pursue expansion
into markets that are not included in the 50 largest DMAs. The Company believes
that expansion along interstate highways and in smaller metropolitan areas
permits the Company to expand into areas where competition for site acquisitions
is less intense, purchase prices are more favorable and government regulations
are generally less onerous. Marketing efforts in these areas are focused on
local and regional advertisers, thereby allowing the Company to maintain a
diverse client base and limiting reliance on national accounts, including
tobacco advertisers.
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The Company's advertising customers consist largely of local and regional
advertisers, resulting in a diverse client base and limiting reliance on
national advertising clients. Unlike many of its competitors, the Company does
not rely to a significant extent upon tobacco advertisers, which are subject to
increasing regulation. The following table sets forth the categories of
industries from which the Company derived its outdoor advertising net revenues
for the year ended January 31, 1997, and the respective percentages of such net
revenues. The top three business categories accounted for approximately 64.1% of
the Company's total outdoor advertising net revenues and approximately 9.2% of
the Company's total revenues in the year ended January 31, 1997. No single
advertiser accounted for more than 2.0% of the Company's total outdoor
advertising net revenues in such period.
PERCENTAGE OF NET
ADVERTISING REVENUES BY CATEGORY
Hotels and Motels 27.0%
Restaurants 24.0
Retail/Consumer Products 13.0
Travel & Entertainment 13.9
Government 7.7
Automotive 4.1
Services 2.6
Alcohol 0.5
Tobacco *
Other 7.2
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TOTAL 100.0%
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The Company plans to expand its outdoor advertising operations primarily
by:
+ Continuing to develop the Company's presence along interstate highways
in its existing markets throughout the Southwest.
+ Increasing revenues from existing billboards by implementing programs
that maximize advertising rates and occupancy levels.
+ Expanding its operations within current markets through new billboard
construction.
+ Making strategic acquisitions of existing outdoor advertising assets
and small to medium-sized outdoor advertising operations in the less
populated areas of the United States with the objective of becoming a
leader in this niche market.
BUSINESS OPERATIONS
Travel Center Operations. The Company sells food, gasoline and merchandise
through its fourteen travel centers and one free-standing Dairy Queen/Brazier
restaurant located along two interstate highways (I-10 and I-40) in Arizona and
New Mexico. These are key highways for travel to numerous tourist and
recreational destinations as well as arteries for regional traffic among major
Southwestern cities. All of the Company's travel centers are open every day of
the year.
Each of the Company's travel centers maintains a distinct, theme-oriented
atmosphere. In addition to the Southwestern merchandise it purchases from Native
American tribes, the Company also imports some 650 items from Mexico, including
handmade blankets, earthen pottery and wood items. Additional goods, novelties
and imprinted merchandise are imported from several Pacific Rim countries. The
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Company has long-standing relationships with many of its vendors and suppliers.
The Company sells food under the Dairy Queen and Dairy Queen/Brazier brand
names and sells snacks and souvenir merchandise under the Stuckey's brand name.
Pursuant to the terms of its agreements with Stuckey's and Dairy queen, the
company is obligated to pay these franchisors a franchise royalty and in some
instances a promotion fee, each equal to a percentage of gross sales revenues
derived by the Company from products sold pursuant to such agreements, as well
as comply with certain provisions governing the operation of the franchised
stores.
The Company continuously monitors and upgrades its travel center facilities
to maintain a high level of comfort, quality and appearance. Improvements
include new awnings and facings, new signage and enhanced lighting and
furnishings. The Company is also engaged in upgrading its petroleum storage and
dispensing equipment in order to increase fueling capacity and efficiency and to
satisfy new federal guidelines made mandatory by December 1998.
The Company has recently implemented a central warehouse operation in Las
Cruces, New Mexico, with approximately 27,000 square feet of useable space. The
new warehouse facility will allow the Company to increase volume purchases and
the related discounts, reduce transportation costs and improve inventory turn
over and control. In addition, improved data systems will enable the Company to
more effectively monitor and respond to the inventory demands of its travel
centers.
Outdoor Advertising Operations. The outdoor advertising operations of the
Company include leasing of sites, construction of display structures, sales of
advertising space and production and design of display faces. The Company's
leasing department has the responsibility for coordinating land leases with
owners for the right to construct and maintain billboard structures on the
landowner's property. In addition, the leasing department also monitors the
Company's compliance with all government regulations regarding lease rights,
construction and sales of outdoor structures. The Company's construction
division erects billboard structures on any sites acquired by the Company
without a pre-existing structure, with the goal of maximizing the amount of
leaseable area on a particular site.
The Company's sales department, through its local account representatives,
sells advertising space to the Company's clients from its inventory of over
1,780 display faces. The account representatives work with the Company's
clients, their advertising agencies and the company's production department to
provide clients with high quality design and artwork for their billboards.
Although the Company's consistent expansion of its outdoor advertising inventory
results in an advertising occupancy rate of less than 100%, the Company
generally has approximately 75% of its inventory under advertising agreements at
any time.
The Company's production staff performs a full range of activities required
to create and install outdoor advertising. Production work includes creating the
advertising copy design and layout, painting the design or coordinating it
sprinting and installing the design displays. Billboards have historically been
composed of several painted plywood sheets, but recently vinyl facing has begun
to replace plywood in national or regional campaigns using substantially
identical advertisements or requiring high graphics resolution. The increased
use of vinyl and pre-printed advertising copy furnished to the Company by the
advertiser or its agency results in less labor-intensive production work. The
Company believes that this trend may reduce future operating expenses associated
with the Company's production activities.
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COMPETITION
Travel Services Competition. The Company faces competition at its travel
centers from quick-service and full-service restaurants, convenience stores,
gift shops and, to some extent, from truck stops located along interstate
highways in Arizona and New Mexico. Some of the travel centers that the Company
competes with are operated by large petroleum companies, while many others are
small independently owned operations that do not offer brand name food service
or gasoline. Giant Industries, Inc., a refiner and marketer of petroleum
products, operates two travel centers, one in Arizona and one in New Mexico,
which are high volume diesel fueling and large truck repair facilities that also
include small shopping malls, full-service restaurants, convenience stores, fast
food restaurants and gift shops. The Company's principal competition from truck
stops includes Love's Country Stores, Inc., Petro Corporation and Flying J. Many
convenience stores are operated by large, national chains which are
substantially larger, better capitalized and have greater name recognition and
access to greater resources than the Company.
Outdoor Advertising Competition. The Company competes in all of its markets
with other outdoor advertisers as well as other media, including broadcast and
cable television, radio, newspaper and direct mail marketers. The Company has
little competition in its rural markets from other outdoor advertisers, but
encounters direct competition in its smaller metropolitan markets from larger
outdoor media companies, including 3M Media (a division of Minnesota Mining and
Manufacturing Company), WhiteCo Outdoor Advertising and Donrey Outdoor
Advertising, each of which have large national networks and greater resources
than the Company. The Company believes that by concentrating on interstate and
tourist oriented advertising in markets other than the largest 50 DMAs it will
be able to compete more effectively. As the Company expands geographically,
however, it may encounter increased competition from other outdoor advertising
firms, some of whom are substantially larger and have greater name recognition
and access to substantially greater resources than the Company.
EMPLOYEES
As of January 31, 1997, the Company had approximately 142 full-time and 113
part-time employees, 50 of which were located in Arizona and 205 of which were
located in New Mexico. As of January 31, 1997, 108 of the Company's employees
were employed in store/retail sales, 74 employees were employed in the Company's
restaurant operations, 29 employees were employed in the Company's outdoor
advertising operations, 11 employees performed certain warehousing and
distribution services for the Company and 33 employees provided managerial and
administrative services to the Company. None of the Company's employees are
covered by a collective bargaining agreement and the Company believes its
relations with its employees are good.
REGULATION
Travel Centers. Each of the Company's food service operations is subject to
licensing and regulation by a number of governmental authorities relating to
health, safety, cleanliness and food handling. The Company's food service
operations are also subject to federal and state laws governing such matters as
working conditions, overtime and tip credits and minimum wages. The Company
believes that its operations at its fourteen travel centers and one
free-standing Dairy Queen/Brazier restaurant comply in all material respects
with applicable licensing and regulatory requirements; however, future changes
in existing regulations or the adoption of additional regulations could result
in material increases in the Company's costs.
Historically, the Company has incurred ongoing costs to comply with
federal, state and local environmental laws and regulations, primarily relating
to underground storage tanks ("USTs"). These costs include assessment,
compliance and remediation costs, as well as certain ongoing capital
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expenditures relating to the Company's gasoline dispensing operations. Under
recently enacted federal regulations, the Company is obligated to upgrade or
replace all non-complying USTs it owns or operates to meet corrosion protection
and overfill/spill containment standards by December 22, 1998. In response to
such programs, the Company has adopted a policy of replacing its USTs with
above-ground storage tanks to minimize the costs associated with leak detection
and compliance with other regulatory programs. Such tanks have been installed at
all but three of the Company's travel centers, and the Company intends to
complete the installation of above-ground storage tanks at all of its existing
travel centers by the end of fiscal 1998.
The Company incurred approximately $202,000 in capital expenditures in
fiscal 1997, and estimates that it will be required to make additional capital
expenditures of approximately $180,000 in the aggregate by December 1998 to
comply with current federal and state UST regulations. The Company's estimates
of costs to be incurred for environmental assessment and remediation and for
other regulatory compliance are based on present and estimated future
remediation costs and results at UST sites. As certain of these factors and
assumptions could change due to modifications of regulatory requirements at
either federal, state or local levels, detection of unanticipated environmental
conditions, or other unexpected circumstances, the actual costs incurred may
vary significantly from these estimates noted above and may vary significantly
from year to year.
The Company's travel center operations are also subject to extensive laws
and regulations governing the sale of alcohol and tobacco, and fireworks in its
New Mexico travel centers. Such regulations include certain mandatory licensing
procedures and ongoing compliance measures, as well as special sales tax
measures. These regulations are subject to change and future modifications may
result in decreased revenues or profit margins at the Company's travel centers
as a result of such changes. In May, June and July of 1996, the State of New
Mexico issued a temporary ban on the sale of fireworks because of the extreme
fire hazard caused by drought conditions in that state. As a result of the ban,
the Company's revenues at its travel centers from the sale of fireworks
decreased by approximately $140,000 during the period of the ban, as compared to
the same period of the prior fiscal year. Although such a ban was unprecedented,
similar bans could be imposed in the future.
Outdoor Advertising. The outdoor advertising industry is subject to
governmental regulation at the federal, state and local levels. Federal law,
principally the Highway Beautification Act of 1965, as amended (the
"Beautification Act"), encourages states, by the threat of withholding federal
appropriations for the construction and improvement of highways within such
states, to implement legislation to regulate billboards located within 660 feet
of, or visible from, interstate and primary highways except in commercial or
industrial areas. All of the states have implemented regulations at least as
restrictive as the Beautification Act, including the prohibition on the
construction of new billboards adjacent to federally-aided highways and the
removal at the owner's expense and without any compensation of any illegal signs
on such highways. The Beautification Act, and the various state statutes
implementing it, require the payment of just compensation whenever governmental
authorities require legally erected and maintained billboards to be removed from
federally-aided highways.
The states and local jurisdictions have, in some cases, passed additional
and more restrictive regulations on the construction, repair, upgrading, height,
size and location of, and, in some instances, content of advertising copy being
displayed on outdoor advertising structures adjacent to federally-aided highways
and other thoroughfares. Such regulations, often in the form of municipal
building, sign or zoning ordinances, specify minimum standards for the height,
size and location of billboards. In some cases, the construction of new
billboards or relocation of existing billboards is prohibited. Some
jurisdictions also have restricted the ability to enlarge or upgrade existing
billboards, such as converting from wood to steel or from non-illuminated to
illuminated structures. From time to time governmental authorities order the
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removal of billboards by the exercise of eminent domain. Thus far, the Company
has been able to obtain satisfactory compensation for any of its structures
removed at the direction of governmental authorities, although there is no
assurance that it will be able to continue to do so in the future.
In recent years, there have been movements to restrict billboard
advertising of tobacco products. No bills have become law at the federal level
except those requiring health hazard warnings similar to those on cigarette
packages and print advertisements. It is uncertain whether additional
legislation of this type will be enacted on the national or on a local level in
any of the Company's markets. Revenues from tobacco advertisers accounted for
less than 1% of the Company's total advertising revenues in fiscal 1997.
Amortization of billboards has also been adopted in varying forms in
certain jurisdictions. Amortization permits the billboard owner to operate its
billboard as a non-conforming use for a specified period of time until it has
recouped its investment, after which it must remove or otherwise conform its
billboard to the applicable regulations without any compensation. Amortization
and other regulations requiring the removal of billboards without compensation
have been subject to vigorous litigation in state and federal courts and cases
have reached differing conclusions as to the constitutionality of these
regulations. To date, amortization and other regulations in the Company's
markets have not materially adversely affected its operations.
TRADEMARKS
The Company operates its travel centers under a number of its own
trademarks, as well as certain trademarks owned by third parties and licensed to
the Company, such as the Dairy Queen, Dairy Queen/Brazier, Stuckey's and CITGO
trademarks. The Company believes that its trademark rights will not materially
limit competition with its travel centers. The Company also believes that none
of the trademarks it owns is material to the Company's overall business;
however, the loss of one or more of the Company's licensed trademarks could have
an adverse effect on the Company.
ITEM 2. DESCRIPTION OF PROPERTY
As of January 31, 1997, the Company operated fourteen travel centers and
one free-standing Dairy Queen restaurant. The Company owns the real estate and
improvements at which five of its travel centers and its one free-standing Dairy
Queen/Brazier restaurant are located, as well as real estate and improvements at
three additional locations, two of which the Company is currently developing
into travel centers and one of which is leased to a third party restaurant
operator. The property at which three of the travel centers owned by the Company
are operated are subject to mortgages. Nine of the Company's existing travel
centers and one of its travel centers under development are located on real
estate that the Company leases from various third parties. These leases have
terms ranging from five to forty years, assuming exercise by the Company of all
renewal options available under certain leases.
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The Company operated over 1,780 revenue generating outdoor display faces
throughout the Southwest, as of January 31, 1997. The Company typically owns the
billboard and related assets and enters into operating leases with the owners of
the real property upon which the billboards are located. These leases typically
have a term of 1 to 5 years and provide for minimum annual rents. As of January
31, 1997, the Company also owned and operated 55 and 295 non-revenue generating
display faces in Arizona and New Mexico, respectively, which are exclusively
dedicated to the advertisement of its fourteen travel centers and one
free-standing Dairy Queen/Brazier restaurant. Listed below are the locations of
the Company's inventory of revenue-generating display faces as of January 31,
1997.
BILLBOARDS 30-SHEET POSTERS 8-SHEET POSTERS TOTAL
---------- ---------------- --------------- -----
Arizona 136 -- -- 136
Colorado 12 -- -- 12
New Mexico 1,429 62 64 1,555
Oklahoma 4 -- -- 4
Texas 81 -- -- 81
----- ---- ---- -----
TOTAL 1,662 62 64 1,788
===== ==== ==== =====
The Company's principal executive offices occupy approximately 10,000
square feet of space owned by the Company in Albuquerque, New Mexico. The
Company's principal office space is subject to a mortgage which matures on
January 29, 2000 and the principal balance of which accrues interest at the
respective bank's prime rate (8.25% at January 31, 1997). In addition, the
Company owns outdoor advertising production plant and warehouse facilities
consisting of approximately 10,000 square feet in Albuquerque, New Mexico and a
central warehouse and distribution facility occupying 27,000 square feet in Las
Cruces, New Mexico. The Las Cruces property is subject to two mortgages which
mature on October 4, 2000 and May 13, 2003 and each accrues interest on the
unpaid principal balance thereof at a rate of 10% per annum. The Company
believes that its headquarters and warehouse facilities are adequate for its
operations for the foreseeable future.
The Company owns general and limited partnership interests in two New
Mexico limited partnerships, and owns a pecan orchard. One of the partnerships
owns and operates an apartment building in Las Cruces, New Mexico, and the
second partnership owns an unencumbered parcel of undeveloped land located
outside of Las Cruces, New Mexico held primarily for investment purposes. The
apartment building is subject to a 35-year mortgage which matures in 2031, has
an outstanding principal amount of approximately $1.1 million at January 31,
1997, and accrues interest at a rate of 8.125% per annum. Subsequent to year
end, the operations of the pecan orchard were leased to an unrelated third
party. None of these investments has had a material effect on the Company's
business or results of operations and the Company's management does not expect
them to have such effect in the future. Until recently, the Company also owned a
majority of the voting stock of Dragoon Water Company, an Arizona corporation
("Dragoon"). The voting stock of Dragoon was purchased by the Company in order
to ensure the provision of water utilities to one of the Company's largest
travel centers. The Company sold its shares of stock in Dragoon as of October 1,
1996, pursuant to an agreement which ensures the continued provision of
necessary water utilities following the sale. Neither the sale nor the operation
of Dragoon were material to the Company.
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ITEM 3. LEGAL PROCEEDINGS
The Company from time to time is involved in litigation in the ordinary
course of business, including disputes involving advertising contracts, site
leases, employment claims and construction matters. The Company is also involved
in routine administrative and judicial proceedings regarding billboard permits,
fees and compensation for condemnations. The Company is not a party to any
lawsuit or proceeding which, in the opinion of management, is likely to have a
material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders in the
fourth quarter of fiscal 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the NASDAQ National Market under
the symbol "BWLN." On April 21, 1997, there were approximately 30 holders of
record of the Company's Common Stock. The following table sets forth the
quarterly high and low bid prices for the Company's Common Stock. These prices
reflect inter-dealer prices and do not include adjustments for retail mark-ups,
mark-downs or commissions and may not represent actual transactions.
Fiscal Year Ended
January 31, 1997 High Low
- ---------------- ---- ---
Fiscal Quarter Ended 1/31* $ 8.8750 $ 7.3125
*Reflects trading from December 17, 1996, through January 31, 1997.
The Company paid cash dividends of approximately $50,600 and $60,300 in
fiscal years 1997 and 1996, respectively. However, since the completion of its
IPO in December, 1996, the Company has not declared or paid any cash dividends
on its Common Stock, and the present policy of the Board of Directors is to
retain any earnings to provide for the Company's growth. Any future
determination to pay dividends will be at the discretion of the Board of
Directors, and dependent upon the Company's financial condition, results of
operation, capital requirements and such other factors as the Board of Directors
deems relevant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following is a discussion of the consolidated financial condition and
results of operations of the Company as of and for the two fiscal years ended
January 31, 1997 and 1996. This discussion should be read in conjunction with
the Consolidated Financial Statements of the Company and the related Notes
thereto included elsewhere in this Form 10-KSB. References herein to specific
years refer to the Company's fiscal year ending January 31 of such year.
The Company operates in two industry segments, travel centers and outdoor
advertising. In order to permit a meaningful evaluation of the Company's
performance in each of its operating segments, the Company has presented
selected operating data which separately sets forth the revenues, expenses and
operating income attributable to each segment, and also separately sets forth
the corporate expenses of the Company which are not properly allocable to either
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of the Company's segments for purposes of determining their respective operating
income. The discussion of results of operations which follows compares such
selected segment operating data and corporate expense data for the fiscal
periods presented.
RESULTS OF OPERATIONS
The following table presents certain income and expense items derived from
the Consolidated Statements of Income for the years ended January 31:
1997 1996 % incr/(decr)
---- ---- -------------
TRAVEL CENTERS
Gross revenues $ 21,691,899 $ 20,467,455 6.0%
Discounts on sales 303,000 292,484 3.6%
------- -------
Net revenues 21,388,899 20,174,971 6.0%
Cost of sales 14,234,760 12,995,314 9.5%
---------- ----------
7,154,139 7,179,657 (0.4%)
General & administrative expenses 5,280,954 5,462,067 (3.3%)
Depreciation and amortization 362,803 434,195 (16.4%)
------- -------
Operating income 1,510,382 1,283,395 17.7%
OUTDOOR ADVERTISING
Revenues 3,459,032 2,769,713 24.9%
Operating expenses:
Direct operating expenses 2,105,615 2,007,422 4.9%
General & administrative expenses 368,564 344,030 7.1%
Depreciation and amortization 281,899 261,413 7.8%
------- -------
Operating income 702,954 156,848 348.2%
CORPORATE AND OTHER
General & administrative expenses (410,153) (601,639) (31.8%)
Depreciation and amortization (134,869) (161,000) (16.2%)
Interest expense (677,746) (611,590) 10.8%
Other income, net 518,113 570,422 (9.2%)
------- -------
INCOME BEFORE TAXES 1,508,681 636,436 137.1%
INCOME TAXES 603,472 252,817 138.7%
------- -------
NET INCOME $ 905,209 $ 383,619 136.0%
========= =========
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COMPARISON OF THE FISCAL YEARS ENDED JANUARY 31, 1997 AND JANUARY 31, 1996.
TRAVEL CENTERS. Gross sales at the Company's travel centers increased 6.0%
to $21.7 million for fiscal 1997 from $20.5 million for fiscal 1996. This
increase includes a 19.1% increase in gasoline sales to $11.6 million in fiscal
1997 from $9.7 million in fiscal 1996 as a result of increases in sales volume
and retail prices. This increase was partially offset by declines in merchandise
and restaurant sales of 6.8% and 8.2%, respectively. The decline of merchandise
was attributable in part to a statewide ban on the sale of fireworks in the
State of New Mexico from May 23, 1996, to July 2, 1996. During the period of the
ban, fireworks sales declined by $140,000 as compared to the same fiscal period
in 1996. The ban also contributed to the decline in other merchandise areas and
restaurant sales. The decrease in restaurant sales also reflects the Company's
decision in July 1995 to close its Lordsburg, New Mexico, restaurant and lease
the facility to an unrelated third party. Sales for the restaurant were
approximately $105,000 for the period in fiscal 1996 when such restaurant was
open. In March of 1997, the legislature of the State of New Mexico approved a
bill that removed the State's authority to enact future bans on sales of
fireworks by passing such authority to local municipalities.
In addition, the Company believes that merchandise and restaurant sales
were adversely affected by construction of new canopies and above ground tank
storage facilities to meet federally mandated regulations for 1998. The Company
has completed all but three of such conversions and looks forward to sales
returning to normal levels at the completed facilities.
Cost of goods sold for the travel centers increased 9.5% to $14.2 million
in fiscal 1997 from $13.0 million for fiscal 1996. As a percentage of gross
sales, cost of goods sold increased to 65.6% from 63.5%, for the respective
fiscal periods.
General and administrative expenses for travel centers consist of salaries,
bonuses and commissions for travel center personnel, property costs and repairs
and maintenance. General and administrative expenses for the travel centers
decreased 3.3% to $5.3 million for the fiscal year ended January 31, 1997 from
$5.5 million for the fiscal year ended January 31, 1996. The decrease is
primarily attributable to the Company's decision not to pay discretionary cash
bonuses to management in fiscal 1997, resulting in the absence of any cash
bonuses accrued for the year ended January 31, 1997. In comparison, the Company
accrued $300,000 during the same period in fiscal 1996 for discretionary cash
bonuses paid to management.
Other increases in general and administrative expenses for travel centers
were attributable to an overall increase in hourly wage rates for travel center
personnel and certain costs related to image upgrades that were not capitalized
as building improvements. In addition, the Company expanded its middle
management team to include three Area supervisors and a Petroleum Manager.
Depreciation and amortization expense decreased by 16.4% to $363,000 for
the fiscal year ended January 31, 1997 from $434,000 for the fiscal year ended
January 31, 1996. The decrease was primarily attributable to the Company's
decision to depreciate certain assets on a straight line basis rather than by
accelerated methods used previously. In addition, during fiscal 1997, management
extended the useful lives of certain existing assets.
The above factors contributed to an increase in travel center operating
income of 17.7% to $1.5 million for the fiscal year ended January 31, 1997 as
compared to $1.3 million for the fiscal year ended January 31, 1996.
OUTDOOR ADVERTISING. Gross income from the Company's outdoor advertising
increased 24.9% to $3.5 million for fiscal 1997 from $2.8 million in fiscal
1996. The increase was primarily attributable to increased construction of
advertising displays, increases in rates and small acquisitions of outdoor
advertising displays in New Mexico.
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Operating expenses related to outdoor advertising consist of direct
advertising expenses, which include rental payments to property owners for the
use of land on which advertising displays are located, production expenses and
selling expenses. Production expenses include salaries for operations personnel
and real estate representatives, property taxes, materials and repairs and
maintenance of advertising displays. Selling expenses consist primarily of
salaries and commissions for salespersons and travel and entertainment related
to sales. Direct operating costs increased 4.9% to $2.1 million for the fiscal
year ended January 31, 1997 from $2.0 million for the same period in fiscal
1996, principally due to the addition of sales and production personnel and
repairs and maintenance of advertising displays.
General and administrative expenses for outdoor advertising consist of
salaries and wages for administrative personnel, insurance, legal fees,
association dues and subscriptions and other indirect operating expenses.
General and administrative expenses increased 7.1% to $369,000 for the fiscal
year ended January 31, 1997 from $344,000 for fiscal 1996. The increase was
primarily attributable to increases in administrative personnel, insurance and
legal fees. The overall increase was partially offset by a decrease in general
and administrative expenses of $45,000 as a result of the decision not to pay
discretionary cash bonuses to management in fiscal 1997.
Depreciation and amortization expense increased 7.8% to $282,000 for the
fiscal year ended January 31, 1997 from $261,000 for fiscal 1996, as a result of
scheduled depreciation of additional display structures and machinery and
equipment. Increases in depreciation expense were also partially offset by the
Company's decision to depreciate certain assets on a straight-line basis rather
than accelerated methods used previously.
The above factors contributed to the increase in outdoor advertising
operating income of 348.2% to $703,000 for the fiscal year ended January 31,
1997 as compared to $157,000 for the fiscal year ended January 31, 1996.
CORPORATE AND OTHER. General and administrative expenses for corporate and
other operations of the Company consist primarily of executive and
administrative compensation and benefits and accounting and legal fees. General
and administrative expenses decreased 31.8% to $410,000 for the fiscal year
ended January 31, 1997 from $602,000 for the fiscal year ended January 31, 1996,
primarily as a result of management's decision not to pay discretionary cash
bonuses for the fiscal year ended January 31, 1997. As such, no accrual for
discretionary cash bonuses has been accounted for during the fiscal year ended
January 31, 1997. Of the $602,000 of general and administrative expenses for the
year ended January 31, 1996, $155,000 was accrued for discretionary cash
bonuses.
In addition, for the fiscal year ending January 31, 1998, the Company's
President and its Chief Operating Officer have elected to accept annual base
salaries of $127,530 and $91,000, respectively, which salaries are less than the
$195,000 and $145,000 salaries provided for in their respective employment
agreements, which agreements became effective February 1, 1997.
Depreciation and amortization expenses for the Company's corporate and
other operations consist of depreciation associated with the corporate
headquarters, furniture and fixtures related thereto and its subsidiary.
Depreciation and amortization decreased 16.2% to $135,000 for fiscal 1997 as
compared to $161,000 for fiscal 1996. The decrease is primarily attributable to
the Company's decision to depreciate certain assets on a straight-line basis
rather than by accelerated methods used previously. Decreases were offset by
scheduled depreciation of fixed assets.
Interest expense increased 10.8% to $678,000 for the fiscal year ended
January 31, 1997 from $612,000 for the fiscal year ended January 31, 1996, as a
result of borrowings to fund outdoor advertising expansion and the conversion of
travel centers to gasoline dispensing equipment to CITGO stations.
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Income before taxes increased 137.1% to $1.5 million for the fiscal year
ended January 31, 1997 from $636,000 for the fiscal year ended January 31, 1996.
As a percentage of gross revenues, income before taxes increased to 6.0% for the
fiscal year ended 1997 from 2.7% for the same fiscal period 1996.
Income taxes were $603,000 for the fiscal year ended January 31, 1997 as
compared to $253,000 for the fiscal year ended January 31, 1996, as a result of
higher pre-tax income.
The foregoing factors contributed to the Company's increase in net income
for the fiscal year ended January 31, 1997 to $905,000 as compared to $384,000
for the fiscal year ended January 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1997, the Company had working capital of $9.3 million and a
current ratio of 5.00:1, compared to working capital of $1.8 million and a
current ratio of 1.65:1 at January 31, 1996. The net cash provided by operating
activities decreased to $440,000 from $1,242,000 for the fiscal years ended
January 31, 1997 and 1996, respectively. The decrease was due primarily to an
increase in inventory levels of $800,000 and a decrease in accounts payable and
accrued liabilities of $245,000. The increase in inventory levels in fiscal 1997
was primarily attributable to the relocation and expansion of the Company's
warehouse facility in Las Cruces, New Mexico. The Company increased its
warehouse space approximately four-fold and therefore, improved its ability to
provide goods to its travel center operations in a more timely and cost
efficient manner. These changes were partially offset by an increase in net
income of $522,000 for the fiscal year ended January 31, 1997.
Net cash used in investing activities increased to $1,856,000 in fiscal
1997 from $1,453,000 in fiscal 1996. The increase is due primarily to an
increase in purchases of property and equipment of $655,000 over that of the
prior fiscal year and net disbursements on notes receivable of $97,000. These
increases were offset by an increase in proceeds from the sale of certain assets
of $353,000.
Net cash provided by financing activities increased to $7,333,000 in fiscal
1997 from $428,000 in fiscal 1996. The increase is primarily due to the net
proceeds from the Company's IPO in December 1996 of $7,431,000. The Company also
received proceeds from the issuance of Common Stock prior to its IPO of $222,000
and paid dividends of $50,600 for the fiscal year ended January 31, 1997.
Following the IPO, the Company paid down approximately $1.5 million of its
existing debt. Other increases in the Company's long-term debt were a result of
the Company's continued expansion of its outdoor advertising operations through
development and acquisition and the financing of property and equipment
purchases prior to the IPO.
As of January 31, 1997, the Company was indebted to various banks and
individuals in an aggregate principal amount of approximately $6.7 million under
various loans and promissory notes. Many of the loans and promissory notes are
secured by land, buildings, equipment, billboards and inventories of the
Company. The loans and promissory notes mature at dates from June 5, 1997 to
September 30, 2031 and accrue interest at rates ranging from 8.125% to 12% per
annum. At January 31, 1997, the Company had two revolving lines of credit with
aggregate principal commitments of $1,000,000 and $150,000, respectively. As of
January 31, 1997, none was outstanding under either commitment. In August, 1996,
the Company borrowed approximately $535,000 to refinance certain loans from its
stockholders. The loan was paid off in its entirety as of January 31, 1997.
The Company made capital expenditures of approximately $2.1 million and
$1.5 million during fiscal years ended 1997 and 1996, respectively. These
expenditures were made primarily for upgrades to the Company's travel centers,
including the new warehouse facility, and for the construction and acquisition
of additional billboard structures. During the next twelve months, the Company
anticipates incurring capital expenditures of approximately $2.4 million related
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to travel center operations. Included in the $2.4 million is approximately
$280,000 for the removal and replacement of underground fuel storage facilities,
$1.75 million to remodel two existing facilities and develop one new facility
and approximately $330,000 for upgrades and improvements to several other
existing travel centers. With regard to outdoor advertising operations, the
Company has plans to build 150 new billboard structures during the fiscal year
ending January 31, 1998, at a cost of approximately $900,000.
As of January 31, 1997, approximately $4.3 million of the Company's total
indebtedness accrued interest at variable rates tied to the respective bank's
prime lending rate. As such, the Company is subject to fluctuations in interest
rates that could have a negative impact on the net income of the Company. In
addition, it is likely that future indebtedness incurred by the Company will be
at variable rates which could impact the Company's ability to consummate
significant acquisitions in the future.
On April 1, 1997, the Company acquired all of the assets and assumed
certain liabilities of the outdoor advertising division of The McCarty Company
(known as Pony Panels) for $4.2 million of cash. The consideration paid by the
Company was funded by working capital ($1.7 million of IPO proceeds) and $2.5
million of bank debt. The bank debt was provided by Norwest Bank Minnesota, N.A.
at the bank's then prevailing prime rate (8.5% at closing) and has a maturity
date of April 2, 2007. The bank debt is subject to certain financial and other
restrictive covenants.
The Company is currently negotiating with its primary lenders to secure
additional lines of credit at amounts greater than its current capacities. The
Company believes that the remaining net proceeds from the IPO, internally
generated funds and funds available under current and future lines of credit
will be sufficient to satisfy all debt service obligations and finance its
current operations and anticipated capital expenditures for at least the next
twelve months.
Although the Company does not have any agreements in place, it is currently
negotiating with three independent parties for the acquisition of outdoor
advertising assets and one independent party for the purchase of three travel
centers. The Company does not believe that any of these acquisitions are
probable and the Company has not executed a letter of intent or other agreement,
binding or non-binding, to make such acquisitions. Any such acquisition would be
subject to the negotiation and execution of definitive agreements, appropriate
financing arrangements, performance of due diligence, approval of the Company's
Board of Directors, receipt by the Company of unqualified audited financial
statements, and the satisfaction of other customary closing conditions,
including the receipt of third party consents. The Company would likely finance
any such acquisitions with cash, additional indebtedness or a combination of the
two. To the extent that any such acquisition would be paid for by the Company in
cash, the Company could decide to use a portion of the remaining net proceeds
from the IPO, use funds from its ongoing operations, seek additional financing
from a commercial lender or some combination of the foregoing. Any commercial
financing obtained for purposes of acquiring additional assets is likely to
impose certain financial and other restrictive covenants upon the Company and
increase the Company's interest expense.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
SFAS 128 establishes new standards for computing and presenting earnings per
share ("EPS"). Specifically, SFAS 128 replaces the currently required
presentation of primary EPS with a presentation of basic EPS, requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. SFAS 128 is effective for financial
statements issued for periods ending after December 15, 1997; earlier
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application is not permitted. Pro forma EPS computed under SFAS 128 would have
been the same as reported in the Financial Statements included herein and
management believes the application of SFAS 128 will not have a material effect
on the Company's future financial statements.
RISK FACTORS
The Company does not provide forecasts of potential future financial
performance. While the Company's management is optimistic about the Company's
long-term prospects, the following issues and uncertainties, among others should
be considered in evaluating its growth outlook.
No Assurance of Successful Expansion. The Company intends to open new
travel centers, expand its outdoor advertising operations and implement gasoline
wholesaling activities. Although the Company's existing operations are based
primarily in the Southwest, the Company's current expansion plans include
consideration of acquisition opportunities in both the Southwest and other
geographic regions of the United States. However, there can be no assurance that
suitable acquisitions can be identified, and the Company is likely to face
competition from other companies for available acquisition opportunities. Any
such acquisition would be subject to negotiation of definitive agreements,
appropriate financing arrangements and performance of due diligence. There can
be no assurance that the Company will be able to complete such acquisitions,
obtain acceptable financing, or any required consents of its bank lenders or
that such acquisitions that are completed can be integrated successfully into
the Company's existing operations. The success of the Company's expansion
program will depend on a Company's existing operations. The success of the
Company's expansion program will depend on a number of factors, including the
availability of sufficient capital, the identification of appropriate expansion
opportunities, the Company's ability to attract, train and retain qualified
employees and management, the continuing profitability of existing operations,
the successful management of planned growth and the ability of the Company to
operate new travel centers and outdoor advertising operations and implement its
new gasoline wholesaling activities in a profitable manner. There can be no
assurance that the Company will achieve its planned expansion or that any
expansion will be profitable. See "BUSINESS -Growth Strategy."
Need for Additional Financing. In order to successfully implement the
Company's growth strategy, the Company may need to seek additional financing
from external sources. Based on the Company's past history, the Company has been
able to secure financing for the acquisition of additional assets form
commercial lenders in amounts ranging from 75% up to 100% of the fair market
value of the acquired assets. However, there can be no assurance that such
additional financing will be available in the future, or that if available, it
will be on terms acceptable to the Company. In addition the Company anticipates
that any financing which it does secure may impose certain financial and other
restrictive covenants upon the Company and its operations. Furthermore, there
can be no assurance that the Company will be able to integrate successfully any
acquired companies or assets into its existing operations, which could increase
the Company's operating expenses in the short-term and materially and adversely
affect the Company's results of operations. Moreover, any acquisition by the
Company may result in potentially dilutive issuances of equity or debt
securities, the incurrence of additional debt, and amortization of expenses
related to goodwill and intangible assets, all of which could adversely affect
the Company's profitability. Acquisitions involve numerous risks, such as the
diversion of the attention of the Company's management from other business
concerns, the entrance of the Company into markets in which it has had no or
only limited experience, and the potential loss of key employees of the acquired
company, all of which could have a material adverse effect on the Company's
business, financial condition, and results of operations.
Dependence on Third Party Relationships. The Company is dependent on a
number of third party relationships pursuant to which it offers brand name and
other products at its travel centers. These brand name relationships include the
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Company's distributorship relationship with CITGO, as well as its existing
franchise agreements with Dairy Queen/Brazier and Stuckey's. The Company's
existing operations and plans for future growth anticipate the continued
existence of such relationships. There can be no assurance that the agreements
that govern these relationships will not be terminated. In addition, several of
these agreements contain provisions that prohibit the Company from offering
additional products or services which are competitive to those of its suppliers.
Although the Company does not currently anticipate having to forego a
significant business opportunity in order to comply with such agreements, there
can be no assurance that adherence to these existing agreements will not prevent
the Company from pursuing opportunities that management would otherwise deem
advisable. The Company also relies upon several at will relationships with
various third parties for much of its souvenir and gift merchandise. Although
the Company believes it has good relationships with its suppliers, there can be
no assurance that the Company will be able to maintain relationships with
suppliers of suitable merchandise at appropriate prices and in sufficient
quantities. See "BUSINESS - Business Operations."
Possible Adverse Impact of Competition. The Company's travel centers face
competition from major and independent oil companies; independent service
station operators; national and independent operators of restaurants, diners and
other eating establishments; and national and independent operators of
convenience stores and other retail outlets. In its outdoor advertising
operations, the Company faces competition for advertising revenues from other
outdoor advertising companies, as well as from other media such as radio,
television, print media and direct mail marketing. The Company also competes
with a wide variety of other out-of-home advertising media, the range and
diversity of which has increased substantially over the past several years,
including advertising displays in shopping centers and malls, airports,
stadiums, movie theaters and supermarkets. Some of the Company's competitors,
including major oil companies and convenience store operators, are substantially
larger, better capitalized and have greater name recognition and access to
greater resources than the Company. There can be no assurance that the Company's
travel centers and outdoor advertising operations will be able to compete
successfully in their respective markets in the future. See "BUSINESS
Competition."
Seasonality and Other Factors; Quarterly Fluctuations. The travel center
portion of the Company's business is somewhat seasonal, and revenues may be
affected by many factors, including weather, holidays and the price of
alternative travel modes. The Company's revenues and earnings may experience
substantial fluctuations from quarter to quarter.
Potential Adverse Effects of Government Regulation of Travel Centers. Each
of the Company's food service operations is subject to licensing and regulation
by a number of governmental authorities, including regulations relating to
health, safety, cleanliness and food handling, as well as federal and state laws
governing such matters as working conditions, overtime and tip credits and
minimum wages. The Company's travel center operations are also subject to
extensive laws and regulations governing the sale of alcohol and tobacco, and
fireworks in its New Mexico travel centers. Such regulations include certain
mandatory licensing procedures and the ongoing compliance measures, as well as
special sales tax measures. In May, June and July of 1996, the state of New
Mexico issued a temporary ban on the sale of fireworks because of the extreme
fire hazard caused by drought conditions in that state. As a result of the ban,
the Company's revenues from its travel center operations decreased. Although
such a ban was unprecedented, similar bans could be imposed in the future. In
March 1997, the legislature of the State of New Mexico approved a bill that
removed the state's authority to enact future bans on sales of fireworks by
passing such authority to local municipalities. The Company believes that its
operations at its fourteen travel centers and one free-standing Dairy
Queen/Brazier restaurant comply in all material respects with all applicable
licensing and regulatory requirements. However, any failure to comply with
applicable regulations, or the adoption of additional regulations or changes in
existing regulations could impose additional compliance costs on the Company,
require a cessation of certain activities or otherwise have a material adverse
effect on the Company's business and results of operations. See "BUSINESS -
Regulation." 21
<PAGE>
Environmental Risks. The Company is subject to federal, state and municipal
laws and regulations governing the use, storage, handling and disposal of its
petroleum products. Specifically, the federal government has recently issued
more stringent regulations governing the storage of petroleum products with
which the Company is required to comply by December 1998. Although the Company
believes that its activities comply with the current standards prescribed by law
and the Company has already substantially completed certain renovations of its
facilities to satisfy the federal government's recently enacted regulations, the
risk of accidental contamination to the environment or injury can not be
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any such liability could exceed the available
resources of the Company. In addition, the Company could be required to incur
significant costs to comply with environmental laws and regulations which may be
enacted in the future. See "BUSINESS - Regulation."
Potential Adverse Effects of Government Regulation of Outdoor Advertising.
Outdoor advertising displays are subject to regulation by federal, state, and
local governmental agencies. These regulations, in some cases, limit the height,
size and location of billboards and, in limited circumstances, regulate the
content of the advertising copy displayed on the billboards, particularly with
respect to tobacco advertising. Some governmental regulations prohibit the
construction of new billboards or the replacement, relocation, enlargement or
upgrading of existing structures. Some cities have adopted amortization
ordinances under which, after the expiration of a specified period of time,
billboards must be removed at the owner's expense and without the payment of
compensation. Due to the location of its billboard structures outside smaller
metropolitan and rural areas, the Company has not been materially affected by
such ordinances to date. However, there can be no assurance that the Company's
billboard structures will not become subject to similar ordinances in the
future. Ordinances requiring the removal of a billboard without compensation,
whether through amortization or otherwise, are being challenged in various state
and federal courts with conflicting results. Although, to date, the Company has
been adequately compensated for any of its structures removed at the direction
of governmental authorities, future changes in such regulations as well as
others applicable to the Company's outdoor advertising operations could have a
material adverse effect on the Company's business and results of operations.
OTHER UNCERTAINTIES
Other operating, financial or legal risks or uncertainties are discussed in
this Form 10-KSB in specific context and the Company is subject to the financial
or legal risks or uncertainties discussed in other documents filed by the
Company with the Securities and Exchange Commission. In addition, the Company
is, of course, also subject to general economic risks, and other risks and
uncertainties.
ITEM 7. FINANCIAL STATEMENTS
Following on next page.
22
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
January 31, 1997 and 1996
(With Independent Auditors' Report Thereon)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
BOWLIN Outdoor Advertising
& Travel Centers Incorporated:
We have audited the accompanying consolidated balance sheets of BOWLIN Outdoor
Advertising & Travel Centers Incorporated and subsidiaries as of January 31,
1997 and 1996, and the related consolidated statements of income, stockholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BOWLIN Outdoor
Advertising & Travel Centers Incorporated and subsidiaries as of January 31,
1997 and 1996, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Albuquerque, New Mexico
March 28, 1997
24
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
January 31, 1997 and 1996
Assets 1997 1996
------ ---- ----
Current assets:
Cash and cash equivalents $ 7,518,971 1,601,830
Accounts receivable, net 365,424 193,982
Notes receivable - related parties, current maturities (note 2) 20,021 10,012
Notes receivable, current maturities (note 2) 6,169 2,762
Inventories 3,202,191 2,403,020
Prepaid expenses 417,375 328,576
Other current assets 48,147 6,288
------------ ------------
Total current assets 11,578,298 4,546,470
------------ ------------
Investment and long-term receivables:
Investment in partnership 12,763 16,259
Notes receivable - related parties, less current maturities (note 2) 30,024 -
Notes receivable, less current maturities (note 2) 65,953 12,838
------------ ------------
Total investment and long-term receivables 108,740 29,097
Property and equipment, net (notes 3, 5 and 6) 9,970,546 8,910,470
Deferred charges, net 83,888 -
Franchise fees, at cost less accumulated amortization of $108,255 and
$97,691 at January 31, 1997 and 1996, respectively 101,245 111,809
------------ ------------
Total assets $ 21,842,717 13,597,846
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowing, bank (note 5) $ - 149,000
Accounts payable 1,197,428 1,177,878
Long-term debt, current maturities (note 6) 576,186 768,929
Accrued liabilities 399,223 663,762
Income taxes payable 145,072 -
------------ ------------
Total current liabilities 2,317,909 2,759,569
Deferred income taxes (note 9) 42,600 -
Long-term debt, less current maturities (note 6) 6,118,406 5,808,503
------------ ------------
Total liabilities 8,478,915 8,568,072
------------ ------------
Minority interest 205,366 226,591
------------ ------------
25
<PAGE>
Stockholders' equity:
Common stock, $.001 par value; authorized 100,000,000
shares; outstanding 4,384,848 and 3,050,427 shares at
January 31, 1997 and 1996, respectively (note 7) 4,385 3,051
Additional paid-in capital 11,604,303 3,806,220
Retained earnings 1,549,748 993,912
------------ ------------
Total stockholders' equity 13,158,436 4,803,183
Commitments and contingencies (notes 10 and 11)
------------ ------------
Total liabilities and stockholders' equity $ 21,842,717 13,597,846
============ ============
See accompanying notes to consolidated financial statements.
26
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Income
Years ended January 31, 1997 and 1996
1997 1996
---- ----
Gross sales $ 25,150,931 23,237,168
Less discounts on sales 303,000 292,484
------------ ------------
Net sales 24,847,931 22,944,684
Cost of goods sold 16,340,375 15,002,736
------------ ------------
Gross profit 8,507,556 7,941,948
------------ ------------
General and administrative expenses (6,115,350) (6,407,736)
Other income 379,228 489,653
Depreciation and amortization (779,571) (856,608)
------------ ------------
Operating income 1,991,863 1,167,257
------------ ------------
Other income (expense):
Interest income 138,885 85,147
Gain (loss) on sale of property and equipment 55,679 (4,378)
Interest expense (677,746) (611,590)
------------ ------------
Total other income (expense), net (483,182) (530,821)
------------ ------------
Income before income taxes 1,508,681 636,436
Income taxes (note 9) 603,472 252,817
------------ ------------
Net income $ 905,209 383,619
============ ============
Earnings per common and common equivalent share $ .26 .11
============ ============
See accompanying notes to consolidated financial statements.
27
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years ended January 31, 1997 and 1996
Common Additional
Number stock, paid-in Retained
of shares at par capital earnings Total
--------- ------ ------- -------- -----
Balance at January 31, 1995 2,826,767 $ 2,827 3,451,344 1,038,696 4,492,867
Net Income - - - 383,619 383,619
Cash dividends on common
stock, $.02 per share - - - (60,287) (60,287)
Stock dividends issued on common stock
and sale of fractional shares 232,522 233 368,937 (368,116) 1,054
Purchase of 42 shares of common stock (8,862) (9) (14,061) - (14,070)
--------- ------- --------- -------- -------
Balance at January 31, 1996 3,050,427 3,051 3,806,220 993,912 4,803,183
Net income - - - 905,209 905,209
Cash dividends on common
stock, $.02 per share - - - (50,600) (50,600)
Stock dividends issued on common stock
and sale of fractional shares 191,799 192 301,596 (298,773) 3,015
Issuance of common stock 141,159 141 221,967 - 222,108
Redemption of previously issued shares (note 7) (98,537) (99) (154,945) - (155,044)
Contributed services - - 155,044 - 155,044
Initial pubic offering of common stock, net of
expenses 1,100,000 1,100 7,274,421 - 7,275,521
--------- ----- --------- -------- ---------
Balance at January 31, 1997 4,384,848 $ 4,385 11,604,303 1,549,748 13,158,436
========= ======= ========== ========= ==========
See accompany notes to consolidated financial statements.
28
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended January 31, 1997 and 1996
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 905,209 383,619
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 779,571 856,608
Income from partnership investment (9,504) (1,737)
Loss (gain) on sale of property and equipment (55,679) 4,378
Deferred income taxes 42,600 -
Changes in operating assets and liabilities:
Accounts receivable (171,442) (65,923)
Inventories (799,171) (379,907)
Prepaid expenses and other current assets (130,658) (62,579)
Accounts payable and accrued liabilities (244,989) 526,614
Income taxes payable 145,072 (4,997)
Minority interest (21,225) (14,090)
------------ ------------
Net cash provided by operating activities 439,784 1,241,986
------------ ------------
Cash flows from investing activities:
Capital received from (contributed to) partnership 13,000 (875)
Proceeds from sale/condemnation of assets 376,973 24,230
Purchases of property and equipment (2,149,471) (1,494,717)
Disbursements on notes receivable (195,813) -
Collections on notes receivable 99,258 18,746
------------ ------------
Net cash used in investing activities (1,856,053) (1,452,616)
------------ ------------
Cash flows from financing activities:
Payments on short-term borrowings (149,000) -
Payments on long-term debt (4,660,892) (805,049)
Payments for debt issuance costs (84,794) -
Proceeds from borrowings 4,778,052 1,306,100
Proceeds from issuance of common stock 222,108 -
Redemption of previously issued shares (155,044) -
Proceeds from sale of fractional shares of common
stock sold in conjunction with stock dividend 3,015 1,054
Treasury stock acquisition - (14,070)
Dividends paid (50,600) (60,287)
Proceeds from initial public offering of common stock 8,800,000 -
Payment of registration costs associated with initial public
offering of common stock (1,369,435) -
------------ ------------
Net cash provided by financing activities 7,333,410 427,748
------------ ------------
Net increase in cash and cash equivalents 5,917,141 217,118
Cash and cash equivalents at beginning of period 1,601,830 1,384,712
------------ ------------
Cash and cash equivalents at end of period $ 7,518,971 1,601,830
============ ============
See accompanying notes to consolidated financial statements.
29
</TABLE>
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1997 and 1996
(1) Summary of Significant Accounting Policies
(a) Description of Business
BOWLIN Outdoor Advertising & Travel Centers Incorporated and
subsidiaries (the Company) are located in Albuquerque, New Mexico.
On August 28, 1996, BOWLIN Outdoor Advertising & Travel Centers,
Inc. (BOATC) was incorporated in the state of Nevada. BOATC's
articles of incorporation authorize 10,000,000 shares of preferred
stock ($.001 par value) which can be issued at the discretion of
the Board of Directors. Pursuant to an agreement and plan of
merger effective September 27, 1996, BOWLIN'S, Inc. (BI), which
was incorporated in the state of New Mexico on February 20, 1953,
was merged with and into BOATC. Under the terms of the agreement,
BI shareholders received 211 of the Company's shares for each BI
share. Accordingly, the Company issued approximately 3.4 million
shares of its common stock for all the outstanding shares of BI
stock and all references to the number of shares of common stock
have been retroactively restated to reflect the exchange for all
periods presented. The transaction has been accounted for in a
manner similar to a pooling of interests.
The Company's principal business activities include the operation
of full-service travel centers and restaurants which offer brand
name food and gasoline and a unique variety of Southwestern
merchandise to the traveling public in the Southwestern United
States. In addition to the travel centers, the Company operates
outdoor billboard advertising displays which are situated on
interstate highways, primarily in the Southwestern United States.
Dragoon Water Company, Inc. (Dragoon), a majority owned
subsidiary, was incorporated on December 12, 1962, and acquired by
the Company in 1986. The Company's primary reason for purchasing
Dragoon was to ensure water utilities would be provided to one of
its largest retail locations in Arizona. Dragoon's fiscal year end
is December 31. On October 1, 1996, the Company sold Dragoon to an
unrelated third party. The sale agreement provides for the
continued provision of adequate water utilities to the Company.
The Company acquired all of the outstanding stock of another
subsidiary, BMI Inc. (BMI), in November 1993. BMI's business
activities have historically been the acquisition of inventory in
Mexico which has been sold to the Company for the purpose of
resale in the United States. BMI has a January 31 fiscal year end.
Neither Dragoon nor BMI is considered material to the overall
operations of the Company.
The Company also holds a majority general partnership interest in
the Los Cuatros Apartments Limited Partnership (Los Cuatros)
together with a limited partnership interest. The partnership owns
and leases an apartment complex in Las Cruces, New Mexico. The
partnership was formed in January 1991 and has a December 31
fiscal year end.
30 (Continued)
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(b) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates.
(c) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company, its wholly owned subsidiary BMI and its
majority owned subsidiaries Dragoon and Los Cuatros. All material
intercompany transactions have been eliminated or disclosure has
been made of the effect of intervening events from December 31 to
January 31, if any, related to the differing fiscal year ends for
Dragoon and Los Cuatros.
(d) Cash and Cash Equivalents
The Company considers all liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
(e) Accounts Receivable and Allowance for Doubtful Accounts
Trade receivables are stated at face amount less the related
allowance for doubtful accounts.
(f) Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107,
Disclosures About Fair Value of Financial Instruments, requires
the fair value of financial instruments be disclosed. The
Company's financial instruments are cash and cash equivalents,
accounts receivable, notes receivable, accounts payable,
short-term borrowings, and long-term debt. The carrying amounts
of cash and cash equivalents, accounts receivable, notes
receivable, accounts payable, short-term borrowings, and
long-term debt approximate fair value.
(g) Inventories
Inventories consist primarily of merchandise and gasoline for
resale and are stated at the lower of cost or market value, with
cost being determined using the first-in, first-out (FIFO)
method.
(h) Property and Equipment
Property and equipment are carried at cost. Maintenance and
repairs, including the replacement of minor items, are expensed
as incurred, and major additions to property and equipment are
capitalized. Depreciation is provided by the Company using
primarily straight-line, as well as accelerated methods.
31 (Continued)
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(i) Franchise Fees
Franchise fees are amortized on a straight-line basis over the
shorter of the life of the related franchise agreements or the
periods estimated to be benefited, ranging from 15-25 years.
(j) Sales and Cost Recognition
Sales of merchandise are recognized at the time of sale and the
associated costs of the merchandise are included in cost of
sales. Revenues from rental of billboard space are accounted for
as operating leases with rental assets recorded at cost less
accumulated depreciation and rental income is recorded ratably
over the life of the lease contract.
(k) Stock Option Plan
The Company accounts for its stock option plan in accordance with
the provisions of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded
on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On February 1,
1996, the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation, which permits entities to recognize as
expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB
Opinion No. 25 and provide proforma net income and proforma
earnings per share disclosures for employee stock option grants
made in 1997 and future years as if the fair-value-based method
defined in SFAS No. 123 had been applied. The Company has elected
to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No.
123.
(l) Impairment of Long-lived Assets and Long-lived Assets to Be
Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting
for the Impairment of Long-lived Assets and for Long-lived Assets
to Be Disposed Of, on February 1, 1996. This statement requires
that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount of
fair value less costs to sell. Adoption of this statement did not
have a material impact on the Company's financial position,
results of operations, or liquidity.
32 (Continued)
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(m) Reclassification
Certain reclassifications have been made to the prior year
financial statements to conform to the current year presentation.
(n) Earnings Per Common and Common Equivalent Share
Earnings per common and common equivalent share are computed by
dividing net income by the weighted average number of common and
common equivalent shares outstanding during the period presented.
The number of shares used in the earnings per share computations
are as follows for the years ended January 31:
1997 1996
---- ----
Weighted average common and common
equivalent shares outstanding 3,440,557 3,360,599
========= =========
(2) Notes Receivable
Notes receivable consist of the following at January 31:
<TABLE>
<CAPTION>
<S> <C>
1997 1996
------ ------
Related parties:
Stockholder, due April 1997, plus interest at 7%, unsecured $ 10,012 10,012
Employees, receivable in annual installments totaling
$10,008 plus interest at 10%, unsecured 40,033 -
------ -----
Subtotal 50,045 10,012
Less current maturities 20,021 10,012
------ ------
$ 30,024 -
====== ======
Other:
Individuals, receivable in monthly installments from $350 to $694,
including interest ranging from 9% to
10%, secured by land $ 72,122 15,600
Less current maturities 6,169 2,762
------- -------
$ 65,953 12,838
====== ======
</TABLE>
33 (Continued)
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Property and Equipment
Property and equipment consist of the following at January 31:
<TABLE>
<CAPTION>
<S> <C>
Estimated
life (years) 1997 1996
------------ ---- ----
Land - $ 1,984,312 2,020,130
Buildings and improvements 10 - 40 6,764,809 6,892,891
Machinery and equipment 3 - 10 4,813,546 4,110,231
Autos, trucks and mobile homes 3 - 10 1,527,401 1,517,111
Billboards on operating leases 15 - 20 4,657,590 3,696,682
Billboards 15 - 20 787,714 774,349
======= ----------- -----------
Subtotal, at cost 20,535,372 19,011,394
Less accumulated depreciation (10,889,102) (10,287,215)
Construction in progress 324,276 186,291
----------- -----------
Total property and equipment $ 9,970,546 8,910,470
=========== ===========
</TABLE>
During the year ended January 31, 1997, the Company determined the actual
lives for approximately $467,000 of equipment were generally longer than
the estimated useful lives previously established for depreciation
purposes. Therefore, effective February 1, 1996, the Company extended the
estimated useful lives of those assets, which are depreciated using the
straight-line method, from 5 years to 15 years. The effect of this change
in accounting estimate reduced depreciation expense for the year ended
January 31, 1997 by $57,100 and increased net income by $34,200 ($.01 per
share).
Additionally, depreciation of all property and equipment acquired during
the year ended January 31, 1997 has been computed using the straight-line
method. Depreciation of property and equipment acquired in prior years
was computed primarily using accelerated methods. The effect of this
change reduced depreciation expense by $112,200 and increased net income
by $67,300 ($.02 per share) for the year ended January 31, 1997.
(4) Billboard Rental Income
Included in property and equipment in the consolidated balance sheets of
the Company are billboards on operating leases. The billboards are owned
by the Company and the advertising space is leased to others. See note 11
regarding land leased from others by the Company for billboard use.
34 (Continued)
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Minimum future rental income on noncancelable billboard leases in effect
as of January 31, 1997 are as follows:
Year ending January 31
1998 $ 3,767,791
1999 1,852,714
2000 171,372
2001 10,080
-----------
Total $ 5,801,957
=========
(5) Short-term Borrowing, Bank
Short-term borrowing, bank is as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 1996
---- ----
$150,000 line of credit with bank, variable interest payable monthly at
prime rate plus 1% (8.25% at January 31,
1997), balance due June 1997; unsecured $ - 149,000
$1,000,000 line of credit with bank, variable interest
payable monthly, at prime rate plus 1% (8.25% at January 31,
1997), balance due June 1997; secured by
billboards and inventory - -
------- -------
Total short-term borrowing, bank $ - 149,000
======= =======
</TABLE>
The average balance outstanding on the lines of credit was approximately
$166,160 and $114,000 during the fiscal years ended January 31, 1997 and
1996, respectively. The highest balances outstanding during the same
periods were $951,500 and $149,000 and the average interest rate for
outstanding borrowings was 9.25 and 9.75 percent, respectively.
35 (Continued)
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C>
(6) Long-term Debt
Long-term debt is as follows:
1997 1996
---- ----
Due bank, maturity June 2000, variable interest at prime plus 1% (9.5%
at January 31, 1996), monthly installments of $28,831, secured by
buildings, equipment, billboards
and inventories $ - 1,356,921
Due bank, maturity January 2006, variable interest at base
lending rate (8.25% at January 31, 1997), monthly
installments of $21,724, secured by mortgage and deed
of trust 1,588,087 -
Due bank, maturity February 2003, variable interest at base
lending rate (8.25% at January 31, 1997), monthly
installments of $15,755, secured by billboards 902,136 -
Due bank, maturity January 2000, variable interest
interest at index rate (8.25 at January 31, 1997),
monthly installments of $6,883 secured by buildings
and equipment 737,968 785,903
Due bank, maturity January 2000, variable interest at
index rate plus .5 (8.25% at January 31, 1997),
monthly installments of $8,614, secured by
buildings and equipment 843,049 866,370
Due banks and other financing companies, with maturity
dates ranging from 1997 to 2031. Most bear interest at adjustable
rates ranging from 8.25% to 9.75%, with certain fixed rate notes
ranging from 8.00% to 10.25%. Monthly payments totaling $23,757.
Secured by land, buildings, equipment, billboard, inventories,
and a mortgage note 1,813,699 1,845,497
Due individuals, various payment schedules with maturity
dates ranging from 1997 to 2004, including interest
ranging from 8.00% to 12.00%. Monthly payments
totaling $12,792. Secured by land, buildings, and
billboards 809,653 996,013
Due stockholders and related individuals - 559,981
Other - 166,747
---------- ----------
6,694,592 6,577,432
Less current maturities 576,186 768,929
---------- ----------
$ 6,118,406 5,808,503
========== ==========
</TABLE>
36 (Continued)
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Future maturities of long-term debt are as follows:
1998 $ 576,186
1999 518,775
2000 663,254
2001 1,928,748
2002 464,441
Thereafter 2,543,188
---------
Total $ 6,694,592
=========
Due banks and other financing companies includes a note payable of Los
Cuatros which has an outstanding balance as of January 31, 1997 of
$1,093,846 (8.125 percent) and matures in 2031.
On February 5, 1996, the Company entered into a consolidating note
agreement with a financial institution. The new note agreement
consolidated approximately $1,700,000 of the Company's existing debt and
provided $1,000,000 of new debt. This debt was used primarily for the
expansion of the Company's outdoor advertising operations and
improvements to existing travel centers.
During the year ended January 31, 1997, the Company paid in full its
indebtedness to stockholders and officers of the Company. The balance was
approximately $535,000 at the date of payoff ($560,000 at January 31,
1996). In order to pay its stockholders and officers, the Company secured
a note payable with a financial institution in the amount of $535,000
with a variable interest rate of prime plus 1 percent.
(7) Stockholders' Equity
In December 1996, the Company completed an initial public offering of
1,100,000 shares of common stock at $8.00 per share. Proceeds from the
offering, net of underwriter discounts and commissions and other offering
expenses, totaled approximately $7,300,000. The Company utilized a
portion of the net proceeds of the initial public offering to repay
certain indebtedness of the Company and plans to utilize the remaining
balance for general corporate purposes, including the acquisition or
development of additional travel centers and outdoor advertising
operations.
Concurrent with the closing of the initial public offering, the Company
issued a five year nonredeemable option to purchase up to 93,500 shares
of common stock at an exercise price equal to 120 percent of the offering
price, or $9.60 per share to the underwriter. The option is exercisable
beginning one year from the effective date of the offering. As of January
31, 1997, the option is not exercisable.
On November 12, 1996, the Company entered into an agreement with an
outside consultant whereby 98,537 shares of outstanding common stock were
returned to the Company without consideration, and the stock certificates
were canceled. The shares had been issued in April 1996, in exchange for
services rendered in connection with the initial public offering.
37 (Continued)
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Stock Option Plan
On September 27, 1996, the Company adopted the 1996 Stock Option Plan
(the Plan) pursuant to which the Company's Board of Directors may grant
stock options to officers and key employees. The Plan authorizes grants
of options to purchase shares of authorized but unissued common stock up
to an amount equal to ten percent of issued and outstanding shares of
common stock (438,485 shares as of January 31, 1997). Stock options are
granted with an exercise price equal to the stock's fair market value at
the date of grant. All stock options expire in ten years and vest and
become fully exercisable as determined by the Board at time of grant.
On September 27, 1996, the Board of Directors of the Company granted
options to purchase an aggregate of 338,000 shares of common stock to 62
employees and officers, and 6,000 shares to each of its four nonemployee
Directors, effective as of the closing of the initial public offering.
All of the options granted provide for a three-year vesting period and
have an exercise price equal to or at 110 percent of the initial public
offering price of $8.00.
At January 31, 1997, there were 76,485 additional shares available for
grant under the Plan. The per share weighted-average fair value of stock
options granted during 1997 was $0.91 on the date of grant using the
Black Scholes option-pricing model with the following weighted-average
assumptions: expected dividend yield 0.0 percent, expected volatility of
30 percent, risk-free interest rate of 6.15 percent, and an expected life
of 5 years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income would have been
reduced to the pro forma amounts indicated below for the year ended
January 31, 1997:
Net income As reported $ 905,209
Pro forma 707,557
=======
Earnings per common and
common equivalent share As reported $ .26
Pro forma .21
=======
Pro forma net income reflects only options granted in the year ended
January 31, 1997.
38 (Continued)
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Stock option activity during the periods indicated is as follows:
Number of Weighted-average
shares exercise price
Balance at January 31, 1996 - $ -
Granted 362,000 8.22
Exercised - -
Forfeited - -
Expired - -
------- ----
Balance at January 31, 1997 362,000 $ 8.22
======= ====
At January 31, 1997, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $8.00 - $8.80 and
9.88 years, respectively. At January 31, 1997, none of the options
granted are exercisable.
(9) Income Taxes
Income taxes from continuing operations consist of the following for the
years ended January 31:
Current Deferred Total
------- -------- -----
Years ended January 31, 1997:
U.S. federal $ 472,072 35,500 507,572
State and local 88,800 7,100 95,900
------- ------- -------
$ 560,872 42,600 603,472
======= ====== =======
Years ended January 31, 1996:
U.S. federal $ 214,780 - 214,780
State and local 38,037 - 38,037
------- ------ -------
$ 252,817 - 252,817
======= ====== =======
39 (Continued)
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income tax expense differed from the amounts computed by applying the
U.S. federal income tax rate of 34 percent to pretax income from
continuing operations as a result of the following factors:
January 31,
-----------
1997 1996
---- ----
Computed "expected" tax $ 512,951 216,388
State income taxes, net of federal
tax benefit 64,446 25,104
Other 26,075 11,325
------- -------
Total $ 603,472 252,817
======= =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
January 31, 1997 are as follows:
Deferred tax assets:
Compensated absences, principally due to
accrual for financial reporting purposes $ 17,258
Other 12,000
------
Total gross deferred tax assets 29,258
Less valuation allowance -
Net deferred tax assets 29,258
------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation (67,712)
Other (4,146)
------
Total gross deferred liabilities (71,858)
------
Net deferred tax liability $(42,600)
======
There was no valuation allowance for deferred tax assets as of February
1, 1996 or 1995. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the deferred
tax assets are deductible, management believes it is more likely than not
the Company will realize the benefits of these deductible differences.
(10) Profit Sharing Plan
The Company maintains a qualified defined contribution profit sharing
plan that covers substantially all employees. The plan year end is
December 31. The elected salary reduction is subject to limits as defined
by the Internal Revenue Code. The Company provides a matching
contribution and additional discretionary contributions as determined by
resolution of the Board of Directors. Legal and accounting expenses
related to the plan are absorbed by the Company and were approximately
$15,745 and $8,250 for fiscal 1997 and 1996, respectively. The Company's
contributions to the profit sharing plan were $49,520 in fiscal 1997 and
$84,845 in fiscal 1996.
40 (Continued)
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Commitments and Contingencies
The Company leases land at several of its retail operating locations.
Included in general and administrative expenses in the accompanying
consolidated statements of income is rental expense for these land leases
of $286,752 and $269,627 for the years ended January 31, 1997 and 1996,
respectively.
The leasing agreements for the various locations include 5-35 year leases
with remaining lives on those leases ranging from approximately 5-25
years at January 31, 1997. Renewal options vary, with the most extensive
including three 5-year renewal options. Contingent rentals are generally
based on percentages of specified gross receipts. Several leases include
terms for computation of rent expense as the greater of a percent of
gross receipts or a percent of land value as defined by the lease. In
most cases, the Company is responsible for certain repairs and
maintenance, insurance, property taxes or property tax increases, and
utilities.
Future minimum rental payments under these leases are as follows:
1998 $ 108,046
1999 66,300
2000 51,600
2001 49,538
2002 42,100
Thereafter 391,500
-------
Total $ 709,084
=======
The Company has entered into various land operating leases for billboard
space. These leases require minimum annual rentals and range from terms
of 1-5 years. Rent expense was $519,314 and $458,461 for the years ended
January 31, 1997 and 1996, respectively. At January 31, 1997 and 1996,
the Company had prepaid on these leases in the amounts of $290,882 and
$237,361, respectively. See note 4 regarding billboard advertising space
leased to others by the Company.
Minimum future rental payments under these leases are as follows:
Year ending January 31
1998 $ 578,783
1999 225,365
2000 182,326
2001 131,923
2002 102,671
Thereafter 135,312
-------
Total $ 1,356,380
=========
41 (Continued)
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Related Party Transactions (See also notes 2 and 6)
The following interest transactions took place with related parties
during the periods presented as follows:
1997 1996
---- ----
Interest income $ 2,027 4,314
Interest expense 33,995 65,753
====== ======
An individual who is an officer and stockholder in the Company is also an
officer and stockholder in Stuckey's Corporation (Stuckey's). The Company
paid Stuckey's franchise fees for four stores in the amount of $33,468
and $36,612 for January 31, 1997 and 1996, respectively. Franchise fees
are included in general and administrative expenses in the accompanying
consolidated statements of income.
(13) Cash Flow Disclosures
Cash paid for interest and income taxes was as follows:
1997 1996
---- ----
Interest $ 678,694 537,163
Income taxes 415,800 315,256
======= =======
Supplemental disclosures of noncash investing and financing activities
are as follows:
The Company finances a significant portion of property and equipment.
During the years ending January 31, 1997 and 1996, respectively,
approximately $1,189,000 and $1,306,000 of additional long-term debt was
obtained, most of which can be directly associated with fixed asset and
land acquisitions and expansion of the outdoor advertising operations.
For the year ended January 31, 1997, the Company issued 191,799 shares of
stock dividends at approximately $1.56 per share, totaling $298,733. For
the year ended January 31, 1996, the Company issued 232,522 shares of
stock dividends at approximately $1.59 per share, totaling $368,116. The
book value of shares distributed as stock dividends approximates fair
market value.
42 (Continued)
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Industry Segment Information
The Company's major operations are in the retail sale of merchandise,
food and gasoline to the traveling public (travel center operations) and
outdoor advertising operations. Revenue, operating income, identifiable
assets, depreciation and amortization, and capital expenditures
pertaining to the industries in which the Company operates are presented
below (in thousands of dollars) for each of the fiscal years ended
January 31.
<TABLE>
<CAPTION>
<S> <C>
Depreciation
Net Operating Identifiable and Capital
sales income assets amortization expenditures
----- ------ ------ ------------ ------------
1997:
Travel center operations $ 21,389 1,510 8,277 363 1,015
Outdoor advertising operations 3,459 703 3,966 282 987
Corporate and other - (221) 9,600 135 147
------------------------------------------------------------------
24,848 1,992 21,843 780 2,149
==================================================================
1996:
Travel center operations $ 20,175 1,284 6,008 434 576
Outdoor advertising operations 2,770 158 3,125 261 691
Corporate and other - (275) 4,465 162 228
------------------------------------------------------------------
22,945 1,167 13,598 857 1,495
==================================================================
</TABLE>
Other income represents income from wholly and majority owned
subsidiaries, sales from crops owned by the Company and other immaterial
items which are not identifiable to the travel centers or outdoor
advertising segments.
43 (Continued)
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) Subsequent Event
On April 1, 1997, the Company acquired all of the tangible and intangible
assets and certain liabilities of the outdoor advertising division of The
McCarty Company (McCarty) known as Pony Panels for $4.2 million. A member
of the Company's Board of Directors is the majority shareholder of the
McCarty Company. The Company paid $1.7 million from the proceeds of the
initial public offering and financed $2.5 million with bank debt. Pony
Panels owns and operates approximately 750 8-sheet poster panels in the
Albuquerque, New Mexico metro area. The Company also entered into a
non-compete agreement with the former principals of McCarty for a period
of five years from the date of the acquisition.
The acquisition will be accounted for as a purchase in the year ended
January 31, 1998. The purchase price will be allocated to assets acquired
and liabilities assumed based on their estimated fair values. The excess
of the purchase price over the net assets acquired will be amortized over
the estimated period of benefit not to exceed 40 years. The purchase
price allocation will be determined during the year ended January 31,
1998 when appraisals, other studies and additional information become
available. Accordingly, the final allocation may have a material effect
on the supplemental unaudited pro forma information presented below.
The following unaudited pro forma information presents the combined
results of the operations as though the acquisition of Pony Panels had
occurred on February 1, 1996 and does not purport to be indicative of
what would have occurred had the acquisition actually been made as of
such date or of results which may occur in the future.
Net sales $ 25,889,169
Net income 860,754
============
Earnings per common and
common equivalent share $ .25
============
Adjustments made in arriving at the pro forma unaudited results of
operations include increased interest expense on acquisition debt,
depreciation on fixed assets acquired, amortization of goodwill and
related tax adjustments.
44
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company's prior change in accountants was previously reported in its
Form SB-2 Registration (file number 333-12957) and is therefore not required to
be reported in this Form 10-KSB by Securities and Exchange Commission
regulations.
PART III
Additional information required by Part III (Items 9, 10, 11 and 12) is
incorporated by reference from the registrant's information statement which will
be field with the Securities and Exchange Commission not later than 120 days
(May 30, 1997) after the end of the fiscal year covered by this Form 10-KSB.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits as indexed below are included as part of this Form 10-KSB.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the three months ended January 31,
1997.
INDEX TO EXHIBITS
-----------------
EXHIBIT METHOD
NUMBER DESCRIPTION OF FILING
- ------ ----------- ---------
2.1 Purchase Agreement dated April 1, (Incorporated by reference;
1997 between the Registrant and the previously filed as Exhibit
McCarty Company 2.1 to the Registrant's Report
on Form 8-K dated April 15, 1997)
3.1 Articles of Incorporation of (Incorporated by reference;
Registrant previously filed as Exhibit
3.1 to the Registrant's Form
SB-2 Registration Statement,
File No. 333-12957 (the
"Form SB-2")
3.2 By-laws of Registrant (Incorporated by reference;
previously filed as Exhibit
3.2 to the Form SB-2)
4 Specimen of Common Stock Certificate (Incorporated by reference;
previously filed as Exhibit
4 to the Form SB-2)
45
<PAGE>
10.1 Form of Billboard Outdoor (Incorporated by reference;
Advertising Agreement previously filed as Exhibit
10.1 to the Form SB-2)
10.2 Form of Poster Outdoor Advertising (Incorporated by reference;
Agreement previously filed as Exhibit
10.2 to the Form SB-2)
10.3 Distributor Franchise Agreement, (Incorporated by reference;
dated as of July 19, 1995, previously filed as Exhibit
between the Registrant and CITGO 10.3 to the Form SB-2)
Petroleum Corporation
10.4 Form of Representative's Option (Incorporated by reference;
previously filed as Exhibit
10.4 to the Form SB-2)
10.5 Form of Employment Agreement, dated (Incorporated by reference;
as of September 27, 1996, between previously filed as Exhibit
the Registrant and Michael L. Bowlin 10.5 to the Form SB-2)
10.6 Form of Employment Agreement, dated (Incorporated by reference;
as of September 27, 1996, between previously filed as Exhibit
the Registrant and 10.6 to the Form SB-2)
C. Christopher Bess
10.7 Loan Agreement, dated as of (Incorporated by reference;
January 31, 1995, between the previously filed as Exhibit
Registrant and First Security Bank 10.7 to the Form SB-2)
of New Mexico, ("First Security
Bank")
10.8 Loan Agreement, dated as of May 16, (Incorporated by reference;
1995, between the Registrant and previously filed as Exhibit
First Security Bank 10.8 to the Form SB-2)
10.9 Promissory Note, dated as of May 16, (Incorporated by reference;
1995, payable to First Security Bank previously filed as Exhibit
in the aggregate principal amount of 10.9 to the Form SB-2)
$900,000
10.10 Revolving Promissory Note, dated as (Incorporated by reference;
of June 1, 1996, payable by the previously filed as Exhibit
Registrant to First Security Bank 10.10 to the Form SB-2)
in the aggregate principal amount of
$150,000
10.11 Revision Agreement, dated as of (Incorporated by reference;
May 16, 1995, between the Registrant previously filed as Exhibit
and First Security Bank 10.11 to the Form SB-2)
10.12 Promissory Note, dated as of (Incorporated by reference;
February 5, 1996, payable by the previously filed as Exhibit
Registrant to Norwest Bank of 10.12 to the Form SB-2)
New Mexico, National Association
("Norwest Bank") in the aggregate
principal amount of $1,700,000
10.13 Business Loan Agreement, dated as of (Incorporated by reference;
February 5, 1996, between the previously filed as Exhibit
Registrant and Norwest Bank 10.13 to the Form SB-2)
46
<PAGE>
10.14 Promissory Note, dated as of (Incorporated by reference;
February 5, 1996, payable by the previously filed as Exhibit
Registrant to Norwest Bank in the 10.14 to the Form SB-2)
aggregate principal amount of
$1,000,000
10.15 Promissory Note, dated as of (Incorporated by reference;
February 5, 1996, payable by the previously filed as Exhibit
Registrant to Norwest Bank in the 10.15 to the Form SB-2)
aggregate principal amount of up to
$1,000,000
10.16 [Intentionally omitted]
10.17 Lease, dated as of November 22, (Incorporated by reference;
1966, between Clara May Basset previously filed as Exhibit
and the Registrant, as amended 10.17 to the Form SB-2)+
10.18 Lease, dated as of January 12, 1987, (Incorporated by reference;
between Janet Prince and the previously filed as Exhibit
Registrant 10.18 to the Form SB-2)+
10.19 Commercial Lease, dated as of (Incorporated by reference;
September 21, 1986, between previously filed as Exhibit
the State of Arizona and the 10.19 to the Form SB-2)
Registrant, as amended
10.20 Business Lease, dated as of (Incorporated by reference;
March 16, 1995, between the New previously filed as Exhibit
Mexico Commissioner of Public Lands 10.20 to the Form SB-2)
and the Registrant, as amended
10.21 Lease, dated as of June 3, 1974, (Incorporated by reference;
between the Registrant and previously filed as Exhibit
Elbert and Ina Jean Roundy, as 10.21 to the Form SB-2)+
amended
10.22 Lease Agreement, dated as of (Incorporated by reference;
June 23, 1989, between the previously filed as Exhibit
Registrant and Rex Kipp, Jr., as 10.22 to the Form SB-2)+
amended
10.23 Lease, dated as of September 29, (Incorporated by reference;
1983, between J.T. and Idra M. previously filed as Exhibit
Turner and the Registrant 10.23 to the Form SB-2)+
10.24 Business Lease, dated as of (Incorporated by reference;
October 1, 1991, between the previously filed as Exhibit
Registrant and the New Mexico 10.24 to the Form SB-2)
Commissioner of Public Lands
10.25 Commercial Lease, dated as of (Incorporated by reference;
September 21, 1986, between the previously filed as Exhibit
Registrant and the State of Arizona, 10.25 to the Form SB-2)
as amended
10.26 Commercial Lease, dated as of (Incorporated by reference;
June 11, 1986, between the previously filed as Exhibit
Registrant and the State of Arizona, 10.26 to the Form SB-2)
as amended
47
<PAGE>
10.27 1996 Stock Option Plan (Incorporated by reference;
previously filed as Exhibit
10.27 to the Form SB-2)
10.28 Profit-Sharing 401(k) Plan and Trust (Incorporated by reference;
previously filed as Exhibit
10.28 to the Form SB-2)
10.29 Letter of Agreement, dated as of (Incorporated by reference;
April 26, 1996, between the previously filed as Exhibit
Registrant and Miller Capital 10.29 to the Form SB-2)
Corporation, as amended
10.30 [Intentionally omitted]
10.31 Commercial Guaranty, dated (Incorporated by reference;
August 23, 1996, by Michael L. previously filed as Exhibit
Bowlin in favor of Norwest Bank 10.31 to the Form SB-2)
New Mexico, National Association
10.32 "Dairy Queen" Operating Agreement, (Incorporated by reference;
dated as of March 10, 1983, between previously filed as Exhibit
Interstate Dairy Queen Corporation 10.32 to the Form SB-2)
and the Registrant d/b/a DQ/B of
Edgewood, NM, together with
amendments and ancillary agreements
related thereto
10.33 "Dairy Queen" Operating Agreement, (Incorporated by reference;
dated as of May 1, 1982, between previously filed as Exhibit
Interstate Dairy Queen Corporation 10.33 to the Form SB-2)
and the Registrant d/b/a DQ/B of
Flying C, New Mexico, together with
amendments and ancillary agreements
related thereto
10.34 "Dairy Queen" Store Operating (Incorporated by reference;
Agreement, dated as of November 18, previously filed as Exhibit
1986, between Dairy Queen of 10.34 to the Form SB-2)
Southern Arizona, Inc. and the
Registrant, together with
amendments and ancillary agreements
related thereto
10.35 "Dairy Queen" Operating Agreement, (Incorporated by reference;
dated as of September 1, 1982, previously filed as Exhibit
between Interstate Dairy Queen 10.35 to the Form SB-2)
Corporation and the Registrant
d/b/a DQ of Bluewater, New Mexico,
together with amendments and
ancillary agreements related thereto
10.36 "Dairy Queen" Operating Agreement, (Incorporated by reference;
dated as of July 29, 1976, between previously filed as Exhibit
Richard G. Kassel and G. Leone 10.36 to the Form SB-2)
Kassel and the Registrant, as
amended
48
<PAGE>
10.37 "Dairy Queen" Store Operating (Incorporated by reference;
License Agreement, dated as of previously filed as Exhibit
February 1, 1984, between Dairy 10.37 to the Form SB-2)
Queen of Arizona, Inc. and the
Registrant, together with
amendments and ancillary agreements
related thereto
10.38 "Dairy Queen" Operating Agreement (Incorporated by reference;
dated as of October 30, 1985, previously filed as Exhibit
between Interstate Dairy Queen 10.38 to the Form SB-2)
Corporation and the Registrant, as
amended
10.39 "Dairy Queen" Operating Agreement, (Incorporated by reference;
dated as of June 7, 1989, between previously filed as Exhibit
Interstate Dairy Queen Corporation 10.39 to the Form SB-2)
and the Registrant d/b/a "DQ" at
Butterfield Station, together with
amendments and ancillary agreements
related thereto
10.40 Letter of Agreement, dated as of (Incorporated by reference;
March 1, 1987, between Stuckey's previously filed as Exhibit
Corporation and the Registrant 10.40 to the Form SB-2)
confirming franchise of Benson,
AZ Stuckey's Pecan Shoppe
10.41 Franchise Agreement, dated as of (Incorporated by reference;
February 22, 1982, between previously filed as Exhibit
Stuckey's, Inc. and the Registrant, 10.41 to the Form SB-2)
together with a related Personal
Guaranty and Indemnity
10.42 Promissory Note, dated as of Filed herewith
April 1, 1997, payable by the
Registrant to Norwest Bank in the
aggregate principal amount of
$2,500,000
21 List of Subsidiaries Filed herewith
27 Financial Data Schedule Filed herewith
+ Confidential treatment granted as to certain portions of this exhibit.
49
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BOWLIN Outdoor Advertising
& Travel Centers Incorporated
By: /s/ MICHAEL L. BOWLIN
-----------------------------------------
Michael L. Bowlin, Chairman of the Board,
President and Chief Executive Officer
Date: May 1, 1997
In accordance with the Securities Exchange Act of 1934, this report has
been signed by the following persons on behalf of the Company and in the
capacities and on the dates indicated:
SIGNATURE DATE
By: /s/ MICHAEL L. BOWLIN May 1, 1997
-------------------------------------------------
Michael L. Bowlin, Chairman of the Board,
President, CEO and Director (Principal
Executive Officer)
By: /s/ MICHAEL E. RISING May 1, 1997
-------------------------------------------------
Michael E. Rising, Chief Financial Officer
and Chief Accounting Officer (Principal
Financial Accounting Officer)
By: /s/ C. CHRISTOPHER BESS May 1, 1997
-------------------------------------------------
C. Christopher Bess, Director
By: /s/ NINA J. PRATZ May 1, 1997
-------------------------------------------------
Nina J. Pratz, Director
By: /s/ ROBERT L. BECKETT May 1, 1997
-------------------------------------------------
Robert L. Beckett, Director
By: /s/ JAMES A. CLARK May 1, 1997
---------------------------------------------------
James A. Clark, Director
By: /s/ BRIAN MCCARTY May 1, 1997
-------------------------------------------------
Brian McCarty, Director
By: /s/ HAROLD VAN TONGEREN May 1, 1997
-------------------------------------------------
Harold Van Tongeren, Director
50
<TABLE>
<CAPTION>
<S> <C>
PROMISSORY NOTE
- ------------------ -------------- -------------- ------------- ---------- -------------- --------------- -------------- ------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
$2,500,000.00 04-01-1997 04-01-2007 50030669 090 416 53868 49MAP
- ------------------ -------------- -------------- ------------- ---------- -------------- --------------- -------------- ------------
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
Borrower: BOWLIN OUTDOOR ADVERTISING & TRAVEL Lender: Norwest Bank New Mexico, National Association
CENTERS, INCORPORATED Journal Center Business Banking
150 LOUISIANA BLVD. P.O. Box 1081
ALBUQUERQUE, NM 87108 7412 Jefferson Blvd. NE
Albuquerque, NM 8710
Principal Amount: $2,500,000.00 Initial Rate: 8.500% Date of Note: April 1, 1997
</TABLE>
PROMISE TO PAY. BOWLIN OUTDOOR ADVERTISING & TRAVEL CENTERS, INCORPORATED
("Borrower") promises to pay to Norwest Bank New Mexico, National Association
("Lender"), or order, in lawful money of the United States of America, the
principal amount of Two Million Five Hundred Thousand & 00/100 Dollars
($2,500,000.00), together with interest on the unpaid principal balance from
April 1, 1997, until paid in full.
PAYMENT. Subject to any payment changes resulting from changes in the
Index, Borrower will pay this loan in 120 payments of $31,164.02 each payment.
Borrower's first payment is due May 1, 1997, and all subsequent payments are due
on the same day of each month after that. Borrower's final payment will be due
on April 1, 2007, and will be for all principal and all accrued interest not yet
paid. Payments include principal and interest. Interest on this Note is computed
on a 365/360 simple interest basis; that is by applying the ratio of annual
interest rate over a year of 360 days, multiplied by the outstanding principal
balance, multiplied by the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at such
other place as Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to accrued unpaid
interest, then to principal, and any remaining amount to any unpaid collection
costs and late charges.
VARIABLE INTERST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an independent index which is the NORWEST
BANK MINNESOTA, N.A. BASE LENDING RATE (the "Index"). The Index is not
necessarily the lowest rate charged by Lender on its loans. If the Index becomes
unavailable during the term of this loan, Lender may designate a substitute
index after notice to Borrower. Lender will tell Borrower the current Index rate
upon Borrower's request. Borrower understands that Lender may make loans based
on other rates as well. The interest rate change will not occur more often than
each QUARTER . The Index currently is 8.500% per annum. The interest rate to be
applied to the unpaid principal balance on this Note will be at a rate equal to
the Index, resulting in an initial rate of 8.500% per annum. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law. Whenever increases occur in the interest rate,
Lender, at its option, may do one or more of the following: (a) increase
Borrower's payments to ensure Borrower's loan will pay off by its original final
maturity date, (b) increase Borrower's payments to cover accruing interest, (d)
increase the number of Borrower's payments, and (d) continue Borrower's payments
at the same amount and increase Borrower's final payment.
<PAGE>
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Except for the foregoing, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments under the payment schedule.
Rather, they will reduce the principal balance due and may result in Borrower
making fewer payments.
LATE PAYMENTS. If any payment is not received by Lender within five
calendar days after the payment is due as provided in this Note (the "Due
Date"), then additional interest will accrue beginning on the sixth calendar day
on the entire unpaid principal balance at the rate of three percent (3%) per
year (the "Additional Interest") until all past-due payments and any Additional
Interest are paid in full. All payments received more than 5 calendar days after
the Due Date will be applied first to past due interest and principal, then to
current interest and current principal, and then to cost of collection.
APPLICATION OF REGULAR PAYMENTS. Nothwithstanding any provision of this
Note to the contrary, any regularly scheduled installment payment of principal
and interest which is received before the due date of such payment, or which is
received within 5 calendar days after the due date will be applied to interest
and to principal as if such payment were received on the due date.
DEFAULT. Borrower will be in default if any of the follow happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender.
(g) Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Note. (h) A material
adverse change occurs in Borrower's financial condition, or Lender believe the
prospect of payment or performance of the indebtedness is impaired. (I) Lender
in good faith deems itself insecure. Initials
LENDER'S RIGHTS. Upon default, and after Lender has notified Borrower of
said Default and if such Default shall not be remedied within 15 days after such
notification then, Lender may declare the entire unpaid principal balance on
this Note and all accrued unpaid interest immediately due, without notice, and
then Borrower will pay that amount. Upon default, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, increase the variable interest rate on this Note to 5.000 percentage points
over the Index. The interest rate will not exceed the maximum rat permitted by
applicable law. Lender may hire or pay someone else to help collect this Note if
Borrower does not pay. Borrower also will pay Lender that amount. This includes,
subject to any limits under applicable law, Lender's attorney's fees and
Lender's legal expenses whether or not there is a lawsuit, including attorney's
fees and legal expenses for bankruptcy proceedings (including efforts to modify
or vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. If not prohibited by applicable law, Borrower
also will pay any court cots in addition to all other sums provided by law. This
<PAGE>
Note has been delivered to Lender and accepted by Lender in the State of New
Mexico. If there is a lawsuit, Borrower agrees upon Lender's request to submit
to the jurisdiction of the courts of Bernalillo County, the State of New Mexico.
This Note shall be governed by and construed in accordance with the laws of the
State of New Mexico.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory
security interest in, and hereby assigns, conveys, delivers, pledges, and
transfers to Lender all Borrower's right, title and interest in and to,
Borrower's accounts with Lender (whether checking, savings, or some other
account), including without limitation all accounts held jointly with someone
else and all accounts Borrower may open in the future, excluding however all IRA
and Keogh accounts, and all trust accounts for which the grant of a security
interest would be prohibited by law. Borrower authorizes Lender, to the extend
permitted by applicable law, to charge or setoff all sums owing on this Note
against any and all such accounts.
COLLATERAL. This Note is secured by a Commercial Security Agreement from
Bowlin Outdoor Advertising & Travel Centers, Incorporated to Norwest Bank New
Mexico, National Association dated April 1, 1997, cross collateralized by a
Commercial Security Agreement from Bowlin's Incorporated to Norwest Bank New
Mexico, National Association dated February 5, 1996 for loan number
53868-50028954, a Deed of Trust from Bowlin Outdoor Advertising & Travel
Centers, Incorporated to Norwest Bank, New Mexico, National Association on real
property located in COCHISE County, State of Arizona dated April 1, 1997 and a
Mortgage from Bowlin Outdoor Advertising & Travel Centers, Incorporated to
Norwest Bank New Mexico, National Association on real property located in LUNA
County, State of New Mexico dated April 1, 1997.
FINANCIAL STATEMENTS. I agree too provide to you, upon request, any
financial statements or information you may deem necessary. I warranty that all
financial statements and information I provide to you are or will be accurate,
correct and complete.
ARBITRATION. Lender and Borrower agree that, except for "Core Proceedings"
under the United States Bankruptcy Code, all disputes, claims controversies
between them, whether individual, joint or class in nature, arising from this
Note or otherwise, including, without limitation, contract and tort disputes,
shall be arbitrated pursuant to the Commercial Arbitration rules on the American
Arbitration Association (the "AAA") upon request of either party. No act to take
or dispose of any collateral securing this Note shall constitute a waiver of
this arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or mortgage;
obtaining a writ of attachment or imposition of a receiver; or exercising any
rights relating to personal property, including taking or disposing of such
property with or without judicial process pursuant to Article 9 of the uniform
commercial Code.
04-01-1997 PROMISSORY NOTE
<PAGE>
LOAN NO 50030669 (CONTINUED)
Any disputes, claims or controversies concerning the lawfulness or
reasonableness of any act, or exercise of any right, concerning any collateral
securing this Note, including any claim to rescind, reform or otherwise modify
any agreement relating to the collateral securing this Note, shall also be
arbitrated, provided however that no arbitrator shall have the right or the
power to enjoin or restrain any act of any party. Judgment upon any award
rendered by any arbitrator may be entered in any court having jurisdiction.
Nothing in this Note shall preclude any party from seeking equitable relief
from a court of competent jurisdiction. The statue of limitations, estoppel,
waiver, laches or similar doctrines which would otherwise be applicable in an
action brought by a party shall be applicable in any arbitration proceeding, and
the commencement of an arbitration proceeding shall be deemed the commencement
of an action for these purposes. The Federal Arbitration Action shall apply to
the construction, interpretation and enforcement of this arbitration provision.
Any arbitration hereunder shall be conducted before one arbitrator who
shall be an attorney who has practiced in the area of commercial law for at
least ten (10) years or a retired judge at the District Court or an appelate
court level. The parties to the dispute of their representatives shall obtain
from AAA a list of persons meeting the criteria outlined above and the parties
shall select the person in the manner established by the AAA.
In any arbitration hereunder: (1) the arbitrator shall decide (by documents
only or with a hearing, at the arbitrator's discretion) any pre-hearing motions
which are substantially similar to pre-hearing motions to dismiss for failure to
state a claim or motions for summary adjudication; (2) discovery shall be
permitted, but shall be limited as provided in the New Mexico Rules of Civil
Procedure, with all discovery to be completed no later than 20 days before the
hearing date and within 180 days of the commencement of arbitration proceedings;
and any requests for the extension of the discovery periods, or any discover
disputes shall be subject to final determination by the arbitration; and (3) the
arbitrator shall award costs and expenses of the arbitration proceeding in
accordance with the Lender's Rights provisions of this Note.
BUSINESS LOAN AGREEMENT. This note is subject to that certain Business Loan
Agreement dated April 1, 1997 and any replacements, amendments or extensions
thereof.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights
or remedies under this Note without losing them. Borrower and any other person
who signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest a notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of a
notice to anyone other than the party with whom the modification is made.
<PAGE>
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTERST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER; BOWLIN OUTDOOR ADVERTISING & TRAVEL CENTERS, INCORPORATED
By: /s/ Michael L. Bowlin
---------------------------------------------
MICHAEL L. BOWLIN, CHAIRMAN AND PRESIDENT
Variable Rate, Installment LASER PRO, Reg. U.S. Pat.& T.M.Off.,
Ver. 3.222b(C) 1997 CFI ProServices, Inc. All rights
reserved. [NM-D20F3.22Abowl0326.lnc8.ovl]
LIST OF SUBSIDIARIES
BMI Inc.
Los Cuatros Apartments Limited Partnership
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 7,518,971
<SECURITIES> 0
<RECEIVABLES> 375,424
<ALLOWANCES> 10,000
<INVENTORY> 3,202,191
<CURRENT-ASSETS> 11,578,298
<PP&E> 20,859,648
<DEPRECIATION> 10,889,102
<TOTAL-ASSETS> 21,842,717
<CURRENT-LIABILITIES> 2,317,909
<BONDS> 0
0
0
<COMMON> 4,385
<OTHER-SE> 13,154,051
<TOTAL-LIABILITY-AND-EQUITY> 21,842,717
<SALES> 24,847,931
<TOTAL-REVENUES> 24,847,931
<CGS> 16,340,375
<TOTAL-COSTS> 16,340,375
<OTHER-EXPENSES> 6,321,129
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 677,746
<INCOME-PRETAX> 1,508,681
<INCOME-TAX> 603,472
<INCOME-CONTINUING> 905,209
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 905,209
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
