United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended October 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission File Number 0-21451
BOWLIN Outdoor Advertising& Travel Centers Incorporated
(Exact name of registrant as specified in its charter)
NEVADA 85-0113644
(State or other jurisdiction (IRS 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
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 ___
As of December 15, 1999, 4,384,848 shares of the issuer's common stock were
outstanding.
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Page No.
--------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of
October 31, 1999 and January 31, 1999........................2
Consolidated Statements of Income for the
Three and Nine Months Ended
October 31, 1999 and 1998....................................4
Consolidated Statements of Stockholders'
Equity for the Nine Months Ended October 31, 1999............5
Consolidated Statements of Cash Flows for the
Nine Months Ended October 31, 1999 and 1998..................6
Notes to the Consolidated Financial Statements...............8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.................................................20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................20
Item 2. Changes in Securities and Use of Proceeds...................20
Item 3. Defaults Upon Senior Securities.............................20
Item 4. Submission of Matters to a Vote of Security Holders.........20
Item 5. Other Information...........................................20
Item 6. Exhibits and Reports on Form 8-K............................20
Signatures..................................................20
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
Assets
(In thousands, except share data)
<TABLE>
<S> <C> <C>
October 31, January 31,
1999 1999
(Unaudited)
-------------------- --------------------
Current assets:
Cash and cash equivalents $ 2,027 $ 2,199
Accounts receivable Outdoor Advertising, net 630 736
Accounts receivable, other 959 774
Notes receivable, related parties 12 12
Inventories 3,620 3,689
Prepaid expenses and other current assets 727 712
Income taxes 585 531
-------------------- --------------------
Total current assets 8,560 8,653
Property & equipment, net 30,304 26,425
Intangible assets, net 2,106 2,338
Other assets 54 73
-------------------- --------------------
Total assets $ 41,024 $ 37,489
==================== ====================
</TABLE>
(Continued)
2
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
Liabilities and Stockholders' Equity
(In thousands, except share data)
<TABLE>
<S> <C> <C>
October 31, January 31,
1999 1999
(Unaudited)
-------------------- ---------------------
Current liabilities:
Short-term borrowings, bank $ 1,199 $ -
Accounts payable 1,631 1,393
Long-term debt, current maturities 1,523 1,248
Accrued liabilities 643 517
-------------------- ---------------------
Total current liabilities 4,996 3,158
Deferred income taxes 855 427
Long-term debt, less current maturities 19,547 19,004
-------------------- ---------------------
Total liabilities 25,398 22,589
Stockholders' equity
Common stock, $.001 par value; authorized 100,000,000
shares; issued and outstanding 4,384,848 shares 4 4
Additional paid-in capital 11,604 11,604
Retained earnings 4,018 3,292
-------------------- ---------------------
Total stockholders' equity 15,626 14,900
-------------------- ---------------------
Total liabilities and stockholders' equity $ 41,024 $ 37,489
==================== =====================
</TABLE>
See accompanying notes to consolidated
financial statements.
3
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except share and per share data)
<TABLE>
<S> <C> <C> <C> <S>
Three Months Ended Nine Months Ended
---------------------------------- -------------------------------
October 31, October 31, October 31, October 31,
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
--------------- --------------- --------------- ---------------
Gross sales $ 8,887 $ 7,897 $ 26,795 $ 23,648
Less discounts on sales 97 73 278 208
--------------- --------------- --------------- ---------------
Net sales 8,790 7,824 26,517 23,440
Cost of goods sold 5,762 4,819 16,950 14,636
--------------- --------------- --------------- ---------------
Gross profit 3,028 3,005 9,567 8,804
General and administrative expenses (2,025) (1,882) (5,978) (5,456)
Depreciation and amortization (647) (493) (1,848) (1,354)
--------------- --------------- --------------- ---------------
Operating income 356 630 1,741 1,994
Non-operating income (expense):
Interest income 25 23 74 84
Gain from insurance coverage 532 - 759 -
Gain on sale of property and
equipment 2 8 17 12
Interest expense (490) (255) (1,399) (729)
--------------- --------------- --------------- ---------------
Total non-operating income
(expense) 69 (224) (549) (633)
--------------- --------------- --------------- ---------------
Income before income taxes 425 406 1,192 1,361
Income taxes 166 163 466 533
--------------- --------------- --------------- ---------------
Net income $ 259 $ 243 $ 726 $ 828
=============== =============== =============== ===============
Weighted average common shares 4,384,848 4,384,848 4,384,848 4,384,848
Weighted average common and dilutive
potential common shares 4,384,848 4,384,848 4,384,848 4,388,166
Earnings per share
Basic $ 0.06 $ 0.06 $ 0.17 $ 0.19
=============== =============== =============== ===============
Diluted $ 0.06 $ 0.06 $ 0.17 $ 0.19
=============== =============== =============== ===============
</TABLE>
See accompanying notes to consolidated
financial statements.
4
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(In thousands, except share data)
<TABLE>
<S> <C> <C> <C> <C> <C>
For the Nine Months Ended October 31, 1999
(Unaudited)
Common Additional
Number stock, paid-in Retained
of shares at par capital earnings Total
Balance at January 31, 1999 4,384,848 $ 4 $ 11,604 $ 3,292 $ 14,900
Net income (unaudited) 726 726
Balance at October 31, 1999 ------------------------------------------------------------------------------------
4,384,848 $ 4 $ 11,604 $ 4,018 $ 15,626
====================================================================================
</TABLE>
See accompanying notes to consolidated
financial statements.
5
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<S> <C> <C>
For the Nine Months Ended
------------------------------------------
October 31, October 31,
1999 1998
(Unaudited) (Unaudited)
----------------- -----------------
Cash flows from operating activities:
Net income $ 726 $ 828
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,848 1,354
Amortization of loan fees 140 -
Gain on sales of property and equipment (17) (12)
Gain from insurance coverage (759) -
Provision for bad debts 27 -
Deferred income taxes 428 59
Imputed interest 8 24
Changes in operating assets and liabilities, net 323 (1,127)
----------------- -----------------
Net cash provided by operating activities 2,724 1,126
Cash flows from investing activities:
Proceeds from sale of assets 39 16
Business acquisitions (note 4) (1,516) (2,047)
Purchases of property and equipment, net (4,144) (3,084)
Proceeds from insurance 699 -
Capital received from partnership 15 -
Proceeds from notes receivable, net 2 36
----------------- ---------------
Net cash used in investing activities (4,905) (5,079)
Cash flows from financing activities:
Borrowings on short-term debt 1,199 689
Borrowings on long-term debt 1,750 2,341
Payments on short-term debt - (745)
Payments on long-term debt (940) (685)
----------------- -----------------
Net cash provided by financing activities 2,009 1,600
Net decrease in cash and cash equivalents (172) (2,353)
Cash and cash equivalents at beginning of period 2,199 4,054
----------------- -----------------
Cash and cash equivalents at end of period $ 2,027 $ 1,701
================= =================
</TABLE>
(Continued)
6
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(In thousands)
<TABLE>
<S> <C> <C>
October 31, October 31,
1999 1998
(Unaudited) (Unaudited)
----------------- -----------------
Supplemental disclosure of cash flow information:
Noncash investing and financing activities:
Acquisition of covenants not-to-compete
in exchange for long-term debt $ - $ 130
================= =================
Acquisitions:
Fair value of assets acquired and liabilities assumed
at the date of the acquisitions were as follows:
Accounts receivable $ - $ 34
Prepaid expenses 3 31
Billboards 1,463 1,927
Covenants not to compete 50 -
Vehicles and equipment - 55
================= =================
</TABLE>
See accompanying notes to consolidated
financial statements.
7
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. The consolidated financial statements for the three and nine months ended
October 31, 1999 and October 31, 1998 are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim periods. The
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes, together with management's
discussion and analysis of financial condition and results of operations,
contained in the Company's annual report on Form 10-K for the fiscal year
ended January 31, 1999. Certain amounts in the January 31, 1999 financial
statements have been reclassified to conform with the October 31, 1999
presentation. Results of operations for interim periods are not necessarily
indicative of results that may be expected for the year as a whole.
2. Earnings per Share. The following table is a reconciliation of the
numerators and denominators of the basic and diluted per share computations
for income from continuing operations.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Three months ended October 31,
---------------------------------------------------------------------------------
1999 1998
-------------------------------------- -----------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Basic EPS - net income $ 259,000 4,384,848 $ 0.06 $ 243,000 4,384,848 $ 0.06
---------- ----------
Effect of Dilutive Securities
Stock options - -
------------ ------------ ------------ ------------
Diluted EPS - net income $ 259,000 4,384,848 $ 0.06 $ 243,000 4,384,848 $ 0.06
============ ============ ========== ============ ============ ==========
Nine months ended October 31,
---------------------------------------------------------------------------------
1999 1998
-------------------------------------- -----------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Basic EPS - net income- $ 726,000 4,384,848 $ 0.17 $ 828,000 4,384,848 $ 0.19
---------- ----------
Effect of Dilutive Securities
Stock options - 3,318
------------ ------------- ------------ -------------
Diluted EPS - net income $ 726,000 4,384,848 $ 0.17 $ 828,000 4,388,166 $ 0.19
============ ============= ========== ============ ============= ==========
</TABLE>
8
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
3. On February 15, 1999, the Company opened a new travel center located
approximately 20 miles west of Albuquerque, New Mexico on Interstate 40.
The 6,000 square foot store features a convenience store and an "old-time"
trading post. This location features EXXON branded gasoline.
4. Acquisitions. On March 1, 1999 the Company purchased the outdoor
advertising assets of GDM Outdoor Advertising (GDM) located in Tyler, Texas
for $1,353,376. The Company financed $1,350,000 with bank debt and paid
$3,376 in cash. GDM owned and operated approximately 86 painted bulletin
faces in central Texas.
On April 30, 1999 the Company purchased the outdoor advertising of
Borderline Outdoor Advertising, Inc. (Borderline) located in Bedford, Texas
for $162,575. The Company financed $150,000 and paid $12,575 in cash.
Borderline owned and operated approximately nine painted bulletin faces in
central Texas.
The acquisitions were accounted for as purchase transactions. The purchase
price was allocated to the assets acquired based on their estimated fair
values and no goodwill was recorded in connection with the purchases.
The following unaudited proforma consolidated results of operations have
been prepared as if the acquisition of GDM occurred on February 1, 1998.
The effect of the Company's acquisition of the assets of Borderline is not
material to the combined results of operations of the Company.
(in thousands except per share amounts)
Nine Months Ended
October 31
(unaudited)
1999 1998
---- ----
Gross sales $ 26,804 $ 23,733
=========== ============
Net income $ 717 $ 743
=========== ============
Earnings per basic
and diluted share $ .16 $ .17
=========== ============
The proforma information is presented for informational purposes only and
is not necessarily indicative of the results of operations that actually
would have been achieved had the acquisition been consummated as of that
time, nor is it intended to be a projection of future results.
5. Segment Information: Travel center operations, which represents 78 percent
of net sales of the Company, and outdoor advertising operations, which
represents 22 percent of net sales, are the Company's reportable segments
under SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information (SFAS 131). The travel center segment provides for
9
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
the retail sale of merchandise, food and gasoline to the traveling public
while the outdoor advertising segment operates billboard advertising
displays which are situated on interstate highways, primarily in the
Southwestern United States. No single customer accounted for as much as 10
percent of consolidated revenue in any period.
Summarized financial information concerning the Company's reportable
segments as of and for the respective periods ended October 31, are shown
in the following table.
<TABLE>
<S> <C> <C> <C> <C> <C>
Travel Outdoor
Center Advertising Corporate
Operations Operations and other (1) Total
(in thousands) ----------------- ----------------- ----------------- -----------------
Three months
ended October 31,
Net sales (2)
1999 $ 6,808 1,982 - 8,790
1998 6,092 1,732 - 7,824
Segment operating
income (3)
1999 $ 197 331 (103) 425
1998 389 392 (375) 406
Nine months
ended October 31,
Net sales (2)
1999 $ 20,699 5,818 - 26,517
1998 18,409 5,031 - 23,440
Segment operating
income (3)
1999 $ 1,159 1,094 (1,061) 1,192
1998 1,196 1,228 (1,063) 1,361
Segment assets
1999 $ 15,258 20,096 5,670 41,024
1998 13,072 13,613 3,174 29,859
</TABLE>
(1) Corporate functions include certain members of executive management,
the corporate accounting and finance function and other typical
administrative functions. Corporate assets include cash and cash
equivalents, income taxes, certain intangibles, and property and
equipment located at the Company's administrative headquarters.
(2) There were no inter-segment sales.
(3) Management does not allocate interest expense, interest income,
non-operating income and expense amounts or income tax expense in the
determination of the operating performance of the reportable segments.
10
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
6. In November 1998, a fire at the Company's headquarters destroyed certain
buildings and equipment, all of which were covered by insurance based on
replacement costs. As of October 31, 1999, insurance coverage was in excess
of the carrying value of the assets destroyed and a gain of $759,000
(before tax) was recorded.
Rest of page intentionally left blank.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Certain statements contained herein with respect to factors which may affect
future earnings, including management's beliefs and assumptions based on
information currently available, are forward-looking statements made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements that are not historical facts involve
risks and uncertainties, and results could vary materially from the descriptions
contained herein.
Overview
The following is a discussion of the consolidated financial condition and
results of operations of the Company as of and for the periods ended October 31,
1999 and 1998. This discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and the related notes included
in the Company's Form 10-K for the fiscal year ended January 31, 1999.
The Company operates in two industry segments, travel centers and outdoor
advertising. In order to perform 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 revenue, expenses and
operating income attributable to each segment, and also separately sets forth
the corporate expenses of the Company which management does not allocate to
either of the Company's segments for purposes of determining their respective
operating income. The discussion of results of operations which follows compares
such selected operating data and corporate expense data for the interim periods
presented.
The forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, which reflect management's
best judgment based on factors currently known, involve risks and uncertainties.
Actual results could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including but not
limited to those discussed.
12
<PAGE>
Results of Operations
The following table presents certain income and expense items derived from the
Consolidated Statements of Income for the nine and three months ended October 31
(unaudited and amounts in thousands):
<TABLE>
<S> <C> <C> <C> <C>
Nine Months Ended Three Months Ended
1999 1998 1999 1998
Travel centers:
Gross sales $ 20,977 $ 18,617 $ 6,905 $ 6,165
Discounts on sales 278 208 97 73
----------- ----------- ----------- -----------
Net sales 20,699 18,409 6,808 6,092
Cost of sales 14,319 12,394 4,844 4,036
----------- ----------- ----------- -----------
6,380 6,015 1,964 2,056
General and administrative expenses 4,775 4,369 1,615 1,502
Depreciation and amortization 446 450 152 165
----------- ----------- ----------- -----------
Operating income 1,159 1,196 197 389
Outdoor advertising:
Gross sales 5,818 5,031 1,982 1,732
Direct operating expenses 2,631 2,242 918 783
----------- ----------- ----------- -----------
3,187 2,789 1,064 949
General and administrative expenses 785 741 271 259
Depreciation and amortization 1,308 820 462 298
----------- ----------- ----------- -----------
Operating income 1,094 1,228 331 392
Corporate and other:
General and administrative expenses (423) (352) (141) (124)
Depreciation and amortization (94) (84) (33) (30)
Interest expense (1,399) (729) (490) (255)
Other income, net 855 102 561 34
----------- ----------- ----------- -----------
Income before income taxes 1,192 1,361 425 406
Income taxes 466 533 166 163
----------- ----------- ----------- -----------
Net income $ 726 $ 828 $ 259 $ 243
=========== =========== =========== ===========
EBITDA(1) - Travel centers $ 1,605 $ 1,646 $ 349 $ 554
=========== =========== =========== ===========
EBITDA - Outdoor advertising $ 2,402 $ 2,048 $ 793 $ 690
=========== =========== =========== ===========
EBITDA - Total company $ 3,589 $ 3,348 $ 1,003 $ 1,123
=========== =========== =========== ===========
EBITDA margin - Travel centers 7.7% 8.8% 5.1% 9.0%
=========== =========== =========== ===========
EBITDA margin - Outdoor advertising 41.3% 40.7% 40.0% 39.8%
=========== =========== =========== ===========
EBITDA margin - Total company 13.4% 14.2% 11.3% 14.2%
=========== =========== =========== ===========
</TABLE>
(Continued)
13
<PAGE>
(1) EBITDA is defined as operating income before depreciation and amortization.
It represents a measure which management believes is customarily used to
evaluate the financial performance of companies in the media industry.
However, EBITDA is not a measure of financial performance under generally
accepted accounting principals and should not be considered an alternative
to operating income or net income as an indicator of the Company's
operating performance or to net cash provided by operating activities as a
measure of its liquidity.
Comparison of the Nine Months Ended October 31, 1999 and October 31, 1998
Travel Centers. Gross sales at the Company's Travel Centers increased by 12.7%
to $20.977 million for the nine months ended October 31, 1999 from $18.617
million for the nine months ended October 31, 1998. This increase is primarily
attributable to the new travel center located approximately 20 miles west of
Albuquerque on Interstate 40 which contributed gross sales of $1.366 million for
the nine months ended October 31, 1999. Merchandise sales increased 22.7% to
$7.589 million for the nine months ended October 31, 1999 compared with $6.183
million for the nine months ended October 31, 1998 with the new travel center
contributing $487,000 of merchandise sales. Gasoline sales increased 7.4% to
$9.924 million for the nine months ended October 31, 1999 from $9.242 million
for the same period in 1998 with the new travel center contributing $879,000 of
gasoline sales. Wholesale gasoline sales increased 31.6% to $1.273 million for
the nine months ended October 31, 1999, as compared to $967,000 for the nine
months ended October 31, 1998. Restaurant sales decreased slightly to $2.191
million for the nine months ended October 31, 1999 compared with $2.225 for the
nine months ended October 31, 1998.
Cost of goods sold for the travel centers increased 15.5% to $14.319 million for
the nine months ended October 31, 1999 from $12.394 million for the nine months
ended October 31, 1998. This increase is a result of the new travel center
located approximately 20 miles west of Albuquerque on Interstate 40 which
contributed $1.071 million to cost of goods of which $275,000 was merchandise
and $796,000 was gasoline. Cost of goods sold as a percentage of gross revenues
for the nine months ended October 31, 1999 was 68.3% as compared to 66.6% for
the nine months ended October 31, 1998.
Gross profit for the travel centers increased 6.1% to $6.380 million for the
nine months ended October 31, 1999 from $6.015 million for the nine months ended
October 31, 1998. Lower margins on convenience store and gasoline sales for the
nine months ended October 31, 1999 negatively impacted gross margin.
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
increased 9.3% to $4.775 million for the nine months ended October 31, 1999 from
$4.369 million for the nine months ended October 31, 1998.
Depreciation and amortization expense decreased by .9% to $446,000 for the nine
months ended October 31, 1999 as compared to $450,000 for the nine months ended
October 31, 1998.
The above factors contributed to an overall decrease in travel center operating
income of 3.1% to $1.159 million for the nine months ended October 31, 1999 from
$1.196 million for the nine months ended October 31, 1998.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for
travel centers decreased 2.5% to $1.605 million for the nine months ended
October 31, 1999 from $1.646 million for the nine months ended October 31, 1998.
The EBITDA margin for travel centers decreased to 7.7% for the nine months ended
October 31, 1999 as compared to 8.8% for the nine months ended October 31, 1998.
14
<PAGE>
Outdoor Advertising. Gross sales from the Company's Outdoor Advertising
increased 15.6% to $5.818 million for the nine months ended October 31, 1999
from $5.031 million for the nine months ended October 31, 1998. The increase was
primarily attributable to the continual assimilation of the Company's
acquisitions, increased usage of available sign inventory, and increases in
rates.
Direct operating expenses related to outdoor advertising consist of rental
payments to property owners for the use of land on which advertising displays
are located, production expenses and selling expenses. Selling expenses consist
primarily of salaries and commissions for salespersons and travel related to
sales. Direct operating costs increased 17.4% to $2.631 million for the nine
months ended October 31, 1999 from $2.242 million for the nine months ended
October 31, 1998. The increase is principally due to increases in sign rent,
sign repairs, cost of paper production, permits and property taxes, and
utilities, most of which are due to the assimilation of direct operating costs
associated with acquisitions. Direct operating expenses as a percentage of gross
revenues for the nine months ended October 31, 1999 was 45.2% compared to 44.6%
for the nine months ended October 31, 1998.
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 5.9% to $785,000 for the nine months ended
October 31, 1999 from $741,000 for the nine months ended October 31, 1998.
Depreciation and amortization expense increased 59.5% to $1.308 million for the
nine months ended October 31, 1999 from $820,000 for the nine months ended
October 31, 1998. The increase is attributable to scheduled depreciation of
advertising display structures primarily associated with acquisitions as well as
the amortization of goodwill and non-compete covenants.
The above factors contributed to the decrease in outdoor advertising operating
income of 10.9% to $1.094 million for the nine months ended October 31, 1999
from $1.228 million for the nine months ended October 31, 1998.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for
outdoor advertising increased 17.3% to $2.402 million for the nine months ended
October 31, 1999 from $2.048 million for the nine months ended October 31, 1998.
The EBITDA margin for outdoor advertising increased to 41.3% for the nine months
ended October 31, 1999 as compared to 40.7% for the nine months ended October
31, 1998.
Corporate and Other. General and administrative expenses for corporate and other
operations of the Company consist primarily of executive and administrative
compensation and benefits, accounting, legal and investor relations fees.
General and administrative expenses increased to $423,000 for the nine months
ended October 31, 1999 as compared to $352,000 for the nine months ended October
31, 1998.
Depreciation and amortization expenses for the Company's corporate and other
operations consist of depreciation associated with the corporate headquarters,
furniture and fixtures and vehicles. Depreciation and amortization expenses
increased to $94,000 for the nine months ended October 31, 1999 as compared to
$84,000 for the nine months ended October 31, 1998.
Interest expense increased by 91.9% to $1.399 million for the nine months ended
October 31, 1999 as compared to $729,000 for the nine months ended October 31,
1998. The increase is primarily attributable to the increase in debt associated
with the Company's acquisitions and the new travel center that opened in
February 1999.
15
<PAGE>
Non-operating income, net, includes gains and/or losses from the sales of
assets, interest income, and a casualty gain from insurance coverage.
Non-operating income, net, increased 785.4% to $850,000 for the nine months
ended October 31, 1999 as compared to $96,000 for the nine months ended October
31, 1998.
Income before income taxes decreased 12.4% to $1.192 million for the nine months
ended October 31, 1999 as compared to $1.361 million for the nine months ended
October 31, 1998. As a percentage of gross revenues, income before income taxes
decreased to 4.4% for the nine months ended October 31, 1999 as compared to 5.8%
for the nine months ended October 31, 1998 primarily as a result of increased
depreciation, amortization, and interest expenses offset by a gain from
insurance proceeds.
Income taxes were $466,000 for the nine months ended October 31, 1999 as
compared to $533,000 for the nine months ended October 31, 1998, as the result
of lower pretax income.
The foregoing factors contributed to a decrease in the Company's net income for
the nine months ended October 31, 1999 to $726,000 as compared to $828,000 for
the nine months ended October 31, 1998.
Comparison of the Three Months Ended October 31, 1999 and October 31, 1998
Travel Centers. Gross sales at the Company's Travel Centers increased by 12.0%
to $6.905 million for the three months ended October 31, 1999 from $6.165
million for the three months ended October 31, 1998. This increase is primarily
attributable to the new travel center located approximately 20 miles west of
Albuquerque on Interstate 40 which contributed gross sales of $530,000 for the
three months ended October 31, 1999. Merchandise sales increased 15.9% to $2.389
million for the three months ended October 31,1999 compared with $2.061 million
for the three months ended October 31,1998 with the new travel center
contributing $183,000 of merchandise sales. Gasoline sales increased 11.1% to
$3.372 million for the three months ended October 31, 1999 from $3.036 million
for the same period in 1998 with the new travel center contributing $347,000 of
gasoline sales. Wholesale gasoline sales increased 30.3% to $460,000 for the
three months ended October 31, 1999, as compared to $353,000 for the three
months ended October 31, 1998. Restaurant sales decreased slightly to $684,000
for the three months ended October 31, 1999 compared with $715,000 for the three
months ended October 31, 1998.
Cost of goods sold for the travel centers increased 20.0% to $4.844 million for
the three months ended October 31, 1999 from $4.036 million for the three months
ended October 31, 1998. This increase is a result of the new travel center
located approximately 20 miles west of Albuquerque on Interstate 40 which
contributed $423,000 to cost of goods. Cost of goods sold as a percentage of
gross revenues for the three months ended October 31, 1999 was 70.2% as compared
to 65.5% for the three months ended October 31, 1998.
Gross profit for the travel centers decreased 4.5% to $1.964 million for the
three months ended October 31, 1999 from $2.056 million for the three months
ended October 31, 1998. Gross profit margins for gasoline were much lower in the
current three months ended October 31, 1999. Higher than average gasoline
margins for the three months ended October 31, 1998 exaggerated dollar and
percentage changes for the current year quarter. Lower margins on convenience
store sales also negatively impacted gross profit for the three months ended
October 31, 1999.
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
increased 7.5% to $1.615 million for the three months ended October 31, 1999
from $1.502 million for the three months ended October 31, 1998.
16
<PAGE>
Depreciation and amortization expense decreased by 7.9% to $152,000 for the
three months ended October 31, 1999 as compared to $165,000 for the three months
ended October 31, 1998.
The above factors contributed to an overall decrease in travel center operating
income of 49.4% to $197,000 for the three months ended October 31, 1999 from
$389,000 for the three months ended October 31, 1998.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for
travel centers decreased 37.0% to $349,000 for the three months ended October
31, 1999 from $554,000 for the three months ended October 31, 1998. The EBITDA
margin for travel centers decreased to 5.1% for the three months ended October
31, 1999 as compared to 9.0% for the three months ended October 31, 1998.
Outdoor Advertising. Gross sales from the Company's Outdoor Advertising
increased 14.4% to $1.982 million for the three months ended October 31, 1999
from $1.732 million for the three months ended October 31, 1998. The increase
was primarily attributable to the continual assimilation of the Company's
acquisitions, increased usage of available sign inventory, and increases in
rates.
Direct operating expenses related to outdoor advertising consist of rental
payments to property owners for the use of land on which advertising displays
are located, production expenses and selling expenses. Selling expenses consist
primarily of salaries and commissions for salespersons and travel related to
sales. Direct operating costs increased 17.2% to $918,000 for the three months
ended October 31, 1999 from $783,000 for the three months ended October 31,
1998. The increase is principally due to increases in sign rent, sign repairs,
cost of paper production, permits and property taxes, and utilities, most of
which are due to the assimilation of direct operating costs associated with
acquisitions.
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 4.6% to $271,000 for the three months ended
October 31, 1999 from $259,000 for the three months ended October 31, 1998.
Depreciation and amortization expense increased 55.0% to $462,000 for the three
months ended October 31, 1999 from $298,000 for the three months ended October
31, 1998. The increase is attributable to scheduled depreciation of advertising
display structures primarily associated with acquisitions as well as the
amortization of goodwill and non-compete covenants.
The above factors contributed to the decrease in outdoor advertising operating
income of 15.6% to $331,000 for the three months ended October 31, 1999 from
$392,000 for the three months ended October 31, 1998.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for
outdoor advertising increased 14.9% to $793,000 for the three months ended
October 31, 1999 from $690,000 for the three months ended October 31, 1998. The
EBITDA margin for outdoor advertising increased to 40.0% for the three months
ended October 31, 1999 as compared to 39.8% for the three months ended October
31, 1998.
Corporate and Other. General and administrative expenses for corporate and other
operations of the Company consist primarily of executive and administrative
compensation and benefits, accounting, legal and investor relations fees.
General and administrative expenses increased to $141,000 for the three months
ended October 31, 1999 as compared to $124,000 for the three months ended
October 31, 1998.
17
<PAGE>
Depreciation and amortization expenses for the Company's corporate and other
operations consist of depreciation associated with the corporate headquarters,
furniture and fixtures and vehicles. Depreciation and amortization expenses
increased to $33,000 for the three months ended October 31, 1999 as compared to
$30,000 for the three months ended October 31, 1998.
Interest expense increased by 92.2% to $490,000 for the three months ended
October 31, 1999 as compared to $255,000 for the three months ended October 31,
1998. The increase is primarily attributable to the increase in debt associated
with the Company's acquisitions and the new travel center that opened in
February 1999.
Non-operating income, net, includes gains and/or losses from the sales of
assets, interest income, and a casualty gain from insurance coverage.
Non-operating income, net, increased 1703.2% to $559,000 for the three months
ended October 31, 1999 as compared to $31,000 for the three months ended October
31, 1998.
Income before income taxes increased 4.7% to $425,000 for the three months ended
October 31, 1999 as compared to $406,000 for the three months ended October 31,
1998. As a percentage of gross revenues, income before income taxes decreased to
4.8% for the three months ended October 31, 1999 as compared to 5.1% for the
three months ended October 31, 1998.
Income taxes were $166,000 for the three months ended October 31, 1999 as
compared to $163,000 for the three months ended October 31, 1998, as the result
of higher pretax income.
The foregoing factors contributed to a increase in the Company's net income for
the three months ended October 31, 1999 to $259,000 as compared to $243,000 for
the three months ended October 31, 1998.
Increases in depreciation and amortization as well as interest expenses have
been substantial during the nine and three months ended October 31, 1999.
Management expects depreciation and amortization and interest expense to
continue to be high which may lead to future net losses.
Liquidity and Capital Resources
At October 31,1999, the Company had working capital of $3.564 million and a
current ratio of 1.7:1, compared to working capital of $5.495 million and a
current ratio of 2.7:1 at January 31, 1999. Net cash provided by operating
activities was $2.724 million for the nine months ended October 31, 1999 as
compared to net cash provided by operating activities of $1,126 million for the
nine months ended October 31, 1998. Net cash provided in the current period is
primarily attributable to increased depreciation and amortization from
acquisitions and loan fees and deferred taxes on casualty gain.
Net cash used for investing activities for the nine months ended October 31,
1999 was $4.905 million, of which $4.144 million was used for purchases of
property and equipment and $1.516 million was used for acquisitions partially
offset by proceeds from insurance of $699,000. For the nine months ended October
31, 1998, net cash used for investing activities was $5.079 million, of which
$3.084 was used for purchases of property and equipment and $2.047 million was
used for acquisitions.
Net cash provided by financing activities for the nine months ended October 31,
1999 was $2.009 million as compared to $1.600 million for the nine months ended
October 31, 1998. At October 31, 1999 and 1998 financing activities were a
result of borrowings and payments on debt.
Although the Company does not have any agreements in place, it will continue
discussions with acquisition candidates. The Company has not executed a letter
of intent or other agreement, binding or non-binding, to make any such
acquisitions. Any such acquisition would be subject to the negotiation and
execution of definitive agreements, appropriate financing arrangements,
18
<PAGE>
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. The Company would likely
finance any such acquisitions with cash, additional indebtedness or a
combination of the two. 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.
Impact of the Year 2000
The Year 2000 Issue is the result of computer programs that were written using
two digits rather than four to define the applicable year. As a result, any of
the Company's computer programs that have date-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations which could result in disruptions in the
operations of the Company and its suppliers and customers.
State of Readiness. The Company has conducted a comprehensive review of its
computer systems to identify those portions that could be affected by the Year
2000 Issue. The evaluation revealed that the Company's network hardware and
operating system, voice mail system, e-mail system, and accounting software were
the major resources that have Year 2000 compliance issues. The identified
systems are "off-the-shelf" products with Year 2000 compliant versions now
available which are being implemented at this time.
The Company has completed its survey of its significant suppliers, vendors, and
pertinent institutions to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their Year 2000 issues.
The survey results indicate that the respondents are aware of the Year 2000
issue and are taking action to minimize or eliminate its effect on their ability
to properly provide goods and services after January 1, 2000. Some respondents
declare that they have eliminated any negative impact while others are still in
that process. Although the survey appears to indicate that the Company should
have no major concerns about its suppliers' ability to properly provided goods
and services after January 1, 2000, there can be no guarantee that the systems
of other companies on which the Company's business relies will be timely
converted or that failure to convert by another company, or a conversion that is
incompatible with the Company's systems, would not have a material adverse
effect on the Company and its operations.
Costs to Address Year 2000 Issues. As of October 31, 1999, no significant
incremental costs have been incurred. The Company estimates that, over the next
three months, that the costs associated with the implementation plan will not
exceed $50,000.
Risks Associated with Year 2000 Issues. The Company's failure to resolve Year
2000 Issues on or before December 31, 1999 could result in system
miscalculations causing disruption in operations, including, among other things,
a temporary inability to process transactions, send invoices, determine payments
due, send and/or receive e-mail, or engage in similar normal business
activities. Additionally, failure of third parties upon whom the Company's
business relies to timely remediate their Year 2000 Issues could result in
disruptions in the Company's supply of inventory, late, missed, or unapplied
payments, temporary disruptions in order processing, and other general problems
related to the Company's daily operations. The Company presently believes that,
with modifications to existing software and conversions to new software in
process, the Year 2000 problem will not pose significant operational problems
for the Company.
Contingency Plan. The Company has not determined any specific risks that need to
be addressed by a contingency plan. By year end the Company believes that we
will have devoted the resources necessary to determine if any significant risks
exist and will address any contingency plans as any unforeseen risks arise.
19
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The principal market risks to which the Company is exposed to are interest rates
on the Company's debt. The Company's interest sensitive liabilities are its debt
instruments. Variable interest on majority of debt equals LIBOR plus the
applicable margin. Because rates may increase or decrease at any time, the
Company is exposed to market risk as a result of the impact that changes in
these base rates may have on the interest rate applicable to borrowings.
Increases (decreases) in the interest rates applicable to borrowings would
result in increased (decreased) interest expense and a reduction (increase) in
the company's net income. Management does not, however, believe that any risk
inherent in the variable rate nature of its debt is likely to have a material
effect on the Company's financial position, results of operations or liquidity.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities and Use of Proceeds. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a). Exhibit No. Exhibit Name
27 Financial Data Schedule
(b). No reports were filed on Form 8-K during the nine months ended
October 31, 1999.
Signatures
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: December 15, 1999
BOWLIN Outdoor Advertising
& Travel Centers Incorporated
/s/ Michael L. Bowlin
Michael L. Bowlin, Chairman of the Board,
President and Chief Executive Officer
/s/ Nina J. Pratz
Nina J. Pratz, Chief Financial Officer
(Principal Financial and Accounting Officer)
20
<PAGE>
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