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 July 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 September 13, 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
July 31, 1999 and January 31, 1999...........................2
Consolidated Statements of Income
for the Three and Six Months Ended
July 31, 1999 and 1998.......................................4
Consolidated Statements of Stockholders'
Equity for the Six Months Ended July 31, 1999................5
Consolidated Statements of Cash Flows for the
Six Months Ended July 31, 1999 and 1998......................6
Notes to the Consolidated Financial Statements...............8
Item 2. Management's Discussion and Analysis or
Plan of Operation...........................................12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.................................................19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................19
Item 2. Changes in Securities and Use of Proceeds...................19
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>
July 31, January 31,
1999 1999
(Unaudited)
-------------------- --------------------
Current assets:
Cash and cash equivalents $ 2,629 $ 2,199
Accounts receivable Outdoor Advertising, net 761 736
Accounts receivable, other 289 774
Notes receivable, related parties 12 12
Inventories 3,537 3,689
Prepaid expenses and other current assets 708 712
Income taxes 511 531
-------------------- --------------------
Total current assets 8,447 8,653
Property & equipment, net 29,594 26,425
Intangible assets, net 2,201 2,338
Other assets 56 73
-------------------- --------------------
Total assets $ 40,298 $ 37,489
==================== ====================
(Continued)
</TABLE>
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>
July 31, January 31,
1999 1999
(Unaudited)
-------------------- --------------------
Current liabilities:
Short-term borrowings, bank $ 569 $ -
Accounts payable 1,694 1,393
Long-term debt, current maturities 1,410 1,248
Accrued liabilities 698 517
-------------------- --------------------
Total current liabilities 4,371 3,158
Deferred income taxes 614 427
Long-term debt, less current maturities 19,946 19,004
-------------------- -------------------
Total liabilities 24,931 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 3,759 3,292
-------------------- -------------------
Total stockholders' equity 15,367 14,900
==================== ===================
Total liabilities and stockholders' equity
$ 40,298 $ 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>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
<C> <C> <C> <C>
July 31, July 31, July 31, July 31,
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
-------------- -------------- -------------- --------------
Gross sales $ 9,861 $ 8,628 $ 17,908 $ 15,752
Less discounts on sales 102 73 181 135
-------------- -------------- -------------- --------------
Net sales 9,759 8,555 17,727 15,617
Cost of goods sold 6,174 5,270 11,188 9,817
-------------- -------------- -------------- --------------
Gross profit 3,585 3,285 6,539 5,800
General and administrative expenses (2,033) (1,888) (3,953) (3,574)
Depreciation and amortization (631) (453) (1,201) (862)
-------------- -------------- -------------- --------------
Operating income 921 944 1,385 1,364
Other non-operating income (expense):
Interest income 26 33 49 61
Gain from insurance proceeds 227 - 227 -
Gain on sale of property and
equipment 10 - 15 4
Interest expense (479) (260) (909) (474)
-------------- -------------- -------------- --------------
Total other non-operating
income (expense), net (216) (227) (618) (409)
-------------- -------------- -------------- --------------
Income before taxes 705 717 767 955
Income taxes 273 278 300 371
-------------- -------------- -------------- --------------
Net income $ 432 $ 439 $ 467 $ 584
============== ============== ============== ==============
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 4,394,801 4,384,848 4,389,824
Earnings per share
Basic $ 0.10 $ 0.10 $ 0.11 $ 0.13
Diluted $ 0.10 $ 0.10 $ 0.11 $ 0.13
============== ============== ============== ==============
</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)
<TABLE>
<S>
For the Six Months Ended
Unaudited
<C> <C> <C> <C> <C>
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) 467 467
---------------------------------------------------------------------------------
Balance at July 31, 1999 4,384,848 $ 4 $ 11,604 $ 3,759 $ 15,367
=================================================================================
</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 Six Months Ended
------------------------------------------
July 31, July 31,
1999 1998
(Unaudited) (Unaudited)
----------------- ---------------
Cash flows from operating activities:
Net income $ 467 $ 584
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,201 862
Amortization of loan fees 78 -
Provision for bad debts 18 -
Gain from insurance proceeds (227) -
Gain on sales of property and equipment (15) (4)
Deferred income taxes 187 79
Imputed interest 6 16
Changes in operating assets and liabilities 731 (602)
----------------- ---------------
Net cash provided by operating activities 2,446 935
Cash flows from investing activities:
Proceeds from sale of assets 31 8
Business acquisitions (note 4) (1,516) (2,090)
Purchases of property and equipment, net (2,814) (1,741)
Proceeds from insurance 599 -
Capital received from partnership 15 -
Proceeds from notes receivable, net 2 36
----------------- ---------------
Net cash used in investing activities (3,683) (3,787)
Cash flows from financing activities:
Borrowings on short-term debt 569 359
Borrowings on long-term debt 1,750 1,128
Payments on short-term debt - (745)
Payments on long-term debt (652) (420)
----------------- ---------------
Net cash provided by financing activities 1,667 322
Net decrease in cash and cash equivalents 430 (2,530)
Cash and cash equivalents at beginning of period 2,199 4,054
----------------- ---------------
Cash and cash equivalents at end of period $ 2,629 $ 1,524
================= ===============
(Continued)
</TABLE>
6
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(In thousands)
<TABLE>
<S> <C> <C>
July 31, July 31,
1999 1998
(Unaudited) (Unaudited)
----------------- -----------------
Supplemental disclosure of cash flow information:
Noncash investing and financing activities:
Acquisition of covenants not-to-compete
$ - $ 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 1,970
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 six months ended July 31,
1999 and July 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 July 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>
Three months ended July 31,
--------------------------------------------------------------------------------
1999 1998
-------------------------------------- -----------------------------------------
<C> <C> <C> <C> <C> <C>
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Basic EPS - net income $ 432,000 4,384,848 $ 0.10 $ 439,000 4,384,848 $ 0.10
-------- -------
Effect of Dilutive Securities
Stock options - 9,953
---------- ---------- ---------- ----------
Diluted EPS - net income $ 432,000 4,384,848 $ 0.10 $ 439,000 4,394,801 $ 0.10
========== ========== ======== ========== ========== =======
Six months ended July 31,
---------------------------------------------------------------------------------
1999 1998
-------------------------------------- -----------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Basic EPS - net income $ 467,000 4,384,848 $ 0.11 $ 584,000 4,384,848 $ 0.13
-------- -------
Effect of Dilutive Securities
Stock options - 4,976
---------- ----------- ---------- ----------
Diluted EPS - net income $ 467,000 4,384,848 $ 0.11 $ 584,000 4,389,824 $ 0.13
========== =========== ======== ========== ========== =======
</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 state of the art convenience store
and an "old-time trading post. This location features EXXON branded
gasoline.
4. Acquisitions.
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 six 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)
Six Months Ended
July 31
(unaudited)
1999 1998
---- ----
Gross sales $ 17,917 $ 15,809
Net income 458 527
Earnings per basic and
diluted share $ .10 $ .12
=========== ============
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 the retail
9
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
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 July 31, are shown in
the following table.
<TABLE>
<S>
<C> <C> <C> <C> <C>
(in thousands) Travel Outdoor
Three months Center Advertising Corporate
Ended July 31 Operations Operations and other (1) Total
-------------- --------------- --------------- --------------- ---------------
Net sales (2)
1999 $ 7,761 1,998 - 9,759
1998 6,827 1,728 - 8,555
Segment operating
income (3)
1999 $ 687 416 (398) 705
1998 638 449 (370) 717
Six months
Ended July 31
--------------
Net sales (2)
1999 $ 13,891 3,836 - 17,727
1998 12,317 3,300 - 15,617
Segment operating
income (3)
1999 $ 962 763 (958) 767
1998 806 837 (688) 955
Segment assets
1999 $ 15,133 19,544 5,621 40,298
1998 12,338 13,324 2,954 28,616
</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. Therefore, the total segment operating income reported
agrees to consolidated operating income for the Company.
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. As of July
31, 1999, proceeds from insurance coverage were in excess of the carrying
value of the assets destroyed and a gain of $227,000 was recorded. The
Company is expecting to record future gains booked on additional proceeds
that are undeterminable at July 31, 1999.
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 two fiscal periods ended
July 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 are not properly allocable 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 six months ended July 31 (unaudited
and amounts in thousands):
<TABLE>
<S>
<C> <C> <C> <C>
Six Months Ended Three Months Ended
---------------- ------------------
1999 1998 1999 1998
---- ---- ------ ------
Travel centers:
Gross sales $ 14,072 $ 12,452 $ 7,863 $ 6,900
Discounts on sales 181 135 102 73
------------ ------------ ------------ ------------
Net sales 13,891 12,317 7,761 6,827
Cost of sales 9,475 8,358 5,261 4,503
------------ ------------ ------------ ------------
4,416 3,959 2,500 2,324
General and administrative expenses 3,160 2,867 1,652 1,541
Depreciation and amortization 294 286 161 145
------------ ------------ ------------ ------------
Operating income 962 806 687 638
Outdoor advertising:
Gross sales 3,836 3,300 1,998 1,728
Direct operating expenses 1,713 1,459 913 767
------------ ------------ ------------ ------------
2,123 1,841 1,085 961
General and administrative expenses 514 482 236 231
Depreciation and amortization 846 522 433 281
------------ ------------ ------------ ------------
Operating income 763 837 416 449
Corporate and other:
General and administrative expenses (282) (228) (145) (116)
Depreciation and amortization (61) (54) (37) (27)
Interest expense (909) (474) (479) (260)
Other income, net 294 68 263 33
------------ ------------ ------------ ------------
Income before taxes 767 955 705 717
Income taxes 300 371 273 278
------------ ------------ ------------ ------------
Net income $ 467 $ 584 $ 432 $ 439
============ ============ ============ ============
EBITDA(1) - Travel centers $ 1,256 $ 1,092 $ 848 $ 783
============ ============ ============ ============
EBITDA - Outdoor advertising $ 1,609 $ 1,359 $ 849 $ 730
============ ============ ============ ============
EBITDA - Total company $ 2,586 $ 2,226 $ 1,552 $ 1,397
============ ============ ============ ============
EBITDA margin - Travel centers 8.9% 8.8% 10.8% 11.3%
============ ============ ============ ============
EBITDA margin - Outdoor advertising 41.9% 41.2% 42.5% 42.2%
============ ============ ============ ============
EBITDA margin - Total company 14.4% 14.1% 15.7% 16.2%
============ ============ ============ ============
(Continued)
</TABLE>
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 Six Months Ended July 31, 1999 and July 31, 1998
Travel Centers. Gross sales at the Company's Travel Centers increased by 13.0%
to $14.072 million for the six months ended July 31, 1999 from $12.452 million
for the six months ended July 31, 1998. This increase is primarily attributable
to a 26.2% increase in merchandise sales which were $5.200 million for the six
months ended July 31,1999 compared with $4.122 million for the six months ended
July 31,1998. Gasoline sales increased 5.6% to $6.551 million for the six months
ended July 31, 1999 from $6.206 million for the same period in 1998. Wholesale
gasoline sales increased 32.4% to $813,000 for the six months ended July 31,
1999, as compared to $614,000 for the six months ended July 31, 1998. Restaurant
sales decreased slightly to $1.508 million for the six months ended July 31,
1999 compared with $1.510 for the six months ended July 31, 1998. The new travel
center located approximately 20 miles west of Albuquerque on interstate 40
contributed gross sales of $834,000 of which $302,000 were merchandise sales and
$532,000 were gasoline sales.
Cost of goods sold for the travel centers increased 13.4% to $9.475 million for
the six months ended July 31, 1999 from $8.358 million for the six months ended
July 31, 1998, primarily as a result of an increase all retail sales. Cost of
goods sold as a percentage of gross revenues for the six months ended July 31,
1999 was 67.3% as compared to 67.1% for the six months ended July 31, 1998.
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 10.2% to $3.160 million for the six months ended July 31 1999 from
$2.867 million for the six months ended July 31, 1998.
Depreciation and amortization expense increased by 2.8% to $294,000 for the six
months ended July 31, 1999 as compared to $286,000 for the six months ended July
31, 1998. The increase is attributable to additions of depreciable assets during
the current period.
The above factors contributed to an overall increase in travel center operating
income of 19.4% to $962,000 for the six months ended July 31,1999 from $806,000
for the six months ended July 31, 1999. This increase is primarily attributable
to increases in sales.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for
Travel centers increased 15.0% to $1.256 million for the six months ended July
31, 1999 from $1.092 million for the six months ended July 31, 1998. The EBITDA
margin for travel centers increased slightly to 8.9% for the six months ended
July 31, 1999 as compared to 8.8% for the six months ended July 31, 1998.
Outdoor Advertising. Gross sales from the Company's Outdoor Advertising
increased 16.2% to $3.836 million for the six months ended July 31, 1999 from
$3.300 million for the six months ended July 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.
14
<PAGE>
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 $1.713 million for the six
months ended July 31, 1999 from $1.459 million for the six months ended July 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 6.6% to $514,000 for the six months ended July
31, 1999 from $482,000 for the six months ended July 31, 1998.
Depreciation and amortization expense increased 62.1% to $846,000 for the six
months ended July 31, 1999 from $522,000 for the six months ended July 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 8.8% to $763,000 for the six months ended July 31, 1999 from $837,000
for the six months ended July 31, 1998.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for
outdoor advertising increased 18.4% to $1.609 million for the six months ended
July 31, 1999 from $1.359 million for the six months ended July 31, 1998. The
EBITDA margin for outdoor advertising increased to 41.9% for the six months
ended July 31, 1999 as compared to 41.2% for the six months ended July 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 $282,000 for the six months
ended July 31, 1999 as compared to $228,000 for the six months ended July 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 $61,000 for the six months ended July 31, 1999 as compared to
$54,000 for the six months ended July 31, 1998.
Interest expense increased by 91.8% to $909,000 for the six months ended July
31, 1999 as compared to $474,000 for the six months ended July 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 proceeds.
Non-operating income, net, increased 332.4% to $294,000 for the six months ended
July 31, 1999 as compared to $68,000 for the six months ended July 31, 1998. The
Company is expecting to record future gains booked on additional proceeds that
are undeterminable at July 31, 1999.
15
<PAGE>
Income before taxes decreased 19.7% to $767,000 for the six months ended July
31, 1999 as compared to $955,000 for the six months ended July 31, 1998. As a
percentage of gross revenues, income before taxes decreased to 4.3% for the six
months ended July 31, 1999 as compared to 6.1% for the six months ended July 31,
1998.
Income taxes were $300,000 for the six months ended July 31, 1999 as compared to
$371,000 for the six months ended July 31, 1998, as the result of lower pretax
income.
The foregoing factors contributed to a decrease in the Company's net income for
the six months ended July 31, 1999 to $467,000 as compared to $584,000 for the
six months ended July 31, 1998.
Comparison of the Three Months Ended July 31, 1999 and July 31, 1998
Travel Centers. Gross sales at the Company's Travel Centers increased by 14.0%
to $7.863 million for the three months ended July 31, 1999 from $6.900 million
for the three months ended July 31, 1998. This increase is primarily
attributable to a 24.4% increase in merchandise sales which were $3.061 million
for the three months ended July 31,1999 compared with $2.461 million for the
three months ended July 31,1998. Gasoline sales increased 8.1% to $3.495 million
for the three months ended July 31, 1999 from $3.233 million for the same period
in 1998. Wholesale gasoline sales increased 38.2% to $463,000 for the three
months ended July 31, 1999, as compared to $335,000 for the three months ended
July 31, 1998. Restaurant sales decreased slightly to $844,000 for the three
months ended July 31, 1999 compared with $871,000 for the three months ended
July 31, 1998. The new travel center located approximately 20 miles west of
Albuquerque on interstate 40 contributed gross sales of $530,000 of which
$192,000 were merchandise sales and $338,000 were gasoline sales.
Cost of goods sold for the travel centers increased 16.9% to $5.261 million for
the three months ended July 31, 1999 from $4.503 million for the three months
ended July 31, 1998, primarily as a result of an increase in retail sales. Cost
of goods sold as a percentage of gross revenues for the three months ended July
31, 1999 was 66.9% as compared to 65.3% for the three months ended July 31,
1998.
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 7.2% to $1.652 million for the three months ended July 31 1999 from
$1.542 million for the three months ended July 31, 1998.
Depreciation and amortization expense increased by 11.0% to $161,000 for the
three months ended July 31, 1999 as compared to $145,000 for the three months
ended July 31, 1998. The increase is attributable to additions of depreciable
assets during the current period.
The above factors contributed to an overall increase in travel center operating
income of 7.5% to $687,000 for the three months ended July 31,1999 from $638,000
for the three months ended July 31, 1998.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for
Travel centers increased 8.4% to $848,000 for the three months ended July 31,
1999 from $783,000 for the three months ended July 31, 1998. The EBITDA margin
for travel centers decreased to 10.8% for the three months ended July 31, 1999
as compared to 11.3% for the three months ended July 31, 1998.
16
<PAGE>
Outdoor Advertising. Gross sales from the Company's Outdoor Advertising
increased 15.6% to $1.998 million for the three months ended July 31, 1999 from
$1.728 million for the three months ended July 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 19.0% to $913,000 for the three months
ended July 31, 1999 from $767,000 for the three months ended July 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 2.2% to $236,000 for the three months ended
July 31, 1999 from $231,000 for the three months ended July 31, 1998.
Depreciation and amortization expense increased 54.1% to $433,000 for the three
months ended July 31, 1999 from $281,000 for the three months ended July 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 7.3% to $416,000 for the three months ended July 31, 1999 from
$449,000 for the three months ended July 31, 1998.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for
outdoor advertising increased 16.3% to $849,000 for the three months ended July
31, 1999 from $730,000 for the three months ended July 31, 1998. The EBITDA
margin for outdoor advertising increased to 42.5% for the three months ended
July 31, 1999 as compared to 42.2% for the three months ended July 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 145,000 for the three months
ended July 31, 1999 as compared to $116,000 for the three months ended July 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 $37,000 for the three months ended July 31, 1999 as compared to
$27,000 for the three months ended July 31, 1998.
Interest expense increased by 84.2% to $479,000 for the three months ended July
31, 1999 as compared to $2604,000 for the three months ended July 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 proceeds.
Non-operating income, net, increased 697.0% to $263,000 for the three months
ended July 31, 1999 as compared to $33,000 for the three months ended July 31,
1998. The Company is expecting to record future gains booked on additional
proceeds that are undeterminable at July 31, 1999.
17
<PAGE>
Income before taxes decreased 1.7% to $705,000 for the three months ended July
31, 1999 as compared to $717,000 for the three months ended July 31, 1998. As a
percentage of gross revenues, income before taxes decreased to 7.1% for the
three months ended July 31, 1999 as compared to 8.3% for the three months ended
July 31, 1998.
Income taxes were $273,000 for the three months ended July 31, 1999 as compared
to $278,000 for the three months ended July 31, 1998, as the result of lower
pretax income.
The foregoing factors contributed to a decrease in the Company's net income for
the three months ended July 31, 1999 to $432,000 as compared to $439,000 for the
three months ended July 31, 1998.
Liquidity and Capital Resources
At July 31,1999, the Company had working capital of $4.076 million and a current
ratio of 1.9:1, 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 $2.446 million for the six months ended July 31, 1999 as compared to net
cash provided by operating activities of $935,000 for the six months ended July
31, 1998. Net cash provided in the current period is primarily attributable to
increased depreciation and amortization from acquisitions as well as an increase
in cash used to fund operating assets and liabilities.
Net cash used for investing activities for the six months ended July 31, 1999
was $3.683 million, of which $2.814 million was used for purchases of property
and equipment and $1.516 million was used for acquisitions. For the six months
ended July 31, 1998, net cash used for investing activities was $3.787 million,
of which $1.741 was used for purchases of property and equipment and $2.090
million was used for acquisitions.
Net cash provided by financing activities for the six months ended July 31, 1999
was $1.667 million as compared to $322,000 for the six months ended July 31,
1998. At July 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 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. 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
18
<PAGE>
operating system, voice mail system, e-mail system, and accounting software are
the major resources that do have Year 2000 compliance issues. The identified
systems are "off-the-shelf" products with Year 2000 compliant versions now
available and are being implemented with completion set for the end of the third
quarter.
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 July 31, 1999, no significant
incremental costs have been incurred. The Company estimates that, over the next
four 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 parts and materials, 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, the Year 2000 problem will not pose significant operational problems
for the Company.
Contingency Plan. The Company has not determined the specific risks that may
need to be addressed by a contingency plan. By the end of the third quarter, the
Company will have devoted the resources it concludes are necessary to determine
if an significant risks exist.
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 short-term debt equals LIBOR plus the
applicable margin. Long-term debt bears interest at variable rates based
primarily on the prime rate. Because the prime rate and LIBOR 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.
19
<PAGE>
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submissions 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 six months ended
July 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: September 13, 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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