UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 1999
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 the registrant as specified in its charter)
NEVADA 85-0113644
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
150 LOUISIANA NE, ALBUQUERQUE, NM 87108
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 505-266-5985
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:
Title of each class Name of each exchange on which registered
Common Stock , $.001 Par Value AMEX
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
NONE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that 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 ___
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained in herein, and will not 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-K or any
amendment to this Form 10-K. X
The aggregate market value of the voting and non-voting common stock held by
non-affiliates of the registrant at April 14, 1999 was $12,553,704.
The number of shares of Common Stock, $.001 par value, outstanding as of April
30, 1999: 4,384,848
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive proxy statement relating to the 1999
Annual Meeting of Stockholders are incorporated herein by reference.
<PAGE>
Forward-Looking Statements
Certain statements in this Annual Report on Form 10-K 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 (the "Company" or "BOWLIN"). 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 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and the risks and
other factors described elsewhere. 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.
PART I
ITEM 1. BUSINESS
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 along
interstate highways in Arizona and New Mexico. The Company advertises its travel
centers through a network of over 350 outdoor advertising display faces. The
Company's travel centers offer brand name food, gasoline and a variety of unique
Southwestern merchandise to the traveling public.
In addition to its travel centers, the Company operates over 3,700
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 primarily along interstate highways in Arizona,
New Mexico, and Texas and, to a lesser extent, in Colorado and Oklahoma. The
Company provides a comprehensive range of outdoor advertising services to its
clients, including customized design and production services.
Recent Developments
The Company made a number of acquisitions of outdoor advertising assets in
fiscal year 1999. Each of the acquisitions was accounted for as a purchase. In
each case, the purchase price was allocated to the assets acquired based on
their estimated fair values and no goodwill was recorded.
On February 1, 1998, the Company acquired the outdoor advertising assets of
Big-Tex Outdoor Advertising (Big-Tex) in Brownwood, Texas for $1,575,283. The
Company paid $575,283 in cash and financed $1,000,000 with bank debt. Big-Tex
owned and operated approximately 284 poster and painted faces in the Brownwood
metro area. The Company also entered into a non-compete agreement with the
former principals of Big-Tex for a period of ten years from the date of the
acquisition, payable in ten annual installments of $10,000 beginning in February
1999.
On March 3, 1998, the Company acquired the outdoor advertising assets of
Norwood Outdoor, Inc. (Norwood) for $1,020,768. The Company paid $370,768 in
cash and financed $650,000 with bank debt. Norwood owned and operated
approximately 145 poster and painted bulletin faces in the Brady, Texas metro
area.
2
<PAGE>
On May 1, 1998 the Company purchased the outdoor advertising assets of
Edgar Outdoor Advertising Co. for $933,661. The Company paid $933,661 in cash.
Edgar owned and operated approximately 62 painted bulletin faces in central
Texas. The acquisition was accounted for as a purchase.
On June 1, 1998 the Company purchased the outdoor advertising assets of J &
J Sign Company, located in Silver City, New Mexico for $347,947 in cash. J & J
owned and operated approximately 40 painted bulletin faces in Southwestern New
Mexico.
On August 14, 1998 the Company purchased the outdoor advertising assets of
T & C Outdoor Advertising, located in Crowley, Texas. The Company paid $171,614
in cash. T & C owned and operated approximately 15 display faces in central
Texas.
On November 16, 1998 the Company purchased the outdoor advertising assets
of Faris Outdoor Advertising, Inc., located in Ft. Worth, Texas for $2,563,408.
The Company financed $2,500,000 with bank debt and paid $63,408 in cash. Faris
owned and operated approximately 132 painted bulletin faces in central Texas.
On January 4, 1999 the Company purchased the outdoor advertising assets of
Big-Tex Outdoor Advertising, located in Granbury, TX for $1,549,507. The Company
financed $1,500,000 with bank debt and paid $49,507 cash. Granbury owned and
operated approximately 83 display faces in central Texas.
On November 10, 1998, the Company entered into a credit agreement with one
of its existing lenders for the following: 1) a new term note, in the amount of
$12,000,000, created to refinance existing borrowings and to provide funds for
working capital; 2) a new line of credit, which is a multiple advance line, in
the amount of $10,000,000, to fund purchases of existing outdoor advertising
businesses and/or billboard properties; 3) an increase in the existing $500,000
working capital line to $2,000,000; 4) reduction of the existing facility line
to fund the acquisition and/or construction of travel centers to $6,000,000; and
5) termination of an existing leasing line of $2,000,000. Each note will bear
interest based on the LIBOR 90-day rate index.
Subsequent Events
On March 1, 1999 the Company purchased the outdoor advertising assets of
GDM Outdoor Advertising, 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. The
acquisition was accounted for as a purchase. The purchase price was allocated to
the assets acquired based on their estimated fair values and no goodwill was
recorded in connection with the purchase.
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.
3
<PAGE>
Industry Overview
Travel Services Industry. The travel services industry in which the Company
competes includes convenience stores that 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.
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. Smaller quick-service restaurant chains and
franchise operations are focusing on brand and image enhancement and co-branding
strategies.
Outdoor Advertising Industry. According to recent estimates by the Outdoor
Advertising Association of America ("OAAA"), outdoor advertising generated total
billboard revenues of approximately $2.33 billion in 1998, representing growth
of approximately 9.1% over 1997. 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. Because
outdoor advertising reaches potential customers close to the point-of-sale,
restaurants, motels, service stations and similar businesses find outdoor
advertising particularly effective. 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. 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. Recent estimates published by the OAAA
report that total out-of-home advertising revenues, including traditional
billboard advertising, was approximately $4.413 billion in 1998.
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). The physical advertising structure is generally 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 designated market areas 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. There has been
a trend toward consolidation in the outdoor advertising industry in recent years
and the Company expects this trend to continue.
4
<PAGE>
Business Strategy
Travel Services Business Strategy. The Company opened its first travel
center in 1953 and has since expanded to fourteen travel centers. 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. Most of the Company's travel centers offer
food and beverages, ranging from ice cream and snack foods at some locations to
full-service restaurants at others. 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. Four of the Company's travel centers
operate under the Stuckey's 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 travel centers also offer brand name gasoline such as CITGO,
EXXON, Chevron, and Diamond Shamrock. The Company has been an authorized
distributor of CITGO Petroleum Corporation since October 1, 1995. Effective July
15, 1998, the Company also became an authorized distributor of EXXON Company,
USA. The Company has converted one of its existing locations to an EXXON
station. The travel center opened by the Company on February 15, 1999 is also an
EXXON station. The Company has converted eight of its existing locations to
CITGO "superpumper" stations. The Company also intends to continue marketing
CITGO and EXXON products to other retailers in Arizona and New Mexico.
The Company's billboard advertising for its travel centers emphasizes the
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 especially for the Company
by several Native American tribes.
Outdoor Advertising Business Strategy. The Company operates over 3,700
revenue-generating advertising display faces, primarily in Arizona, New Mexico
and Texas and, to a lesser extent, in Colorado and Oklahoma. Approximately 65%
of these display faces are traditional bulletin style and 35% 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 painting 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.
5
<PAGE>
Growth Strategy
Travel Centers. The Company is committed to expanding its travel center
operations through internal development. 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 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 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 ongoing
renovation and upgrading of facilities and the addition of new 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. The Company is an authorized CITGO and EXXON
distributor. CITGO and EXXON are among the top five petroleum producers in the
United States. 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 CITGO distribution agreement had an
initial three-year term that expired September 30, 1998, and automatically
renewed for a three-year term through 2001. The EXXON distribution agreement has
a three-year term that expires July 14, 2001. CITGO's and EXXON'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 or EXXON of its petroleum marketing activities
in the Company's distribution area. The terms of the distribution agreements
require the Company 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 CITGO distribution
agreement, the Company's purchases of CITGO products have substantially exceeded
the required minimum quantities. Since the effective date of the EXXON agreement
the Company has not determined if certain minimum quantities have been met,
however, the Company believes it will exceed the required minimum quantities.
The Company intends to continue to grow gasoline sales by focusing on the
marketing of the CITGO and EXXON lines of petroleum products through the
Company's own travel centers, and as a wholesale provider to other gasoline
retailers in the Southwest.
Outdoor Advertising. The Company plans to increase its outdoor advertising
operations through internal development as well as acquisition. The Company
increased its inventory of billboard faces by 951 in fiscal year 1999 and 979 in
fiscal year 1998. The Company anticipates that it will be adding approximately
200 new billboard faces 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 continue to focus
on the expansion of its outdoor advertising operations through aggressive
acquisitions at prices that reflect prudent cash flow multiples. 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, and
the satisfaction of other customary closing conditions, including the receipt of
third party consents.
6
<PAGE>
Consistent with its past practices, the Company intends to pursue expansion
into markets that are not included in the 50 largest designated market areas.
The Company believes that expansion along interstate highways and in smaller
metropolitan areas permits the Company to operate in areas where competition for
site acquisitions is less intense, purchase prices are more favorable, and
government regulations are generally less onerous.
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, 1999, and the respective percentages of such net
revenues. The top three business categories accounted for approximately 62% of
the Company's total outdoor advertising net revenues. No single advertiser
accounted for more than 2.4% of the Company's total outdoor advertising net
revenues in such period.
Percentage of Net
Advertising Revenues by Category
Hotels and Motels 26%
Restaurants 21
Travel & Entertainment 15
Retail/Consumer Products 13
Government 9
Services 7
Automotive 4
Alcohol *
Tobacco *
Other 5
----
TOTAL 100%
====
*Less than 1%
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 of
small to medium-sized outdoor advertising operations in the less populated
areas of the United States.
Business Operations
Travel Center Operations. The Company sells food, gasoline and merchandise
through its fourteen travel centers 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 (except Christmas).
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
Company has long-standing relationships with many of its vendors and suppliers.
7
<PAGE>
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.
The terms of its agreements with Stuckey's and Dairy Queen obligate the company
to pay these franchisers a franchise royalty and in some instances a promotion
fee, each equal to a percentage of gross sales revenues from products sold, 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.
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. 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 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 account representatives, sells
advertising space to the Company's clients from its inventory of approximately
3,700 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 70% 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 its
printing, and installing the design displays. Billboards have historically been
composed of several painted plywood sheets, but recently vinyl facing has
replaced plywood in the majority of advertising produced. 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.
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 that are substantially
larger, better capitalized and have greater name recognition and access to
greater resources than the Company. Although the Company faces substantial
competition, the Company believes that few of its competitors offer the same
breadth of products and services dedicated to the traveling public.
8
<PAGE>
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 Outdoor Systems, Chancellor Media Corporation
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 designated market areas 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, 1999, the Company had approximately 215 full-time and 68
part-time employees; 49 were located in Arizona, 226 were located in New Mexico
and 8 were located in Texas. None of the Company's employees are covered by a
collective bargaining agreement and the Company believes that 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, tip credits, and minimum wages. The Company
believes that operations at its fourteen travel centers 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. These costs include assessment, compliance, and
remediation costs, as well as certain ongoing capital expenditures relating to
the Company's gasoline dispensing operations. Under recently enacted federal
regulations, the Company was obligated to upgrade or replace all non-complying
underground storage tanks 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, wherever possible, adopted a policy of replacing its
underground storage tanks with above-ground storage tanks to minimize the costs
associated with leak detection and compliance with other regulatory programs.
Non-complying tanks have been upgraded or replaced at all of the Company's
travel centers.
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.
9
<PAGE>
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 some prohibition on the
construction of new billboards adjacent to federally aided highways. The
Beautification Act, and the various state statutes implementing it, requires 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
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. It is likely that additional legislation of
this type will be enacted on the national or on a local level in the Company's
markets. Revenues from tobacco advertisers accounted for less than 1% of the
Company's total advertising revenues in fiscal 1999.
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, CITGO and
EXXON 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.
10
<PAGE>
ITEM 2. PROPERTIES
As of January 31, 1999, the Company operated fourteen travel centers. The
Company owns the real estate and improvements where five of its travel centers
are located, as well as real estate and improvements at three additional
locations, one of which the Company is currently developing into a travel center
and two of which are leased to third party restaurant operators. The properties
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 a travel
center location planned for 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.
As of January 31, 1999, the Company operated over 3,700 revenue generating
outdoor display faces throughout the Southwest. 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 5 to 10 years and provide for minimum annual rents. As of January
31, 1999, 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. Listed below are
the locations of the Company's inventory of revenue generating display faces as
of January 31, 1999.
<TABLE>
<S> <C> <C> <C> <C>
Billboards 30-sheet Posters 8-sheet Posters Total
Arizona 138 -- -- 138
Colorado 14 -- -- 14
New Mexico 1,717 180 765 2,662
Oklahoma 4 -- -- 4
Texas 545 320 35 900
--- --- -- ---
TOTAL 2,418 500 800 3,718
===== === === =====
</TABLE>
The Company's principal executive offices occupy approximately 20,000
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 31, 2005, and the principal balance of which interest accrues at the
bank's prime rate (7.75% at January 31, 1999). 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 a mortgage that matures on
June 13, 2013 and accrues interest on the unpaid principal balance at a rate of
8.9% per annum. The Company believes that its headquarters and warehouse
facilities are adequate for its operations for the foreseeable future.
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.
11
<PAGE>
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 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the American Stock Exchange under
the symbol "BWN." On April 14, 1999, there were approximately 30 holders of
record of the Company's Common Stock. The following table sets forth the high
and low sales prices for the Company's Common Stock for each quarter during the
past two fiscal years.
<TABLE>
<S> <C> <C>
Fiscal Year Ended
January 31, 1998 High Low
- ---------------- ---- ---
Fiscal Quarter Ended 4/30 $ 8.0000 $ 5.0000
Fiscal Quarter Ended 7/31 $ 6.1250 $ 3.3750
Fiscal Quarter Ended 10/31 $ 6.1250 $ 3.7500
Fiscal Quarter Ended 1/31 $ 5.1250 $ 3.7500
Fiscal Year Ended
January 31, 1999 High Low
- ---------------- ---- ---
Fiscal Quarter Ended 4/30 $10.8750 $ 4.7500
Fiscal Quarter Ended 7/31 $ 9.9375 $ 7.5000
Fiscal Quarter Ended 10/31 $ 7.7500 $ 3.5000
Fiscal Quarter Ended 1/31 $ 6.6250 $ 4.7500
</TABLE>
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below are derived from
the audited consolidated financial statements of the Company for the five years
ended January 31, 1999. The data presented below should be read in conjunction
with the audited consolidated financial statements, related notes and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included herein.
<TABLE>
<C> <C> <C> <C> <C>
YEAR ENDING JANUARY 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> ----------------------------------------------------------------------
STATEMENT OF INCOME DATA:
Net sales $ 30,294,751 $ 7,159,455 $ 24,847,931 $ 22,944,684 $ 21,953,932
Cost of goods sold (18,848,146) (17,531,203) (16,340,375) (15,002,736) (14,255,221)
------------ ------------ ------------ ------------ ------------
Gross profit 11,446,605 9,628,252 8,507,556 7,941,948 7,698,711
General and administrative expenses (7,479,568) (6,567,940) (6,115,350) (6,407,736) (5,988,485)
Depreciation and amortization (1,895,035) (1,149,694) (779,571) (856,608) (821,164)
Other operating income 7,345 89,732 379,228 489,653 420,256
------------ ------------ ------------ ------------ ------------
Income from operations 2,079,347 2,000,350 1,991,863 1,167,257 1,309,318
Interest expense (1,108,263) (722,117) (677,746) (611,590) (536,025)
Other income (loss), net 139,026 469,155 194,564 80,769 (9,618)
------------ ------------ ------------ ------------ ------------
Income before taxes 1,110,110 1,747,388 1,508,681 636,436 763,675
Income taxes 437,500 678,200 603,472 252,817 294,719
------------ ------------ ------------ ------------ ------------
Net income $ 672,610 $ 1,069,188 $ 905,209 $ 383,619 $ 468,956
============ ============ ============ ============ ============
Basic and diluted earnings per share $ 0.15 $ 0.24 $ 0.26 $ 0.11 $ 0.14
============ ============ ============ ============ ============
BALANCE SHEET DATA (at end of period)
Property & equipment $26,424,741 $16,197,471 $ 9,970,546 $ 8,910,470 $ 6,727,205
=========== =========== =========== =========== ===========
Total assets $37,489,356 $25,859,316 $21,842,717 $13,597,846 $10,856,837
=========== =========== =========== =========== ===========
Long-term debt, including current $20,252,124 $ 8,902,915 $ 6,694,592 $ 6,577,432 $ 4,991,452
installments =========== =========== =========== =========== ===========
</TABLE>
13
<PAGE>
ITEM 7. 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 three fiscal years ended
January 31, 1999. This discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and the related notes included
elsewhere in this Form 10-K. References 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 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.
<TABLE>
<S> <C> <C> <C>
YEAR ENDING JANUARY 31,
---------------------------------------------------
1999 1998 1997
---------------------------------------------------
IN THOUSANDS
Travel Centers
Gross sales $ 23,803 $ 22,584 $ 21,692
Discounts on sales 283 280 303
---------- ---------- ----------
Net sales 23,520 22,304 21,389
Cost of goods 15,802 15,042 14,235
---------- ---------- ----------
7,718 7,262 7,154
General & administrative expenses 5,937 5,307 5,281
Depreciation and amortization 611 369 363
---------- ---------- ----------
Operating income 1,170 1,586 1,510
Outdoor Advertising
Gross sales 6,775 4,856 3,459
Direct operating expenses 3,046 2,489 2,105
---------- ---------- ----------
3,729 2,367 1,354
General & administrative expenses 1,056 781 369
Depreciation and amortization 1,178 660 282
---------- ---------- ----------
Operating income 1,495 926 703
Corporate and Other
General & administrative expenses (487) (480) (465)
Depreciation and amortization (106) (121) (135)
Interest expense (1,108) (722) (678)
Other income, net 146 558 574
---------- ---------- -----------
Income before taxes 1,110 1,747 1,509
Income taxes 437 678 604
---------- ---------- ----------
Net income $ 673 $ 1,069 $ 905
========== ========== ==========
</TABLE>
14
<PAGE>
Fiscal 1999 Compared to Fiscal 1998
Travel Centers. Gross sales at the Company's travel centers increased 5.3%
to $23.8 million for fiscal 1999 from $22.6 million for fiscal 1998. Gasoline
sales increased 0.9% to $11.7 million for fiscal year 1999 from $11.6 million
for fiscal year 1998. Merchandise sales increased 12.7% to $8.0 million for the
fiscal year ended January 31, 1999 from $7.1 million for the fiscal year ended
January 31, 1998. Restaurant sales decreased 6.7% to $2.8 million for fiscal
1999 from $3.0 million for fiscal 1998. The Company's wholesale CITGO gasoline
products relationship produced gross sales of $1.2 million for fiscal year 1999
as compared to $917,000 for fiscal year 1998. Increases in depreciation due to
capital expenditures as well as increases in general and administration due to
additional middle management for fiscal year 1999 as compared to fiscal year
1998 impacted operating income. In addition, travel center revenues for the
fourth quarter of the current fiscal year were negatively impacted by the lowest
gasoline prices in a decade and a corresponding reduction in gross margin.
Cost of goods sold for the travel centers increased 5.3% to $15.8 million
for fiscal 1999 from $15.0 million for fiscal 1998. As a percentage of gross
sales, cost of goods sold decreased slightly to 66.4% from 66.6% 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
increased 11.3% to $5.9 million for the fiscal year ended January 31, 1999 from
$5.3 for fiscal year ended January 31, 1998. The increase was primarily
attributable to increases in middle management personnel.
Depreciation and amortization expenses increased by 65.6% to $611,000 for
the fiscal year ended January 31, 1999 from $369,000 for the fiscal year ended
January 31, 1998. The increase is primarily attributable to capital expenditures
for gasoline tanks and equipment for federal mandates as well as image upgrades
for branded fuel.
The above factors contributed to a decrease in travel centers operating
income of 25.2% to $1.2 million for the fiscal year ended January 31, 1999 as
compared to $1.6 million for the fiscal year ended January 31, 1998.
Outdoor Advertising. Gross sales from the Company's outdoor advertising
increased 38.8% to $6.8 million for fiscal 1999 from $4.9 million in fiscal
1998. The increase was primarily attributable to certain acquired assets,
including the outdoor advertising assets of Big Tex Outdoor Advertising,
(Brownwood), Norwood Outdoor Advertising, Edgar Outdoor Advertising, J & J
Outdoor Advertising, T & C Outdoor Advertising, Faris Outdoor Advertising, and
Big Tex Outdoor Advertising (Granbury), as well as overall rate increases.
Direct 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, and repairs and maintenance of
advertising displays. Selling expenses consist primarily of salaries and
commissions for salespersons and travel related to sales. Direct operating
expenses increased 20.0% to $3.0 million for the fiscal year ended January 31,
1999 from $2.5 million for the same period in fiscal 1998, principally due to
the addition of sales and production personnel, sign rent and repairs and
maintenance of advertising displays from acquisitions.
15
<PAGE>
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 expenses. General and
administrative expenses increased 40.8% to $1.1 million for the fiscal year
ended January 31, 1999 from $781,000 for fiscal 1998. The increase was primarily
attributable to increases in administrative personnel and insurance due to the
acquisitions.
Depreciation and amortization expenses increased 81.8% to $1.2 million for
the fiscal year ended January 31, 1999 from $660,000 for fiscal 1998. The
increase was primarily attributable to acquisitions of outdoor advertising
assets throughout the current and prior fiscal years.
The above factors contributed to the increase in outdoor advertising
operating income of 62.0% to $1.5 million for the fiscal year ended January 31,
1999 as compared to $926,000 for the fiscal year ended January 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, investor relations, and accounting and
legal fees. General and administrative expenses increased 1.5% to $487,000 for
the fiscal year ended January 31, 1999 from $480,000 for the fiscal year ended
January 31, 1998.
For the fiscal year ended January 31, 1999, the Company's President and its
Chief Operating Officer elected to accept annual base salaries of $145,000 and
$90,000, respectively, which are less than the $195,000 and $145,000 salaries
provided for in their respective employment agreements effective February 1,
1997. Each of the agreements has a perpetual five-year term, such that on any
given date, each agreement has a five-year remaining term.
Depreciation and amortization expenses for the Company's corporate and
other operations consist of depreciation associated with the corporate
headquarters and furniture and fixtures related thereto. Depreciation and
amortization decreased 12.4% to $106,000 for fiscal 1999 as compared to $121,000
for fiscal 1998.
Interest expense increased 52.3% to $1.1 million for the fiscal year ended
January 31, 1999 from $722,000 for the fiscal year ended January 31, 1998. The
increase is a result of borrowings to fund outdoor advertising expansion and the
continued conversion of travel centers to CITGO and EXXON branding.
Other income decreased to $146,000 in fiscal year 1999 from $558,000 or
73.8%. This decrease was due to one-time gains on the sale of assets and a
subsidiary in fiscal year 1998 not present in 1999.
Income before taxes decreased 35.2% to $1.1 million for the fiscal year
ended January 31, 1999 from $1.7 million for the fiscal year ended January 31,
1998. As a percentage of gross revenues, income before taxes decreased to 3.6%
for the fiscal year ended 1999 from 6.4% for the same fiscal period 1998.
Income taxes were $437,000 for the fiscal year ended January 31, 1999 as
compared to $678,000 for the fiscal year ended January 31, 1998, as a result of
lower pre-tax income. The effective tax rate for fiscal year 1999 was 39.5% as
compared to 38.8% for fiscal year 1998.
The foregoing factors contributed to the Company's decrease in net income
for the fiscal year ended January 31, 1999 to $673,000 as compared to $1.1
million for the fiscal year ended January 31, 1998.
16
<PAGE>
Fiscal 1998 Compared to Fiscal 1997
Travel Centers. Gross sales at the Company's travel centers increased 4.1%
to $22.6 million for fiscal 1998 from $21.7 million for fiscal 1997. Gasoline
sales were even at $11.6 million for both fiscal years 1998 and 1997.
Merchandise sales increased 1.5% to $7.0 million for the fiscal year ended
January 31, 1998 from $6.9 million for the fiscal year ended January 31, 1997.
Restaurant sales decreased 6.5% to $3.0 million for fiscal 1998 from $3.2
million for fiscal 1997. The Company's wholesale CITGO gasoline products
relationship commencing in February 1997 produced gross sales of $917,000.
Travel center operations were affected in the fourth quarter of the current
fiscal year by the reduction in fuel prices and margins as well as adverse
weather caused by El Nino which impacted the Western United States.
Merchandise sales were negatively impacted by the Company's warehouse
computer conversion to a perpetual inventory system including purchasing,
receiving and transfer of goods, and all other general inventory controls from
the corporate office and the distribution facility to the travel center
locations. The conversion progressed slower than anticipated and affected
shipment of goods to the stores during the fourth quarter. Construction of new
canopies and above ground tank storage facilities to meet federally mandated
regulations for 1998 has been completed at all but one location.
Cost of goods sold for the travel centers increased 5.6% to $15.0 million
for fiscal 1998 from $14.2 million for fiscal 1997. As a percentage of gross
sales, cost of goods sold increased slightly to 66.6% from 65.6%, 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 were
unchanged at $5.3 million for the fiscal years ended January 31, 1998 and 1997.
Depreciation and amortization expenses increased by 1.6% to $369,000 for the
fiscal year ended January 31, 1998 from $363,000 for the fiscal year ended
January 31, 1997.
The above factors contributed to an increase in travel center operating
income of 6.6% to $1.6 million for the fiscal year ended January 31, 1998 as
compared to $1.5 million for the fiscal year ended January 31, 1997.
Outdoor Advertising. Gross sales from the Company's outdoor advertising
increased 40.0% to $4.9 million for fiscal 1998 from $3.5 million in fiscal
1997. The increase was primarily attributable to certain acquired assets,
including the outdoor advertising assets of The McCarty Company (formally known
as Pony Panels), General Outdoor Advertising, Mesa Outdoor Advertising, and
Sweezy Outdoor Advertising Inc., as well as overall rate increases.
Direct 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, and repairs and maintenance of
advertising displays. Selling expenses consist primarily of salaries and
commissions for salespersons and travel related to sales. Direct operating
expenses increased 19.0% to $2.5 million for the fiscal year ended January 31,
1998 from $2.1 million for the same period in fiscal 1997, principally due to
the addition of sales and production personnel, sign rent and repairs and
maintenance of advertising displays.
17
<PAGE>
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 expenses. General and
administrative expenses increased 111.7% to $781,000 for the fiscal year ended
January 31, 1998 from $369,000 for fiscal 1997. The increase was primarily
attributable to increases in administrative personnel, insurance and legal fees
due to the acquisition of the assets of The McCarty Company (formally known as
Pony Panels) and Sweezy Outdoor Advertising, Inc.
Depreciation and amortization expenses increased 134.1% to $660,000 for the
fiscal year ended January 31, 1998 from $282,000 for fiscal 1997. The increase
was primarily attributable to acquisitions of outdoor the advertising assets of
The McCarty Company (Pony Panels) on April 1, 1997, General Outdoor Advertising
on April 26, 1997, Mesa Outdoor Advertising on April 29, 1997 and Sweezy Outdoor
Advertising, Inc. on December 9, 1997.
The above factors contributed to the increase in outdoor advertising
operating income of 31.7% to $926,000 for the fiscal year ended January 31, 1998
as compared to $703,000 for the fiscal year ended January 31, 1997.
Corporate and Other. General and administrative expenses for corporate and
other operations of the Company consist primarily of executive and
administrative compensation and benefits, investor relations, and accounting and
legal fees. General and administrative expenses increased 3.2% to $480,000 for
the fiscal year ended January 31, 1998 from $465,000 for the fiscal year ended
January 31, 1997.
For the fiscal year ended January 31, 1998, the Company's President and its
Chief Operating Officer elected to accept annual base salaries of $136,000 and
$90,000, respectively, which are less than the $195,000 and $145,000 salaries
provided for in their respective employment agreements effective February 1,
1997. Each of the agreements has a perpetual five-year term, such that on any
given date, each agreement has a five-year remaining term.
Depreciation and amortization expenses for the Company's corporate and
other operations consist of depreciation associated with the corporate
headquarters and furniture and fixtures related thereto. Depreciation and
amortization decreased 10.4% to $121,000 for fiscal 1998 as compared to $135,000
for fiscal 1997.
Interest expense increased 6.5% to $722,000 for the fiscal year ended
January 31, 1998 from $678,000 for the fiscal year ended January 31, 1997, as a
result of borrowings to fund outdoor advertising expansion and the continued
conversion of travel centers to CITGO branding.
Income before taxes increased 13.3% to $1.7 million for the fiscal year
ended January 31, 1998 from $1.5 million for the fiscal year ended January 31,
1997. As a percentage of gross revenues, income before taxes increased to 6.2%
for the fiscal year ended 1998 from 6.0% for the same fiscal period 1997.
Income taxes were $678,000 for the fiscal year ended January 31, 1998 as
compared to $604,000 for the fiscal year ended January 31, 1997, as a result of
higher pre-tax income. The effective tax rate for fiscal year 1998 was 38.8% as
compared to 40.0% for fiscal year 1997
The foregoing factors contributed to the Company's increase in net income
for the fiscal year ended January 31, 1998 to $1.1 million as compared to
$905,000 for the fiscal year ended January 31, 1997.
18
<PAGE>
Liquidity and Capital Resources
At January 31, 1999, the Company had working capital of $5.5 million as
compared to working capital of $5.0 million at January 31, 1998. At January 31,
1999, the Company had a current ratio of 2.74:1 as compared to a current ratio
of 2.51:1 at January 31, 1998. The increase in working capital and the current
ratio is primarily attributable to an increase in accounts receivable of
approximately $516,000 due to a reclass of fire assets and credit cards. The net
cash provided by operating activities was $930,000 for the fiscal year ended
January 31, 1999 as compared to $1.4 million for fiscal year ended 1998. During
fiscal year 1999, there were increases in depreciation and amortization of
$745,000, deferred income taxes of $115,000, and changes in other operating
assets and liabilities of $1.4 million, net. Accounts receivable increased
primarily due to growth from acquisitions totaling approximately $300,000 as
well as amounts due from insurance proceeds at fiscal year end. The increase in
depreciation and amortization in fiscal 1999 was primarily due to additional
display structures associated with the acquisitions as well as structures built,
and buildings, machinery and equipment some of which are associated with the
renovations at several travel centers. Deferred income taxes increased primarily
as a result of book-tax timing differences.
Net cash used in investing activities decreased to $6.6 million in fiscal
1999 from $7.3 million in fiscal 1998. The decrease is due primarily to asset
acquisitions totaling $2.3 million in fiscal year ended January 31, 1999 as
compared to $5.8 million in fiscal year ended January 31, 1998. There were also
purchases of property and equipment of $4.4 million in fiscal year 1999 as
compared to $2.2 million in 1998. Increases in property and equipment were
offset by a decrease in proceeds from the sale of certain assets of $21,000 in
fiscal year 1999 as compared to $703,000 in fiscal year 1998.
Net cash provided by financing activities increased to $3.8 million in
fiscal 1999 from $2.5 million in fiscal 1998. The increase is due primarily to
an increase in net borrowings of $2.3 million in fiscal year 1999 as compared
fiscal year 1998 offset by payments for debt acquisitions costs totaling
$942,000 in fiscal year 1999. These amounts are net of the effects of $5.6
million in borrowings in exchange for acquisitions reflected as non-cash
transactions in the Company's cash flows statements. The increase in the
Company's debt is a result of continued expansion of outdoor advertising
operations through development and acquisition as well as continued renovations
and upgrades at the Company's travel centers.
As of January 31, 1999, the Company was indebted to various banks and
individuals in an aggregate principal amount of approximately $20.3 million
under various loans and promissory notes. Land, buildings, equipment, billboards
and inventories of the Company secure many of the loans and promissory notes.
The loans and promissory notes mature at dates from March 1, 1999 to October 15,
2013 and accrue interest at rates ranging from 7.1 % to 8.9% per annum. On
November 10, 1998, the Company entered into a $30.0 million credit agreement
with one of its existing lenders. At January 31, 1999, borrowing against this
credit agreement was approximately $15.8 million.
The Company made capital expenditures of approximately $4.4 million and
$2.8 million during the fiscal years ended 1999 and 1998, respectively. For the
fiscal year ended 1999, these expenditures were made primarily for the
construction of a new travel center, upgrades to existing travel centers, and
for the construction and acquisition of additional billboard structures. For the
fiscal year ended 1998, these expenditures were 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 $825,000 related to travel center operation including
approximately $775,000 for upgrades and improvements to existing facilities.
With regard to outdoor advertising operations, the Company has plans to build
approximately 200 new billboard faces during the fiscal year ending January 31,
2000, at a cost of approximately $1.5 million.
19
<PAGE>
As of January 31, 1999, approximately $19.0 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.
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 are
the major resources that do have Year 2000 compliance issues. Fortunately, the
identified systems are "off-the-shelf" products with Year 2000 compliant
versions now available.
The Company has not yet 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 Company will complete its survey by the end of the first quarter of
fiscal year 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. The Company estimates over the next
twelve 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. Until the Company receives responses from significant
suppliers, vendors, and pertinent institutions, the overall risks associated
with the Year 2000 Issue remain difficult to accurately describe and quantify,
and there can be no guarantee that the Year 2000 Issue will not have a material
adverse effect on the Company and its operations.
Contingency Plan. The Company has not determined the specific risks that
may need to be addressed by a contingency plan. Therefore, the Company has not,
to date, implemented a Year 2000 contingency plan. It is the Company's goal to
have its internal major Year 2000 Issues resolved and external effects
determined by the end of the second quarter of fiscal year 2000. The Company
will develop and implement a contingency plan by the end the third quarter of
fiscal year 2000, in the event the Company's Year 2000 project should fall
behind schedule.
20
<PAGE>
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 consent 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 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, and the continuing profitability of existing operations. 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. The Company has been able to secure financing for the
acquisition of additional assets from commercial lenders in amounts 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. The Company
anticipates that any financing which it does secure may impose certain financial
and other restrictive covenants upon the Company and its operations. There can
be no assurance that the Company will be able to successfully integrate 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. 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.
21
<PAGE>
Dependence on Third Party Relationships. The Company is dependent on a
number of third party relationships under which it offers brand name and other
products at its travel centers. These brand name relationships include the
Company's distributorship relationships with CITGO and EXXON and 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. Several of these
agreements contain provisions that prohibit the Company from offering additional
products or services that 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 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, tip credits and minimum
wages. The Company's travel center operations are also subject to extensive laws
and regulations governing the sale of 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. The
Company believes that operations at fourteen travel centers comply with all
applicable licensing and regulatory requirements. 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."
22
<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 issued more
stringent regulations governing the storage of petroleum products with which the
Company was 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 completed certain renovations of its facilities to satisfy
the federal government's 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. The Company could be required to incur significant costs to comply with
environmental laws and regulations that 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. See
"BUSINESS - Regulation."
Other Uncertainties
Other operating, financial or legal risks or uncertainties are discussed in
this Form 10-K 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 7A. 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 or 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 and after tax cash flow.
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 or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Following on next page.
23
<PAGE>
BOWLIN OUTDOOR ADVERTISING
& TRAVEL CENTERS INCORPORATED
AND SUBSIDIARIES
Consolidated Financial Statements
January 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
24
<PAGE>
BOWLIN OUTDOOR ADVERTISING
& TRAVEL CENTERS INCORPORATED
AND SUBSIDIARIES
Table Of Contents
Page
Independent Auditors' Report 26
Financial Statements:
Consolidated Balance Sheets 27
Consolidated Statements of Income 28
Consolidated Statements of Stockholders' Equity 29
Consolidated Statements of Cash Flows 30 - 31
Notes to Consolidated Financial Statements 32 - 48
25
<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,
1999 and 1998, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the years in the three-year period ended
January 31, 1999. 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,
1999 and 1998, and the results of its operations and its cash flows for each of
the years in the three-year period ended January 31, 1999, in conformity with
generally accepted accounting principles.
KPMG LLP
Albuquerque, New Mexico
April 3, 1999
26
<PAGE>
BOWLIN OUTDOOR ADVERTISING
& TRAVEL CENTERS INCORPORATED
AND SUBSIDIARIES
Consolidated Balance Sheets
January 31, 1999 and 1998
<TABLE>
<S> <C> <C>
Assets 1999 1998
----------------- ------------------
Current assets:
Cash and cash equivalents $ 2,198,520 4,053,330
Accounts receivable, net 1,510,157 579,216
Notes receivable - related parties, current maturities (note 2) 30,029
12,637
Inventories 3,688,992 3,153,688
Prepaid expenses 703,321 448,172
Income taxes 530,796 89,993
Other current assets 9,051 10,958
----------------- ------------------
Total current assets 8,653,474 8,365,386
----------------- ------------------
Notes receivable - related parties, less current maturities (note 2) 875 20,016
Property and equipment, net (notes 3, 5, 6 and 7) 26,424,741 16,197,471
Intangibles, net (note 4) 2,338,229 1,200,302
Other assets 72,037 76,141
----------------- ------------------
Total assets $ 37,489,356 25,859,316
================= ==================
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowing, bank (note 6) $ - 745,000
Accounts payable 1,393,100 1,350,626
Long-term debt, current maturities (note 7) 1,248,078 779,179
Accrued salaries 176,588 134,001
Accrued liabilities 340,310 321,850
----------------- ------------------
Total current liabilities 3,158,076 3,330,656
Deferred income taxes (note 10) 427,000 177,300
Long-term debt, less current maturities (note 7) 19,004,046 8,123,736
----------------- ------------------
Total liabilities 22,589,122 11,631,692
----------------- ------------------
Stockholders' equity:
Common stock, $.001 par value; authorized 100,000,000
shares; outstanding 4,384,848 (note 8) 4,385 4,385
Additional paid-in capital 11,604,303 11,604,303
Retained earnings 3,291,546 2,618,936
----------------- ------------------
Total stockholders' equity 14,900,234 14,227,624
Commitments and contingencies (notes 11 and 12)
----------------- ------------------
Total liabilities and stockholders' equity $ 37,489,356 25,859,316
================= ==================
See accompanying notes to consolidated financial statements.
</TABLE>
27
<PAGE>
BOWLIN OUTDOOR ADVERTISING
& TRAVEL CENTERS INCORPORATED
AND SUBSIDIARIES
Consolidated Statements of Income
<TABLE>
<S> <C> <C> <C>
Year ending January 31,
--------------------------------------------------------------
1999 1998 1997
------------------- ------------------ -------------------
Gross sales $ 30,578,015 27,439,398 25,150,931
Less discounts on sales 283,264 279,943 303,000
------------------- ------------------ -------------------
Net sales 30,294,751 27,159,455 24,847,931
Cost of goods sold 18,848,146 17,531,203 16,340,375
------------------- ------------------ -------------------
Gross profit 11,446,605 9,628,252 8,507,556
General and administrative expense (7,479,568) (6,567,940) (6,115,350)
Other operating income 7,345 89,732 379,228
Depreciation and amortization (1,895,035) (1,149,694) (779,571)
------------------- ------------------ -------------------
Operating income 2,079,347 2,000,350 1,991,863
Other income (expense):
Interest income 128,446 268,555 138,885
Gain on sale of property and equipment 10,580 200,600 55,679
Interest expense (1,108,263) (722,117) (677,746)
------------------- ------------------ -------------------
Total other income (expense) (969,237) (252,962) (483,182)
------------------- ------------------ -------------------
Income before income taxes 1,110,110 1,747,388 1,508,681
Income taxes (note 10) 437,500 678,200 603,472
------------------- ------------------ -------------------
Net income $ 672,610 1,069,188 905,209
=================== ================== ===================
Basic and diluted earnings per share $ 0.15 0.24 0.26
=================== ================== ===================
See accompanying notes to consolidated financial statements.
</TABLE>
28
<PAGE>
BOWLIN OUTDOOR ADVERTISING
& TRAVEL CENTERS INCORPORATED
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<TABLE>
<S> <C> <C> <C> <C> <C>
Number Common Additional
of stock, paid-in Retained
shares at par capital earnings Total
----------- ------------- ------------- ------------ -----------
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 8) (98,537) (99) (154,945) - (155,044)
Contributed services - - 155,044 - 155,044
Initial public 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
Net income - - - 1,069,188 1,069,188
----------- ------------ ------------- ------------ -----------
Balance at January 31, 1998 4,384,848 4,385 11,604,303 2,618,936 14,227,624
Net income - - - 672,610 672,610
----------- ------------ ------------- ------------ ------------
Balance at January 31, 1999 4,384,848 $ 4,385 11,604,303 3,291,546 14,900,234
=========== ============ ============ ============ ============
See accompanying notes to consolidated financial statements
</TABLE>
29
<PAGE>
BOWLIN OUTDOOR ADVERTISING
& TRAVEL CENTERS INCORPORATED
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<S> <C> <C> <C>
Year ending January 31,
----------------------------------------------------
1999 1998 1997
---------------- ---------------- ---------------
Cash flows from operating activities:
Net income $ 672,610 1,069,188 905,209
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,895,035 1,149,694 779,571
Income from partnership investment (3,025) - (9,504)
Gain on sale of assets (10,580) (200,600) (55,679)
Deferred income taxes 249,700 134,700 42,600
Imputed interest 27,049 - -
Minority interest - (205,366) (21,225)
Changes in operating assets and liabilities,
net of effects from acquisitions:
Accounts receivable (874,690) (139,851) (171,442)
Inventories (535,304) (397,098) (605,584)
Prepaid expenses and other current assets (153,711) 28,230 (130,658)
Accounts payable and accrued liabilities 103,521 194,328 (244,989)
Income taxes (440,803) (235,065) 145,072
---------------- ---------------- ---------------
Net cash provided by operating activities 929,802 1,398,160 633,371
---------------- ---------------- ---------------
Cash flows from investing activities:
Capital received from (contributed to) partnership - (4,205) 13,000
Proceeds from sale/condemnation of assets 20,813 703,201 376,973
Business acquisitions (2,312,232) (5,845,000) -
Purchases of property and equipment (4,366,462) (2,208,435) (2,343,058)
Franchise fee payments (25,000) - -
Disbursements on notes receivable - - (195,813)
Collections on notes receivable 43,196 6,168 99,258
---------------- ---------------- ---------------
Net cash used in investing activities (6,639,685) (7,348,271) (2,049,640)
---------------- ---------------- ---------------
Cash flows from financing activities:
Short-term borrowings, net (745,000) 745,000 (149,000)
Payments on long-term debt (665,720) (1,015,530) (4,660,892)
Payments for debt issuance costs (941,649) - (84,794)
Proceeds from borrowings 6,207,442 2,755,000 4,778,052
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
Dividends paid - - (50,600)
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 3,855,073 2,484,470 7,333,410
---------------- ---------------- ---------------
(continued)
</TABLE>
30
<PAGE>
BOWLIN OUTDOOR ADVERTISING
& TRAVEL CENTERS INCORPORATED
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<S> <C> <C> <C>
Year ending January 31,
----------------------------------------------------
1999 1998 1997
---------------- ---------------- ---------------
Net (decrease) increase in cash and cash equivalents $ (1,854,810) (3,465,641) 5,917,141
Cash and cash equivalents at beginning of period 4,053,330 7,518,971 1,601,830
---------------- ---------------- ---------------
Cash and cash equivalents at end of period $ 2,198,520 4,053,330 7,518,971
================ ================ ===============
Supplemental disclosure of cash flow information:
Interest paid $ 1,040,446 722,986 678,694
================ ================ ===============
Income taxes paid $ 628,603 778,565 415,800
================ ================ ===============
Noncash investing and financing activities:
Acquisition of land and outdoor advertising assets in
exchange for long-term debt $ 5,570,000 1,275,000 1,189,000
================ ================ ===============
Disposition of land and buildings in exchange for
assumption of long-term debt of subsidiary $ - (1,090,910) - -
================ ================ ===============
Acquisition of covenant not-to-complete in exchange
for long-term debt $ 210,438 284,763 -
================ ================ ===============
Stock dividend issued to shareholders $ - - 298,733
================ ================ ===============
Acquisitions - fair value of assets acquired and
liabilities assumed at the date of the
acquisitions were as follows:
Accounts receivable $ 56,251 73,941 -
Prepaid expenses 99,065 15,057 -
Billboards 2,051,916 4,735,000 -
Machinery and equipment 55,000 163,500 -
Excess of cost over fair value of
assets acquired - 863,000 -
Covenants not-to-compete 50,000 10,000 -
Accounts payable - (15,498) -
================ ================ ===============
See accompanying notes to consolidated financial statements.
</TABLE>
31
<PAGE>
BOWLIN OUTDOOR ADVERTISING
& TRAVEL CENTERS INCORPORATED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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 was 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 acquired by the Company in 1986. 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 held 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. On June
16, 1997, the Company sold Los Cuatros to an unrelated third party.
32
<PAGE>
(b) 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. Dragoon and Los
Cuatros are included from February 1, 1996 through their respective
dates sold. 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.
(c) Cash and Cash Equivalents
The Company considers all liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
(d) Accounts Receivable and Allowance for Doubtful Accounts
Trade receivables are stated at face amount less the related allowance
for doubtful accounts.
(e) 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.
(f) 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.
(g) Intangible Assets
Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, is amortized on a straight-line basis
over the expected periods to be benefited, generally 5 to 15 years.
The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating
cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's
average cost of funds. The assessment of the recoverability of
goodwill will be impacted if estimated future operating cash flows are
not achieved.
Covenants not-to-compete are amortized over the life of the respective
covenants using the straight-line method, ranging from one to ten
years.
33
<PAGE>
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 fifteen to twenty-five years.
(h) 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.
(i) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
(j) Stock-based Compensation
Effective February 1, 1996, the Company adopted the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation,"
which requires pro forma disclosure of net income and earnings per
share as if the SFAS No. 123 fair value method had been applied. The
Company continues to apply the provisions of Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," for the preparation of its basic consolidated financial
statements.
(k) Impairment of Long-lived Assets and Long-lived Assets to Be Disposed
Of
Long-lived assets and certain identifiable intangibles are 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.
34
<PAGE>
(l) Financial Instruments
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,
accrued liabilities, short-term borrowings, and long-term debt
approximate fair value.
(m) 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
consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
(n) Reclassification
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.
(o) Earnings Per Share
Basic earnings per share of common stock is computed by dividing net
income by the weighted-average number of common shares outstanding
during the period. Diluted earnings per share is calculated in the
same manner as basic earnings per share except that the denominator is
increased to include the number of additional common shares that would
have been outstanding, assuming the exercise of all employee stock
options that would have had a dilutive effect on earnings per share. A
reconciliation of the number of shares used in the calculation of
basic and diluted earnings per share for the years ended January 31,
1999, 1998 and 1997 follows:
<TABLE>
<S> <C> <C> <C>
1999
---------------------------------------------------------
Income Shares Per share
(numerator) (denominator) amount
------------------ ------------------ --------------
Basic EPS - net income $ 672,610 4,384,848 $ .15
==============
Effect of dilutive securities
Stock options - 2,488
================== ==================
Diluted EPS - net income $ 672,610 4,387,336 $ .15
================== ================== ==============
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C> <C>
1998
---------------------------------------------------------
Income Shares Per share
(numerator) (denominator) amount
------------------ ------------------ --------------
Basic EPS - net income $ 1,069,188 4,384,848 $ .24
==============
Effect of dilutive securities
Stock options - -
================== ==================
Diluted EPS - net income $ 1,069,188 4,384,848 $ .24
================== ================== ==============
1997
---------------------------------------------------------
Income Shares Per share
(numerator) (denominator) amount
------------------ ------------------ --------------
Basic EPS - net income $ 905,209 3,440,557 $ .26
==============
Effect of dilutive securities
Stock options - -
================== ==================
Diluted EPS - net income $ 905,209 3,440,557 $ .26
================== ================== ==============
</TABLE>
Options to purchase 259,000, 301,500 and 338,000 shares of common
stock were outstanding during the years ended January 31, 1999 and
1998 and the last month of the year ended January 31, 1997,
respectively, but were not included in the computation of diluted EPS
because the options' exercise price was greater than the average
market price of the common shares. The options, which expire December
2006, were still outstanding at the end of the year ended January 31,
1999.
(2) Notes Receivable - Related Parties
Notes receivable - related parties consist of the following at January 31:
<TABLE>
<S> <C> <C> ,
1999 1998
--------------------- --------------------
Stockholder, due April 1997, plus interest at 7%,
unsecured $ 10,012 10,012
Employees, receivable in annual installments
totaling $875 plus interest at 10%, unsecured 3,500 40,033
--------------------- --------------------
Subtotal 13,512 50,045
Less current maturities 12,637 30,029
===================== ====================
$ 875 20,016
===================== ====================
</TABLE>
36
<PAGE>
(3) Property and Equipment
Property and equipment consist of the following at January 31:
<TABLE>
<S> <C> <C> <C>
Estimated life (years)
1999 1998
----------------------- ------------------ -------------------
Land - $ 2,371,490 2,208,459
Buildings and improvements 10 - 40 6,502,420 5,851,210
Machinery and equipment 3 - 10 5,901,088 5,390,278
Autos, trucks and mobile homes 3 - 10 2,047,988 1,739,926
Billboards on operating leases 15 - 20 19,886,104 10,835,449
Billboards 15 - 20 817,819 817,819
======================= ------------------ -------------------
Subtotal, at cost 37,526,909 26,843,141
Less accumulated depreciation (13,119,953) (11,476,469)
Construction in progress 2,017,785 830,799
================== ===================
$ 26,424,741 16,197,471
================== ===================
</TABLE>
During the year ended January 31, 1998, the Company determined the actual
lives for approximately $214,100 of billboard expenditures were generally
longer than the estimated useful lives previously established for
depreciation purposes. Therefore, effective February 1, 1997, the Company
extended the estimated useful lives of those assets up to 7 years. The
effect of this change in accounting estimate increased net income by
$105,400 ($.02 per basic and diluted share).
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 increased net income by $34,200 ($.01 per basic and
diluted share) for the year ended January 31, 1997.
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
increased net income by $67,300 ($.02 per basic and diluted share) for the
year ended January 31, 1997.
37
<PAGE>
(4) Intangible Assets
Intangible assets, at cost, consist of the following at January 31:
<TABLE>
<S> <C> <C>
1999 1998
--------------------- --------------------
Excess of purchase price over fair value of assets
acquired $ 863,000 863,000
Covenants not-to-compete 555,201 294,763
Franchise fees 234,500 209,500
Loan commitment fees 941,649 -
--------------------- --------------------
2,594,350 1,367,263
Less accumulated amortization (256,121) (166,961)
===================== ====================
Intangible assets, net $ 2,338,229 1,200,302
===================== ====================
</TABLE>
During the year ended January 31, 1999, the Company paid $941,949 in loan
commitment fees in connection with a new credit agreement entered into with
the Company's bank. These fees will be amortized over the terms of the
respective borrowings on the straight-line method for the revolving portion
and the effective interest method for the term note portion of the
agreement.
(5) 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 12
regarding land leased from others by the Company for billboard use.
Minimum future rental income on non-cancelable billboard leases in effect
as of January 31, 1999 are as follows:
<TABLE>
<S> <C> <C>
Year ending January 31,
-------------------------------------------------
2000 $ 4,448,493
2001 1,138,121
2002 145,161
2003 25,464
2004 3,551
-----------------
Total $ 5,760,790
=================
</TABLE>
38
<PAGE>
(6) Short-term Borrowing, Bank
In November 1998, the Company entered into a credit agreement with one of
its existing lenders including a line of credit in the amount of
$10,000,000 to fund purchases of existing outdoor advertising business
and/or billboard properties and a working capital line of $2,000,000. Each
note will bear interest based on the LIBOR 90 day rate index. As of January
31, 1999, there were no amounts drawn on this credit agreement.
The Company had an available financing agreement with a bank that permitted
the Company to borrow up to $10.5 million at terms established upon
execution of the agreement. As of January 31, 1998, there were no amounts
drawn on this financing agreement.
The Company had an available billboard construction bank line of credit
arrangement totaling $1,000,000 which matured in May 1998 and interest was
payable monthly at the prime rate plus 1 percent. The Company had drawn
$745,000 as of January 31, 1998. Borrowings under this line of credit were
limited to six times the trailing cash flow from existing billboards not
financed by this facility less the balance outstanding on another note to
the bank. The line was secured by billboards and inventory.
(7) Long-term Debt
Long-term debt is as follows:
<TABLE>
<S> <C> <C>
1999 1998
----------------- -----------------
Due bank, maturity November 2005, variable interest (7.50% at January
31, 1999), monthly installments of $143,114, secured by buildings,
equipment, and billboards $ 11,858,362 -
Due bank, maturity November 2005, variable interest (7.07% at January
31, 1999), interest only through November 1999 monthly installments
of $15,000, secured by billboards 2,500,000 -
Due bank, maturity January 2006, variable interest (7.15% at January
31, 1999), interest only through January 2000, monthly installments
of $8,300, secured by billboards 1,500,000 -
Due bank, maturity October 2013, variable interest (7.75% at January
31, 1999), monthly installments of $9,860, secured by land and
buildings 978,428 -
Due bank, maturity October 2013, variable interest (7.75% at January
31, 1999), monthly installments of $6,329, secured by land and
buildings 629,740 -
Due bank, maturity April 2007, variable interest, secured by mortgage
and deed of trust - 2,363,929
Due bank, maturity January 2006, variable interest, secured by mortgage
and deed of trust - 1,463,808
Due bank, maturity May 2005, variable interest, secured by billboards - 1,000,000
Due bank, maturity February 2003, variable interest, secured by
billboards - 784,327
Due bank, maturity January 2005, variable interest at index rate (7.75%
at January 31, 1999), monthly installments of $6,883 secured by
buildings and equipment 694,792 717,876
Due bank, maturity May 2005, variable interest at index rate plus .5
(8.25% at January 31, 1999), monthly installments of $8,614,
secured by buildings and equipment 774,006 810,571
39
<PAGE>
1999 1998
----------------- -----------------
Due banks and other financing companies, with maturity dates ranging
from 1999 to 2013. Most bear interest at adjustable rate of 7.75%
with certain fixed rate notes at 8.9% Monthly payments totaling
$19,188. Secured by land, buildings, equipment, and inventories $ 933,811 592,156
Due individuals, various payment schedules with maturity dates in 2003,
including interest ranging from 8.00% to 10.00%. Monthly payments
totaling $3,818. Secured by land and buildings 168,234 925,485
Due individuals, maturity dates in 2008, including imputed interest at
8.50%, annual payments totaling $60,000; unsecured 214,751 244,763
----------------- -----------------
20,252,124 8,902,915
Less current maturities 1,248,078 779,179
----------------- -----------------
$ 19,004,046 8,123,736
================= =================
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<S> <C> <C>
2000 $ 1,248,078
2001 1,594,895
2002 1,708,718
2003 1,796,995
2004 1,831,270
Thereafter 12,072,168
-----------------
Total $ 20,252,124
=================
</TABLE>
On November 10, 1998, the Company entered into a credit agreement with one
of its existing lenders for a new term note in the amount of $12,000,000
which was used to refinance approximately $8,500,000 of existing borrowings
and to provide funds for working capital.
(8) 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 non-redeemable 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 became exercisable
in December 1997. As of January 31, 1999, the option has not been
exercised.
40
<PAGE>
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.
(9) 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, 1999). 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 (weighted average exercise price of $8.22).
At January 31, 1999, there were 179,485 additional shares available for
grant under the Plan. The per share weighted-average fair value of stock
options granted during 1997 was $3.03 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 consolidated 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 years ended
January 31, 1999, 1998 and 1997:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
------------------ ------------------- -------------------
Net income As reported $ 672,610 1,069,188 905,209
Pro forma 410,971 764,626 707,557
Earnings per basic and
diluted share As reported .15 .24 .26
Pro forma .09 .17 .21
================== =================== ===================
</TABLE>
Pro forma net income reflects only options granted in the year ended
January 31, 1997.
During the years ended January 31, 1999 and 1998, no options were granted,
exercised or expired, however, 42,500 and 60,500 options were forfeited,
respectively. Thus, 259,000 options are outstanding as of January 31, 1999.
During the year ended January 31, 1997, no options were exercised,
forfeited or expired.
At January 31, 1999, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $8.00 - $8.80 and
7.88 years, respectively.
At January 31, 1999, 16,000 of the options granted are exercisable.
41
<PAGE>
(10) Income Taxes
Income taxes consist of the following for the years ended January 31:
<TABLE>
<S> <C> <C> <C>
Current Deferred Total
------------------ -------------------- -------------------
1999:
U.S. Federal $ 156,500 208,000 364,500
State and local 31,300 41,700 73,000
================== ==================== ===================
$ 187,800 249,700 437,500
================== ==================== ===================
1998:
U.S. Federal $ 452,800 112,200 565,000
State and local 90,700 22,500 113,200
================== ==================== ===================
$ 543,500 134,700 678,200
================== ==================== ===================
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
================== ==================== ===================
</TABLE>
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34 percent to pretax income as a result of the
following factors:
<TABLE>
<S> <C> <C> <C>
Year ending January 31,
----------------------------------------------------------------
1999 1998 1997
------------------ -------------------- -------------------
Computed "expected" tax $ 377,437 594,112 512,915
State income taxes, net of
federal tax benefit 48,175 74,682 64,446
Other 11,888 9,406 26,075
================== ==================== ===================
Total $ 437,500 678,200 603,472
================== ==================== ===================
</TABLE>
42
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows at January 31:
<TABLE>
<S> <C> <C>
1999 1998
--------------------- --------------------
Deferred tax assets:
Compensated absences, principally due to accrual for
financial reporting purposes $ 18,540 24,824
Other 15,600 11,700
--------------------- --------------------
Total gross deferred tax assets 34,140 36,524
Less valuation allowance - -
--------------------- --------------------
Net deferred tax assets $ 34,140 36,524
--------------------- --------------------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation $ (456,040) (211,824)
Other (5,100) (2,000)
--------------------- --------------------
Total gross deferred liabilities $ (461,140) (213,824)
===================== ====================
Net deferred tax liability $ (427,000) (177,300)
===================== ====================
</TABLE>
There was no valuation allowance for deferred tax assets as of February 1,
1998, 1997 or 1996. Based upon the level of historical taxable income and
projections for future taxable income over the periods in 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.
(11) 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. The Company's contributions to the profit sharing
plan were $54,419, $56,974 and $49,520 in fiscal 1999, 1998 and 1997,
respectively.
(12) Commitments and Contingencies
As of January 31, 1999, approximately $425,000 of costs representing the
net carrying value of assets destroyed by a fire at the Company's
headquarters during November 1998 and certain replacement costs incurred
through January 31, 1999 are included in accounts receivable. The estimated
total proceeds from insurance coverage are expected to exceed the carrying
value of the assets destroyed and will be recorded when the amount becomes
reasonably estimable.
43
<PAGE>
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 $370,761, $306,283 and $286,752 for the years ended January 31, 1999,
1998 and 1997, 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, 1999. 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:
<TABLE>
<S> <C> <C>
Year ending January 31,
-------------------------------------------------
2000 $ 169,758
2001 138,258
2002 118,258
2003 118,258
2004 118,258
Thereafter 586,116
-----------------
Total $ 1,248,906
=================
</TABLE>
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 $872,946, $753,926 and $519,314 for the years
ended January 31, 1999, 1998 and 1997, respectively. At January 31, 1999
and 1998, the Company had prepaid on these leases in the amounts of
$426,128 and $347,612, respectively. See note 5 regarding billboard
advertising space leased to others by the Company.
Minimum future rental payments under these leases are as follows:
<TABLE>
<S> <C> <C>
Year ending January 31,
-------------------------------------------------
2000 $ 1,100,566
2001 776,187
2002 704,096
2003 621,144
2004 557,990
Thereafter 489,068
-----------------
Total $ 4,249,051
=================
</TABLE>
44
<PAGE>
(13) Related Party Transactions (See note 2)
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 $36,356,
$35,690 and $33,468 for January 31, 1999, 1998 and 1997, respectively.
Franchise fees are included in general and administrative expenses in the
accompanying consolidated statements of income.
During the years ended January 31, 1999 and 1998, wholesale gasoline
distribution sales totaling $1,227,681 and $916,733 were sold to a
Stuckey's franchise travel center not owned by the Company. The travel
center is owned by the daughter of an individual who is a stockholder in
the Company.
(14) 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 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 year.
Summarized financial information concerning the Company's reportable
segments for the respective years ended January 31, is shown in the
following table. Prior period information has been restated to conform to
the segments described above, which are based on the structure and internal
organization of the Company as of January 31, 1999.
<TABLE>
<S> <C> <C> <C> <C>
Travel Outdoor
Center Advertising Corporate
(in thousands) Operations Operations and other (1) Total
--------------- --------------- --------------- ---------------
Net sales (2)
1999 $ 23,520 6,775 - 30,295
1998 22,303 4,856 - 27,159
1997 21,389 3,459 - 24,848
Segment operating
income (3)
1999 $ 1,170 1,495 (586) 2,079
1998 1,586 926 (512) 2,000
1997 1,510 703 (221) 1,992
45
<PAGE>
Travel Outdoor
Center Advertising Corporate
(in thousands) Operations Operations and other (1) Total
--------------- --------------- --------------- ---------------
Depreciation and
amortization
1999 $ 611 1,178 106 1,895
1998 369 660 121 1,150
1997 363 282 135 780
Segment assets
1999 $ 14,578 17,670 5,241 37,489
1998 11,023 9,525 5,311 25,859
1997 8,277 3,966 9,600 21,843
Expenditures for
segment assets
(4)
1999 $ 2,546 9,217 280 12,043
1998 1,760 6,526 96 8,382
1997 1,015 987 147 2,149
</TABLE>
(1) Corporate functions include certain members of executive
management, the corporate accounting and finance function and
other typical administrative functions.
(2) There were no inter-segment sales during the years ended January
31, 1999, 1998 or 1997.
(3) Management does not allocate interest expense, interest income,
other 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.
(4) Expenditures for segment assets include assets acquired in
exchange for long-term debt which are reported as non-cash
investing and financing activities in the consolidated statements
of cash flows.
(15) Acquisitions
The Company completed the acquisitions described below during the years
ended January 31, 1999 and 1998. All of the acquisitions have been
accounted for as purchases whereby the results of operations of the
acquired company have been combined with the Company's operating results
since the dates of
46
<PAGE>
acquisition. The purchase price has been allocated to the assets acquired
based on their estimated fair values with goodwill, if any, representing
the excess of cost over the purchase price as indicated below.
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 in cash 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 excess of the purchase price over the net assets acquired
(goodwill) of $863,000 recorded in connection with the purchase will be
amortized over the estimated benefit period of 15 years.
On April 26, 1997, the Company purchased the outdoor advertising assets of
General Outdoor Advertising (General) for $240,000 in cash. General owns
and operates approximately 56 painted bulletin faces in the Alamogordo, New
Mexico market. No goodwill was recorded in connection with the purchase.
On April 29, 1997, the Company purchased the outdoor advertising assets of
Mesa Outdoor Advertising (Mesa) for $150,000 in cash and a note payable to
the former owner in the amount of $275,000. The cash was provided from
proceeds of the Company's initial public offering in December 1996. Mesa
owns and operates approximately 57 30-sheet poster faces in the Farmington,
New Mexico market. No goodwill was recorded in connection with the
purchase.
On December 9, 1997, the Company acquired certain assets of Sweezy Outdoor
Advertising (Sweezy) for $1,245,000. The Company paid $245,000 in cash and
financed $1 million with bank debt. Sweezy owns and operates approximately
68 painted bulletin faces in the Killeen/Fort Hood area of Texas. No
goodwill was recorded in connection with the purchase. In conjunction with
the Sweezy acquisition, the Company entered into non-compete agreements
with the former principals of Sweezy. One of the principals entered into an
agreement for a period of ten years, payable by the Company in ten annual
installments of $40,000 beginning in January 1998. The note payable,
discounted for imputed interest costs computed at 8.5 percent, is included
in long-term debt in the accompanying consolidated balance sheet. Two
principals were paid $5,000 each for a non-compete period of one year from
the date of acquisition.
On February 1, 1998, the Company acquired the outdoor advertising assets of
Big-Tex Outdoor Advertising (Big-Tex) for $1,575,283. The Company paid
$575,283 in cash and financed $1,000,000 with bank debt. Big-Tex owned and
operated approximately 285 poster and painted faces in the Brownwood, Texas
metro area. The Company also entered into a non-compete agreement with the
former principals of Big-Tex for a period of ten years from the date of the
acquisition, payable in ten annual installments of $10,000 beginning in
February 1999. The note payable, discounted for imputed interest costs
computed at 8.5 percent, is included in long-term debt in the accompanying
consolidated balance sheet. No goodwill was recorded in connection with the
purchase.
47
<PAGE>
On March 3, 1998, the Company acquired the outdoor advertising assets of
Norwood Outdoor, Inc. (Norwood) for $1,020,768. The Company paid $370,768
in cash and financed $650,000 with bank debt. Norwood owned and operated
approximately 140 poster and painted bulletin faces in the Brady, Texas
metro area. No goodwill was recorded in connection with the purchase.
On May 1, 1998, the Company purchased the outdoor advertising assets of
Edgar Outdoor Advertising Co. (Edgar) for $933,661, which was paid in cash
at closing. Edgar owned and operated approximately 62 painted bulletin
faces in central Texas. The Company also entered into a non-compete
agreement with the former principals of Edgar for a period of ten years
from the date of the acquisition. No goodwill was recorded in connection
with the purchase.
On June 1, 1998, the Company purchased the outdoor advertising assets of J
& J Sign Company (J & J), located in Silver City, New Mexico. The Company
paid $347,947 in cash at closing. J & J owned and operated approximately 40
painted bulletin faces in Southwestern New Mexico. No goodwill was recorded
in connection with the purchase.
On August 14, 1998, the Company purchased the outdoor advertising assets of
T & C Outdoor (T & C) in Crowley, Texas for $171,614 in cash. T & C owned
and operated approximately 20 faces in central Texas. No goodwill was
recorded in connection with the purchase.
On November 16, 1998, the Company purchased the outdoor advertising assets
of Faris Outdoor Advertising (Faris) for $2,563,408. The Company paid
$63,408 in cash and financed $2,500,000 with bank debt. Faris owned and
operated approximately 132 painted bulletin faces in Fort Worth, Texas. No
goodwill was recorded in connection with the purchase.
On January 4, 1999, the Company purchased the outdoor advertising assets of
Big-Tex Outdoor Advertising (Big-Tex Granbury) in Granbury, Texas for
$1,549,507. The Company paid $49,507 in cash and financed $1,500,000 with
bank debt. Big-Tex Granbury owned and operated approximately 83 painted
bulletin faces in the Granbury, Texas area. The Company also entered into a
non-compete agreement with the former principals of Big-Tex Granbury for a
period of 10 years from the date of the purchase. No goodwill was recorded
in connection with the purchase.
The following unaudited pro forma information presents the combined results
of operations for the years ended January 31, 1999 and 1998, as though the
acquisitions of Pony Panels, Sweezy, Big-Tex, Norwood, Edgar, Faris and
Big-Tex Granbury had occurred on February 1, 1998 and 1997. The unaudited
pro forma results do not purport to be indicative of what would have
occurred had the acquisitions actually been made as of such date or of
results which may occur in the future.
48
<PAGE>
<TABLE>
<S> <C> <C>
1999 1998
--------------------- --------------------
Dollars in thousands, except per share amounts (unaudited)
Net sales $ 31,204 29,926
===================== ====================
Net income 535 1,018
===================== ====================
Earnings per basic and diluted share .12 .23
===================== ====================
</TABLE>
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.
The effects of the Company's acquisitions of General, Mesa, J & J and T & C
are not material to the combined results of operations of the Company for
the years ended January 31, 1999 and 1998.
(16) Subsequent Events
On February 15, 1999, the Company opened a new travel center located
approximately 20 miles west of Albuquerque, New Mexico on Interstate 40.
On March 1, 1999 the Company purchased the outdoor advertising assets of
GDM Outdoor Advertising (GDM) in Tyler, Texas for $1,353,376. The Company
paid $3,376 in cash and financed $1,350,000 with bank debt. GDM owned and
operated approximately 86 painted bulletin faces in the Tyler, Texas area.
The Company also entered into a non-compete agreement with the former
principals of GDM for a period of 10 years from the date of purchase.
The acquisition will be accounted for as a purchase in the year ending
January 31, 2000. The purchase price will be allocated to assets acquired
based on their estimated fair values. The excess of the purchase price over
the net assets acquired, if any, will be amortized over the estimated
period of benefit. The purchase price allocation will be determined during
the year ending January 31, 2000 when appraisals and other information
become available.
49
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Certain information required by Part III is incorporated by reference to
the Company's defnitive Proxy statement pursuant to Regulation 14A ("Proxy
Statement") relating to the 1999 Annual Meeting of Stockholders.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement under the section entitled "Directors and
Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement under the section entitled "Compensation of
Executive officers."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
corresponding section of the Company's definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Michael L. Bowlin is the President and Chairman of the Board, and a 25%
stockholder in, Stuckey's Corporation ("Stuckey's"), a franchiser of restaurants
and specialty stores, including specialty stores located at four of the
Company's travel centers. In fiscal year 1999, aggregate franchise and other
related fees paid by the company to Stuckey's equaled approximately $36,356.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits as indexed below are included as part of this Form 10-K.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the three months ended January 31,
1999.
50
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<S> <C> <C> <C>
Exhibit Description Method
Number of Filing
2.3 Purchase Agreement dated February 1, 1998 (Incorporated by reference;
between the Registrant and Big-Tex Outdoor previously filed as Exhibit
Advertising, Inc. 2.3 to the Registrant's Report on
Form 10-KSB dated April 26, 1998)
2.4 Purchase Agreement dated March 2, 1998 (Incorporated by reference;
between the Registrant and Norwood previously filed as Exhibit
Outdoor, Inc. 2.4 to the Registrant's Report
on Form 10-KSB dated
April 26, 1998)
2.5 Purchase Agreement dated May 1, 1998 (Incorporated by reference;
between the Registrant and previously filed as Exhibit
Edgar Outdoor Advertising Co. 2.5 to the Registrant's Report
on Form 10-Q dated June 12,
1998)
2.6 Purchase Agreement dated June 1, 1998 (Incorporated by reference;
between the Registrant and J & J Signs. previously filed as Exhibit
2.6 to the Registrant's Report
on Form 10-Q dated
September 11,1998)
2.7 Purchase Agreement dated November 16, (Incorporated by reference;
1998 between the Registrant and Faris previously filed as Exhibit
Outdoor Advertising, Inc. 2.7 to the Registrant's Report
on Form 10-Q dated December 14, 1998)
2.8 Purchase agreement dated January 4, 1999 Filed herewith
between the Registrant and Big-Tex Outdoor
Advertising Inc. of Granbury, Texas.
2.9 Purchase agreement dated March 4, 1999 Filed herewith between
the Registrant and GDM Outdoor Advertising, Inc.
10.45 Promissory Note dated as of May 1, 1998, (Incorporated by reference;
payable by the Registrant to Norwest Bank previously filed as Exhibit
in the aggregate amount of $3,650.000. 10.45 to the Registrant's
Report on Form 10-Q dated
June 12, 1998)
10.46 Credit Agreement with First Security Bank, (Incorporated by reference;
dated as of November 10, 1998 granting previously filed as Exhibit
the Registrant funds in the aggregate 10.46 to the Registrant's
principal amount of $30,000,000 Report on Form 10-Q dated
December 14, 1998)
27 Financial Data Schedule Filed herewith
</TABLE>
51
<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: April 30, 1999
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 April 30, 1999
-------------------------------------------------
Michael L. Bowlin, Chairman of the Board,
President, CEO and Director (Principal
Executive Officer)
By: /s/ C. CHRISTOPHER BESS April 30, 1999
-------------------------------------------------
C. Christopher Bess, Executive Vice President,
Chief Operating Officer, and Director
By: /s/ NINA J. PRATZ April 30, 1999
-------------------------------------------------
Nina J. Pratz, Senior Vice President, Chief
Financial Officer, Treasurer and Secretary,
and Director
By: /s/ ROBERT L. BECKETT April 30, 1999
-------------------------------------------------
Robert L. Beckett, Director
By: /s/ JAMES A. CLARK April 30, 1999
---------------------------------------------------
James A. Clark, Director
By: /s/ BRIAN MCCARTY April 30, 1999
-------------------------------------------------
Brian McCarty, Director
By: /s/ HAROLD VAN TONGEREN April 30, 1999
-------------------------------------------------
Harold Van Tongeren, Director
52
<PAGE>
PURCHASE AGREEMENT
THIS AGREEMENT is hereby made this, January 4, 1999 by and between Big Tex
Advertising, Inc., a Texas corporation ("Big Tex" or the "Company"or "SELLER"),
Lawrence J. Link, individually, and John Roy Terrell, individually, shareholders
of Big Tex ("Shareholder"), and Bowlin Outdoor Advertising & Travel Centers
Incorporated, a Nevada corporation ("BOWLIN").
Purpose of Agreement
Bowlin desires to purchase and Big Tex desires to sell certain tangible and
intangible assets that comprise a portion of Big Tex's business known as "Big
Tex Advertising, Inc." Therefore, in consideration of the premises and of the
mutual representations, warranties and covenants herein contained, the parties
hereby agree as follows:
Terms and Conditions
Purchase Price
The purchase price shall be One Million Five Hundred Thousand and No/100 Dollars
($1,500,000.00).
In addition to the amount specified above, at closing an adjustment of the
purchase price listed above shall be made for:
(a) an amount equal to the amount of any prepaid rents, leases, permits,
paper, vinyls or other items, as specified in attached in Exhibit B, C, D,
E, and F and incorporated for all purposes herein; and
(b) an amount equal to the amount of prepaid leases and permits effective
after January 4, 1999 paid by Big Tex on December 31, 1998 in the amount of
$2,340.00.
The purchase price, and payments noted above, shall be the sole considerations
paid by BOWLIN under this agreement.
Date of Closing
The parties contemplate that Closing shall take place on January 4, 1999.
If Closing does not occur by that date, it will occur as soon thereafter as
Bowlin is able to complete its due diligence investigation. The parties
agree that Bowlin's obligation to complete this purchase is contingent upon
Bowlin being satisfied, in its sole discretion, that all representations
made to it concerning Big Tex's assets are true; that the financial
condition, books, and accounts of Big Tex are sound; that the land leases,
outdoor advertising permits and advertising contracts are of satisfactory
condition to Bowlin; and that the value of the assets being transferred is
not less than the purchase price.
1
<PAGE>
Transfer of Assets
At closing, SELLER will sell, transfer, assign, convey and deliver to BOWLIN
free and clear of any liens, debts, or encumbrances, save and except any liens
or encumbrances affecting the underlying fee title estate on the real property
subject of the land leases and/or easements for the sign sites, and BOWLIN will
purchase, accept and acquire from SELLER all of the Assets listed in Exhibit A
attached hereto and incorporated for all purposes herein.
Instruments of Transfer
(a) Big Tex and Shareholder's Deliveries. At the closing, Big Tex shall
deliver to Bowlin:
i. A bill of sale transferring to Bowlin title to the Assets as
provided herein, in form and substance acceptable to Bowlin;
ii. A ten (10) year non-competition agreement for Lawrence J. Link,
John Roy Terrell and Morris Duree. (See attached Exhibit G1, G2
and G3);
iii. Letter(s) from Big Tex and Shareholder to the Texas Department of
Transportation regarding transfer of the applicable outdoor
advertising permits from Shareholder to Bowlin in the form of
attached Exhibit E;
iv. Assignment of land lease agreements pertinent to sign sites
located on property owned by third parties (See attached Exhibit
F);
v. Such other bills of sale, titles and other instruments of
assignment, transfer and conveyance as Bowlin shall reasonably
request, in recordable form, where appropriate, and properly
executed, evidenced and notarized where appropriate in such form
as shall be necessary or appropriate to vest in Buyer good title
to the Assets.
vi. A Corporate resolution signed by Big Tex and Shareholder
authorizing Lawrence J. Link to act on behalf of the corporation
and sell assets thereof.
(b) Bowlin's Deliveries. At the closing, Bowlin shall deliver to Big Tex:
i. A wire transfer for the purchase price as specified herein;
ii. Checks in an amount sufficient to pay the net amount due for
items listed in Exhibit B, C, D, E F and H and in Purchase Price
(b) listed above;
(c) Other Transfer Instruments. Following the Closing, at the request of
Bowlin, Big Tex shall deliver any further Instruments and take all
reasonable action as may be necessary or appropriate to vest in Bowlin
all of Big Tex's title to the assets.
2
<PAGE>
No Assumption of Liabilities
It is expressly understood and agreed by the parties hereto that Bowlin
assumes no debts, liabilities (including tax liabilities) or obligations
(contractual or otherwise) of Big Tex or Shareholder or any other debts,
liabilities or obligations related to the conduct of Big Tex's business.
Representations and Warranties
Big Tex and Shareholder represent and warrant to Bowlin as of the date
hereof and on the closing date as follows (all representations and
warranties being joint and several):
(a) Authority. Big Tex has the legal authority to sell, transfer, and
deliver to Bowlin the tangible and intangible assets of the business
known as "Big Tex Advertising Inc."
(b) Title. Big Tex has good and marketable title to all properties, assets
and leasehold estates, real and personal, tangible and intangible, to
be transferred pursuant to this Agreement subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance or charge.
(c) Insurance. Big Tex carries insurance, which it believes to be adequate
in character and amount, with reputable insurers in respect of its
properties, assets, and business and such insurance policies are still
in full force and effect, and shall be in effect without interruption
until closing has occurred.
(d) Violations, Suits, Claims, etc. Big Tex is not in default under any
law or regulation, or under any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality wherever located, and there are (1) no
claims, actions, suits or proceedings instituted or filed and (2) no
claims actions, suits or proceedings threatened presently or which in
the future may be threatened or asserted against or affecting Big Tex
at law or in equity, or before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality wherever located, and (3) there are no potential
claims, demands, liens, encumbrances, or debts with regard to the
assets that are the subject of this sale or that may create for Bowlin
any environmental or regulatory liability.
3
<PAGE>
(e) Tax Returns. Big Tex has filed all requisite federal, state and other
tax returns due for all fiscal periods ended on or before the date of
this agreement. There are no claims against Big Tex for federal, state
or other taxes for any period or periods to and including the date of
this agreement, the amounts shown as provisions for taxes on the
financial statements of Big Tex as of the date of this agreement
delivered to Bowlin are sufficient for the payment of all taxes of all
kinds for all fiscal periods ended on or before that date.
(f) Sole Shareholder. Shareholders are the sole owners of all issued and
outstanding capital stock of the Company, and no other person has any
right to acquire shares of capital stock of the Company.
(g) Organization, Good Standing, Power, etc. Big Tex (a) is a corporation
duly organized, validly existing and in good standing under the laws
of the State of Texas; and (b) has the requisite power and authority
to own, lease and operate its properties and to carry on its business
as currently conducted.
(h) Authorizations and Enforceability. Big Tex has all requisite power and
authority to execute, deliver and perform this Agreement and the other
agreements and instruments delivered pursuant hereto and to consummate
the transactions contemplated hereby. This Agreement and the other
agreements and instruments delivered pursuant hereto have been duly
and validly authorized, executed and delivered by Big Tex and
constitutes the valid and binding obligations of Big Tex, fully
enforceable in accordance with their terms.
(i) Effect of Agreement. The execution, delivery and performance of this
Agreement by Big Tex and Shareholder and the consummation of the
transactions contemplated hereby will not, with or without the giving
of notice or the lapse of time, or both: (a) violate any material
provision of law, statute, rule or regulation to which Company is
subject; (b) violate any judgment, order, writ or decree of any court,
arbitrator or governmental agency applicable to Company; or (c) result
in a material breach of or material conflict with any term, covenant,
condition or provision of, result in the modification or termination
of, constitute a material default under, or result in the creation or
imposition of, any lien, security interest, charge or encumbrance upon
any of the Assets pursuant to any charter, bylaw, commitment, contract
or other agreement or instrument, to which Company is a party or by
which any of its Assets is bound.
(j) Permits, Licenses, Compliance with Applicable Laws and Court Orders.
Company has all requisite power and authority, and all permits,
licenses and approvals of governmental and administrative authorities,
to own, lease and operate its properties and to carry on its business
as presently conducted; all such permits, licenses and approvals
material to the conduct of the business of Company are in full force
and effect. Company's conduct of its business does not materially
violate or infringe any applicable law, statute, ordinance or
regulation. Company is not in default in any respect under any
executive, legislative, judicial, administrative or private (such as
arbitration) ruling, order, writ, injunction or decree.
(k) Financial Information. All financial information relating to the
Assets or the business and provided to Bowlin by Big Tex have been
prepared from the books and records of seller in accordance with
generally accepted accounting principles and fairly and accurately
present the financial condition of Big Tex and the business relating
to the Assets as of the date of such information.
(l) Absence of Undisclosed Liabilities. Big Tex has no liabilities other
than those that are expressly disclosed in the financial information
provided to Bowlin. Between the date of this Agreement and the
Closing, there will be no material change in the financial position of
Big Tex.
(m) Agreements, Plans, Arrangements, etc. Except as set forth in Exhibit A
hereto, Company is not a party to, nor is Company or any of the Assets
bound or affected by, any oral or written:
4
<PAGE>
(1) lease agreement (whether as lessor or lessee) relating to real or
personal property;
(2) license agreement, assignment or other contract (whether as
licensor or licensee, assignor or assignee) relating to
trademarks, trade names, patents, copyrights (or applications
therefor);
(3) agreement with any business broker with respect to this
transaction;
(4) agreement with any supplier, distributor, franchisor, dealer,
sales agent or representative;
(5) joint venture or partnership agreement with any other person;
(6) agreement with any bank, factor, finance company or similar
organization regarding the financing of accounts receivable or
other extensions of credit;
(7) agreement granting any lien, security interest or mortgage on any
Asset or other property of Company, including, without
limitation, any factoring agreement for the assignment of
accounts receivable;
(8) agreement for the Construction or modification of any Asset or
leasehold interest of Company;
(9) agreements with advertisers for lease of sign structures;
(10) agreement with any employee, consultant, or independent
contractor providing personal services to Company.
(n) Acquisition Agreements. There are no agreements relating to the
acquisition of the stock, business or Assets of Company to which
Company is a party, other than this Agreement.
5
<PAGE>
(o) Status of Real Property. Neither Company nor Shareholder has received
any notice of noncompliance with respect to real property on which any
of the Assets are located (the "Real Property") with any applicable
statutes, laws, codes, ordinances, regulations or requirements
relating to fire, safety, health or environmental matters or
noncompliance with any covenants, conditions and restrictions (whether
or not of record) or local, municipal, regional, state or federal
requirements or regulations. To the best of Company's and
Shareholder's knowledge, there has been no release or discharge on or
under the Real Property by the Company of any toxic or hazardous
substance, material or waste which is or has been regulated by any
governmental or quasi-governmental authority or is or has been listed
as toxic or hazardous under any applicable local, state or federal
law. To the best of the Company's and Shareholder's knowledge, there
are no subsurface or other conditions related to toxic or hazardous
waste affecting the Real Property or any portion or component thereof,
and there are no underground storage tanks located on the Real
Property.
(p) Defects. To the best of Company's and Shareholder's knowledge, there
are no structural or operational defects in any of the Assets.
(q) Leases Current. All obligations of the Company under all existing
lease agreements which are required by such agreements to have been
performed by Company have been fulfilled by the Company, including the
payment by the Company of all lease payments due and payable through
the date hereof.
Bowlin represents and warrants to Big Tex and Shareholder as of the date hereof
and the Closing date as follows:
(a) Organization. Bowlin is a validly existing corporation organized under
the laws of the State of Nevada and has all requisite corporate power
and authority to own, operate and lease its properties and assets.
(b) Authority. Bowlin has full corporate power, authority and legal rights
to execute and deliver, and to perform its obligations under this
Agreement, and has taken all necessary action to authorize the
purchase hereunder on the terms and conditions of this Agreement and
to authorize the execution, delivery and performance of this
Agreement. This Agreement has been duly executed by Bowlin, and
constitutes a legal, valid and binding obligation of Bowlin
enforceable in accordance with its terms.
(c) Compliance with Instruments, Consents, Adverse Agreements. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will conflict with or result in any
violation of or constitute a default under the articles of
incorporation or the by-laws of Bowlin, or any Law, Instrument, lien
or other Contract by which Bowlin is bound. Bowlin is not a party or
subject to any Contract, or subject to any article or other corporate
restriction or any Law which materially and adversely affect the
business operation, prospects, properties, assets or condition,
financial or otherwise, of Bowlin.
6
<PAGE>
(d) Litigation. There is no suit, action or litigation, administrative,
arbitration or other proceeding or governmental investigation pending
or, to the knowledge of Bowlin, threatened which might, severally or
in the aggregate materially and adversely affect the financial
condition or prospects of Bowlin or Bowlin's ability to acquire the
Assets as contemplated by this Agreement.
(e) Brokers. All negotiations relative to the Agreement and the
transactions contemplated hereby have been carried on by Bowlin is
such manner without giving rise to any valid claim against Big Tex for
a finder's fee, brokerage commission or other like payment.
Covenants
Between the date of this agreement and the closing date:
(a) Big Tex's officers will cause Big Tex to
(1) Carry on its outdoor advertising business in substantially the
same manner as it has heretofore and not introduce any material
new method of management, operation or accounting;
(2) Maintain their properties and facilities in as good working order
and condition as at present, ordinary wear and tear excepted:
(3) Perform all material obligations under agreements relating to or
affecting its assets, properties and rights;
(4) Keep in full force and effect present insurance policies or other
comparable insurance coverage; and
(5) Use its best efforts to maintain and preserve its assets intact,
retain its present employees and maintain its relationships with
suppliers, customers and others having business relations with
it.
(b) Big Tex's officers will not permit Big Tex without the prior written
consent of Bowlin to:
(1) Enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures except in the
normal course of business;
(2) Create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties transferred
under this agreement, whether now owned or hereafter acquired; or
(3) Sell, assign, lease or otherwise transfer or dispose of any
property or equipment subject to this agreement except in the
normal course of business.
Competition
Simultaneously with the execution of this Agreement, Lawrence J. Link and
John Roy Terrell will execute and deliver to Bowlin a Non-Competition
Agreement in the form and on the terms as set forth in Exhibit G1, G2 and
G3 attached hereto and incorporated by reference herein for all purposes.
Conditions to Bowlin's Obligations
The obligations of Bowlin hereunder are subject to the fulfillment, at or
prior to the Closing, of each of the following conditions, any or all of
which may be waived in writing by Bowlin, in its sole discretion:
(a) Accuracy of Representations and Warranties. Each of the
representations and warranties of Big Tex and Shareholder contained in
this Agreement shall be true on and as of the Closing Date with the
same force and effect as though made on and as of the Closing Date,
except as affected by transactions contemplated hereby.
(b) Performance of Covenants. Big Tex shall have performed and complied
with all covenants, obligations and agreements to be performed or
complied with by it on or before the Closing Date pursuant to this
Agreement.
(c) No Litigation or Claims. No claim, action, suit, proceeding,
arbitration, investigation or hearing or notice of hearing shall be
pending or threatened against or affecting Big Tex which: (a) might
foreseeably result, or has resulted, either in an action to enjoin or
prevent or delay the consummation of the transactions contemplated by
this Agreement or in such an injunction; or (b) could, in the
determination of Bowlin, have an adverse effect on the assets to be
transferred hereunder.
(d) No Violations. No material violation of Big Tex shall exist, or be
alleged by any governmental authority to exist, of any law, statute,
ordinance or regulation, the enforcement of which would adversely
affect the financial condition, results of operations, properties or
business of Big Tex.
7
<PAGE>
(e) Consents and Assignments. Big Tex shall have delivered to Bowlin all
consents and assignments of all persons and entities necessary for the
performance of the transactions contemplated by this Agreement,
including the transfer of all assets and the assignment of leases, and
Big Tex shall have obtained the consents of: any lender to Big Tex,
or, in the alternative, the release of all liens held by such lender,
with respect to the sale and transfer of the assets; and any other
consents of third parties deemed necessary or appropriate by Bowlin.
(f) Certificate. Bowlin shall have received a certificate signed by Big
Tex and Shareholder, dated the Closing Date, satisfactory in form and
substance to Bowlin and its counsel, certifying as to the fulfillment
of the conditions specified above.
(g) Satisfactory Completion of Due Diligence. Bowlin shall be satisfied in
its sole discretion with the content of the final Exhibits hereto and
other related documents for closing and shall otherwise be satisfied
in its sole discretion with the results of its due diligence review,
including the right to terminate this agreement with no penalty in the
event that the land leases, outdoor advertising permits and
advertising contracts are not of satisfactory condition to Bowlin.
Indemnification
(a) Indemnification of Bowlin by Big Tex and Shareholder. Big Tex and
Shareholder, jointly and severally, agree to indemnify and hold harmless
Bowlin and any person claiming by or through it or its successors and
assigns from, against and in respect of any and all losses, claims, and
liabilities incurred by or asserted against Bowlin or its successors or
assigns in connection with;
(i) any breach of any covenant or agreement made by Big Tex or
Shareholder in this Agreement;
(ii) any liability, debt or obligation of Big Tex or lien or
encumbrance on the Assets or
(iii) any claim arising out of the use, sale or operation of the
Assets by Big Tex or Shareholder and/or the operation of the
business of Big Tex or Shareholder prior to the Closing.
(b) Indemnification of Big Tex and Shareholder by Bowlin. Bowlin agrees to
indemnify and hold harmless Big Tex and Shareholder and any person claiming
by or through it or its successors and assigns from, against and in respect
of any and all losses, claims, and liabilities incurred by or asserted
against Big Tex or Shareholder or its successors or assigns in connection
with:
(i) any breach of any representation or warranty of Bowlin;
(ii) any breach of any covenant or agreement made by Bowlin in this
Agreement;
(iii) any act or omission of Bowlin after Closing, and
(iv) any claim arising out of the use, sale or operation of the Assets
by Bowlin and/or the operation of the business by Bowlin after
Closing.
8
<PAGE>
(c) IF THE EVENT GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION ARISES OUT
OF THE JOINT OR CONCURRENT NEGLIGENCE OF THE PERSON TO BE INDEMNIFIED
AND THE INDEMNIFYING PARTY, THE PERSON TO BE INDEMNIFIED SHALL BE
INDEMNIFIED TO THE EXTENT THAT THE INDEMNITOR'S NEGLIGENCE CAUSED SUCH
EVENT. IT IS THE INTENT OF THE PARTIES THAT BUYER SHALL BE ENTITLED TO
COMPARATIVE INDEMNIFICATION.
Taxes
Real Estate and personal property taxes, if any, assessed or to be assessed
for the current calendar or fiscal year, regardless of when payable, shall
be prorated between Bowlin and Big Tex as of the closing date.
Risk of Loss
The risk of loss or destruction of or damage to the assets transferred
hereunder, including inventory, fixtures, equipment and real property from
any cause whatsoever at all times on or subsequent to the execution of this
document but before closing shall be borne by Big Tex.
Bowlin's Remedies
Bowlin shall be entitled, without limitation, to all incidental and
consequential damages resulting from a breach of any warranty or
representation or covenant of Big Tex or Shareholder made herein including,
but not limited to, all costs of litigation incurred, including reasonable
attorney's fees.
Dispute Resolution
(a) In the event of any dispute arising from this Agreement, the Parties
agree to attempt a solution through nonbinding mediation conducted by
a mutually agreed mediator. While the mediation shall be nonbinding in
all respects (except agreements in settlement of the dispute
negotiated by the Parties), each Party agrees that:
(i) it shall appear when directed by the mediator, be fully prepared
to work towards a resolution of the dispute, and participate in
good faith in the mediation towards a resolution of all disputed
issues or concerns; and
(ii) the duty to mediate in good faith shall be specifically
enforceable by the courts of Texas.
(b) Any questions, claims, disputes, or litigation arising from or related
to this Agreement are governed by the laws of the state of Texas
without regard to the principles of conflicts of law.
9
<PAGE>
(c) The Parties agree that Texas has a substantial relationship to this
transaction, and that this Agreement is performable in Hood County,
Texas. Each Party consents to personal jurisdiction in the courts
thereof, and any action or suit arising from or related to this
Agreement shall only be brought by the Parties in any federal or state
court with appropriate jurisdiction over the subject matter
established or sitting in the state of Texas located in Hood County,
Texas.
Miscellaneous
(a) Expenses. Except as otherwise provided herein, whether or not the
transactions contemplated by this Agreement are consummated, each
party hereto shall pay its own expenses and the fees and expenses of
its counsel and accountants and other experts. Furthermore, Bowlin
shall be responsible for payment to the business broker retained by
it.
(b) Survival of Representations and Warranties. The representations,
warranties, covenants and agreements set forth in this Agreement and
any other written representation in any ancillary document shall
survive the Closing.
(c) Waivers. The waiver by any party hereto of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
(d) Binding Effect; Benefits. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors and assigns.
(e) Notices. All notices, requests, demands and other communications which
are required to be or may be given under this Agreement shall be in
writing and shall be deemed to have been duly given when delivered in
person or transmitted by fax or five (5) days after deposit in the
U.S. mails by certified or registered first class mail, postage
prepaid, return receipt requested, addressed to the party to whom the
same is so given or made.
if to Big Tex or Shareholder to:
Lawrence J. Link
PO Box 5101
Granbury, Texas 76049
if to Bowlin to:
Bowlin Outdoor Advertising and Travel Centers Incorporated
150 Louisiana Blvd. N.E.
Albuquerque, New Mexico 87108
Attention: Michael L. Bowlin, President
10
<PAGE>
or to such other address or Fax Number as any party may designate by giving
notice to the other parties hereto.
(f) Further Assurances. The Company and Shareholder shall, from time
to time at or after the Closing, at the request of Bowlin, and
without further consideration, execute and deliver such other
instruments and take such other actions as may be required to
confer to Bowlin and its assignees the benefits contemplated by
this Agreement.
(g) Entire Agreement. This document contains the entire agreement
between the parties and supersedes all prior agreements between
the parties, if any, written or oral, with respect to the subject
matter thereof.
AGREED and ACCEPTED:
BOWLIN OUTDOOR ADVERTISING & TRAVEL CENTERS INCORPORATED
By:_/s/ C. C.Bess
C. C. Bess, Executive Vice President
BIG TEX ADVERTISING
By: /s/ Lawrence J. Link
Lawrence J. Link
President
By: /s/ Lawrence J. Link
Lawrence J. Link, Individually
By: /s/ John Roy Terrell
John Roy Terrell
Vice President
By: /s/ John Roy Terrell
John Roy Terrell, Individually
11
<PAGE>
Acknowledgment for Corporations
STATE OF TEXAS )
) ss.
COUNTY OF _____________ )
The foregoing instrument was acknowledged before me this ___ day of
__________________, 199___, by C. C. Bess, Executive Vice President of BOWLIN
Outdoor Advertising & Travel Centers Incorporated, a Nevada Corporation, on
behalf of the corporation.
--------------------------------
Notary Public
My commission expires:
- ----------------------
STATE OF TEXAS )
) ss.
COUNTY OF ___________ )
The foregoing instrument was acknowledged before me this ___ day of
__________________, 199__ by Lawrence J. Link, President of Bidg Tex
Advertising, Inc., a Texas Corporation, on behalf of the corporation..
--------------------------------
Notary Public
My commission expires:
- ----------------------
STATE OF TEXAS )
) ss
COUNTY OF ___________ )
The foregoing instrument was acknowledged before me this ___ day of
_________________, 199__ by John Roy Terrell, Vice President of Big Tex
Advertising, Inc. a Texas Corporation, on behalf of the corporation..
--------------------------------
Notary Public
My commission expires:
- ----------------------
12
<PAGE>
Acknowledgment for Individuals
STATE OF TEXAS )
)ss.
COUNTY OF ____________ )
The foregoing instrument was acknowledged before me this ___ day of
________________, 199__ by Lawrence J. Link, Individually.
--------------------------------
Notary Public
My commission expires:
_______________________
STATE OF TEXAS )
)ss.
COUNTY OF _____________
The foregoing instrument was acknowledged before me this ___ day of
_________________, 199__ by John Roy Terrell, Individually.
--------------------------------
Notary Public
My commission expires:
________________________
PURCHASE AGREEMENT
THIS AGREEMENT is hereby made this, March 1, 1999 by and between GDM Outdoor
Advertising, a partnership ("GDM" or the "Company"or "SELLER"), Gerry Dunlap,
individually, and Dennis Thompson, individually, partners of GDM ("Partner"),
and Bowlin Outdoor Advertising & Travel Centers Incorporated, a Nevada
corporation ("BOWLIN").
Purpose of Agreement
Bowlin desires to purchase and GDM desires to sell certain tangible and
intangible assets that comprise a portion of GDM's business known as "GDM
Outdoor Advertising". Therefore, in consideration of the premises and of the
mutual representations, warranties and covenants herein contained, the parties
hereby agree as follows:
Terms and Conditions
Purchase Price
The purchase price shall be One Million Three Hundred and Fifty Thousand and
No/100 Dollars ($1,350,000.00).
In addition to the amount specified above, at closing an adjustment of the
purchase price listed above shall be made for:
(a) an amount equal to the amount of any prepaid rents, leases, permits
and taxes as specified in attached Exhibit E and incorporated for all
purposes herein. This amount will be paid by BOWLIN to SELLER, but will
be reduced by the amount of any prepaid advertising rents received by
SELLER and further reduced by BOWLIN's prorated share (prorated by day
as of Closing date) of the current month's revenue billed in advance by
SELLER; and
The purchase price, and payments noted above, shall be the sole considerations
paid by BOWLIN under this agreement.
Date of Closing
The parties contemplate that Closing shall take place on March 1,
1999. If Closing does not occur by that date, it will occur as
soon thereafter as Bowlin is able to complete its due diligence
investigation. The parties agree that Bowlin's obligation to
complete this purchase is contingent upon Bowlin being satisfied,
in its sole discretion, that all representations made to it
concerning GDM's assets are true; that the financial condition,
books, and accounts of GDM are sound; that the land leases,
outdoor advertising permits and advertising contracts are of
satisfactory condition to Bowlin; and that the value of the assets
being transferred is not less than the purchase price.
1
<PAGE>
Transfer of Assets
At closing, SELLER will sell, transfer, assign, convey and deliver to BOWLIN
free and clear of any liens, debts, or encumbrances, save and except any liens
or encumbrances affecting the underlying fee title estate on the real property
subject of the land leases for the sign sites, and BOWLIN will purchase, accept
and acquire from SELLER all of the Assets listed in Exhibit A attached hereto
and incorporated for all purposes herein.
Instruments of Transfer
(a) GDM and Partner's Deliveries. At the closing, GDM shall deliver to
Bowlin:
i. A bill of sale transferring to Bowlin title to the Assets as
provided herein, in form and substance acceptable to Bowlin;
ii. A five (5) year non-competition agreement for Gerry Dunlap and
Dennis Thompson. (See attached Exhibit G1, and G2);
iii. Letter(s) from GDM and Partner to the Texas Department of
Transportation regarding transfer of the applicable outdoor
advertising permits from Partner to Bowlin in the form of
attached Exhibit E also any forms or letters necessary to
transfer permits from the Arkansas Department of Transportation;
iv. Assignment of land lease agreements pertinent to sign sites
located on property owned by third parties (See attached Exhibit
D);
v. Such other bills of sale, titles and other instruments of
assignment, transfer and conveyance as Bowlin shall reasonably
request, in recordable form, where appropriate, and properly
executed, evidenced and notarized where appropriate in such form
as shall be necessary or appropriate to vest in Buyer good title
to the Assets.
vi. Advertising contracts for all current advertisers.
(b) Bowlin's Deliveries. At the closing, Bowlin shall deliver to GDM:
i. Immediately available funds to one or more accounts designed by
SELLER for the purchase price as specified herein;
ii. Checks in an amount sufficient to pay the net amount due for
items listed in Exhibit E.
(c) Other Transfer Instruments. Following the Closing, at the request of
Bowlin, GDM shall deliver any further Instruments and take all
reasonable action as may be necessary or appropriate to vest in Bowlin
all of GDM's title to the assets.
2
<PAGE>
No Assumption of Liabilities
It is expressly understood and agreed by the parties hereto that
Bowlin assumes no debts, liabilities (including tax liabilities)
or obligations (contractual or otherwise) of GDM or Partners or
any other debts, liabilities or obligations related to the conduct
of GDM's business.
Representations and Warranties
GDM and Partner represent and warrant to Bowlin as of the date
hereof and on the closing date as follows (all representations and
warranties being joint and several):
(a) Authority. GDM has the legal authority to sell, transfer,
and deliver to Bowlin the tangible and intangible assets of
the business known as "GDM Outdoor Advertising"
(b) Title. GDM has good and marketable title to all properties,
assets and leasehold estates, real and personal, tangible
and intangible, to be transferred pursuant to this Agreement
subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge.
(c) Insurance. GDM carries insurance, which it believes to be
adequate in character and amount, with reputable insurers in
respect of its properties, assets, and business and such
insurance policies are still in full force and effect, and
shall be in effect without interruption until closing has
occurred.
(d) Violations, Suits, Claims, etc. GDM is not in default under
any law or regulation, or under any order of any court or
federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality
wherever located, and there are (1) no claims, actions,
suits or proceedings instituted or filed and (2) no claims
actions, suits or proceedings threatened presently or which
in the future may be threatened or asserted against or
affecting GDM at law or in equity, or before or by any
federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality
wherever located, and (3) there are no potential claims,
demands, liens, encumbrances, or debts with regard to the
assets that are the subject of this sale or that may create
for Bowlin any environmental or regulatory liability.
3
<PAGE>
(e) Tax Returns. GDM has filed all requisite federal, state and
other tax returns due for all fiscal periods ended on or
before the date of this agreement. There are no claims
against GDM for federal, state or other taxes for any period
or periods to and including the date of this agreement, the
amounts shown as provisions for taxes on the financial
statements of GDM as of the date of this agreement delivered
to Bowlin are sufficient for the payment of all taxes of all
kinds for all fiscal periods ended on or before that date.
(f) Sole Partners. Partners are the sole owners of the Company,
and no other person has any right to acquire any interest in
the Company.
(g) Effect of Agreement. The execution, delivery and performance
of this Agreement by GDM and Partner and the consummation of
the transactions contemplated hereby will not, with or
without the giving of notice or the lapse of time, or both:
(a) violate any material provision of law, statute, rule or
regulation to which Company is subject; (b) violate any
judgment, order, writ or decree of any court, arbitrator or
governmental agency applicable to Company; or (c) result in
a material breach of or material conflict with any term,
covenant, condition or provision of, result in the
modification or termination of, constitute a material
default under, or result in the creation or imposition of,
any lien, security interest, charge or encumbrance upon any
of the Assets pursuant to any charter, bylaw, commitment,
contract or other agreement or instrument, to which Company
is a party or by which any of its Assets is bound.
(h) Permits, Licenses, Compliance with Applicable Laws and Court
Orders. Company has all requisite power and authority, and
all permits, licenses and approvals of governmental and
administrative authorities, to own, lease and operate its
properties and to carry on its business as presently
conducted; all such permits, licenses and approvals material
to the conduct of the business of Company are in full force
and effect. Company's conduct of its business does not
materially violate or infringe any applicable law, statute,
ordinance or regulation. Company is not in default in any
respect under any executive, legislative, judicial,
administrative or private (such as arbitration) ruling,
order, writ, injunction or decree.
(i) Financial Information. All financial information relating to
the Assets or the business and provided to Bowlin by GDM
have been prepared from the books and records of seller in
accordance with generally accepted accounting principles and
fairly and accurately present the financial condition of GDM
and the business relating to the Assets as of the date of
such information.
(j) Absence of Undisclosed Liabilities. GDM has no liabilities
other than those that are expressly disclosed in the
financial information provided to Bowlin. Between the date
of this Agreement and the Closing, there will be no material
change in the financial position of GDM.
(k) Agreements, Plans, Arrangements, etc. Except as set forth in
Exhibit A hereto, Company is not a party to, nor is Company
or any of the Assets bound or affected by, any oral or
written:
4
<PAGE>
(1) lease agreement (whether as lessor or lessee) relating
to real or personal property;
(2) license agreement, assignment or other contract
(whether as licensor or licensee, assignor or assignee)
relating to trademarks, trade names, patents,
copyrights (or applications therefor);
(3) agreement with any business broker with respect to this
transaction;
(4) agreement with any supplier, distributor, franchisor,
dealer, sales agent or representative;
(5) joint venture or partnership agreement with any other
person;
(6) agreement with any bank, factor, finance company or
similar organization regarding the financing of
accounts receivable or other extensions of credit;
(7) agreement granting any lien, security interest or
mortgage on any Asset or other property of Company,
including, without limitation, any factoring agreement
for the assignment of accounts receivable;
(8) agreement for the Construction or modification of any
Asset or leasehold interest of Company;
(9) agreements with advertisers for lease of sign
structures;
(10) agreement with any employee, consultant, or independent
contractor providing personal services to Company.
(l) Acquisition Agreements. There are no agreements relating to the
acquisition of the stock, business or Assets of Company to which
Company is a party, other than this Agreement.
5
<PAGE>
(m) Status of Real Property. Neither Company nor Partner has received
any notice of noncompliance with respect to real property on
which any of the Assets are located (the "Real Property") with
any applicable statutes, laws, codes, ordinances, regulations or
requirements relating to fire, safety, health or environmental
matters or noncompliance with any covenants, conditions and
restrictions (whether or not of record) or local, municipal,
regional, state or federal requirements or regulations. To the
best of Company's and Partner's knowledge, there has been no
release or discharge on or under the Real Property by the Company
of any toxic or hazardous substance, material or waste which is
or has been regulated by any governmental or quasi-governmental
authority or is or has been listed as toxic or hazardous under
any applicable local, state or federal law. To the best of the
Company's and Partner's knowledge, there are no subsurface or
other conditions related to toxic or hazardous waste affecting
the Real Property or any portion or component thereof, and there
are no underground storage tanks located on the Real Property.
(n) Defects. To the best of Company's and Partner's knowledge, there
are no structural or operational defects in any of the Assets.
SELLER acknowledges that to the best of SELLER's knowledge all
signs were constructed and installed to normal industry standards
by qualified and licensed manufacturers and installers.
(o) Leases Current. All obligations of the Company under all existing
lease agreements which are required by such agreements to have
been performed by Company have been fulfilled by the Company,
including the payment by the Company of all lease payments due
and payable through the date hereof.
(q) Permits Current. All payments due and payable for required
permits from governmental bodies have through the date hereof
been fulfilled by the respective SELLER.
Bowlin represents and warrants to GDM and Partner as of the date hereof and the
Closing date as follows:
(a) Organization. Bowlin is a validly existing corporation organized
under the laws of the State of Nevada and has all requisite
corporate power and authority to own, operate and lease its
properties and assets.
(b) Authority. Bowlin has full corporate power, authority and legal
rights to execute and deliver, and to perform its obligations
under this Agreement, and has taken all necessary action to
authorize the purchase hereunder on the terms and conditions of
this Agreement and to authorize the execution, delivery and
performance of this Agreement. This Agreement has been duly
executed by Bowlin, and constitutes a legal, valid and binding
obligation of Bowlin enforceable in accordance with its terms.
(c) Compliance with Instruments, Consents, Adverse Agreements.
Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will
conflict with or result in any violation of or constitute a
default under the articles of incorporation or the by-laws of
Bowlin, or any Law, Instrument, lien or other Contract by which
Bowlin is bound. Bowlin is not a party or subject to any
Contract, or subject to any article or other corporate
restriction or any Law which materially and adversely affect the
business operation, prospects, properties, assets or condition,
financial or otherwise, of Bowlin.
6
<PAGE>
(d) Litigation. There is no suit, action or litigation,
administrative, arbitration or other proceeding or governmental
investigation pending or, to the knowledge of Bowlin, threatened
which might, severally or in the aggregate materially and
adversely affect the financial condition or prospects of Bowlin
or Bowlin's ability to acquire the Assets as contemplated by this
Agreement.
(e) Brokers. All negotiations relative to the Agreement and the
transactions contemplated hereby have been carried on by Bowlin
is such manner without giving rise to any valid claim against GDM
for a finder's fee, brokerage commission or other like payment.
Competition
Simultaneously with the execution of this Agreement, Gerry Dunlap and
Dennis Thompson will execute and deliver to Bowlin a Non-Competition
Agreement in the form and on the terms as set forth in Exhibit G1 and G2
attached hereto and incorporated by reference herein for all purposes.
Conditions to Bowlin's Obligations
The obligations of Bowlin hereunder are subject to the fulfillment, at or
prior to the Closing, of each of the following conditions, any or all of
which may be waived in writing by Bowlin, in its sole discretion:
(a) Accuracy of Representations and Warranties. Each of the
representations and warranties of GDM and Partner contained in
this Agreement shall be true on and as of the Closing Date with
the same force and effect as though made on and as of the Closing
Date, except as affected by transactions contemplated hereby.
(b) No Litigation or Claims. No claim, action, suit, proceeding,
arbitration, investigation or hearing or notice of hearing shall
be pending or threatened against or affecting GDM which: (a)
might foreseeably result, or has resulted, either in an action to
enjoin or prevent or delay the consummation of the transactions
contemplated by this Agreement or in such an injunction; or (b)
could, in the determination of Bowlin, have an adverse effect on
the assets to be transferred hereunder.
(c) No Violations. No material violation of GDM shall exist, or be
alleged by any governmental authority to exist, of any law,
statute, ordinance or regulation, the enforcement of which would
adversely affect the financial condition, results of operations,
properties or business of GDM.
7
<PAGE>
(d) Consents and Assignments. GDM shall have delivered to Bowlin all
consents and assignments of all persons and entities necessary
for the performance of the transactions contemplated by this
Agreement, including the transfer of all assets and the
assignment of leases, and GDM shall have obtained the consents
of: any lender to GDM, or, in the alternative, the release of all
liens held by such lender, with respect to the sale and transfer
of the assets; and any other consents of third parties deemed
necessary or appropriate by Bowlin.
(e) Certificate. Bowlin shall have received a certificate signed by
GDM and Partner, dated the Closing Date, satisfactory in form and
substance to Bowlin and its counsel, certifying as to the
fulfillment of the conditions specified above.
(f) Satisfactory Completion of Due Diligence. Bowlin shall be
satisfied in its sole discretion with the content of the final
Exhibits hereto and other related documents for closing and shall
otherwise be satisfied in its sole discretion with the results of
its due diligence review, including the right to terminate this
agreement with no penalty in the event that the land leases,
outdoor advertising permits and advertising contracts are not of
satisfactory condition to Bowlin.
Indemnification
(a) Indemnification of Bowlin by GDM and Partner. GDM and Partner, jointly
and severally, agree to indemnify and hold harmless Bowlin and any
person claiming by or through it or its successors and assigns from,
against and in respect of any and all losses, claims, and liabilities
incurred by or asserted against Bowlin or its successors or assigns in
connection with;
(i) any breach of any representation or warranty of GDM or
Partner;
(ii) any breach of any covenant or agreement made by GDM or
Partner in Partner in this Agreement;
(iii)any liability, debt or obligation of GDM or lien or
encumbrance on the Assets or
(iv) any claim arising out of the use, sale or operation of the
Assets by GDM or Partner and/or the operation of the
business of GDM or Partner prior to the Closing.
(b) Indemnification of GDM and Partner by Bowlin. Bowlin agrees to
indemnify and hold harmless GDM and Partner and any person claiming by
or through it or its successors and assigns from, against and in
respect of any and all losses, claims, and liabilities incurred by or
asserted against GDM or Partner or its successors or assigns in
connection with:
(i) any breach of any representation or warranty of Bowlin;
(ii) any breach of any covenant or agreement made by Bowlin in
this Agreement;
(iii) any act or omission of Bowlin after Closing, and
8
<PAGE>
(iv) any claim arising out of the use, sale or operation of the
Assets by Bowlin and/or the operation of the business by
Bowlin after Closing.
(c) IF THE EVENT GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION ARISES OUT
OF THE JOINT OR CONCURRENT NEGLIGENCE OF THE PERSON TO BE INDEMNIFIED
AND THE INDEMNIFYING PARTY, THE PERSON TO BE INDEMNIFIED SHALL BE
INDEMNIFIED TO THE EXTENT THAT THE INDEMNITOR'S NEGLIGENCE CAUSED SUCH
EVENT. IT IS THE INTENT OF THE PARTIES THAT BUYER SHALL BE ENTITLED TO
COMPARATIVE INDEMNIFICATION.
Taxes
Real Estate and personal property taxes, if any, assessed or to be assessed
for the current calendar or fiscal year, regardless of when payable, shall
be prorated between Bowlin and GDM as of the closing date.
Risk of Loss
The risk of loss or destruction of or damage to the assets transferred
hereunder, including inventory, fixtures, equipment and real property from
any cause whatsoever at all times on or subsequent to the execution of this
document but before closing shall be borne by GDM.
Bowlin's Remedies
Bowlin shall be entitled, without limitation, to all incidental and
consequential damages resulting from a breach of any warranty or
representation or covenant of GDM or Partner made herein including, but not
limited to, all costs of litigation incurred, including reasonable
attorney's fees.
Dispute Resolution
(a) In the event of any dispute arising from this Agreement, the Parties
agree to attempt a solution through nonbinding mediation conducted by
a mutually agreed mediator. While the mediation shall be nonbinding in
all respects (except agreements in settlement of the dispute
negotiated by the Parties), each Party agrees that:
(i) it shall appear when directed by the mediator, be fully prepared
to work towards a resolution of the dispute, and participate in
good faith in the mediation towards a resolution of all disputed
issues or concerns; and
(ii) the duty to mediate in good faith shall be specifically
enforceable by the courts of Texas.
(b) Any questions, claims, disputes, or litigation arising from or related
to this Agreement are governed by the laws of the state of Texas
without regard to the principles of conflicts of law.
9
<PAGE>
(c) The Parties agree that Texas has a substantial relationship to this
transaction, and that this Agreement is performable in Smith County,
Texas. Each Party consents to personal jurisdiction in the courts
thereof, and any action or suit arising from or related to this
Agreement shall only be brought by the Parties in any federal or state
court with appropriate jurisdiction over the subject matter
established or sitting in the state of Texas located in Smith County,
Texas.
Miscellaneous
(a) Expenses. Except as otherwise provided herein, whether or not the
transactions contemplated by this Agreement are consummated, each
party hereto shall pay its own expenses and the fees and expenses of
its counsel and accountants and other experts. Furthermore, Bowlin
shall be responsible for payment to the business broker retained by
it.
(b) Survival of Representations and Warranties. The representations,
warranties, covenants and agreements set forth in this Agreement and
any other written representation in any ancillary document shall
survive the Closing.
(c) Waivers. The waiver by any party hereto of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
(d) Binding Effect; Benefits. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors and assigns.
(e) Notices. All notices, requests, demands and other communications which
are required to be or may be given under this Agreement shall be in
writing and shall be deemed to have been duly given when delivered in
person or transmitted by fax or five (5) days after deposit in the
U.S. mails by certified or registered first class mail, postage
prepaid, return receipt requested, addressed to the party to whom the
same is so given or made.
if to GDM or Partner to:
Gerry Dunlap and Dennis Thompson
300 Vicksburg
Tyler, Texas 75703
if to Bowlin to:
Bowlin Outdoor Advertising and Travel Centers Incorporated
150 Louisiana Blvd. N.E.
Albuquerque, New Mexico 87108
Attention: Michael L. Bowlin, President
10
<PAGE>
or to such other address or Fax Number as any party may designate by giving
notice to the other parties hereto.
(f) Further Assurances. The Company and Partner shall, from time to
time at or after the Closing, at the request of Bowlin, and
without further consideration, execute and deliver such other
instruments and take such other actions as may be required to
confer to Bowlin and its assignees the benefits contemplated by
this Agreement.
(g) Entire Agreement. This document contains the entire agreement
between the parties and supersedes all prior agreements between
the parties, if any, written or oral, with respect to the subject
matter thereof.
AGREED and ACCEPTED:
BOWLIN OUTDOOR ADVERTISING & TRAVEL CENTERS INCORPORATED
By:_/s/ C. C.Bess
C. C. Bess, Executive Vice President
GDM OUTDOOR ADVERTISING
By: /s/ Gerry Dunlap
Gerry Dunlap, Partner
By: /s/ Dennis Thompson
Dennis Thompson, Partner
11
<PAGE>
Acknowledgment for Corporations
STATE OF TEXAS )
) ss.
COUNTY OF _____________ )
The foregoing instrument was acknowledged before me this ___ day of
__________________, 199___, by C. C. Bess, Executive Vice President of BOWLIN
Outdoor Advertising & Travel Centers Incorporated, a Nevada Corporation, on
behalf of the corporation.
--------------------------------
Notary Public
My commission expires:
- ----------------------
Acknowledgment for Individuals
STATE OF TEXAS )
) ss.
COUNTY OF ___________ )
The foregoing instrument was acknowledged before me this ___ day of
__________________, 199__ by Gerry Dunlap, Individually.
--------------------------------
Notary Public
My commission expires:
- ----------------------
STATE OF TEXAS )
) ss.
COUNTY OF ___________ )
The foregoing instrument was acknowledged before me this ___ day of
_________________, 199__ by Dennis Thompson, Individually.
--------------------------------
Notary Public
My commission expires:
- ----------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 2,198,520
<SECURITIES> 0
<RECEIVABLES> 1,510,157
<ALLOWANCES> 20,000
<INVENTORY> 3,688,992
<CURRENT-ASSETS> 8,653,474
<PP&E> 39,544,694
<DEPRECIATION> 13,119,953
<TOTAL-ASSETS> 37,489,356
<CURRENT-LIABILITIES> 3,158,076
<BONDS> 0
0
0
<COMMON> 4,385
<OTHER-SE> 14,895,849
<TOTAL-LIABILITY-AND-EQUITY> 37,489,356
<SALES> 30,294,751
<TOTAL-REVENUES> 30,294,751
<CGS> 18,848,146
<TOTAL-COSTS> 18,848,146
<OTHER-EXPENSES> 7,479,568
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,108,263
<INCOME-PRETAX> 1,110,110
<INCOME-TAX> 437,500
<INCOME-CONTINUING> 672,610
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 672,610
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
