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, 2002
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. 000-31701
BOWLIN TRAVEL CENTERS, INC.
(Name of the registrant as specified in its charter)
NEVADA 85-0473277
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification 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 OTC.BB
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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 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 22, 2002 was $3,939,147.
The number of shares of Common Stock, $.001 par value, outstanding as of April
22, 2002: 4,583,348
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 Travel Centers, Inc., a Nevada
corporation (the "Company" or "Bowlin Travel Centers"). 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 operates travel centers 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 founder, Claude M. Bowlin, started trading goods and services with Native
Americans in New Mexico. Bowlin Travel Centers currently operates eleven
full-service travel centers along interstate highways in Arizona and New Mexico.
The Company advertises its travel centers through a network of approximately 300
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.
The Company was formed on August 8, 2000, as a wholly owned subsidiary
of Bowlin Outdoor Advertising and Travel Centers Incorporated ("Bowlin
Outdoor"). Pursuant to a Contribution Agreement, dated as of November 1, 2000,
Bowlin Outdoor contributed substantially all of the assets and liabilities
directly related to its travel centers business to Bowlin Travel Centers.
Prior to August 8, 2000 the Company's travel centers were owned and
operated as a business segment of Bowlin Outdoor. Bowlin Outdoor operated two
business segments; travel centers and outdoor advertising. Bowlin Outdoor's
common stock was traded on the American Stock Exchange and was a public
reporting company. On January 30, 2001, Bowlin Travel Centers, Inc. became an
independent company through a spin-off transaction whereby shares of Bowlin
Travel Centers, Inc. common stock were distributed to the shareholders of Bowlin
Outdoor.
RECENT DEVELOPMENTS
On April 27, 2001, the Company sold one of its travel centers located
in Benson, Arizona. Certain assets, including building and equipment, were sold
to a third party for $40,000 cash and a note receivable for $10,000. The note
receivable was fully collected during the year ended January 31, 2002. The
assets sold had a carrying value of $50,070. The loss on the sale of the travel
center was $70.
On May 1, 2001 the Company disposed of one of its travel centers
located in Edgewood, New Mexico to a third party. The assets had a carrying
value of approximately $156,000. The Company exchanged the assets for
twenty-three billboards. The fair value of assets given up by the Company was
1
approximately equal to the fair value of assets received. Therefore, no gain or
loss was recorded on the transaction. The Company currently provides wholesale
gasoline to this third party location.
INDUSTRY OVERVIEW
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
travel services 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.
BUSINESS STRATEGY
The Company's business strategy is to capture a greater market share
of the interstate traveler market in Arizona and New Mexico by offering name
brand recognized food service operations and gasoline, and unique Southwestern
souvenirs and gifts, at a single location and at competitive prices delivered
with a high standard of service.
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 drinks and snack
foods at some locations to full-service restaurants at others. The Company's
food service operations at five of the Company's eleven travel centers operate
under the Dairy Queen/Brazier or Dairy Queen trade names.
The Company's travel centers offer brand name gasoline such as CITGO,
EXXON, and Diamond Shamrock. The Company is an authorized distributor of CITGO
and EXXON petroleum products. Three of the Company's locations are EXXON
stations and six of its locations are CITGO stations. One travel center is
Chevron and one travel center is Diamond Shamrock.
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 handcrafted jewelry,
rugs, pottery, and other gifts.
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GROWTH STRATEGY
TRAVEL CENTERS
o The Company is committed to expanding its travel center operations through
internal development.
o The Company believes that the co-branding concept implemented at its travel
centers has resulted in increased revenues, and intends to pursue
opportunities to acquire rights to additional brand name products.
o The Company intends to continue to offer high quality brand name food and
products in a clean, safe environment designed to appeal to travelers on
interstate highways.
o The Company intends to continue to increase sales at existing locations
through ongoing renovation and upgrading of facilities, including gasoline
sales by focusing on the marketing of CITGO and EXXON gasoline brands
through its travel center outlets.
GASOLINE WHOLESALING
The Company has been wholesaling gasoline since 1997. Since 1997,
revenues from wholesaling gasoline have accounted for an average of
approximately 5.5% of gross revenues. Other than purchasing gas for retail sales
through its travel centers, the Company currently wholesales gasoline to only
three customers. The Company intends to maintain its current level of gasoline
wholesaling and does not anticipate expanding or actively marketing our
wholesaling business. See "Business Operations - Gasoline Wholesaling".
BUSINESS OPERATIONS
The Company sells food, gasoline and merchandise through its eleven
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 approximately
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. While the Company has no formal agreements
with any of its vendors and suppliers of Southwestern merchandise and items from
Mexico, the Company believes that there are adequate resources outside of those
that are regularly used so that the Company could continue to provide these
items even if it were unable to use its regular sources.
The Company sells food under the Dairy Queen and Dairy Queen/Brazier
brand names. The Company's terms of its agreements with Dairy Queen obligate the
Company to pay 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 is obligated to pay Dairy Queen 4% of its sales of their products.
3
The Company currently operates five Dairy Queens at its travel centers.
It has individual franchise agreements for each Dairy Queen operated at the
travel centers. None of these agreements are exclusive nor do they prevent the
Company from entering into agreements with other food franchisors. Several of
the agreements have different termination provisions and are effective for
different terms. Under three of the Dairy Queen agreements, the term continues
until the Company elects to terminate it with 60 days prior written notice, or
if the Company or Dairy Queen elect to terminate the agreement because the other
has breached the agreement and has not cured that breach within 14 days of
notice of the breach. The other two Dairy Queen agreements are for specific
terms. One of those Dairy Queen agreements, entered into February 1, 1984, is
for a term of 25 years and the other, entered into on November 18, 1986, is for
a term of 20 years. The Company may not terminate either of these agreements
unless it gives notice to Dairy Queen that they are in breach of the agreement
and Dairy Queen has not cured that breach within thirty days of our notice.
Dairy Queen may terminate either of these agreements if they deliver notice to
the Company that it is in breach of the agreement and it does not cure that
breach within 14 days of that notice.
The Company continuously monitors and upgrades its travel center
facilities to maintain a high level of comfort, quality and appearance. Periodic
improvements typically include new awnings and facings, new signage and enhanced
lighting, furnishings and parking lot improvements.
The Company is an authorized CITGO and EXXON distributor. The Company
sells CITGO gasoline at six travel centers, and EXXON gasoline at three travel
centers. At two travel centers the Company sells Chevron and Shamrock gasoline.
The fact that the Company is an authorized CITGO and EXXON distributor
has significance in the Company's industry. As licensed distributors for CITGO
and EXXON, the Company purchases gasoline directly from CITGO and EXXON as
direct marketers and at the lowest wholesale prices they offer. Prior to
becoming a licensed distributor, the Company purchased gasoline through other
distributors, paying a distributor's markup price. This required the Company to
negotiate and enter into agreements with other distributors to try to purchase
gasoline at the lowest possible price. The CITGO and EXXON distribution
agreement allows the Company to streamline its gasoline supply arrangements and
take advantage of volume-driven pricing by consolidating purchases from these
suppliers.
The CITGO distribution agreement has an initial three-year term
beginning February 1, 2001 and expiring January 31, 2004, and automatically
renews for a three-year term through 2007. The EXXON distribution agreement has
a three-year term beginning April 1, 2002 and expiring March 31, 2005. CITGO's
and EXXON's ability to terminate or refuse to renew the agreement is subject to
the occurrence of certain events set forth in the Petroleum Marketing Practices
Act, which includes bankruptcy, or breach of the agreement, or termination by
CITGO or EXXON of its petroleum marketing activities in the Company's
distribution area. CITGO and EXXON may terminate or refuse to renew these
agreements only if it terminates or refuses to renew the agreement in compliance
with the Petroleum Marketing Practices Act.
The Company's agreements with CITGO and EXXON do not prohibit it from
entering into similar arrangements with other petroleum companies. The terms of
the distribution agreements require the Company to purchase certain monthly
minimum quantities of gasoline during the term of the agreement, which includes
gasoline purchased for sale at its travel centers. The amount of required
gasoline purchase ranges from a low of 103,000 gallons to a high of 427,500
gallons per month. The Company determines the amount of gasoline it will
purchase under the agreements based on what it believes its needs will be for
gasoline, including seasonal demands. These determinations are based on
historical sales and internal forecasts. Since the effective date of the CITGO
distribution agreement, purchases of CITGO products have not met the minimum
4
quantities. Since the effective date of the EXXON agreement, purchases have not
met the minimum quantities. Additionally, the minimum quantities can be
increased or decreased, as applicable, to accommodate additional travel centers,
or losses of travel centers.
In addition to the requirement to purchase minimum amounts under the
CITGO and EXXON distribution agreements, the Company is also required to pay a
processing fee of approximately 3% of the value of the sale for purchases of
gasoline made by customers using a credit card.
GASOLINE WHOLESALING
The Company currently wholesales gasoline to only three customers. Over
the past four years, wholesaling of gasoline has accounted for, on average,
approximately 6.2% of overall revenues. The Company intends to maintain its
current level of gasoline wholesaling and does not anticipate expanding or
actively marketing its wholesaling business. Below is a table that shows the
revenues generated from gasoline wholesaling, total revenues for the periods
reflected, and the percentage total of overall revenues attributable to gasoline
wholesaling.
Gasoline wholesaling revenues as a percentage of Gross Revenues
unaudited):
FISCAL YEAR ENDED GROSS REVENUES REVENUE FROM GASOLINE PERCENTAGE OF GROSS
JANUARY 31, WHOLESALING REVENUES ATTRIBUTABLE TO
GASOLINE WHOLESALING
- ----------------- -------------- --------------------- ------------------------
1998 $22,584,000 $917,000 4.06
1999 $23,803,000 $1,229,000 5.16
2000 $27,242,000 $1,672,000 6.14
2001 $27,164,000 $1,802,000 6.63
2002 $23,649,000 $2,126,000 8.99
The Company does not derive a material amount of net revenue from the
wholesaling of gasoline. The cost of goods sold as a percentage of gross
revenues for gasoline wholesaling is approximately 96%.
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. Large petroleum companies operate some of the travel centers that the
Company competes with, 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 financial and other 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 that the Company offers.
5
EMPLOYEES
As of January 31, 2002, the Company had approximately 129 full-time and
54 part-time employees; 48 were located in Arizona, 135 were located in New
Mexico. 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
The Company's operations are subject to regulation for dispensing
gasoline, maintaining mobile homes, dispensing food, sales of fireworks, sales
of cactus, operating outdoor advertising signs, waste disposal and air quality
control. The Company also must maintain registration of company vehicles,
general business licenses and corporate licenses.
Each food service operation 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 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 operating costs.
Travel center operations are also subject to extensive laws and
regulations governing the sale of tobacco, and in New Mexico travel centers, the
sale of fireworks. 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.
Nearly all licenses and registrations are subject to renewal each year.
The Company is not aware of any reason it would be unable to renew any of its
licenses and registrations. The Company estimates that the total cost spent on
an annual basis for all licenses and registrations is less than $15,000.
Historically, ongoing costs have been incurred 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
gasoline dispensing operations. In general, the Company is responsible for the
first $10,000 to clean up a previous underground storage tank site. The
remaining costs are generally reimbursable by the State.
The Company anticipates that the regulating agencies will develop
regulations for above ground storage of fuel and anticipate that because of its
expenditures and compliance, ongoing costs for compliance should not be
material. Over the next twelve months, the Company anticipates spending less
than $100,000 to complete any remaining clean up from underground storage tank
sites. Of this amount, the Company anticipates being reimbursed for all but
approximately $10,000. The Company does not anticipate any other material costs
for regulatory compliance during the next twelve months.
TRADEMARKS
The Company operates its travel centers under a number of its own
trademarks such as The Thing, Trails West, Butterfield Station and Bowlin's
Running Indian, as well as certain trademarks owned by third parties and
licensed to the Company, such as the Dairy Queen, Dairy Queen/Brazier, CITGO and
6
EXXON trademarks. The Company's right to use the trademarks Dairy Queen, Dairy
Queen/Brazier, CITGO and EXXON are derived from the agreements entered into with
these companies, and these rights expire when those agreements expire or are
terminated. The Company has a Federal trademark for "BOWLIN" that is effective
through 2008. All other rights to trade names that the Company uses in its
operations are protected through common law or state rights granted through a
registration process. The Company believes that its trademark rights will not
materially limit competition with its travel centers. The Company also believes
that, other than its Federal trademark for "BOWLIN", none of the trademarks
owned are material to overall business; however, the loss of one or more of our
licensed trademarks could have an adverse effect.
TRADEMARK / TRADE NAME WHERE REGISTERED EXPIRATION OF REGISTRATION
- ---------------------- ------------------------ --------------------------
BOWLIN United States Patent and
Trademark Office October 27, 2008
Trails West New Mexico July 29, 2004
Bowlin's Running Indian New Mexico April 16, 2004
ITEM 2. PROPERTIES
As of January 31, 2002, the Company operated eleven travel centers. The
Company owns the real estate and improvements where seven of its travel centers
are located, all of which are subject to mortgages. Four of the Company's
existing travel centers 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.
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
November 1, 2005, and the principal balance accrues interest at the bank's prime
rate (4.75% at January 31, 2002). The Company owns a central warehouse and
distribution facility occupying 27,000 square feet in Las Cruces, New Mexico.
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 may be involved in litigation in the
ordinary course of business, including disputes involving employment claims and
construction matters. Bowlin Travel Centers is not currently a party to any
lawsuit or proceeding which, in the opinion of management, is likely to have a
material adverse effect on the Company's however, business, operations or
financial condition.
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 2002.
7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of January 31, 2002, there were 4,583,348 shares of common stock of
Bowlin Travel Centers outstanding. There are no outstanding options or warrants
to purchase, or securities convertible into shares of common stock of Bowlin
Travel Centers. Shares of the common stock of the Company are traded on the OTC
Bulletin Board under the symbol "BWTL".
The Company is authorized to issue up to 10,000,000 shares of common
stock, par value $.001 per share, and up to 1,000,000 shares of preferred stock,
par value $.001. Holders of shares of common stock are entitled to one vote per
share on all matters to be voted on by stockholders and do not have cumulative
voting rights. Subject to the rights of holders of outstanding shares of
preferred stock, if any, the holders of common stock are entitled to receive
such dividends, if any, as may be declared from time to time by the Board of
Directors in its discretion from funds legally available therefor, and upon
liquidation, dissolution, or winding up are entitled to receive all assets
available for distribution to the stockholders. The common stock has no
preemptive or other subscription rights, and there are no conversion rights or
redemption or sinking fund provisions with respect to such shares. All of the
outstanding shares of common stock are fully paid and nonassessable.
In the Company's Articles of Incorporation, pursuant to Nevada Revised
Statues Section 78.378, the Company elected not to be governed by the provisions
of Nevada Revised Statutes Section 78.378 to 78.3793, inclusive. Pursuant to
Nevada Revised Statutes Section 78.434, the Company also elected not to be
governed by the provisions of Nevada Revised Statutes Sections 78.411 to 78.444,
inclusive. These statutes are sometimes referred to as "interested stockholder"
statutes and their purpose is to limit the way in which a stockholder may effect
a business combination with the corporation without board or stockholder
approval. Because the Company has elected not to be governed by these statutes,
a person or entity could attempt a takeover, or attempt to acquire a controlling
interest of, and effect a business combination with, Bowlin Travel Centers
without the restrictions of these Nevada Revised Statutes provisions. See, also,
"Risk Factors - OUR CURRENT CAPITALIZATION COULD DELAY, DEFER OR PREVENT A
CHANGE OF CONTROL".
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below are derived
from the audited financial statements of the Company for the five years ended
January 31, 2002. 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.
Because Bowlin Travel Centers did not operate independently of Bowlin
Outdoor, and was a segment of the business operations of Bowlin Outdoor during
the periods prior to the fiscal year ended January 31, 2002, it might have
recorded different results had it been operated independently of Bowlin Outdoor.
Therefore, the financial information presented below is not necessarily
indicative of the results of operations or financial position that would have
resulted if Bowlin Travel Centers had been a separate, stand-alone business
during the periods shown, or of its future performance as a separate,
stand-alone business.
8
YEARS ENDED JANUARY 31,*
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2002 2001 2000 1999 1998
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STATEMENT OF INCOME DATA:
Net sales $23,224,102 $26,765,264 $26,855,781 $23,519,909 $22,303,645
=========== =========== =========== =========== ===========
Net income $ 173,234 $ 298,812 $ 487,366 $ 253,672 $ 596,123
=========== =========== =========== =========== ===========
Earnings per share $ 0.04 $ 0.07 $ 0.11 $ 0.06 $ 0.13
=========== =========== =========== =========== ===========
BALANCE SHEET DATA (AT END OF PERIOD)
Total assets $16,532,141 $18,527,507 $16,990,676 $16,163,671 $12,045,789
=========== =========== =========== =========== ===========
Long-term debt, including current
maturities $ 4,684,334 $ 5,940,469 $ 6,723,555 $ 6,769,025 $ 3,068,374
=========== =========== =========== =========== ===========
*The Company did not operate independently during fiscal periods 2001, 2000,
1999 and 1998.
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, 2002, 2001 and 2000. This discussion should be read in
conjunction with the 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 forward-looking statements included in Management's Discussion and
Analysis of Financial Condition and Results of Operations reflect management's
best judgement based on factors currently known and involve risks and
uncertainties. Actual results could differ materially from those anticipated in
these forward-looking statements as a result of a number of factors, including
but not limited to, those discussed.
FISCAL YEAR ENDED JANUARY 31, 2002 (FISCAL 2002) COMPARED TO FISCAL YEAR ENDED
JANUARY 31, 2001 (FISCAL 2001)
Gross sales at the Company's travel centers decreased 12.9% to $23.649
million for fiscal 2002, from $27.164 million for fiscal 2001. Merchandise sales
decreased 3.2% to $9.236 million for fiscal 2002, from $9.541 million for fiscal
2001. Gasoline sales decreased 23.0% to $10.291 million for fiscal 2002, from
$13.360 million for fiscal 2001. Restaurant sales decreased 18.9% to $1.997
million for fiscal 2002, from $2.461 million for fiscal 2001. The decreases are
primarily due to a decrease in gasoline sales as a result of a general decline
in highway travel. In addition, the decrease in merchandise, gas and restaurant
sales were due to the divestiture of two travel centers during the first quarter
of fiscal year 2002 and two travel centers during fiscal year 2001. Wholesale
gasoline sales increased 17.9% to $2.125 million for fiscal 2002, from $1.802
million for fiscal 2001 due to an additional wholesale location.
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Cost of goods sold for the travel centers decreased 14.8% to $15.974
million for fiscal 2002, from $18.749 million for fiscal 2001. Merchandise cost
of goods decreased 5.8% to $3.943 for fiscal 2002, from $4.184 for fiscal 2001.
Gasoline cost of goods decreased 22.7% to $9.391 for fiscal 2002, from $12.142
for fiscal 2001. Restaurant cost of goods decreased 15.2% to $576,000 for fiscal
2002, from $679,000 for fiscal 2001. The decreases are attributable to the
decrease in gasoline sales impacted by a general decline in highway travel as
well as the divestiture of two travel centers in the first quarter of fiscal
2002 and two travel centers in fiscal 2001. Wholesale gasoline cost of goods
increased 18.3% to $2.064 million in fiscal 2002, from $1.744 million for fiscal
2001 due to an additional wholesale location. Cost of goods sold as a percentage
of gross revenues for fiscal 2002 was 67.5% compared to 69.0% for fiscal 2001.
Gross profit for the travel centers decreased 9.6% to $7.250 million
for fiscal 2002 from $8.016 million for fiscal 2001. Lower volume of gasoline
gallons negatively impacted gasoline sales as well as the divestiture of two
travel centers in the first quarter of fiscal 2002 and two travel centers in
fiscal 2001.
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 also include
executive and administrative compensation and benefits, investor relations and
accounting and legal fees. General and administrative expenses for the travel
centers decreased 10.0% to $6.070 million for fiscal 2002, from $6.742 million
for fiscal 2001. The decrease is primarily due to downsizing related to the
spin-off transaction as well as the divestiture of two travel centers in the
first quarter of fiscal 2002 and two travel centers in fiscal 2001. The decrease
is also due to the reduction of salaries and the related benefits and taxes, as
well as rents and leases due to the sale one of the Company's travel center
locations in the first quarter of fiscal 2002.
Depreciation and amortization expenses decreased by 3.5% to $752,000
for fiscal 2002, from $779,000 for fiscal 2001.
Prior to January 31, 2001, the Company and the Company's former parent,
Bowlin Outdoor Advertising & Travel Centers, Incorporated (BOATC) operated under
a management services agreement pursuant to which the Company provided
management, corporate general and administrative services to BOATC and for which
BOATC paid the Company a management fee. Management fee income consisted of
reimbursements for certain corporate general and administrative functions
performed on behalf of BOATC including treasury, accounting tax, human
resources, and other support services. The management service agreement was
terminated on January 31, 2001 when BOATC merged with Lamar Advertising Company
and therefore, no management fee income was earned by the Company in fiscal
2002.
The above factors contributed to a decrease in travel centers operating
income of 39.5% to $429,000 for fiscal 2002, from $708,000 for fiscal 2001.
Other income (expense) includes interest income, gains and losses from
the sale of assets, rental income and interest expense. Interest income
decreased 26.0% to $134,000 in fiscal 2002, from $181,000 in fiscal 2001
primarily as a result of lower cash balances as well as lower interest rates.
Gains from the sale of assets decreased to $35,000 in fiscal 2002 from $267,000
in fiscal in 2001 primarily due to the sale of one of the Company's travel
centers in fiscal 2001 and the sales of certain other assets. Rental income was
$86,000 in fiscal 2002 as a result of leases for available office space at the
Company's corporate headquarters. There was no rental income in fiscal 2001.
10
Interest expense decreased 35.8% to $402,000 for fiscal 2002, from $626,000 for
fiscal 2001. The decrease is primarily attributable to lower interest rates as
well as lower debt balances.
Income before income taxes decreased 45.3% to $290,000 for fiscal 2002,
from $530,000 for fiscal 2001 primarily due to the management fee income of
$213,000 in fiscal 2001 not present in fiscal 2002 as well as the gain on sale
of assets of $35,000 in fiscal 2002 compared to $267,000 in fiscal 2001. The
decrease in income before income taxes was partially offset by the decrease in
general and administrative expenses and rental income of $86,000 in fiscal 2002
not present in fiscal 2001. As a percentage of gross revenues, income before
income taxes decreased to 1.2% for the fiscal ended 2002, from 2.0% for fiscal
2001.
Income taxes decreased to $116,000 for fiscal 2002, compared to
$232,000 for fiscal 2001, as a result of lower pre-tax income. The effective tax
rate for fiscal 2002 was 40.0%, compared to 43.8% for fiscal 2001.
The foregoing factors contributed to the Company's decrease in net
income for fiscal 2002 to $173,000, compared to $299,000 for fiscal 2001.
FISCAL YEAR ENDED JANUARY 31, 2001 (FISCAL 2001) COMPARED TO FISCAL YEAR ENDED
JANUARY 31, 2000 (FISCAL 2000)
Gross sales at the Company's travel centers slightly decreased 0.3% to
$27.164 million for fiscal 2001, from $27.242 million for fiscal 2000. The
overall decrease is primarily due to the closure of one travel center in October
2000 and the sale of another travel center in November 2000. Merchandise sales
decreased 2.5% to $9.541 million for fiscal 2001, from $9.782 million for fiscal
2000. Gasoline sales increased 2.5% to $13.360 million for fiscal 2001, from
$13.035 million for fiscal 2000. Restaurant sales decreased 10.6% to $2.461
million for fiscal 2001, from $2.753 million for fiscal 2000. Wholesale gasoline
sales increased 7.8% to $1.802 million for fiscal 2001, from $1.672 million for
fiscal 2000.
Cost of goods sold for the travel centers decreased 0.5% to $18.749
million for fiscal 2001, from $18.660 million for fiscal 2000. The overall
decrease is primarily due to the closure of one travel center in October 2000
and the sale of another travel center in November 2000. Merchandise cost of
goods decreased 4.7% to $4.184 million for fiscal 2001, from $4.392 million for
fiscal 2000. Gasoline cost of goods increased 2.5% to $12.142 million for fiscal
2001, from $11.845 million for fiscal 2000. Restaurant cost of goods decreased
17.3% to $679,000 for fiscal 2001, from $821,000 for fiscal 2000. Wholesale
gasoline cost of goods increased 8.9% to $1.744 million in fiscal 2001, from
$1.602 million for fiscal 2000 due to an additional wholesale location. Cost of
goods sold as a percentage of gross revenues for fiscal 2001 was 69.0% compared
to 68.5% for fiscal 2000.
Gross profit for the travel centers decreased 2.2% to $8.017 million
for fiscal 2001 from $8.196 million for fiscal 2000. Lower margins on
convenience store items as well as lower gasoline margins and a decrease in
gasoline sales volume measured in gallons as a result of higher gasoline prices
impacted gross profit.
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 also include
executive and administrative compensation and benefits, investor relations and
accounting and legal fees. General and administrative expenses for the travel
centers decreased 5.4% to $6.743 million for fiscal 2001, from $7.129 million
for fiscal 2000. The decrease is primarily due to the reduction of salaries and
11
the related benefits and taxes, and rents and leases due to the purchase of land
at two of the Company's travel center locations in fiscal 2001.
For fiscal year 2001, the Company's President and Chief Operating
Officer's annual base salaries were $195,000 and $145,000 respectively, as
provided for in their respective employment agreements with Bowlin Outdoor,
effective February 1, 1997. Upon consummation of the merger with Lamar
Advertising Company, the employment agreements to which each was a party
terminated.
Depreciation and amortization expenses increased by 8.3% to $779,000
for fiscal 2001, from $719,000 for fiscal 2000.
Prior to January 31, 2001, the Company and the Company's former parent,
Bowlin Outdoor Advertising & Travel Centers, Incorporated (BOATC) operated under
a management services agreement pursuant to which the Company provided
management, corporate general and administrative services to BOATC for which
BOATC paid the Company a management fee. Management fee income consists of
reimbursements for certain corporate general and administrative functions
performed on the behalf of Bowlin Outdoor including treasury, accounting, tax,
human resources, and other support services. Management fee income increased
2.9% to $213,000 during fiscal 2001 from $207,000 during fiscal 2000. Bowlin
Outdoor has elected to discontinue such cost sharing and the agreement
terminated on February 1, 2001.
The above factors contributed to an increase in travel centers
operating income of 20.8% $708,000 for fiscal 2001, from $586,000 for fiscal
2000.
Other income (expense) includes interest income, gains and losses from
the sale of assets, a casualty gain from insurance coverage and interest
expense. Interest income increased 88.5% to $181,000 in fiscal 2001, from
$96,000 in fiscal 2000 primarily as a result of higher cash balances due to the
parent's distribution as well as tax overpayment refunds. Gains from the sale of
assets increased to $267,000 from $1,000 primarily due to the sale of one of the
Company's travel centers and the sales of other certain assets. In fiscal 2000
the Company recorded a one-time gain from insurance proceeds of $712,000 not
present in fiscal 2001. Interest expense increased 4.7% to $626,000 for fiscal
2001, from $598,000 for fiscal 2000. The increase is primarily attributable to
the increase in interest rates associated with the Company's debt.
Income before income taxes decreased 33.4% to $530,000 for fiscal 2001,
from $796,000 for fiscal 2000 primarily due to the one-time gain from insurance
proceeds of $712,000 in fiscal 2000 not present in fiscal 2001, partially offset
by the decrease in general and administrative expenses. As a percentage of gross
revenues, income before income taxes decreased to 2.0% for the fiscal ended
2001, from 2.9% for fiscal 2000.
Income taxes decreased to $232,000 for fiscal 2001, compared to
$309,000 for fiscal 2000, as a result of lower pre-tax income. The effective tax
rate for fiscal 2001 was 43.8%, compared to 38.8% for fiscal 2000.
The foregoing factors contributed to the Company's decrease in net
income for fiscal 2001 to $299,000, compared to $487,000 for fiscal 2000.
12
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 2002, the Company had working capital of $4.282 million
compared to working capital of $5.609 million at January 31, 2001. At January
31, 2002, the company had a current ratio of 3.2:1 compared to a current ratio
of 3.1:1 at January 31, 2001 ("current ratio" is the ratio of current assets to
current liabilities). The decrease in working capital is primarily due to
decreases in cash of $1.372 million, accounts payable and accrued liabilities of
$925,000 at January 31, 2002, offset by decreases in accounts receivable of
$344,000, inventory of $428,000 and current maturities of long-term debt of
$214,000.
The net cash provided by operating activities was $687,000 at January
31, 2002, compared to $1.039 million at January 31, 2001. During fiscal 2002,
there were decreases in operating assets and liabilities of $242,000 and a
decrease in depreciation of $60,000, partially offset by a decrease in gains on
sale of property and equipment.
Net cash used in investing activities was $803,000 at January 31, 2002,
compared to net cash provided by investing activities of $538,000 at January 31,
2001. The decrease was due primarily to purchases of property and equipment of
$641,000 as well as an increase in mortgages receivable, net of $345,000 at
January 31, 2002, compared to purchases of property and equipment of $303,000 at
January 31, 2001. There were no mortgages receivable at January 31, 2001.
Increases in property and equipment and mortgages receivable, net were offset by
proceeds from the sale of assets of $71,000 and notes receivable, net of
$111,000 at January 31, 2002, compared to proceeds from the sale of assets of
$837,000 and notes receivable, net of $3,957 at January 31, 2001.
Net cash used in financing activities was $1.256 million at January 31,
2002, compared to net cash provided by financing activities of $1.077 million at
January 31, 2001. Payments on long-term debt were $1.256 at January 31, 2002
compared to payments on long-term debt of $783,000 at January 31, 2001. At
January 31, 2001 a capital contribution of $1.360 million at January 30, 2001
from Bowlin Outdoor as part of the reconciliation of accounts resulting from the
contribution of assets and liabilities and the subsequent spin-off contributed
to net cash provided by financing activities.
As of January 31, 2002, the company was indebted to various banks and
individuals in an aggregate principal amount of approximately $4.684 million
under various loans and promissory notes, compared to $5.940 as of January 31,
2001. Land, buildings, equipment and inventories of the Company secure many of
the loans and promissory notes. The loans and promissory notes mature at dates
from the current fiscal year to October 2013 and accrue interest at rates
ranging from 4.18% to 8% per annum. The Company's total monthly payments on
outstanding long-term debt obligations are approximately $75,000.
Approximately $2.164 million of the approximately $4.684 million
outstanding as of January 31, 2002 was borrowed under the Master Loan Agreement
with Bank of the West. Under this master loan agreement, the Company grants a
security interest in its assets and property as security interests against its
obligations under the agreement.
Under the Master Loan Agreement, the Company must maintain minimum
financial ratios, calculated quarterly from fiscal quarter reviewed statements
with income and expense items annualized. For fiscal year ending January 31,
2002, the Company was in compliance with the minimum financial ratios.
13
The Company has forecasted approximately $650,000 for capital
commitments for fiscal year 2003. The Company expects to use current working
capital and cash flows from operations to fund these commitments and does not
anticipate obtaining any outside sources for these commitments.
The Company is unaware of any trends or demands, commitments or
uncertainties that will result or are reasonably likely to result in liquidity
increasing or decreasing in any material way over the next twelve months. The
Company currently can borrow up to an additional $1.0 million under the credit
facility with Bank of the West. The Company believes that its working capital
and the cash flow generated from current operations will be sufficient to fund
operations over the next twelve months without borrowing any additional funds
under the credit facility. While the Company is not currently a party to any
agreements to acquire any additional travel centers, nor does the Company have
plans to build any additional travel centers in the near term, if the Company
were to acquire or construct any additional travel centers it would likely have
to obtain additional financing to do so, either under the current credit
facility or through other means. The Company cannot predict with any certainty
what the terms of such financing might be.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of January 31, 2002, approximately $4.660 million of the Company's
total indebtedness is accruing interest at variable rates tied to LIBOR or 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 that could impact the
Company's ability to finance internal development and growth of the business.
The Company does not, however, believe that any risk inherent in the variable
rate nature of our debt is likely to have a material effect on its financial
position, results of operations or liquidity.
The Company has not entered into any market risk sensitive instruments
for trading purposes. Further, the Company does not currently have any
derivative instruments outstanding and has no plans to use any form of
derivative instruments to manage its business in the foreseeable future.
Profit margins on gasoline sales can be adversely affected by factors
beyond the control of the Company, including supply and demand in the retail
gasoline market, price volatility and price competition from other gasoline
marketers. The availability and price of gas could have an adverse impact on
general highway traffic. The Company has not entered into any long-term
fixed-price supply agreements for gasoline. Any substantial decrease in profit
margins on gasoline sales or number of gallons sold could have a material
adverse effect on the Company's gross margins and operating income.
RISK FACTORS
The Company does not provide forecasts of potential future financial
performance. While management is optimistic about long-term prospects, the
following issues and uncertainties, among others, should be considered in
evaluating our growth outlook.
This Form 10-K contains forward-looking statements that involve risks
and uncertainties. You should not rely on these forward-looking statements. The
Company uses words such as "anticipate," "believe," "plan," "expect," "future,"
"intend" and similar expressions to identify such forward-looking statements.
This Form 10-K also contains forward-looking statements attributed to certain
third parties relating to their estimates regarding the travel center industry,
among other things. You should not place undue reliance on those forward-looking
14
statements. Actual results could differ materially from those anticipated in the
forward-looking statements for many reasons, including the risks faced described
below and elsewhere in this Form 10-K.
THE COMPANY'S SHARES OF COMMON STOCK ARE TRADED ON THE OTC BULLETIN
BOARD AND WILL LIKELY BE SUBJECT TO SIGNIFICANT PRICE VOLATILITY AND AN ILLIQUID
MARKET.
The Company's shares trade on the OTC Bulletin Board. In order to
purchase and sell shares of the Company's common stock on the OTC Bulletin
Board, you must use one of the market makers then making a market in the stock.
Because of the wide variance in the BID and ASK spreads, there is significant
risk that an investor that sold shares on the OTC Bulletin Board would sell them
for a price that was significantly lower than the price at which the shares
could be purchased, and vice versa. The number of shares traded to date
indicates that the market for the Company's shares of common stock is illiquid
which could make it difficult to purchase or sell shares.
THE COMPANY'S HISTORICAL FINANCIAL INFORMATION MAY NOT BE
REPRESENTATIVE OF ITS RESULTS AS A SEPARATE COMPANY.
The historical financial information prior to fiscal year 2002 included
in this Form 10-K may not reflect what results of operations, financial position
and cash flows would have been had the Company been a separate, stand-alone
entity during the periods presented or what results of operations, financial
position and cash flows will be in the future. This is because:
o adjustments and allocations have been made, primarily with respect to
corporate-level expenses and administrative functions, because Bowlin
Outdoor did not account for the Company as, and the Company was not
operating as, a separate stand-alone business for all periods presented;
and
o the information does not reflect changes that may occur in the future
as a result of the Company's separation from Bowlin Outdoor
For additional information, see "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
THE COMPANY MIGHT INCUR GREATER COSTS AND EXPENSES IN PROPORTION TO ITS
REVENUES OPERATING AS A STAND-ALONE ENTITY THAT COULD ADVERSELY AFFECT
PROFITABILITY.
The Company has operated as a stand-alone entity separate from Bowlin
Outdoor for fiscal 2002 only. The Company may have benefited in periods prior to
fiscal 2002 from operating as a division of Bowlin Outdoor by sharing some
expenses, personnel and other costs. General and administrative costs, as a
percentage of revenue, could increase as a result of the Company operating
independently of Bowlin Outdoor. If the costs and expenses of operating
independently are substantially greater than the costs and expenses of operating
as a division of Bowlin Outdoor, it could have a negative affect on
profitability and an adverse affect on business operations and financial
condition.
THE COMPANY MIGHT NOT BE ABLE TO SECURE ADDITIONAL FINANCING.
The Company has been able to secure financing for the purchase of
additional assets from commercial lenders in amounts up to 100% of the fair
market value of the acquired assets. However, this financing was obtained by
Bowlin Outdoor as a single consolidated entity. The Company might not be able to
obtain additional financing as a stand-alone company without the outdoor
advertising segment of Bowlin Outdoor. If obtainable, there can be no assurance
15
that any additional financing will be available in the future on terms
acceptable to the Company. The Company anticipates that any financing secured
could impose certain financial and other restrictive covenants upon operations.
THERE IS NO ASSURANCE THAT THE COMPANY WILL BE ABLE TO SUCCESSFULLY
EXPAND BUSINESS.
The Company intends to continue to explore the possibilities of
acquiring or building additional travel centers. Although existing operations
are based primarily in the Southwest, 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 will likely 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 our bank lenders, or
that such acquisitions, if completed, can be integrated successfully into
existing operations. The success of an 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 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.
THE COMPANY'S USE OF PETROLEUM PRODUCTS SUBJECTS IT TO VARIOUS LAWS AND
REGULATIONS, AND EXPOSES IT TO SUBSTANTIAL RISKS.
The Company is subject to federal, state and local laws and regulations
governing the use, storage, handling, and disposal of petroleum products. While
the Company believes that it is compliant with environmental laws and
regulations, the risk of accidental contamination to the environment or injury
cannot 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
available resources. The Company could be required to incur significant costs to
comply with environmental laws and regulations that may be enacted in the
future.
BECAUSE ALL OF THE COMPANY'S TRAVEL CENTERS ARE LOCATED IN ARIZONA AND
NEW MEXICO, A DOWNTURN IN THE ECONOMIC CONDITIONS IN THE SOUTHWESTERN UNITED
STATES COULD ADVERSELY AFFECT BUSINESS OPERATIONS AND FINANCIAL CONDITIONS.
The Company's travel centers are located only in Arizona and New
Mexico. The Company relies on the business generated from travelers and patrons
within these two states, and those traveling through these states. Risks from
economic downturns are not diversified or spread out across several regions.
Because of the geographic concentration of the Company's travel centers,
business may be adversely affected in the event of a downturn in general
economic conditions in the Southwestern United States generally, or in Arizona
or New Mexico.
THE COMPANY DEPENDS 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 distributorship relationships with CITGO and EXXON
and existing franchise agreements with Dairy Queen/Brazier. The Company's
existing operations and plans for future growth anticipate the continued
existence of such relationships.
16
The CITGO distribution agreement has an initial three-year term
beginning February 2, 2001 and expiring January 31, 2004, and automatically
renews for a three-year term through 2007. The EXXON distribution agreement has
a three-year term beginning April 1, 2002 and expiring March 31, 2005. 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 includes 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. CITGO and EXXON may
terminate or refuse to renew these agreements only if it terminates or refuses
to renew the agreement in compliance with the Petroleum Marketing Practices Act.
Under three of the Company's Dairy Queen agreements, the term continues
until the Company elects to terminate it with 60 days prior written notice, or
if the Company or Dairy Queen elect to terminate the agreement because the other
has breached the agreement and has not cured that breach within 14 days of
notice of the breach. The other two Dairy Queen agreements are for specific
terms. One of those Dairy Queen agreements, entered into February 1, 1984, is
for a term of 25 years and the other, entered into on November 18, 1986, is for
a term of 20 years. The Company may not terminate either of these agreements
unless it gives notice to Dairy Queen that they are in breach of the agreement
and Dairy Queen has not cured that breach within thirty days of notice. Dairy
Queen may terminate either of these agreements if they deliver notice to the
Company that it is in breach of the agreement and does not cure that breach
within 14 days of that notice.
There can be no assurance that the agreements that govern these
relationships will not be terminated (for greater detail regarding the terms of
these agreements, see "Business Operations - Travel Centers and Gasoline
Retailing"). 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 it from pursuing opportunities that management would otherwise deem
advisable. In addition, there are no material early termination provisions under
any of the franchise or petroleum distribution agreements.
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.
IF THE COMPANY IS NOT ABLE TO SUCCESSFULLY COMPETE IN ITS INDUSTRY IT
COULD HAVE AN ADVERSE IMPACT ON BUSINESS OPERATIONS OR FINANCIAL CONDITION.
The Company's travel centers face competition from
o major and independent oil companies;
o independent service station operators;
o national and independent operators of restaurants, diners and other
eating establishments; and
o national and independent operators of convenience stores and other
retail outlets.
17
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
does. There can be no assurance that the Company's travel centers will be able
to compete successfully in their respective markets in the future.
THE COMPANY'S BUSINESS IS SEASONAL AND REVENUES FLUCTUATE QUARTERLY.
The Company's travel center operations are subject to seasonal
fluctuations, and revenues may be affected by many factors, including weather,
holidays and the price of alternative travel modes. Revenues and earnings may
experience substantial fluctuations from quarter to quarter. These fluctuations
could result in periods of decreased cash flow that might cause the Company to
use its lending sources, or to secure additional financing, in order to cover
expenses during those periods. This could increase the interest expense of the
Company's operations and decrease net income and have a material adverse effect
on business and results of operations.
THE COMPANY IS SUBJECT TO NUMEROUS GOVERNMENTAL REGULATIONS, INCLUDING
THOSE RELATED TO FOOD HANDLING, FIREWORKS SALES, TOBACCO SALES, AND UNDERGROUND
STORAGE TANKS.
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 New Mexico travel centers. In addition, 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 gasoline dispensing operations.
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 its eleven travel centers comply with all applicable
licensing and regulatory requirements. However, any failure to comply with
applicable regulations, or the adoption of additional regulations or changes in
existing regulations could impose additional compliance costs, require a
cessation of certain activities or otherwise have a material adverse effect on
business and results of operations.
THE COMPANY'S CURRENT CAPITALIZATION COULD DELAY, DEFER OR PREVENT A
CHANGE OF CONTROL.
In the Company's Articles of Incorporation, pursuant to Nevada Revised
Statues Section 78.378, the Company elected not to be governed by the provisions
of Nevada Revised Statutes Section 78.378 to 78.3793, inclusive. Pursuant to
Nevada Revised Statutes Section 78.434, the Company also elected not to be
governed by the provisions of Nevada Revised Statutes Sections 78.411 to 78.444,
inclusive. These statutes are sometimes referred to as "interested stockholder"
statutes and their purpose is to limit the way in which a stockholder may effect
a business combination with the corporation without board or stockholder
approval. Because the Company has elected not to be governed by these statutes,
a person or entity could attempt a takeover, or attempt to acquire a controlling
interest of, and effect a business combination with, Bowlin Travel Centers
without the restrictions of these Nevada Revised Statutes provisions.
However, the Company's Board of Directors has the authority to issue up
to ten million (10,000,000) shares of common stock, $.001 par value, and up to
18
one million (1,000,000) shares of preferred stock, $.001 par value, in one or
more series, and to determine the price, rights, preferences and privileges of
the shares of each such series without any further vote or action by the
stockholders. The rights of the holders of common stock will be subject to, and
may be adversely affected by, the rights of the holders of any shares of
preferred stock that may be issued in the future. The issuance of preferred
stock could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company, thereby
delaying, deferring or preventing a change of control of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Following on next page.
19
BOWLIN TRAVEL CENTERS, INC.
Financial Statements
January 31, 2002 and 2001
20
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bowlin Travel Centers, Inc.
Albuquerque, New Mexico
We have audited the accompanying balance sheet of Bowlin Travel Centers, Inc. as
of January 31, 2002, and the statements of income, stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The financial statements of
Bowlin Travel Centers, Inc. for the year ended January 31, 2001, were audited by
other auditors whose report dated March 30, 2001, expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bowlin Travel Centers, Inc. as
of January 31, 2002, and the results of its operations and cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
/s/ Neff & Ricci LLP
Albuquerque, New Mexico
March 29, 2002
21
BOWLIN TRAVEL CENTERS, INC.
BALANCE SHEETS
JANUARY 31, 2002 AND 2001
ASSETS 2002 2001
----------- -----------
Current assets:
Cash and cash equivalents $ 2,671,048 4,042,765
Accounts receivable 267,171 567,016
Accounts receivable - related parties 2,738 47,259
Inventories 2,996,273 3,424,745
Prepaid expenses 279,889 190,501
Mortgages receivable, current maturities 3,784 --
Notes receivable, current maturities 38,538 25,367
----------- -----------
Total current assets 6,259,451 8,297,653
----------- -----------
Property and equipment, net 9,397,253 9,543,709
Intangible assets, net 278,342 305,295
Interest receivable 26,835 23,683
Mortgages receivable, less current portion 340,837 --
Notes receivable, less current portion 229,423 357,167
----------- -----------
Total assets $16,532,141 18,527,507
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 708,718 495,041
Accounts payable 989,305 1,438,914
Accrued salaries and benefits 23,051 24,868
Accrued liabilities 223,012 214,038
Due to related party -- 516,043
Deferred revenue 33,330 --
----------- -----------
Total current liabilities 1,977,416 2,688,904
Deferred income taxes 626,100 613,400
Long-term debt, less current maturities 3,975,616 5,445,428
----------- -----------
Total liabilities 6,579,132 8,747,732
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value;
1,000,000 shares authorized, none issued or
outstanding at January 31, 2002 and 2001 -- --
Common stock, $.001 par value; 10,000,000 shares
authorized, 4,583,348 issued and outstanding
at January 31, 2002 and 2001 4,583 4,583
Additional paid-in capital 9,775,192 9,775,192
Retained earnings 173,234 --
----------- -----------
Total stockholders' equity 9,953,009 9,779,775
Total liabilities and stockholders' equity $16,532,141 18,527,507
=========== ===========
See accompanying notes to financial statements.
22
BOWLIN TRAVEL CENTERS, INC.
STATEMENTS OF INCOME
YEARS ENDED JANUARY 31,
--------------------------------------------
2002 2001 2000
------------ ------------ ------------
Gross sales $ 23,649,381 27,164,286 27,242,403
Less discounts on sales 425,279 399,022 386,622
------------ ------------ ------------
Net sales 23,224,102 26,765,264 26,855,781
Cost of goods sold 15,973,719 18,748,526 18,660,049
------------ ------------ ------------
Gross profit 7,250,383 8,016,738 8,195,732
General and administrative expense (6,069,578) (6,742,579) (7,128,511)
Depreciation and amortization (751,857) (778,788) (719,085)
Management fee income -- 212,693 207,390
Other operating income -- -- 30,661
------------ ------------ ------------
Operating income 428,948 708,064 586,187
Other income (expense):
Interest income 134,392 180,851 95,570
Gain on sale of property and equipment 34,969 266,897 1,024
Gain from insurance proceeds -- -- 711,805
Rental income 86,425 -- --
Miscellaneous 6,398 -- --
Interest expense (401,498) (625,500) (598,420)
------------ ------------ ------------
Total other income (expense) (139,314) (177,752) 209,979
------------ ------------ ------------
Income before income taxes 289,634 530,312 796,166
Income taxes 116,400 231,500 308,800
------------ ------------ ------------
Net income $ 173,234 298,812 487,366
============ ============ ============
Earnings per share:
Weighted average common shares
outstanding 4,583,348 4,583,348 4,583,348
============ ============ ============
Basic and diluted $ 0.04 0.07 0.11
============ ============ ============
See accompanying notes to financial statements.
23
BOWLIN TRAVEL CENTERS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 2002, 2001 AND 2000
COMMON ADDITIONAL PARENT'S
NUMBER STOCK, PAID-IN EQUITY IN RETAINED
OF SHARES AT PAR CAPITAL DIVISION EARNINGS TOTAL
--------- ----------- ------------ ------------ ---------- -----------
Balance at January 31, 1999 -- $ -- -- 7,633,658 -- 7,633,658
Net income -- -- -- 487,366 -- 487,366
--------- ----------- ------------ ------------ ---------- -----------
Balance at January 31, 2000 -- -- -- 8,121,024 -- 8,121,024
Parent's distribution to subsidiary -- -- -- 1,359,939 -- 1,359,939
Net income -- -- -- 298,812 -- 298,812
Issuance of common stock in
connection with spin-off transaction 4,583,348 4,583 9,775,192 (9,779,775) -- --
--------- ----------- ------------ ------------ ---------- -----------
Balance at January 31, 2001 4,583,348 4,583 9,775,192 -- -- 9,779,775
Net income -- -- -- -- 173,234 173,234
--------- ----------- ------------ ------------ ---------- -----------
Balance at January 31, 2002 4,583,348 $ 4,583 9,775,192 -- 173,234 9,953,009
========= =========== ============ ============ ========== ===========
See accompanying notes to financial statements.
24
BOWLIN TRAVEL CENTERS, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED JANUARY 31,
-----------------------------------------
2002 2001 2000
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 173,234 298,812 487,366
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 751,857 778,788 719,085
Amortization of loan fee 26,093 -- --
Income from partnership investment -- -- (1,408)
Gain on sale of property and equipment (34,969) (266,897) (1,024)
Gain from insurance proceeds -- -- (711,805)
Provision for deferred income taxes 12,700 20,600 362,900
Changes in operating assets and liabilities
Accounts receivable 344,366 33,007 93,417
Inventories 428,472 104,945 154,862
Prepaid expenses and other 24,902 (54,436) 71,953
Accounts payable and accrued liabilities (925,165) 124,523 22,209
Income taxes (114,300) -- 223,976
----------- ----------- -----------
Net cash provided by operating activities 687,190 1,039,342 1,421,531
----------- ----------- -----------
Cash flows from investing activities:
Capital received from partnership -- -- 21,400
Proceeds from sale of assets 71,300 837,064 138,828
Proceeds from insurance -- -- 1,086,865
Purchases of property and equipment (640,872) (303,423) (2,908,762)
Increase in mortgages receivable (345,000) -- --
Payments received from mortgages receivable 379 -- --
Increase in notes receivable (44,500) (33,782) (130,000)
Payment received from notes receivable 155,921 37,739 12,534
----------- ----------- -----------
Net cash provided by (used in) investing activities (802,772) 537,598 (1,779,135)
----------- ----------- -----------
Cash flows from financing activities:
Payments on long-term debt (1,256,135) (783,086) (821,670)
Payments for debt issuance costs -- (16,005) --
Capital contribution from parent -- 1,359,939 --
Due to related party -- 516,043 --
Proceeds from borrowings -- -- 776,200
----------- ----------- -----------
Net cash provided by (used in) financing activities (1,256,135) 1,076,891 (45,470)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (1,371,717) 2,653,831 (403,074)
Cash and cash equivalents at beginning of period 4,042,765 1,388,934 1,792,008
----------- ----------- -----------
Cash and cash equivalents at end of period $ 2,671,048 4,042,765 1,388,934
=========== =========== ===========
(Continued)
25
BOWLIN TRAVEL CENTERS, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED JANUARY 31,
-----------------------------------------
2002 2001 2000
----------- ----------- -----------
Supplemental disclosure of cash flow information:
Interest paid $ 401,498 594,947 618,105
=========== =========== ===========
Income taxes paid (received) $ 103,700 210,900 (230,376)
=========== =========== ===========
Noncash investing and financing activities:
Notes receivable issued on accounts receivable $ -- 33,783 --
=========== =========== ==========
Property and equipment in exchange for
note payable $ 30,554 180,039 --
=========== =========== ==========
Like-kind exchange of property and
equipment $ 155,576 -- --
=========== =========== ==========
See accompanying notes to financial statements.
26
BOWLIN TRAVEL CENTERS, INC.
Notes to Financial Statements
January 31, 2002
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Bowlin Travel Centers, Inc. (BTC or the Company) is located in
Albuquerque, New Mexico. Through January 30, 2001, the Company
operated as a separate division of Bowlin Outdoor Advertising &
Travel Centers, Inc. (BOATC), a public company traded on the
American Stock Exchange. On January 30, 2001, BTC became an
independent company through a spin-off transaction whereby shares
of BTC were distributed to the shareholders of BOATC.
Inter-company transactions have generally been limited to
management fees, federal and state income tax allocations, cash
advances and cash distributions and are recorded and funded
through an inter-company receivable/payable account.
BTC's articles of incorporation authorize 10,000,000 shares of
common stock ($.001 par value) and 1,000,000 shares of preferred
stock ($.001 par value) which can be issued at the discretion of
the Board of Directors.
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, primarily New Mexico.
(b) CASH AND CASH EQUIVALENTS
The Company considers all liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The
Company places its temporary cash investments with a local
financial institution. Excess collected funds are invested in
securities repurchase agreements and are collateralized by
securities with fair market values of 102 percent. The remaining
funds at year-end were covered by Federal Deposit Insurance
Corporation insurance.
(c) 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.
(d) 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.
(e) INTANGIBLE ASSETS
Debt issuance costs are deferred and amortized over the terms of
the respective borrowings on a straight-line basis for the
revolving portion and the interest method for the term note
27
portion. 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.
(f) 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.
(g) 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.
(h) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company reviews its long-lived assets and certain identifiable
intangibles 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.
(i) FINANCIAL INSTRUMENTS
The Company's financial instruments are cash and cash equivalents,
accounts receivable, notes receivable, accounts payable, accrued
liabilities and long-term debt. The carrying amounts of cash and
cash equivalents, accounts receivable, notes receivable, accounts
payable, accrued liabilities and long-term debt approximate fair
value.
(j) 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.
(k) EARNINGS PER SHARE
Earnings per share of common stock, both basic and diluted, are
computed by dividing net income by the weighted average common
shares outstanding, assuming the shares distributed on January 30,
2002 were outstanding for all periods presented. Diluted earnings
per share is calculated in the same manner as basic earnings per
share as there were no potential dilutive securities outstanding
for all periods presented.
28
(l) RECLASSIFICATIONS
Certain 2001 amounts have been reclassified to conform to 2002
presentation. Such reclassifications had no effect on net income.
(m) ACCOUNTS RECEIVABLE
Management believes that all accounts receivable are fully
collectable. Therefore, no allowance for doubtful accounts is
deemed to be required.
(2) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at January 31:
ESTIMATED
LIFE (YEARS) 2002 2001
------------ ----------- ----------
Land $ 2,443,343 2,403,421
Buildings and improvements 10 - 40 7,375,879 7,627,865
Machinery and equipment 3 - 10 5,744,622 5,867,316
Autos, trucks and mobile homes 3 - 10 1,341,079 1,351,039
Billboards 15 - 20 1,180,404 1,041,923
Construction in progress 60,665 --
----------- -----------
18,145,992 18,291,564
Less accumulated depreciation (8,748,739) (8,747,855)
----------- -----------
$ 9,397,253 9,543,709
=========== ===========
On April 27, 2001, the Company sold one of its travel centers located in
Benson, Arizona. Certain assets, including building and equipment, were
sold to a third party for $40,000 cash and a note receivable for $10,000.
The note receivable was fully collected during the year ended January 31,
2002. The assets sold had a carrying value of $50,070. The loss on the
sale of the travel center was $70.
On May 1, 2001 the Company disposed of one of its travel centers located
in Edgewood, New Mexico to a third party. The assets had a carrying value
of approximately $156,000. The Company exchanged the assets for
twenty-three billboards. The fair value of assets given up by the Company
was approximately the fair value of assets received. Therefore, no gain
or loss was recorded on the transaction. The Company currently provides
wholesale gasoline to this third party location.
29
(3) INTANGIBLE ASSETS
Intangible assets, at cost, consist of the following at January 31:
2002 2001
--------- ---------
Franchise fees $ 192,442 183,000
Debt issuance costs 311,272 311,272
--------- ---------
503,714 494,272
Less accumulated amortization (225,372) (188,977)
--------- ---------
$ 278,342 305,295
========= =========
(4) SHORT-TERM BORROWING
In November 2000, the Company entered into a credit agreement with one of
its existing lenders which included a working capital line-of-credit. The
$1,000,000 line-of-credit matures March 31, 2002 and requires variable
interest (4.75% at January 31, 2002). There were no amounts drawn on this
line-of credit during the year ended January 31, 2002.
(5) LONG-TERM DEBT
Long-term debt consists of the following at January 31:
2002 2001
----------- -----------
Due bank, maturity November 2005, variable interest (4.18% at
January 31, 2002), monthly installments of $37,398, secured by
buildings and equipment $ 2,164,213 2,467,041
Due bank, maturity October 2013, variable interest (4.75% at
January 31, 2002), monthly installments of $10,317, secured by
land and buildings 832,371 898,143
Due bank, maturity October 2013, variable interest (4.75% at
January 31, 2002), monthly installments of $6,081, secured by
land and buildings 496,199 534,607
Due bank, maturity January 2005, variable interest (4.75% at
January 31, 2002), monthly installments of $4,920 secured by
buildings and equipment 421,839 451,601
Due bank, maturity November 2005, variable interest (4.75% at
January 31, 2002), monthly installments of $7,517, secured by
buildings and equipment 652,779 697,719
Due bank, maturity August 2003, variable interest (4.75% at
January 31, 2002), monthly installments of $7,792, secured by
land, buildings, equipment and inventories 92,528 789,412
Due individual, maturity September 2003, interest at 8.00%,
monthly payments of $1,400, unsecured. 24,405 101,946
----------- -----------
4,684,334 5,940,469
Less current maturities 708,718 495,041
----------- ------------
$ 3,975,616 5,445,428
=========== ============
30
Future maturities of long-term debt for the years ending January 31 are
as follows:
2003 $ 708,718
2004 639,761
2005 657,598
2006 1,937,289
2007 165,152
Thereafter 575,816
-----------
Total $ 4,684,334
===========
(6) INCOME TAXES
Income taxes consist of the following for the years ended January 31:
CURRENT DEFERRED TOTAL
--------- --------- ---------
2002:
U.S. Federal $ 86,400 10,600 97,000
State 17,300 2,100 19,400
--------- --------- ---------
$ 103,700 12,700 116,400
========= ========= =========
2001:
U.S. Federal $ 175,700 17,200 192,900
State 35,200 3,400 38,600
--------- --------- ---------
$ 210,900 20,600 231,500
========= ========= =========
2000:
U.S. Federal $ (45,000) 302,300 257,300
State (9,100) 60,600 51,500
--------- --------- ---------
$ (54,100) 362,900 308,800
========= ========= =========
Income tax expense differed from the amounts computed by applying the
U.S. federal income tax rate of 34 percent to pre-tax income as a result
of the following for the years ended January 31:
2002 2001 2000
-------- -------- --------
Computed "expected" tax $ 98,476 180,306 270,696
State income taxes, net of federal
tax benefit 12,825 25,497 34,014
Other non-deductible expenses 5,099 25,697 4,090
-------- -------- --------
Total $116,400 231,500 308,800
======== ======== ========
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:
31
2002 2001
-------- --------
Deferred tax assets -
Compensated absences, principally due to
accrual for financial reporting purposes $ 37,813 36,571
-------- --------
Total gross deferred tax assets 37,813 36,571
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation 648,777 645,439
Other 15,136 4,532
-------- --------
Total gross deferred liabilities 663,913 649,971
-------- --------
Net deferred tax liability $626,100 613,400
======== ========
There was no valuation allowance for deferred tax assets as of January
31, 2002, 2001 or 2000. 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 that the Company will realize the benefits of these deductible
differences.
(7) PROFIT-SHARING PLAN
The Company maintains a qualified defined contribution profit-sharing
plan that covers substantially all employees. The plan's 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 $59,022, $62,315 and
$42,237 in fiscal 2002, 2001 and 2000, respectively.
(8) COMMITMENTS AND CONTINGENCIES
The Company leases land at several of its retail operating locations.
Included in general and administrative expenses in the accompanying
statements of income is rental expense for these land leases of $234,676,
$296,080 and $356,392 for the years ended January 31, 2002, 2001 and
2000, respectively. The Company also leases land where several of its
retail billboards are located and rent expense for these leases was
$132,730, $85,273 and $91,148 for the years ended January 31, 2002, 2001
and 2000, respectively.
The leasing agreements for the various locations include 5 to 30 year
leases with remaining lives on those leases ranging from approximately 5
to 15 years at January 31, 2002. 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.
32
Future minimum rental payments under these leases are as follows:
Year ending January 31:
2003 $ 132,101
2004 127,721
2005 123,262
2006 100,474
2007 98,325
Thereafter 495,265
----------
Total $1,077,148
==========
(9) RELATED PARTY TRANSACTIONS
Wholesale gasoline distribution sales 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. The sales
with the associated cost of goods and gross profit consist of the
following at January:
2002 2001 2000
---------- ---------- ----------
Gross sales $1,311,206 1,433,398 1,328,418
Cost of goods sold 1,257,959 1,380,472 1,264,169
---------- ---------- ----------
Gross profit $ 53,247 52,926 64,249
========== ========== ==========
(10) NOTES RECEIVABLE
Notes receivable as of January 31, 2002 and 2001 consist of the
following:
2002 2001
-------- --------
8% note, due $37,500 annually through
2004 (including interest) with the balance
due in 2005(a) $174,539 180,039
9% note, due $1,318 monthly through
November 20, 2014 (including interest)(b) -- 124,567
9% note, due $691 monthly through June 1,
2008 (including interest)(c) 40,479 44,943
10% note, due $1,592 monthly through
October 1, 2003 (including interest)(d) 30,554 --
10% note, due $1,090 monthly through
October 15, 2003 (including interest) 22,389 32,985
-------- --------
267,961 382,534
Less current portion 38,538 25,367
-------- --------
$229,423 357,167
======== ========
33
(a) Collateralized by land and improvements and equipment sold. In
the event of default, the property and equipment reverts back to
the Company. The gross amount of the outstanding note is
$395,000, which is offset by a deferred gain of $220,000. The
deferred gain will be recognized into income using the
installment method as payments are received.
(b) Collateralized by land, building and equipment sold. In February
2001, there was an agreement to terminate the real estate
contract. All assets reverted back to the Company. The land,
building and equipment were leased to an independent third party
in March 2001.
(c) Collateralized by land and buildings sold. In the even of
default, the property reverts back to the Company.
(d) Collateralized by the equipment sold. In the event of default,
the equipment reverts back to the Company.
Management believes that all notes receivable are fully collectable.
Therefore, no allowance is deemed to be required.
(11) MORTGAGES RECEIVABLE
Mortgages receivable as of January 31, 2002 consist of the following:
14% note, due $560 monthly through
November 1, 2004 (including interest) $ 44,789
14% note, due $1,243 monthly through
November 15, 2004 (including interest) 99,926
13% note, due $586 monthly through
December 20, 2006 (including interest) 50,000
12.5% note, due $1,134 monthly through
December 1, 2005 (including interest) 99,906
12% note, due $586 monthly through
January 18, 2007 (including interest) 50,000
---------
344,621
Less current portion 3,784
---------
$ 340,837
=========
All mortgages receivable are collateralized by land and buildings. In the
event of default, foreclosure would occur and the property would be sold
to pay the balance of the loans. The Company has first position on the
loans. No mortgages receivables existed as of January 31, 2001.
Management believes that all mortgages receivable are fully collectable.
Therefore, no allowance is deemed to be required.
34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On May 9, 2001, Bowlin Travel Centers, Inc. (the "COMPANY"), with the
approval of the Company's board of directors, dismissed KPMG, LLP ("KPMG") as
its independent accountants. As discussed below, the Company has engaged the
firm of Neff & Ricci LLP ("NEFF & RICCI") as its independent auditors for the
2002 Fiscal Year.
KPMG's reports on the Company's consolidated financial statements for
the past two years have not contained any adverse opinion or disclaimer of
opinion and have not been qualified or modified as to uncertainty, audit scope
or accounting principles. In addition, during the Company's two most recent
fiscal years and the subsequent interim periods preceding KPMG's dismissal,
there have not been any disagreements with KPMG on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which disagreements, if not resolved to the satisfaction of KPMG,
would have caused them to make a reference to the subject matter of the
disagreement in connection with their reports.
During the Company's two most recent fiscal years and subsequent
interim period preceding the dismissal of KPMG:
(i) KPMG did not advise the Company that the internal controls
necessary for the Company to develop reliable financial statements did not
exist;
(ii) KPMG did not advise the Company that information had come to
KPMG's attention that led them to no longer be able to rely on management's
representations, or that made them unwilling to be associated with the financial
statements prepared by management;
(iii) KPMG did not advise the Company of the need to expand
significantly the scope of their audit, or that information had come to their
attention during such period that, if further investigated, may (i) materially
impact the fairness or reliability of previously issued Reports of Independent
Auditors and the underlying consolidated financial statements, or the financial
statements issued or to be issued covering the fiscal period(s) subsequent to
the date of the most recent financial statements covered by an audit report, or
(ii) cause KPMG to be unwilling to rely on management's representations or be
associated with the Company's consolidated financial statements; and
(iv) KPMG did not advise the Company that information had come to their
attention that they had concluded materially impacted the fairness or
reliability of previously issued Reports of Independent Auditors and the
underlying consolidated financial statements, or the consolidated financial
statements issued or to be issued covering the fiscal period(s) subsequent to
the date of the most recent consolidated financial statements covered by an
audit report.
The Company provided KPMG with a copy of the foregoing disclosure, and
requested that KPMG furnish it with a letter addressed to the Securities and
Exchange Commission stating whether or not it agrees with such disclosure. The
Company filed as an Exhibit to the Form 8-K a copy of the letter from KPMG
required by Item 304 of Regulation S-K.
On May 9, 2001, the Company engaged Neff & Ricci as its independent
auditors. Prior to its engagement, the Company had not consulted with Neff &
Ricci with respect to:
(i) the application of accounting principles to a specified
transaction, either completed or proposed; or the type of audit opinion that
might be rendered on the Company's financial statements; or
35
(ii) any matter that was either the subject of a disagreement (as
defined in Item 304(a)(1)(iv) of Regulation S-K) or a reportable event (as
described in Item 304(a)(1)(v) of Regulation S-K) .
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information regarding the officers and
directors of Bowlin Travel CENTERS. A summary of the background and experience
of each of these individuals is set forth after the table.
NAME AGE POSITION
Michael L. Bowlin 59 Chairman of the Board, President and Chief
Executive Officer and Director
C. Christopher Bess 55 Executive Vice President, Chief Operating
Officer and Director
William J. McCabe 51 Senior Vice President -Management
Information Systems, Secretary, Treasurer
and Director
Nina J. Pratz 50 Chief Financial Officer
- -------------------
MICHAEL L. BOWLIN. Mr. Bowlin has served as Chairman of the Board and
Chief Executive Officer, President and as a Director of Bowlin Travel Centers
since August of 2000. Mr. Bowlin served as Chairman of the Board and Chief
Executive Officer of Bowlin Outdoor from 1991 through January of 2001, and as
President from 1983 through 1991. Mr. Bowlin had been employed by Bowlin Outdoor
since 1968. Mr. Bowlin holds a Bachelor's degree in Business Administration from
Arizona State University.
C. CHRISTOPHER BESS. Mr. Bess has served as Executive Vice President
and Chief Operating Officer, and as a Director, of Bowlin Travel Centers from
August of 2000 until his retirement in January 2002. Mr. Bess has served as a
member of Bowlin Travel Centers' Board of Directors from 1974 and continues to
serve on the Board of Directors. During his 30 years with Bowlin Travel Centers,
Mr. Bess also served in such capacities as Internal Auditor, Merchandiser for
Travel Center Operations, Travel Center Operations Manager and as Development
Manager. Mr. Bess is a certified public accountant and holds a Bachelor's degree
in Business Administration from the University of New Mexico.
WILLIAM J. MCCABE. Mr. McCabe has served as Senior Vice President,
Management Information Systems, Secretary, Treasurer and as a Director of Bowlin
Travel Centers since August of 2000. Mr. McCabe served as a member of the Board
of Directors of Bowlin from 1983 until August 1996. Prior to 1997, Mr. McCabe
served as Senior Vice President - Advertising Services from 1993, Vice President
of Outdoor Operations from 1988 and as Vice President of Accounting from 1984 to
1987. Mr. McCabe had been employed by Bowlin Travel Centers since 1976 in such
additional capacities as a Staff Accountant and Controller. Mr. McCabe holds a
Bachelor's degree in Business Administration from New Mexico State University.
NINA J. PRATZ. Ms. Pratz has served as the Company's Senior Vice
President - Chief Financial Officer since 1997 and Treasurer/Secretary since
1977. Prior to 1997, Ms. Pratz served as Chief Administrative Officer since
1988. In addition, Ms. Pratz has served as a member of the Company's Board of
Directors from 1976 until January 2001. Ms. Pratz holds a Bachelor's degree in
Business Administration from New Mexico State University.
36
ITEM 11. EXECUTIVE COMPENSATION
No employee or officer of Bowlin Travel Centers has entered into an
employment agreement with Bowlin Travel Centers, nor do we anticipate entering
into any employment agreements in the future.
The following table summarizes all compensation paid by Bowlin Travel
Centers, Inc. to its Chief Executive Officer and Chief Operating Officer for
services rendered to Bowlin Travel Centers, Inc. during the fiscal years ended
January 31, 2002, 2001 and 2000. The Company has no other executive officer
whose total annual salary and bonus paid to them by Bowlin Travel Centers, Inc.
exceeded $100,000. All information set forth in this table reflects compensation
earned by these individuals for services with Bowlin Travel Centers.
| LONG TERM |
|COMPENSATION |
ANNUAL COMPENSATION | AWARDS |
----------------------------- |------------ |
OTHER | SECURITIES |
ANNUAL | UNDERLYING | ALL OTHER
FISCAL SALARY BONUS COMPENSA- | OPTIONS/ | COMPENSA-
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($) TION ($) | SARS (#) | TION ($)
---------------------------- ------ -------- ----- ----------- | ----------- | ---------
Michael L. Bowlin 2002 116,300 -- 15,974 (2) | -- | --
Chairman of the Board, 2001 195,000 -- 17,304 (2) | -- | --
President, CEO & 2000 195,000 -- 17,779 (2) | -- | --
Director | |
| |
C. Christopher Bess 2002 84,008 -- 2,400 (3) | -- | --
Executive Vice President, 2001 145,000 -- 3,142 (3) | -- | --
COO & Director 2000 145,000 -- 4,143 (3) | -- | --
| |
----------------------------
(1) Includes amounts deferred at the election of the CEO and COO to be
contributed to his 401(k) Profit Sharing Plan account.
(2) Amount for 2002 includes (i) $2,216 of Bowlin Travel Centers discretionary
matching contributions allocated to Mr. Bowlin's 401(k) Profit Sharing Plan
account; (ii) $7,758 for premiums on term life, auto and disability
insurance policies of which Mr. Bowlin or his wife is the owner; and (iii)
$6,000 for Mr. Bowlin's car allowance. Amount for 2001 includes (i) $3,699
of Bowlin Travel Centers discretionary matching contributions allocated to
Mr. Bowlin's 401(k) Profit Sharing Plan account; (ii) $7,105 for premiums
on term life, auto and disability insurance policies of which Mr. Bowlin or
his wife is the owner; and (iii) $6,500 for Mr. Bowlin's use of a company
owned vehicle. Amount for 2000 includes (i) $1,950 of Bowlin's
discretionary matching contributions allocated to Mr. Bowlin's 401(k)
Profit Sharing Plan account; (ii) $11,506 for premiums on term life, auto
and disability insurance policies of which Mr. Bowlin or his wife is the
owner; and (iii) $4,323 for Mr. Bowlin's use of a company owned vehicle
(3) Amount for 2002 includes (i) $2,400 of Bowlin Travel Centers discretionary
matching contributions allocated to Mr. Bess' 401(k) Profit Sharing Plan
account. Amount for 2001 includes (i) $2,875 of Bowlin Travel Centers
discretionary matching contributions allocated to Mr. Bess' 401(k) Profit
Sharing Plan account; and (ii) $267 for premiums on term life, auto and
disability insurance policies of which Mr. Bess or his wife is the owner.
Amount for 2000 includes (i) $1,700 of Bowlin Travel Centers discretionary
37
matching contributions allocated to Mr. Bess' 401(k) Profit Sharing Plan
account; and (ii) $2,443 for premiums on term life, auto and disability
insurance policies of which Mr. Bess or his wife is the owner.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 31, 2002, there were 4,583,348 shares of Bowlin Outdoor
common stock outstanding. The following table sets forth the number of shares of
common stock beneficially owned by (i) all persons known by the Company to be
the beneficial owners of more than five percent of the outstanding shares of
common stock; (ii) each Director of the Company; (iii) the executive officers of
the Company; and (iv) all Directors and executive officers of the Company as a
group.
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(2) CLASS(3)
------------------------- ----------------------- ----------
Michael L. Bowlin (5)(1) 1,646,013 35.9%
C. Christopher Bess (6)(1) 368,623 8.0%
William J. McCabe(1) 64,548 1.4%
Nina J. Pratz(1) 116,802 2.5%
Monica A. Bowlin (7)(1) 1,646,013 35.9%
The Francis W. McClure and
Evelyn Hope McClure Revocable
Trust (8)(1) 371,695 8.1%
Jonathan Brooks(2) 535,200 11.7%
All directors and executive officers
as a group(4 persons)(5)(6)(7) 2,195,986 47.9%
-----------------------------------------
(1) Address is c/o Bowlin Travel Centers, Inc., 150 Louisiana NE, Albuquerque,
NM, 87108.
(2) Address is 1999 Avenue of the Stars, Suite 2040, Los Angeles, CA, 90067.
(3) Unless otherwise noted and subject to community property laws, where
applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of Common Stock as shown
beneficially owned by them.
(4) The shares and percentages shown include the shares of common stock
actually owned as of April 20, 2002.
(5) Includes 425,687 shares held by Mr. Bowlin's wife and 171,332 shares held
by each of three daughters. Mr. Bowlin disclaims beneficial ownership of an
aggregate of 513,996 of such shares, which are held by three of his
daughters.
(6) Includes 48,006 shares held by Mr. Bess' wife and 26,623 shares held by Mr.
Bess' minor daughter.
38
(7) Includes 706,330 shares held by Mrs. Bowlin's husband and 171,332 shares
held by each of her three daughters. Mrs. Bowlin disclaims beneficial
ownership of an aggregate of 513,996 of such shares, which are held by
three of her daughters.
(8) Francis W. McClure and Evelyn Hope McClure are the natural persons who
control The Francis W. McClure and Evelyn Hope McClure Revocable Trust.
Evelyn Hope McClure is the sister of Michael L. Bowlin, Chairman of the
Board, President and Chief Executive Officer of Bowlin Travel Centers.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
WHOLESALING TO RELATIVE OF OFFICER AND DIRECTOR AND STOCKHOLDER OF BOWLIN TRAVEL
CENTERS
Wholesale gasoline distribution sales 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. The sales
with the associated cost of goods and gross profit consist of the following at
January:
2002 2001 2000
----------- ----------- -----------
Gross sales $ 1,311,206 1,433,398 1,328,418
Cost of goods sold 1,257,959 1,380,472 1,264,169
----------- ----------- -----------
Gross profit $ 53,247 52,926 64,249
=========== =========== ===========
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
A current report on Form 8-K was filed on May 11, 2001, disclosing a
change in the Company's principal accountants.
INDEX TO EXHIBITS
EXHIBIT
3.1(1) Form of Certificate of Incorporation of Bowlin Travel Centers, Inc.
3.2(1) Bylaws of Bowlin Travel Centers, Inc.
10.1(1) Management Services Agreement, between Bowlin Outdoor Advertising
and Travel Centers Incorporated and Bowlin Travel Centers, dated August
1, 2000.
10.2(1) Distributor Franchise Agreement, dated as of July 19, 1995, between the
Registrant and CITGO Petroleum Corporation
39
10.3(1) Distributor Sales Agreement, dated as of April 1, 1999, between the
Registrant and Exxon Company, U.S.A. (a division of Exxon Corporation)
10.8(1) Lease, dated as of January 12, 1987, between Janet Prince and the
Registrant
10.9(1) Commercial Lease, dated as of September 21, 1996, between the State
of Arizona and the Registrant, as amended
10.10(1) Commercial Lease, dated as of March 16, 2000, between the New Mexico
Commissioner of Public Lands and the Registrant, as amended
10.12(1) Lease Agreement, dated as of June 23, 1989, between the Registrant
and Rex Kipp, Jr., as amended
10.13(1) Lease, dated as of September 29, 1983, between J.T. and Ida M. Turner
and the Registrant
10.14(1) Business Lease, dated as of October 1, 1996, between the Registrant
and the New Mexico Commission of Public Lands
10.15(1) Commercial Lease, dated as of September 21, 1996, between the
Registrant and the State of Arizona, as amended
10.19(1) "Dairy Queen" Operating Agreement, dated as of March 10, 1983, between
Interstate Dairy Queen Corporation and the Registrant d/b/a DQ/B of
Edgewood, NM, together with amendments and ancillary agreements
related thereto
10.20(1) "Dairy Queen" Operating Agreement, dated as of May 1, 1982, between
Interstate Dairy Queen Corporation and the Registrant d/b/a DQ/B of
Flying C, New Mexico, together with amendments and ancillary
agreements related thereto
10.21(1) "Dairy Queen" Store Operating Agreement, dated as of November 18, 1986,
between Dairy Queen of Southern Arizona, Inc. and the Registrant,
together with amendments and ancillary agreements related thereto
10.22(1) "Dairy Queen" Operating Agreement, dated as of September 1, 1982,
between Interstate Dairy Queen Corporation and the Registrant d/b/a DQ
of Bluewater, New Mexico, together with amendments and ancillary
agreements related thereto
10.23(1) "Dairy Queen" Store Operating Agreement, dated as of February 1, 1984,
between Dairy Queen of Arizona, Inc. and the Registrant, together with
amendments and ancillary agreements related thereto
10.25(1) "Dairy Queen" Operating Agreement, dated as of June 7, 1989, between
Interstate Dairy Queen Corporation and the Registrant d/b/a "DQ" at
Butterfield Station, together with amendments and ancillary agreements
related thereto
10.26(1) Letter of Agreement, dated as of March 1, 1987, between Stuckey's
Corporation and the Registrant confirming franchise of Benson, AZ
Stuckey's Pecan Shoppe
10.27(2) Franchise Agreement, dated as of July 7, 1982, between Stuckey's, Inc.
and the Registrant, together with a related Personal Guaranty and
Indemnity
10.28(2) Amended and Restated Master Loan Agreement with First Security Bank,
dated as of November 10, 2000, by and among the Registrant, Bowlin
Outdoor Advertising and Travel Centers Incorporated, and First
Security Bank.
10.29(1) Lease Agreement between Bowlin Outdoor Advertising and Travel Centers
Incorporated and the Registrant, dated August 1, 2000.
10.30(2) Contribution Agreement, dated as of November 1, 2000, by and between
the Registrant and Bowlin Outdoor Advertising and Travel Centers
Incorporated.
10.31(2) Tax Sharing and Disaffiliation Agreement, dated as of November 1, 2000,
by and between the Registrant and Bowlin Outdoor Advertising and
Travel Centers Incorporated.
(1) Incorporated by reference to the correspondingly numbered Exhibits in the
Registrant's Form 10, filed November 10, 2000.
(2) Incorporated by reference to the correspondingly numbered Exhibits in the
Registrant's Amendment No. 1 to the Form 10, filed December 8, 2000.
40
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 Travel Centers Inc
By: /s/ MICHAEL L. BOWLIN
-------------------------------------
Michael L. Bowlin, Chairman of the Board,
President and Chief Executive Officer
Date: April 26, 2002
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 26, 2002
----------------------------------------------
Michael L. Bowlin, Chairman of the Board,
President, CEO and Director (Principal
Executive Officer)
By: /s/ WILLIAM J. MCCABE April 26, 2002
----------------------------------------------
Senior Vice President, Management Information
Systems, Secretary, Treasurer and Director
By: /s/ NINA J. PRATZ April 26, 2002
-----------------------------------------------
Chief Financial Officer
By: /s/ C. CHRISTOPHER BESS April 26, 2002
-----------------------------------------------
C. Christopher Bess, Director
41