General and administrative expenses for continuing operations consist primarily 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, accounting, legal and investor relations fees. General and administrative expenses increased 1.5% to $1.849 million for the three months ended October 31, 2007, from $1.821 million for the three months ended October 31, 2006. The increase is due to increases in personnel related costs, general repair and maintenance that includes weed and trash clean up at the retail locations, donations, costs associated with the Company’s inventory bar-coding project and an increase in supplies partially offset by decreases in sign repair and maintenance, freight as a result of volume purchasing and decreases in overall insurance costs.
Depreciation and amortization expense for continuing operations increased 7.3% to $205,000 for the three months ended October 31, 2007, from $191,000 for the three months ended October 31, 2006. The increase is associated with certain asset additions for the three months ended October 31, 2007 offset by some assets becoming fully depreciated or disposed of.
The above factors contributed to an overall decrease in operating income from continuing operations of 361.4% to a loss of $183,000 for the three months ended October 31, 2007, compared to operating income from continuing operations of $70,000 for the three months ended October 31, 2006.
BOWLIN TRAVEL CENTERS, INC.
Non-operating income (expense) includes interest income, gains and losses from the sale of assets, rental income and interest expense. Interest income increased 114.8% to $58,000 for the three months ended October 31, 2007, compared to interest income of $27,000 for the three months ended October 31, 2006. The increase is due to better interest rates in the current period and additional certificates of deposit purchased by the Company from the proceeds of the sale of the Rio North facility. There was a gain from the sale of assets of $10,000 for the three months ended October 31, 2007 from $29,000 for the three months ended October 31, 2006. The gain of $10,000 for the three months ended October 31, 2007 is due to installment payments received related to notes receivable that include deferred gains of approximately $5,000 and a gain on the sale of property, fixtures and equipment located in Lordsburg, New Mexico to Don Juan Restaurant of approximately $5,000. The gain of $29,000 for the three months ended October 31, 2006 is due to the sale of vehicles and equipment of approximately $2,000 as well as installment payments received related to notes receivable that include deferred gains of approximately $27,000. Rental income was $38,000 for the three months ended October 31, 2007 compared to $44,000 for the three months ended October 31, 2006. Interest expense decreased 3.5% to $83,000 for the three months ended October 31, 2007, from $86,000 for the three months ended October 31, 2006. The decrease is primarily due to the Company’s change in terms agreements on September 29, 2006 with its primary lender that resulted in a lower interest rate.
Income (loss) from continuing operations before income taxes decreased 290.5% to a loss of $160,000 for the three months ended October 31, 2007, compared to income before income taxes of $84,000 for the three months ended October 31, 2006, primarily due to increases in discounts as a result of a 25% off sale on all merchandise in August 2007 and a gold jewelry sale that began before Mother’s Day and has continued through the year, an increase in cost of goods sold, and an increase in general and administrative expense. As a percentage of net revenues, the loss from continuing operations before income taxes was 2.4% for the three months ended October 31, 2007, compared income from continuing operations of 1.2% for the three months ended October 31, 2006.
Income tax benefit (expense) for continuing operations decreased 223.3% with an income tax benefit of $53,000 for the three months ended October 31, 2007, compared to income tax expense for continuing operations of $43,000 for the three months ended October 31, 2006. The decrease is a result of the loss from continuing operations before income taxes of $160,000 for the three months ended October 31, 2007 compared to income from continuing operations before income taxes of $84,000 for the three months ended October 31, 2006.
The foregoing factors contributed to a net loss from continuing operations of $107,000 for the three months ended October 31, 2007, compared to net income from continuing operations of $41,000 for the three months ended October 31, 2006.
Discontinued operations include the property, fixtures and equipment for the two retail locations that the Company has listed for sale as well as the retail location sold during the quarter ending October 31, 2007. There was a loss of $68,000 for discontinued operations for the three months ended October 31, 2007 compared to a loss of $84,000 for the three months ended October 31, 2006. There is an income tax benefit of $28,000 for the three months ended October 31, 2007, compared to an income tax benefit of $36,000 for the three months ended October 31, 2006. The net loss from discontinued operations for the three months ended October 31, 2007 is $40,000 compared to a net loss from discontinued operations for the three months ended October 31, 2006 of $48,000.
The foregoing factors contributed to a net loss for the three months ended October 31, 2007 of $147,000 compared to net loss of $7,000 for the three months ended October 31, 2006.
BOWLIN TRAVEL CENTERS, INC.
Comparison of the Nine Months Ended October 31, 2007 and October 31, 2006
Gross sales from continuing operations at the Company’s travel centers increased by 2.0% to $21.986 million for the nine months ended October 31, 2007, from $21.561 million for the nine months ended October 31, 2006. Merchandise sales from continuing operations increased 0.8% to $7.379 million for the nine months ended October 31, 2007, from $7.318 million for the nine months ended October 31, 2006. The increase is primarily due to increases in gold and moccasin sales offset by a decrease in general merchandise sales, fireworks and t-shirts sales. In addition, gas prices continue to have a negative impact on sales. Retail gasoline sales from continuing operations increased 4.0% to $7.998 million for the nine months ended October 31, 2007, from $7.690 million for the same period in 2006. The increase is due to an increase in the average retail price per gallon of $0.15 partially offset by a decrease in gallons sold of approximately 358,000 gallons and decreased highway traffic due to weather conditions during the first quarter of fiscal year 2008. The average gallon of gasoline retailed for $3.06 for the nine months ended October 31, 2007 compared to $2.91 for the nine months ended October 31, 2006. Restaurant sales from continuing operations increased 0.3% to $1.920 million for the nine months ended October 31, 2007, from $1.915 million for the nine months ended October 31, 2006. The increase is due increases in retail prices offset by increases in convenience store food sales at Picacho Peak Plaza that negatively affect restaurant sales, weather related conditions that slowed overall highway traffic during the first quarter of fiscal year 2008 as well as overall gas prices that continue to negatively affect sales. Wholesale gasoline sales to independent retailers increased 1.1% to $4.689 million for the nine months ended October 31, 2007, from $4.638 million for the nine months ended October 31, 2006. The increase is primarily due to market price increases partially offset by a decrease in fuel gallons purchased of approximately 129,000 gallons and one independent retailer present in the prior period.
Cost of goods sold for continuing operations increased 2.8% to $14.935 million for the nine months ended October 31, 2007, from $14.529 million for the nine months ended October 31, 2006. Merchandise cost of goods from continuing operations increased 3.3% to $2.594 million for the nine months ended October 31, 2007, from $2.511 million for the nine months ended October 31, 2006. The increase is primarily related to an adjustment in the prior period due to inventory variances related to the third quarter interim physical inventories at the Company’s retail locations and is offset by the decrease in sales due to the weather related conditions that slowed overall highway traffic during the first quarter of fiscal 2008. Retail gasoline cost of goods from continuing operations increased 3.7% to $7.123 million for the nine months ended October 31, 2007, from $6.866 million for the nine months ended October 31, 2006. The increase corresponds to increases in overall market prices during the period and is partially offset by a decrease in gallons sold and decreased highway traffic during the first quarter of fiscal 2008 due to weather conditions. Restaurant cost of goods from continuing operations increased 2.4% to $548,000 for the nine months ended October 31, 2007, from $535,000 for the nine months ended October 31, 2006. The increase is due to higher costs related to gasoline fuel surcharges. Wholesale gasoline cost of goods increased 1.1% to $4.670 million for the nine months ended October 31, 2007, from $4.618 million for the nine months ended October 31, 2006. The increase is primarily due to market price increases offset by a decrease in fuel gallons purchased due to on independent retailer present in the prior period. Cost of goods sold as a percentage of net revenues increased to 69.1% for the nine months ended October 31, 2007, as compared to 67.9% for the nine months ended October 31, 2006. The increase is primarily due to the increase in of overall market prices increases during the period partially offset by a decrease in fuel gallons purchased.
Gross profit from continuing operations decreased 2.9% to $6.673 million for the nine months ended October 31, 2007, from $6.871 million for the nine months ended October 31, 2006. The decrease is primarily due to an increase in discounts on sales as a result of a 25% off sale on all merchandise in August 2007 as well as a gold jewelry sale that started before Mother’s Day and has continued through the year, and a decrease in merchandise sales from continuing operations due to related to weather conditions that slowed overall highway traffic during the quarter ended April 30, 2007.
BOWLIN TRAVEL CENTERS, INC.
General and administrative expenses for continuing operations consist primarily 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, accounting, legal and investor relations fees. General and administrative expenses increased 5.8% to $5.756 million for the nine months ended October 31, 2007, from $5.440 million for the nine months ended October 31, 2006. The increase is due to increases in personnel related costs, general repair and maintenance that includes repair and maintenance related to overall weather conditions such as snow removal and wind damage as well as an increase in weed and trash clean up at the retail locations, donations, accounting costs related to Section 404 of Sarbanes-Oxley internal controls over financial reporting compliance, utilities also related to the unusual winter weather, and costs associated with the Company’s inventory bar-coding project partially offset by decreases in sign repair and maintenance as a result of the winter weather limiting the Company’s ability to travel to billboard locations and the loss of one of the Company’s sign repair contractor vendors, freight as a result of volume purchasing and decreases in overall insurance.
Depreciation and amortization expense for continuing operations increased 5.5% to $594,000 for the nine months ended October 31, 2007, from $563,000 for the nine months ended October 31, 2006. The increase is associated with certain asset additions offset by some assets becoming fully depreciated or disposed of.
The above factors contributed to an overall decrease in operating income from continuing operations of 62.8% to $323,000 for the nine months ended October 31, 2007, compared to operating income from continuing operations of $868,000 for the nine months ended October 31, 2006.
Non-operating income (expense) includes interest income, gains and losses from the sale of assets, rental income and interest expense. Interest income increased 107.8% to $133,000 for the nine months ended October 31, 2007, compared to interest income of $64,000 for the nine months ended October 31, 2006. The increase is due to better interest rates in the current period and additional certificates of deposit purchased by the Company from the proceeds of the sale of the Rio North facility. Gains from the sale of assets increased to $37,000 for the nine months ended October 31, 2007 from $35,000 for the nine months ended October 31, 2006. The gain of $37,000 for the nine months ended October 31, 2007 is due to installment payments received related to notes receivable that include deferred gains of approximately $37,000, an earnest deposit of $24,000 that was forfeited due to a purchase agreement closing date expiring, a gain of approximately $5,000 from the sale of property, fixtures and equipment located in Lordsburg, New Mexico to Don Juan Restaurant, partially offset by a write off of approximately $28,000 of impaired assets, and a loss of approximately $1,000 on the sale of equipment and two vehicles. The gain of $35,000 for the nine months ended October 31, 2006 is due to the sale of vehicles and equipment of approximately $3,000 as well as approximately $32,000 of installment payments received related to notes receivable that include deferred gains. Miscellaneous income of $2,000 for the nine months ended October 31, 2007 is due to a movie company using one of the Company’s land locations for filming. Miscellaneous income for the nine months ended October 31, 2006 is the sale of fill dirt to a construction company working in southern New Mexico. Rental income was $123,000 for the nine months ended October 31, 2007 compared to $132,000 for the nine months ended October 31, 2006. Interest expense increased 16.4% to $298,000 for the nine months ended October 31, 2007, from $256,000 for the nine months ended October 31, 2006. The increase is primarily due to fees related to the exchange of debt of approximately $62,000 (see Note 5 to the financial statements), partially offset by the Company’s change in terms agreements on September 29, 2006 with its primary lender that resulted in a lower interest rate.
Income from continuing operations before income taxes decreased 63.1% to $320,000 for the nine months ended October 31, 2007, compared to income before income taxes of $867,000 for the nine months ended October 31, 2006. As a percentage of net revenues, income before income taxes was 1.5% for the nine months ended October 31, 2007, compared to 4.1% for the nine months ended October 31, 2006.
BOWLIN TRAVEL CENTERS, INC.
Income tax expense for continuing operations decreased 62.0% to $133,000 for the nine months ended October 31, 2007, compared to income tax expense for continuing operations of $350,000 for the nine months ended October 31, 2006. The decrease is primarily a result of lower income from continuing operations before income taxes.
The foregoing factors contributed to income from continuing operations of $187,000 for the nine months ended October 31, 2007, compared to net income from continuing operations of $517,000 for the nine months ended October 31, 2006.
Discontinued operations include the property, fixtures and equipment for the two retail locations that the Company has listed for sale as well as the retail location sold during the nine months ending October 31, 2007. There was a loss of $270,000 for discontinued operations for the nine months ended October 31, 2007 compared to a loss of $242,000 for the nine months ended October 31, 2006. There is an income tax benefit of $107,000 for the nine months ended October 31, 2007 compared to an income tax benefit of $98,000 for the nine months ended October 31, 2006. The net loss from discontinued operations for the nine months ended October 31, 2007 is $163,000 compared to a net loss from discontinued operations for the nine months ended October 31, 2006 of $144,000.
Income from the disposal of discontinued operations, net of income tax expense of $549,000 for the nine months ended October 31, 2007, is due to the sale of property, fixtures and equipment on located 17 miles west of Albuquerque, New Mexico at the Rio Puerco exit. The gain on the sale of the property, fixtures and equipment of approximately $967,000 was reduced by the retirement of loan fees of approximately $69,000 that were related to this retail location due to the exchange of debt (see Note 5 to the financial statements) and is net of income tax expense of approximately $349,000.
The foregoing factors contributed to net income for the nine months ended October 31, 2007 of $573,000 compared to net income of $373,000 for the nine months ended October 31, 2006.
Liquidity and Capital Resources
At October 31, 2007, the Company had working capital of $7.147 million compared to working capital of $5.052 million at January 31, 2007 (“working capital” is the excess of total current assets over total current liabilities). At October 31, 2007, the Company had a current ratio of 5.1:1; compared to a current ratio of 3.7:1 as of January 31, 2007 (“current ratio” is the ratio of current assets to current liabilities). The increase in working capital is due to an increase in marketable securities of $1.747 million, an increase accounts receivable of $36,000, an increase in prepaid expenses of $39,000, an increase in interest receivable of $18,000, an increase in income tax assets of $297,000, a decrease in accrued liabilities of $175,000, and a decrease in deferred revenue of $20,000 partially offset by a decrease in cash of $107,000, a decrease in inventory of $69,000, and an increase in accounts payable of $59,000. The increase in marketable securities, which consist of twelve-month certificates of deposit, is due to $247,000 certificates with maturity dates greater than three months in the current period as well as the purchase of $1.500 million certificates. The increase in accounts receivable is due to timing of electronic fund transfers related to the Company’s wholesale gasoline sales. The increase in prepaid expenses is primarily due to an increase in prepaid insurance as June 1, 2007 was the renewal date partially offset by prepaid rent. The increase in interest receivable is primarily due to additional certificates of deposit. The increase in income tax assets is a result of deferred tax assets and liabilities recognized for future tax consequences attributable to differences between financial statement carrying amounts of existing current assets and liabilities and their respective tax bases. The decrease in accrued liabilities is due to decreases in accrued salaries and wages plus the payroll taxes related to discretionary bonuses were accrued through January 31, 2007 and paid during the current fiscal year partially offset by an increase accrued in property taxes that will be paid in December 2007. The decrease in deferred revenue is a result of outdoor advertising billboard revenue as the Company cancelled its contract with Clear Channel. The decrease in cash is primarily due to no certificates of deposit with less than three month maturities at the end of October 31, 2007. The decrease in inventory is primarily due to the sale of Rio North and the elimination of that inventory, as well as a decrease in inventory at the central warehouse, partially offset by an increase in gasoline inventory due to the increase in market prices. The increase in accounts payable is primarily due to timing of electronic fund transfers related to the Company’s wholesale gasoline sales
BOWLIN TRAVEL CENTERS, INC.
The Company’s travel center operations are subject to seasonal fluctuations. The first quarter of the fiscal year is typically the weakest. The second quarter is normally the Company’s strongest due to the summer being the Company’s peak season. The third quarter of the fiscal year is not as strong due to the end of summer. Throughout the Company’s fiscal year, revenues and earnings may experience substantial fluctuations from quarter to quarter. These fluctuations could result in periods of increased or decreased cash flow as well as increased or decreased net income.
Net cash provided by operating activities from continuing operations was $214,000 for the nine months ended October 31, 2007, compared to $1.086 million for the nine months ended October 31, 2006. Net cash provided by operating activities for the nine months ended October 31, 2007 is primarily attributable to net income of $573,000 adjusted for depreciation and amortization expense of $655,000, the increase in deferred income taxes of $298,000, changes in operating assets and liabilities, net, of $439,000, and the retirement of debt issuance costs (see Note 5 to the financial statements) of $132,000, partially offset by the gain on sale of assets of $1.004 million. Net cash provided by operating activities for the nine months ended October 31, 2006 was primarily attributable to net income of $373,000 adjusted for depreciation and amortization expense of $660,000 and changes in operating assets and liabilities, net, of $121,000 partially offset by a decrease in deferred income taxes of $45,000 and the gain on sales of assets of $35,000.
Net cash used in investing activities for the nine months ended October 31, 2007 was $117,000 primarily consisting of an increase in marketable securities of $1.727 million and $874,000 used for purchases of property and equipment partially offset by the proceeds from the sale of property and equipment and the sale of property, fixtures and equipment of $2.448 million and payments from notes receivable of $78,000. Net cash used in investing activities for the nine months ended October 31, 2006 was $577,000, primarily consisting of $602,000 used for purchases of property and equipment, notes receivable, net of $190,000 partially offset by the proceeds from the sale of property and equipment of $142,000 and a decrease in marketable securities of $81,000.
Net cash used by financing activities for the nine months ended October 31, 2007 was $204,000, which consisted of payments on long-term debt. For the nine months ended October 31, 2006, net cash used in financing activities was $339,000 that consisted of payments on long-term debt.
The Company’s business and cash flow from operations rely on revenues generated from the sale of gasoline. During the quarter ended October 31, 2007, retail gasoline sales from continuing operations accounted for approximately 37.0% of the Company’s net sales. To the extent that the availability of gasoline was restricted for any reasons, including due to storms, political issues, pipeline disruption, war, act or threats of terrorism in the United States or abroad, the Company’s gross sales would be affected, thereby reducing the amount of net cash that would be provided by operating activities. It is impossible to foresee or predict the exact economic effect on cash flows that any such restriction would have.
