Exhibit 99.1
BOWLIN OUTDOOR ADVERTISING & TRAVEL CENTERS INCORPORATED.
150 Louisiana N.E.
Albuquerque, New Mexico 87108
INFORMATION STATEMENT
Spin-off of Bowlin Travel Centers, Inc. through the distribution by
Bowlin Outdoor Advertising & Travel Centers Incorporated
of 4,583,348 shares of Bowlin Travel Centers
common stock to Bowlin Outdoor Advertising & Travel
Centers Incorporated common stockholders
This information statement is being furnished to the stockholders of Bowlin
Outdoor Advertising & Travel Centers Incorporated, a Nevada corporation ("Bowlin
Outdoor") because we are spinning off our recently formed Bowlin Travel Centers,
Inc. ("Bowlin Travel Centers") subsidiary to the holders of our common stock. We
are effecting this spin-off by distributing one share of Bowlin Travel Centers
common stock as a dividend on each outstanding share of Bowlin Outdoor common
stock, amounting to 4,583,348 shares of Bowlin Travel Centers common stock in
total.
On September 29, 2000, the Bowlin Outdoor board of directors determined
that it would be in the best interests of Bowlin Outdoor and its stockholders to
separate its travel centers and outdoor advertising segments in connection with
a proposed merger with Lamar Advertising Company ("Lamar"). Bowlin Outdoor
contributed its assets and liabilities related to its travel centers business
segment to Bowlin Travel Centers, which was formed on August 8, 2000. Bowlin
Travel Centers operates thirteen travel centers in rural and smaller
metropolitan areas of Arizona and New Mexico. Bowlin Travel Centers offers brand
name food, gasoline and a variety of unique Southwestern merchandise to the
traveling public.
On or about December 12, 2000, Bowlin Outdoor distributed a proxy
statement/prospectus to the stockholders of Bowlin Outdoor for a special meeting
to be held January 19, 2001 to consider the merger between Bowlin Outdoor and
Lamar. The dividend will be payable on or about January 30, 2001 to holders of
shares of Bowlin Outdoor common stock that are issued and outstanding as of the
close of business on January 20, 2001. Following this spin-off, Bowlin Outdoor
will not own any shares of Bowlin Travel Centers and Bowlin Travel Centers will
be a fully independent, public reporting company. No vote of Bowlin Outdoor
stockholders is required in connection with the Bowlin Travel Centers spin-off.
Therefore, you are not required to take any action. We are sending you this
information statement, which contains additional information about the terms of
the spin-off, Bowlin Travel Centers and Bowlin Travel Centers' common stock, for
your information only. If you would like more information, please call Investor
Relations at (505) 266-5985.
Neither the Securities and Exchange Commission ("SEC") nor any state
securities regulators have approved the Bowlin Travel Centers common stock to be
issued to you pursuant to this spin-off or determined if this information
statement is accurate or adequate. Any representation to the contrary is a
criminal offense.
The date of this information statement is January 17, 2001.
January 17, 2001
BOWLIN OUTDOOR ADVERTISING AND TRAVEL CENTERS INCORPORATED
Dear Bowlin Outdoor Advertising and Travel Centers Incorporated
Stockholder:
We are pleased to send you this information statement about our spin-off of
Bowlin Travel Centers, Inc. ("Bowlin Travel Centers"). The information statement
provides you with important information concerning:
* the U.S. federal income tax treatment of the Bowlin Travel Centers
shares you will receive,
* the number of shares you will receive,
* how fractional shares will be treated,
* the background and business of Bowlin Travel Centers, and
* how you can obtain additional information about these matters.
Thank you for your investment in Bowlin Outdoor.
Sincerely,
Michael L. Bowlin
President, Chief Executive Officer
and Chairman of the Board
Bowlin Outdoor Advertising & Travel
Centers Incorporated
150 Louisiana N.E.
Albuquerque, New Mexico 87108
INFORMATION ABOUT THE BOWLIN TRAVEL CENTERS, INC. SPIN-OFF
THE SPIN-OFF
In September of 2000, the board of directors of Bowlin Outdoor Advertising
& Travel Centers Incorporated ("Bowlin Outdoor") formally approved the spin-off
of Bowlin Travel Centers, Inc. ("Bowlin Travel Centers") to holders of Bowlin
Outdoor's common stock. To effect this spin-off, Bowlin Outdoor formed Bowlin
Travel Centers as a wholly owned subsidiary and contributed its assets and
liabilities related to Bowlin Outdoor's travel centers business segment to
Bowlin Travel Centers. The board of directors of Bowlin Outdoor declared a
dividend on Bowlin Outdoor common stock consisting of 4,583,348 shares of Bowlin
Travel Centers common stock owned by Bowlin Outdoor. These shares represent 100%
of the outstanding Bowlin Travel Centers common stock. The dividend will be paid
to holders of shares of Bowlin Outdoor common stock that are issued and
outstanding as of the close of business on January 20, 2001, in the amount of
one share of Bowlin Travel Centers common stock for each share outstanding of
Bowlin Outdoor common stock as described below.
You will not be required to pay any cash or other consideration for the
shares of Bowlin Travel Centers common stock distributed to you or to surrender
or exchange your shares of Bowlin Outdoor common stock to receive the dividend
of Bowlin Travel Centers common stock.
THE NUMBER OF SHARES YOU WILL RECEIVE
For each share of Bowlin Outdoor common stock that you owned at the close
of business on January 20, 2001, the record date, you will receive one share of
Bowlin Travel Centers common stock.
Please note if you sell your shares of Bowlin Outdoor common stock between
the record date and the distribution date, you will be selling your dividend
shares. Please see "Trading between the Record Date and Distribution Date"
below.
TRADING BETWEEN THE RECORD DATE AND DISTRIBUTION DATE
Between the record date and the distribution date, we expect that investors
will continue to buy and sell shares of Bowlin Outdoor. If you sell your shares
of Bowlin Outdoor common stock between the record date and the distribution
date, you will be selling your dividend shares. Sales of Bowlin Outdoor common
between January 20 and the distribution date will be sold "due bill", which
means that the shares sold include the shares of Bowlin Travel Centers. On
January 31, 2001, the Bowlin Outdoor common stock will trade ex-dividend and
should reflect a change in share price attributable to the value of the shares
of Bowlin Travel Centers. Shares that trade on the ex-dividend market will trade
without an entitlement to shares of Bowlin Travel Centers common stock
distributed pursuant to the spin-off. Therefore, if you owned shares of Bowlin
Outdoor common stock at the close of business on the record date, and sell those
shares on the market prior to January 30, 2001, the distribution date, you will
also be trading the shares of Bowlin Travel Centers common stock that would have
been distributed to you pursuant to the spin-off.
WHEN AND HOW YOU WILL RECEIVE THE DIVIDEND
We will pay the dividend on or about January 30, 2001 by releasing our
shares of Bowlin Travel Centers common stock to be distributed in the spin-off
to Wells Fargo, our transfer agent. As of the close of business on January 30,
2001 the transfer agent will cause the shares of Bowlin Travel Centers common
stock to which you are entitled to be registered in your name or in the "street
name" of your brokerage firm. Most Bowlin Outdoor stockholders have their Bowlin
Outdoor certificates held on account by a stock brokerage firm. In such cases,
the brokerage firm is the registered holder or "street name" and the physical
Bowlin Travel Centers certificates will be mailed to the brokerage firm. Your
broker will in turn electronically credit your account for the Bowlin Travel
Centers shares you are entitled to receive. We expect that this will take 3 to 8
business days after the distribution date. If you have questions in this regard,
we encourage you to contact your broker on the mechanics of having the Bowlin
Travel Centers shares posted to your account.
If you physically hold the Bowlin Outdoor stock certificates and are the
registered holder, the Bowlin Travel Centers certificates will be mailed
directly to you. You will receive stock certificates representing your ownership
of whole shares of Bowlin Travel Centers common stock from the transfer agent.
The transfer agent will begin mailing stock certificates representing your
ownership of whole shares of Bowlin Travel Centers common stock promptly after
the distribution date.
There are no fractional shares of Bowlin Outdoor outstanding. Therefore, no
fractional shares of Bowlin Travel Centers will be issued as part of the
distribution.
MATERIAL FEDERAL TAX CONSEQUENCES
The following summarizes the material United States federal income tax
consequences of the spin-off by Bowlin Outdoor of Bowlin Travel Centers. The
discussion that follows is based on and subject to the Internal Revenue Code of
1986, as amended (the "Code"), Treasury Regulations under the Code, existing
administrative interpretations and court decisions as of the date of this
information statement, all of which are subject to change (possibly with
retroactive effect) and all of which are subject to differing interpretation.
The following discussion does not address the effects of the spin-off under any
state, local or foreign tax laws.
The tax treatment of a Bowlin Outdoor stockholder may vary depending upon
the stockholder's particular situation, and some Bowlin Outdoor stockholders
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, persons who do not hold Bowlin Outdoor stock as
capital assets, employees of Bowlin Outdoor, and individuals who hold Bowlin
Outdoor stock as part of a straddle or conversion transaction) may be subject to
special rules not discussed below. YOU ARE URGED TO CONSULT YOUR TAX ADVISOR
WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE SPIN-OFF, INCLUDING THE
EFFECTS OF UNITED STATES FEDERAL, STATE AND LOCAL, AND FOREIGN AND OTHER TAX
RULES, AND THE EFFECT OF POSSIBLE CHANGES IN TAX LAWS.
Bowlin Outdoor has received an opinion ("tax opinion") from its tax
counsel, Squire, Sanders & Dempsey L.L.P., regarding the United States federal
income tax consequences of the spin-off, substantially to the effect that:
* No gain or loss will be recognized by (and no amount will be included
in the income of) the Bowlin Outdoor stockholders as a result of their
receipt of Bowlin Travel Centers stock in the spin-off;
* In connection with the spin-off, a stockholder's basis in Bowlin
Outdoor stock will be apportioned between the Bowlin Outdoor stock and
the Bowlin Travel Centers stock received in the spin-off in accordance
with their relative fair market values on the date of the spin-off;
* The holding period of the Bowlin Travel Centers stock received in the
spin-off will include the holding period of the Bowlin Outdoor stock
with respect to which the Bowlin Travel Centers stock will be
distributed, provided the Bowlin Outdoor stock is held as a capital
asset on the date of the spin-off; and
* Bowlin Outdoor will be taxed on gain (if any) in an amount equal to
the value of Bowlin Travel Centers on the date of the spin-off, less
Bowlin Outdoor's basis in the Bowlin Travel Centers stock immediately
before the spin-off.
The tax opinion is based on a number of assumptions, representations and
covenants, including the assumption that Lamar will acquire Bowlin Outdoor
subsequent to the spin-off pursuant to the Merger Agreement. The tax opinion
neither binds the IRS nor precludes the IRS from adopting a position contrary to
that expressed in the tax opinion. Bowlin Outdoor cannot assure you that
contrary positions will not be successfully asserted by the IRS or adopted by a
court if the issues are litigated. Bowlin Outdoor does not intend to obtain a
ruling from the IRS with respect to the tax consequences of the spin-off.
If the spin-off does not to qualify for tax-free treatment for United
States federal income tax purposes (other than by reason of an acquisition of
the type described in the following paragraph), the Bowlin Outdoor stockholders
would generally be liable for a very substantial tax. In general, a Bowlin
Outdoor stockholder would be treated as having received a distribution equal to
the fair market value of the Bowlin Travel Centers stock on the date of the
spin-off. The spin-off distribution would be taxed as ordinary dividend income
to the extent of Bowlin Outdoor's current and accumulated earnings and profits.
Thereafter, the distribution would decrease (but not below zero) a Bowlin
2
Outdoor stockholder's tax basis in his or her Bowlin Outdoor stock and the
balance of the distribution would be taxed as gain from the sale or exchange of
Bowlin Outdoor stock.
As addressed in the fourth bullet point above, the anticipated acquisition
of Bowlin Outdoor by Lamar following the spin-off will cause the spin-off to be
taxable, for federal income tax purposes, to Bowlin Outdoor (but not its
stockholders). More specifically, Bowlin Outdoor will be required to pay tax on
gain (if any) equal to the value of Bowlin Travel Centers stock on the date of
the spin-off, less Bowlin Outdoor's basis in the Bowlin Travel Centers stock
immediately before the spin-off. Bowlin Outdoor and Bowlin Travel Centers have
agreed to base the value of Bowlin Travel Centers on the first-day trading price
of Bowlin Travel Centers stock. Therefore, the amount of this gain and any
consequent taxes will not be determined until the time of the spin-off.
Depending on the value of Bowlin Travel Centers as of the spin-off, the amount
of these taxes could be substantial. In addition, it is possible that the IRS
may successfully challenge any valuation of Bowlin Travel Centers for this
purpose and thereby assess additional taxes, interest and possibly impose
penalties. Under the Tax Sharing and Disaffiliation Agreement between Bowlin
Outdoor and Bowlin Travel Centers, Bowlin Travel Centers has agreed to indemnify
Bowlin Outdoor for all of these taxes, interest and penalties.
Under United States federal income tax laws, Bowlin Outdoor and Bowlin
Travel Centers are jointly and severally liable for Bowlin Outdoor's federal
income taxes resulting from the spin-off. As summarized below under "Certain
Relationships and Related Party Transactions -- Tax Sharing and Disaffiliation
Agreement," arrangements will exist between Bowlin Outdoor and Bowlin Travel
Centers relating to tax sharing and other tax matters, including indemnification
by Bowlin Travel Centers of Bowlin Outdoor with respect to the tax from the
spin-off as described above.
United States Treasury Regulations require each Bowlin Outdoor stockholder
to attach to such stockholder's United States federal income tax return for the
year of the spin-off a detailed statement setting forth data as may be
appropriate in order to show the applicability of Section 355 of the Code to the
spin-off. Within a reasonable time after the spin-off, Bowlin Travel Centers
will provide stockholders with the information necessary to comply with these
requirements, and will provide information regarding the allocation of the tax
basis as described in the third bullet point above in this section. ALL BOWLIN
OUTDOOR STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE SPIN-OFF TO THEM, INCLUDING THE APPLICATION
OF STATE, LOCAL AND FOREIGN TAX LAWS AND ANY CHANGES IN UNITED STATES FEDERAL
INCOME TAX LAW THAT MAY OCCUR AFTER THE DATE OF THIS INFORMATION STATEMENT.
3
INFORMATION ABOUT BOWLIN TRAVEL CENTERS
The following information is about Bowlin Travel Centers, Inc. Throughout
the remainder of this information statement, we use the words "we", "us", "our"
and similar words to mean Bowlin Travel Centers, Inc., as the context requires.
COMPANY OVERVIEW
We operate travel centers dedicated to serving the traveling public in rural and
smaller metropolitan areas of the Southwestern United States. Our 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. We began
operating travel centers as a corporation in 1953 and we currently operate
thirteen full-service travel centers along interstate highways in Arizona and
New Mexico. We advertise our travel centers through a network of approximately
300 outdoor advertising display faces. Our travel centers offer brand name food,
gasoline and a variety of unique Southwestern merchandise to the traveling
public.
Prior to August 8, 2000 our travel centers were owned and operated as a business
segment of Bowlin Outdoor Advertising and Travel Centers Incorporated ("Bowlin
Outdoor "). Bowlin Outdoor operated two business segments; travel centers and
outdoor advertising. Bowlin Outdoor common stock is traded on the American Stock
Exchange. Bowlin Outdoor is a public reporting company. You may read and copy
any materials that Bowlin Outdoor files with the Commission at its Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may also
obtain information about Bowlin Outdoor by calling the Commission at
1-800-SEC-0330. The Commission maintains an Internet site (http://www.sec.gov)
that contains reports, proxy and information statements, and other information
regarding issuers that electronically file reports with the Commission,
including reports proxy and information statements, and other information filed
by Bowlin Outdoor
Bowlin Travel Centers, Inc. ("Bowlin Travel Centers") was formed on August 8,
2000, as a wholly owned subsidiary of 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. See Item 7, "Certain Relationships
and Related Transactions".
RECENT DEVELOPMENTS
MERGER BETWEEN BOWLIN OUTDOOR AND LAMAR ADVERTISING COMPANY
On October 3, 2000, Bowlin Outdoor entered into an Agreement and Plan of Merger
with Lamar Advertising Company, pursuant to which, Bowlin Outdoor plans to merge
its outdoor advertising business with Lamar. The merger is subject to
stockholder approval and the satisfaction of various other closing conditions.
Bowlin Outdoor and Lamar each filed for pre-approval of the merger with the
Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act.
The waiting period for this HSR filing expired on November 17, 2000, without
comment from the Federal Trade Commission. Bowlin Outdoor formed Bowlin Travel
Centers in anticipation of a distribution of the shares of Bowlin Travel Centers
to the stockholders of Bowlin Outdoor. Bowlin Outdoor has called a special
meeting of its stockholders to approve the merger agreement on January 19, 2001.
Lamar and Bowlin Outdoor jointly filed a proxy/registration statement on Form
S-4 and delivered the proxy/registration statement to stockholders of Bowlin
Outdoor on or about December 15, 2000. If approved by the stockholders of Bowlin
Outdoor and Lamar, and both parties have satisfied all conditions precedent to
consummating the merger, we expect that the merger will be consummated on
January 31, 2001.
In the merger, Lamar Southwest Acquisition Corporation, a specially formed,
wholly owned subsidiary of Lamar, will merge with and into Bowlin Outdoor.
Bowlin Outdoor will be the surviving corporation and will continue to exist
under Nevada law as a wholly owned subsidiary of Lamar. The Articles of
Incorporation of Bowlin Outdoor, as in effect immediately before the merger,
will be the Articles of Incorporation of the Surviving Corporation. The by-laws
of the specially formed, wholly owned subsidiary, as in effect immediately
before the merger, will be the by-laws of the surviving company.
4
The merger will be effective upon the filing of articles of merger with the
Nevada Secretary of State, or a later time that is specified in the articles of
merger. We anticipate that, if approved by the stockholders of Bowlin Outdoor,
the articles of merger would be filed on January 31, 2001.
At the effective time of the merger, each share of Bowlin Outdoor stock will be
converted into the right to receive Lamar stock equal to the product of (A) one
share of Lamar stock and (B) the quotient of (x) 725,000, divided by (y) the
total number of shares of Bowlin Outdoor common stock issued and outstanding.
Cash will be paid for any fractional shares. In no event will Lamar issue more
than 725,000 shares of Lamar stock for the outstanding shares of Bowlin Outdoor
stock. The exchange formula was agreed to in arm's-length negotiations between
representatives of Lamar and Bowlin Outdoor. If the stockholders of Bowlin
Outdoor approve the merger agreement, and the merger is consummated, each
outstanding share of Bowlin Outdoor common stock would be converted into the
right to receive 0.15818 shares of Lamar common stock.
Because of the spin-off of Bowlin Travel Centers, Lamar will not acquire Bowlin
Travel Centers in the merger. Bowlin Outdoor holds 4,583,348 shares of Bowlin
Travel Centers. As of January 20, 2001, there were 4,583,348 shares of Bowlin
Outdoor common stock outstanding. There are no options, warrants or rights to
purchase Bowlin Outdoor common stock outstanding.
As of January 12, 2001, the closing price of a share of Lamar common stock, as
reported on the Nasdaq, was $44.00. As of January 12, 2001, the closing price of
a share of Bowlin Outdoor, as reported on the AMEX, was $7.50.
AGREEMENTS BETWEEN BOWLIN OUTDOOR AND BOWLIN TRAVEL CENTERS
Bowlin Outdoor has entered into several agreements with Bowlin Travel Centers
that may survive the merger with Lamar. They have entered into a Contribution
Agreement, Tax and Disaffiliation Agreement, Management Services Agreement, and
a Lease Agreement. These agreements are discussed under Certain Relationships
and Related Transactions.
RECENT CLOSING AND SALE OF TWO TRAVEL CENTERS
Prior to October of 2000, we operated fifteen travel centers. On October 20,
2000, we closed one of our travel centers, and on November 27, 2000, we sold one
of our travel centers.
On October 20, 2000, we closed one of our travel centers located near Deming,
New Mexico. All inventory and most equipment, furniture and fixtures on hand at
the time the travel center was closed were distributed to our other travel
centers. We expect to record an estimated impairment loss from the abandonment
of the travel center of $28,000 in October 2000 for the carrying amount of the
buildings and improvements, including an estimate of the costs to remove the
building from the leased land. In the fiscal years ended January 31, 2000 and
1999, this travel center generated total revenues of approximately $494,000 and
$496,000, respectively. For the same periods, the travel center had income
before taxes of $23,300 and $9,600, respectively. For the eight-month period
ended September 30, 2000 (unaudited), this travel center generated approximately
$244,000 in revenues with a net loss of $48,200 for that same period. Sales from
this travel center for the fiscal years ended January 31, 2000 and 1999
accounted for approximately 1.8% and 2.1% of our total revenues, respectively.
On November 27, 2000, we sold our travel center located in Rio Puerco, New
Mexico. Proceeds from the sale were $600,000 and we expect to record a gain on
the sale of approximately $150,000 in November 2000. In the fiscal years ended
January 31, 2000 and 1999, this travel center generated total revenues of $1.394
million and $1.135 million, respectively. For the same periods, the travel
center had income before taxes of $34,100 and a net loss before taxes of
$90,700, respectively. For the eight-month period ended September 30, 2000
(unaudited), this travel center generated approximately $637,000 in revenues
with a net loss of $1,438 for that same period. Sales from this travel center
for the fiscal years ended January 31, 2000 and 1999 accounted for 5.1% and 4.8%
of our total revenues, respectively.
We believe that the closing and sale of these two travel centers will allow us
to focus our resources on our remaining thirteen travel centers. We believe that
the loss of these two travel centers will not have a material adverse affect on
our overall financial condition.
5
INDUSTRY OVERVIEW
The travel services industry in which we compete includes convenience stores
that may or may not offer gasoline, and fast food and full-service restaurants
located along rural interstate highways. We believe that the current trend in
the travel services industry is toward strategic pairings of complementary
products that are noncompetitive at a single location, 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
Our 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.
Our 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 our travel centers offer food and
beverages, ranging from drinks and snack foods at some locations to full-service
restaurants at others. Our food service operations at six of the thirteen travel
centers operate under the Dairy Queen/Brazier or Dairy Queen trade names. Two of
our travel centers operate under the Stuckey's brand name. The Stuckey's
specialty stores are family oriented shops that feature the Stuckey's line of
pecan confectioneries. Stuckey's is well known among travelers as a place to
shop for souvenirs, gifts, and toys and travel games for children.
Our travel centers offer brand name gasoline such as CITGO, EXXON, and Diamond
Shamrock. We are an authorized distributor of CITGO and EXXON petroleum
products. Two of our locations are EXXON stations and eight are CITGO stations.
Our billboard advertising for our 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 our 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.
GROWTH STRATEGY
TRAVEL CENTERS.
* We are committed to expanding our travel center operations through internal
development.
* We believe that the co-branding concept implemented at our travel centers
has resulted in increased revenues, and we intend to pursue opportunities
to acquire rights to additional brand name products.
* We intend to continue to offer high quality brand name food and products in
a clean, safe environment designed to appeal to travelers on interstate
highways.
* We intend 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 our
travel center outlets.
GASOLINE WHOLESALING. We have been wholesaling gasoline since 1997. Since 1997,
our revenues from wholesaling gasoline has accounted for an average of
approximately 5% of our gross revenues. Other than purchasing gas for retail
6
sales through our travel centers, we currently wholesale gasoline to only two
customers. We intend to maintain our current level of gasoline wholesaling and
do not anticipate expanding or actively marketing our wholesaling business. See
"Business Operations - Gasoline Wholesaling".
BUSINESS OPERATIONS
TRAVEL CENTERS
We sell food, gasoline and merchandise through our travel centers located along
interstate highways I-10, I-40, and US 70, 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
our travel centers are open every day of the year except Christmas.
Each of our travel centers maintains a distinct, theme-oriented atmosphere. In
addition to Southwestern merchandise, we also import some 650 items from Mexico,
including handmade blankets, earthen pottery and wood items. Additional goods,
novelties and imprinted merchandise are imported from several Pacific Rim
countries. We have long-standing relationships with many of our vendors and
suppliers. While we have no formal agreements with any of our vendors and
suppliers of Southwestern merchandise and items from Mexico, we believe that
there are adequate resources outside of those that we regularly use so that we
could continue to provide these items even if we were unable to use our regular
sources.
We sell food under the Dairy Queen and Dairy Queen/Brazier brand names and sell
snacks and souvenir merchandise under the Stuckey's brand name. The terms of our
agreements with Stuckey's and Dairy Queen obligate us to pay these franchisers a
franchise royalty and in some instances a promotion fee, each equal to a
percentage of gross sales revenues from products sold, as well as to comply with
certain provisions governing the operation of the franchised stores. We are
obligated to pay Dairy Queen 4% of our sales of their products, and we are
obligated to pay Stuckey's 1% of our sales of their products.
We currently operate six Dairy Queens at our travel centers. We have individual
franchise agreements for each Dairy Queen operated at our travel centers. None
of these agreements are exclusive nor do they prevent us from entering into
agreements with other food franchisors. Several of the agreements have different
termination provisions and are effective for different terms. Under four of our
Dairy Queen agreements, the term continues until we elect to terminate it with
60 days prior written notice, or if we 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. We may not terminate either of
these agreements unless we give 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 us that we are in breach of the agreement and we do not cure that
breach within 14 days of that notice.
We currently operate Stuckey's franchises at two of our travel centers:
Edgewood, New Mexico, and Benson, Arizona. The franchise agreement for our
Stuckey's location in Edgewood was entered into on July 7, 1982. This agreement
had an initial term of ten years and is renewable for additional five-year terms
at our option. The current term of this agreement, if not extended or terminated
before, will end on July 7, 2002. We entered into a letter agreement on March 1,
1987 for our Stuckey's location in Benson, Arizona. Under its terms, we may
cancel this agreement at any time with ninety days prior written notice.
Stuckey's may cancel this agreement with 12 months prior written notice, or if
we are in non-compliance with the agreement. The current term of this agreement,
if not extended or terminated before, will end on March 1, 2002. Neither of
these agreements is exclusive nor do they prevent us from entering into
agreements with other food franchisors
We continuously monitor and upgrade our travel center facilities to maintain a
high level of comfort, quality and appearance. Improvements include new awnings
and facings, new signage and enhanced lighting, furnishings and parking lot
improvements.
7
We are an authorized CITGO and EXXON distributor. We sell CITGO gasoline at
seven of our travel centers, and EXXON gasoline at three of our travel centers.
At two of our travel centers we sell Chevron and Shamrock gasoline, and at one
of our travel centers we sell unbranded gasoline.
The fact that we are an authorized CITGO and EXXON distributor has significance
in our industry. As licensed distributors for CITGO and EXXON, we purchase
gasoline directly from CITGO and EXXON as direct marketers and at the lowest
wholesale prices they offer. Prior to becoming a licensed distributor, we
purchased our gasoline through other distributors, paying a distributor's markup
price. This required us to negotiate and enter into agreements with other
distributors to try to purchase our gasoline at the lowest possible price. The
CITGO and EXXON distribution agreement allows us to streamline our gasoline
supply arrangements and take advantage of volume-driven pricing by consolidating
purchases from these suppliers.
The CITGO distribution agreement had an initial three-year term that expired
September 30, 1998, and automatically renewed for a three-year term through
2001. The EXXON distribution agreement has a three-year term that expires March
31, 2001. CITGO's and EXXON's ability to terminate or refuse to renew the
agreement with us 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 us, or termination by CITGO or EXXON of its petroleum marketing
activities in our 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.
Our agreements with CITGO and EXXON do not prohibit us from entering into
similar arrangements with other petroleum companies. The terms of the
distribution agreements require us to purchase certain monthly minimum
quantities of gasoline during the term of the agreement, which includes gasoline
purchased for sale at our travel centers. The amount of gasoline we are required
to purchase ranges from a low of 50,000 gallons to a high of 275,000 gallons per
month. We determine the amount of gasoline we will purchase under the agreements
based on what we believe our need will be for gasoline, including seasonal
demands. We make these determinations based on historical sales and our own
internal forecasts. Since the effective date of the CITGO distribution
agreement, our purchases of CITGO products have exceeded the required minimum
quantities. Since the effective date of the EXXON agreement, we have 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, we are 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
We currently wholesale gasoline to only two customers. Over the past four years,
wholesaling of gasoline has accounted for, on average, approximately 5% of our
overall revenues. We intend to maintain our current level of gasoline
wholesaling and do not anticipate expanding or actively marketing our
wholesaling business. Below is a table that shows the revenues generated from
gasoline wholesaling, our total revenues for the periods reflected, and the
percentage total of our overall revenues attributable to gasoline wholesaling.
Gasoline wholesaling revenues as a percentage of Gross Revenues (unaudited)
REVENUE PERCENTAGE OF GROSS
FISCAL YEAR ENDED FROM GASOLINE REVENUES ATTRIBUTABLE
JANUARY 31, GROSS REVENUES WHOLESALING TO GASOLINE WHOLESALING
----------- -------------- ----------- -----------------------
1997 $21,692,000 -0- -0-
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
We do 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 97%.
8
COMPETITION
We face competition at our travel centers from quick-service and full-service
restaurants, convenience stores, and 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 we compete 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. Our 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 we do. Although we face substantial competition, we believe that few of our
competitors offer the same breadth of products and services dedicated to the
traveling public.
EMPLOYEES
As of September 1, 2000, Bowlin Travel Centers had approximately 174 full-time
and 48 part-time employees; 48 were located in Arizona, and 174 were located in
New Mexico. None of Bowlin Travel Centers' employees are covered by a collective
bargaining agreement and we believe that relations with our employees are good.
REGULATION
In our operations, we are subject to regulation for dispensing gasoline,
maintaining mobile homes, dispensing food, sales of fireworks, sales of cactus,
operating our outdoor advertising signs, waste disposal and air quality control.
We also must maintain registration of our company vehicles, general business
licenses and corporate licenses.
Each of our food service operations is subject to licensing and regulation by a
number of governmental authorities relating to health, safety, cleanliness and
food handling. Our food service operations are also subject to Federal and state
laws governing such matters as working conditions, overtime, tip credits and
minimum wages. We believe that operations at our 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 our operating costs.
Our travel center operations are also subject to extensive laws and regulations
governing the sale of tobacco, and in our 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 our travel centers as a result of such
changes.
Nearly all licenses and registrations are subject to renewal each year. We are
not aware of any reason we would be unable to renew any of our licenses and
registrations. We estimate that the total cost we spend on an annual basis for
all of our licenses and registrations is less than $25,000.
Historically, we have 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 our gasoline
dispensing operations. Between 1995 and 1999, in compliance with Federally
mandated rules, we completed removal of all of our underground storage tanks and
replaced them with above ground storage tanks at all but one of our sites. The
underground storage tanks at the other site were replaced with fiberglass tanks
and a monitoring system, also in compliance with Federally mandated rules. The
total cost of this conversion was approximately $1,000,000. We have also spent
approximately $365,000 cleaning the sites of our underground storage tanks. Of
this amount, the State government has reimbursed approximately $119,000 to us
and approximately $155,000 is not reimbursable. In general, in cleaning up a
previous underground storage tank site we are responsible for the first $10,000
in costs to clean up each site. The remaining costs are generally reimbursable
by the State.
9
We anticipate the regulating agencies will develop regulations for above ground
storage of fuel and anticipate that because of our expenditures and compliance,
our ongoing costs for compliance should not be material. Over the next 12
months, we anticipate spending less than $100,000 to complete any remaining
clean up from our underground storage tank sites. Of this amount, all but
approximately $20,000 should be reimbursable. We do not anticipate any other
material costs for regulatory compliance during the next 12 months.
Trademarks
We operate our travel centers under a number of our own trademarks such as The
Thing, Trails West and Butterfield Station and Bowlin's Running Indian, as well
as certain trademarks owned by third parties and licensed to us, such as the
Dairy Queen, Dairy Queen/Brazier, Stuckey's, CITGO and EXXON trademarks. Our
right to use the trademarks Dairy Queen, Dairy Queen/Brazier, Stuckey's, CITGO
and EXXON are derived from the agreements we have entered into with these
companies, and these rights expire when those agreements expire or are
terminated. We have a Federal trademark for "BOWLIN" that is effective through
2008. All other rights to trade names that we use in our operations are
protected through common law or state rights granted through a registration
process. We believe that our trademark rights will not materially limit
competition with our travel centers. We also believe that, other than our
Federal trademark for "BOWLIN", none of the trademarks we own are material to
our 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 October 27, 2008
Trademark Office
The Thing Arizona November 2, 2000*
Trails West New Mexico July 29, 2004
Butterfield Station New Mexico September 18, 1999*
Bowlin's Running Indian New Mexico April 16, 2004
* We intend to apply for renewal of these trade names with the Secretary of
State of the State of New Mexico. We are not aware of any reason why our
renewal requests would not be granted.
10
SELECTED FINANCIAL DATA
The selected data presented below under the captions "Selected Statement of
Income Data" and "Selected Balance Sheet Data" for, and as of the end of, each
of the years in the three-year period ended January 31, 2000, are derived from
the audited financial statements of Bowlin Travel Centers. The financial
statements as of January 31, 2000, and 1999, and for each of the years in the
three-year period ended January 31, 2000, and the report thereon, are included
elsewhere in this Form 10.
The selected data presented below under the captions "Selected Statement of
Income Data" and "Selected Balance Sheet Data" for, and as of the end of the
fiscal year ended January 31, 1996 and 1995, and for, and as of the six months
ended July 31, 2000, and 1999, are derived from the unaudited financial
statements of Bowlin Travel Centers. In the opinion of management, the following
unaudited data reflect all adjustments, consisting of normal recurring
adjustments, necessary to fairly present the Company's financial position and
results of operations for the periods presented in accordance with generally
accepted accounting principles.
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 reflected in the following selected financial data, 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.
BOWLIN TRAVEL CENTERS, INC.
SIX-MONTHS ENDED
JULY 31,* YEARS ENDED JANUARY 31,*
--------------------------- --------------------------------------------------------------
2000 1999 2000 1999 1998 1997 1996
------------ ---------- ---------- ---------- ---------- ---------- ----------
Selected Statement of
Income Data:
Net sales $ 14,551,182 13,890,701 26,855,781 23,519,909 22,303,645 21,388,899 20,174,971
============ ============ ========== ========== ========== ========== ==========
Net income $ 353,680 389,589 487,366 253,672 596,123 672,729 183,222
============ ============ ========== ========== ========== ========== ==========
Pro forma basic and diluted
earnings per share** $ 0.08 0.09 0.11
============ ============ ==========
Selected Balance Sheet Data
(at end of period)
Total Assets $ 17,149,348 $ 15,133 16,990,676 16,163,671 12,045,789 11,501,644 8,958,046
============ ============ ========== ========== ========== ========== ==========
Long Term debt including
current installments $ 6,451,052 $ 6,787,080 6,723,555 6,769,025 3,068,374 3,186,357 3,626,115
============ ============ ========== ========== ========== ========== ==========
- ----------
* The company did not operate independently during any of the fiscal periods
shown.
** The pro forma earnings per share amounts are based on the 4,390,098 shares
of Bowlin Outdoor outstanding at September 1, 2000, and assumes a
one-to-one distribution of Bowlin Travel Centers stock.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following is a discussion of the financial condition and results of
operations of Bowlin Travel Centers as of and for the three fiscal years ended
January 31, 2000, 1999 and 1998 as of and for the six-month periods ended July
31, 2000 and 1999. This discussion should be read in conjunction with the
financial statements of the company and the related notes included elsewhere in
this Form 10. References to specific years refer to Bowlin Travel Centers'
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, which reflect
management's best judgment based on factors currently known, involve risks and
uncertainties. Actual results could differ materially from those anticipated in
these forward-looking statements as a result of a number of factors, including
but not limited to, those discussed.
SIX-MONTH PERIOD ENDED JULY 31, 2000 COMPARED TO SIX-MONTH PERIOD ENDED JULY 31,
1999
Gross sales increased by 4.8% to $14.753 million for the six months ended
July 31, 2000, from $14.072 million for the six months ended July 31, 1999.
Merchandise sales increased 1.1% to $5.257 million for the six months ended July
31, 2000, from $5.200 million for the six months ended July 31, 1999. Continued
improvements in our distribution center resulted in a better mix of merchandise
as well as an increased turn on inventory.
Gasoline sales increased 8.6% to $7.114 million for the six months ended
July 31, 2000, from $6.551 million for the same period in 1999. Wholesale
gasoline sales increased 16.2% to $945,000 for the six months ended July 31,
2000, from $813,000 for the six months ended July 31, 1999. These increases are
attributable to increases in gasoline prices for the six months ended July 31,
2000, compared to July 31, 1999.
Restaurant sales decreased 4.7% to $1.437 million for the six months ended
July 31, 2000, from $1.508 million for the six months ended July 31, 1999. The
decrease is attributable to decreases in traffic due to higher gasoline prices
for the six months ended July 31, 2000.
Cost of goods sold increased 7.3% to $10.171 million for the six months
ended July 31, 2000, from $9.475 million for the six months ended July 31, 1999.
Merchandise cost of goods increased 0.5% to $2.350 million for the six months
ended July 31, 2000, from $2.338 million for the six months ended July 31, 1999.
The increase is attributable to an overall increase in sales.
Gasoline cost of goods increased 10.4% to $6.520 millions for the six
months ended July 31, 2000, from $5.905 million for the six months ended July
31, 1999. Wholesale gasoline cost of goods increased 17.1% to $917,000 for the
six months ended July 31, 2000, from $783,000 for the six months ended July 31,
1999. These increases are due to higher gasoline prices in the current period.
Restaurant cost of goods decreased 14.5% to $384,000 for the six months
ended July 31, 2000, from $449,000 for the six months ended July 31, 1999. The
decrease is primarily due to a decline in sales as well as improved control of
inventory.
Cost of goods sold as a percentage of gross revenues for the six months
ended July 31, 2000 was 68.9% compared to 67.3% for the six months ended July
31, 1999.
Gross profit slightly decreased 0.8% to $4.380 million for the six months
ended July 31, 2000, from $4.416 million for the six months ended July 31, 1999.
Lower margins on convenience store product sales and gasoline sales for the six
months ended July 31, 2000 continued to negatively impact gross profit.
General and administrative expenses 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, accounting, legal and investor
relations fees. General and administrative expenses decreased 3.3% to $3.402
million for the six months ended July 31, 2000, from $3.519 million for the six
12
months ended July 31, 1999. The decrease is primarily attributable to decreases
in compensation and benefits at the travel center locations.
Depreciation and amortization expense increased 6.2% to $377,000 for the
six months ended July 31, 2000, from $355,000 for the six months ended July 31,
1999.
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 decreased to $103,000 during the six months
ended July 31, 2000 from $104,000 during the six months ended July 31, 1999.
Bowlin Travel Centers and Bowlin Outdoor have entered into a management services
agreement, however, Bowlin Outdoor may discontinue such cost sharing in future
periods. See "Certain Relationships and Related Party Transactions".
The above factors contributed to an overall increase in operating income of
9.3% to $705,000 for the six months ended July 31, 2000, from $645,000 for the
six months ended July 31, 1999.
EBITDA (earnings before interest, taxes, depreciation and amortization) is
defined as operating income before depreciation and amortization. It represents
a measure which management believes is customarily used to evaluate financial
performance. However, EBITDA is not a measure of financial performance under
generally accepted accounting principles and should not be considered an
alternative to operating income or net income as an indicator of the Company's
operating performance or to net cash provided by operating activities as a
measure of its liquidity.
EBITDA for travel centers increased 8.1% to $1.081 million for the six
months ended July 31, 2000, from $1.000 million for the six months ended July
31, 1999. The EBITDA margin for travel centers increased to 7.3% for the six
months ended July 31, 2000, compared to 7.1% for the six months ended July 31,
1999.
Interest expense increased 8.5% to $318,000 for the six months ended July
31, 2000, from $293,000 for the six months ended July 31, 1999. The increase is
primarily due to the debt on the new travel center facility that opened in
February 1999.
Other income, net, includes gains and/or losses from the sales of assets
and interest income. Other income, net, decreased to $189,000 for the six months
ended July 31, 2000, from $282,000 for the six months ended July 31, 1999. The
decrease is primarily due to a one-time gain of $227,000 from insurance proceeds
in fiscal year 2000 not present in fiscal year 2001 partially offset by gains on
sales of assets in fiscal 2001.
Income before income taxes decreased 9.2% to $575,000 for the six months
ended July 31, 2000, from $633,000 for the six months ended July 31, 1999. As a
percentage of gross revenues, income before income taxes decreased to 3.9% for
the six months ended July 31, 2000, from 4.5% for the six months ended July 31,
1999.
Income taxes were $221,000 for the six months ended July 31, 2000, compared
to $244,000 for the six months ended July 31, 1999, as the result of lower
pretax income.
The foregoing factors contributed to a decrease in net income for the six
months ended July 31, 2000 to $354,000 compared to $390,000 for the six months
ended July 31, 1999.
FISCAL YEAR ENDED JANUARY 31, 2000 (FISCAL 2000) COMPARED TO FISCAL YEAR ENDED
JANUARY 31, 1999 (FISCAL 1999)
Gross sales at our travel centers increased 14.4% to $27.242 million for
fiscal 2000 from $23.803 million for fiscal 1999. This increase is primarily
attributable to the new travel center completed in February 1999 located
approximately 20 miles west of Albuquerque on Interstate 40. The new travel
center contributed gross sales of $1.790 million for fiscal year 2000.
Merchandise sales increased 21.6% to $9.783 million for fiscal year 2000 from
$8.043 million for fiscal year 1999, with the new travel center contributing
$631,000 of merchandise sales. Gasoline sales increased 11.2% to $13.035 million
for fiscal year 2000 from $11.720 million for fiscal year 1999 with the new
travel center contributing $1.159 million of gasoline sales. Restaurant sales
decreased 2.1% to $2.752 million for fiscal 2000 from $2.811 million for fiscal
1999.
Wholesale gasoline sales increased 36.0% to $1.672 million for fiscal year
2000 as compared to $1.229 million for fiscal year 1999. The increase is
attributable to an additional wholesale location. In February 1999 we began
13
wholesaling gasoline to a gasoline retailer in Deming, New Mexico. Prior to
that, we were wholesaling gasoline only to a Stuckey's travel center location
owned by a family relative of Michael Bowlin, the Chief Executive Officer of
Bowlin Outdoor and Bowlin Travel Centers. See "Certain Relationships and Related
Party Transactions."
Cost of goods sold for the travel centers increased 18.0% to $18.660
million for fiscal 2000 from $15.818 million for fiscal 1999. This increase is
primarily a result of the new travel center, which contributed $1.395 million to
cost of goods, of which $353,000 was merchandise and $1.042 million was
gasoline. The new travel center accounted for approximately one-half of the cost
of goods sold increase for fiscal year 2000. The remaining cost of goods sold
increase for fiscal year 2000 was attributable to an overall increase in sales
not attributable to the new travel center, of approximately $1.649 million. Cost
of goods sold as a percentage of gross revenues for fiscal year 2000 was 68.5%
compared to 66.5% for fiscal year 1999.
Gross profit for the travel centers increased 6.4% to $8.196 million for
fiscal year 2000 from $7.702 million for the fiscal year 1999. 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 extraordinarily high
gasoline prices, negatively 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 1999. General and administrative expenses for the travel centers
increased 8.9% to $7.129 million for fiscal year 2000, from $6.546 for fiscal
year 1999. The increase is primarily due to general and administrative expenses
attributable to the new travel center and, to a lesser extent, increases in
travel center rents and sign repairs.
For fiscal year 2000, the Company's President and its Chief Operating
Officer increased their annual base salaries to $195,000 and $145,000
respectively, as provided for in their respective employment agreements
effective February 1, 1997. Each of the agreements has a perpetual five-year
term, such that on any given date, each agreement has a five-year remaining
term. Upon consummation of the proposed merger with Lamar Advertising Company,
the President and Chief Operating Officer of Bowlin Outdoor will each resign
their positions with Bowlin Outdoor and continue to be the President and Chief
Operating Officer of Bowlin Travel Centers. However, the employment agreements
to which each was a party will terminate upon effectiveness of the proposed
merger with Lamar Advertising Company and Bowlin Travel Centers will not execute
new employment agreements.
Depreciation and amortization expenses increased by 0.3% to $719,000 for
fiscal year 2000 from $717,000 for fiscal year 1999.
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 10.7% to $207,000 during fiscal 2000
from $187,000 during fiscal 1999. Bowlin Travel Centers and Bowlin Outdoor have
entered into a management services agreement, however, Bowlin Outdoor may
discontinue such cost sharing in future periods. See "Certain Relationships and
Related Party Transactions".
The above factors contributed to a decrease in travel centers operating
income of 7.6% to $586,000 for fiscal year 2000, as compared to $634,000 for
fiscal year 1999.
EBITDA for travel centers decreased to $1.305 million for fiscal year 2000,
as compared to $1.350 million for fiscal year 1999. The EBITDA margin for travel
centers decreased to 4.8% for fiscal 2000, as compared to 5.7% for fiscal 1999.
Interest expense increased 92.3% to $598,000 for fiscal 2000, from $311,000
for fiscal 1999. The increase is primarily attributable to the increase in debt
associated with the company's new travel center as well as updates to existing
travel centers.
Non-operating income, net, includes gains and/or losses from the sale of
assets, interest income, and a casualty gain from insurance coverage.
Non-operating income, net, increased to $808,000 in fiscal 2000 as compared to
$93,000 in fiscal 1999, primarily due to a one-time gain from insurance proceeds
of $712,000. Excluding the one-time gain from insurance proceeds, non-operating
income, net, increased to $96,000 in fiscal 2000, compared to $93,000 in fiscal
1999.
14
Income before income taxes increased 91.3% to $796,000 for fiscal 2000,
from $416,000 for fiscal 1999. As a percentage of gross revenues, income before
income taxes increased to 2.9% for fiscal year 2000, from 1.7% for fiscal 1999
primarily as a result of the gain from insurance proceeds, partially offset by
increased depreciation, amortization and interest expense.
Income taxes were $309,000 for fiscal 2000 compared to $162,000 for fiscal
year 1999, as a result of higher pre-tax income. The effective tax rate for
fiscal year 2000 was 38.8% as compared to 38.9% for fiscal year 1999.
The foregoing factors contributed to the company's increase in net income
for fiscal 2000 to $487,000, compared to $254,000 for fiscal 1999.
FISCAL YEAR ENDED JANUARY 31, 1999 (FISCAL 1999) COMPARED TO FISCAL YEAR ENDED
JANUARY 31, 1998 (FISCAL 1998)
Gross sales at our travel centers increased 5.4% to $23.803 million for
fiscal 1999, from $22.584 million for fiscal 1998. Merchandise sales increased
14.2% to $8.043 million for fiscal 1999, from $7.045 million for fiscal 1998.
Gasoline sales increased 0.7% to $11.720 million for fiscal year 1999, from
$11.641 million for fiscal year 1998. Restaurant sales decreased 5.7% to $2.811
million for fiscal 1999, from $2.981 million for fiscal 1998. Wholesale gasoline
sales increased 34.0% to $1.229 million for fiscal 1999, as compared to $917,000
for fiscal 1998. Delays in opening the new travel center until February 1999
negatively impacted revenues.
Cost of goods sold for the travel centers increased 5.2% to $15.818 million for
fiscal 1999, from $15.042 million for fiscal 1998. As a percentage of gross
sales, cost of goods sold decreased slightly to 66.5% from 66.6% for the
respective fiscal periods.
Gross profit for the travel centers increased 6.1% to $7.702 million for fiscal
1999, from $7.261 million for fiscal 1998. During the fourth quarter of fiscal
year 1999, travel center revenues were negatively impacted by the lowest
gasoline prices in a decade and a corresponding reduction in gross profit. In
general, our gasoline markup is based on percentages. Therefore, even though the
prices at which we purchased gasoline were comparatively low, it resulted in
lower gross profits from sales of gasoline. Also, during the period of lower gas
prices, many gasoline retailers decreased their prices, which resulted in
greater competitive pressures for all gasoline providers to do the same. This
further reduced our ability to profit from the lower price environment.
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 for fiscal 1999. General and administrative expenses for the travel
centers increased 10.5% to $6.546 million for fiscal 1999, from $5.925 million
for fiscal 1998. Increases in general and administration are due in part to
increases in middle management personnel.
For fiscal year 1999, the President and Chief Operating Officer of Bowlin
Outdoor elected to accept annual base salaries of $145,000 and $90,000,
respectively, which are less than the $195,000 and $145,000 salaries provided
for in their respective employment agreements effective February 1, 1997. Each
of the agreements has a perpetual five-year term, such that on any given date,
each agreement has a five-year remaining term. Upon consummation of the proposed
merger with Lamar Advertising Company, the President and Chief Operating Officer
of Bowlin Outdoor will each resign their positions with Bowlin Outdoor and
continue to be the President and Chief Operating Officer of Bowlin Travel
Centers. However, the employment agreements to which each was a party will
terminate upon effectiveness of the proposed merger with Lamar Advertising
Company and Bowlin Travel Centers will not execute new employment agreements.
Depreciation and amortization expenses increased by 53.5% to $717,000 for
fiscal 1999, from $467,000 for fiscal 1998. The increase is primarily
attributable to capital expenditures for gasoline tanks and equipment for
federal mandates as well as image upgrades for branded fuel. As authorized
distributors of CITGO and EXXON, in order to remain in compliance with our
distributor agreements with each, we periodically must upgrade our CITGO and
15
EXXON related equipment, signage and related brand identified items. We are
required to do this in order to protect and preserve the image that both CITGO
and EXXON have built in the gasoline market.
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 1.6% to $187,000 during fiscal 1999
from $184,000 during fiscal 1998. Bowlin Travel Centers and Bowlin Outdoor have
entered into a management services agreement, however, Bowlin Outdoor may
discontinue such cost sharing in future periods. See "Certain Relationships and
Related Party Transactions".
The above factors contributed to a decrease in travel centers operating
income of 41.7% to $634,000 for fiscal 1999, compared to $1.088 million for
fiscal year 1998.
EBITDA for travel centers decreased by 13.2% to $1.350 million for fiscal
1999, compared to $1.555 million for fiscal 1998. The EBITDA margin for travel
centers decreased to 5.7% for fiscal 1999, compared to 6.9% for fiscal 1998.
Interest expense increased 15.6% to $311,000 for fiscal year 1999 from
$269,000 for fiscal 1998. The increase is a result of borrowings to fund the
continued conversion of travel centers to CITGO and EXXON branding.
Non-operating income, net decreased to $93,000 in fiscal 1999 from $150,000
or 38.0%. This decrease was due to fewer gains on the sale of assets.
Income before income taxes decreased 57.1% to $416,000 for fiscal year
1999, from $969,000 for fiscal 1998. As a percentage of gross revenues, income
before income taxes decreased to 1.7% for the fiscal year ended 1999 from 4.3%
for the same fiscal period 1998 primarily as a result of increased depreciation
and interest expense partially offset by a decrease in non-operating income,
net.
Income taxes were $162,000 for fiscal 1999, compared to $373,000 for fiscal
1998, as a result of lower pre-tax income. The effective tax rate for fiscal
1999 was 38.9% as compared to 38.5% for fiscal 1998.
The foregoing factors contributed to the company's decrease in net income
for fiscal 1999 to $254,000, compared to $596,000 for fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
JULY 31, 2000
At July 31, 2000, the company had working capital of $4.050 million
compared to working capital of $3.687 million at January 31, 2000, and $4.646
million at January 31, 1999. At July 31, 2000, the company had a current ratio
of 2.9:1 compared to a current ratio of 2.8:1 at January 31, 2000 and 3.3:1 at
January 31, 1999 ("current ratio" is the ratio of current assets to current
liabilities). The increase in working capital and the current ratio between
January 31, 2000 and July 31, 2000 are primarily attributable to increases in
cash of $664,000, offset by decreases in accounts receivable of $300,000. The
decrease in working capital and the current ratio between January 31, 1999 and
January 31, 2000 are primarily attributable to decreases in cash of $403,000,
accounts receivable of $93,000 and inventory of $155,000, a decrease in income
taxes receivable of $224,000 and a decrease in current installments of long term
debt of $11,000.
The net cash provided by operating activities was $931,000 for the
six-month period ended July 31, 2000, compared to $1.612 million for the
six-month period ended July 31, 1999. Net cash provided by operating activities
was $1.422 million and $230,000 for the fiscal years ended January 31, 2000 and
1999, respectively. During fiscal 2000, there were increases in deferred income
taxes of $362,900. Deferred income taxes increased primarily as a result of
book-tax timing differences on depreciation of assets placed in service in
fiscal 1999 and 2000.
Net cash provided by investing activities was $4,700 for the six-month
period ended July 31, 2000, compared to net cash used of $1.106 million for the
six-month period ended July 31, 1999. The increase was due primarily to
purchases of property and equipment of $205,000 for the six-month period ended
July 31, 2000, compared to $1.724 million during the six-month period ended July
31, 1999. Increases in property and equipment were offset by proceeds from the
16
sale of assets of $202,000 in the six-month period ended July 31, 2000, compared
to proceeds of $16,000 in the six-month period ended July 31, 1999, as well as
$599,000 in insurance proceeds received during the six-month period ended July
31, 1999. Net cash used in investing activities decreased to $1.779 million in
fiscal 2000 from $2.029 million in fiscal 1999. The decrease was due primarily
to receipt of insurance proceeds of $1.087 million in fiscal 2000 not present in
fiscal 1999, as well as proceeds from the sale of certain assets of $139,000 in
fiscal 2000 compared to proceeds of $13,000 in fiscal 1999. Purchases of
property and equipment were $2.909 million in fiscal 2000, compared to $2.061
million in fiscal 1999. The insurance proceeds we received were for a loss
caused by a fire at our headquarters during November 1998. The building has been
repaired and the proceeds received from the insurance loss were based on our
costs to repair the damage. See "Notes to Financial Statements - Note 2".
Net cash used by financing activities was $273,000 for the six-month period
ended July 31, 2000 compared to net cash provided of $18,000 in the six-month
period ended July 31, 1999. The decrease was due primarily to a decrease in net
borrowings of $250,000, and an increase in payments on long-term debt of
$41,000, in the six-month period ended July 31, 2000 compared to the six-month
period ended July 31, 1999. Net cash used by financing activities was $45,000 in
fiscal 2000 compared to net cash provided of $3.406 million in fiscal 1999. The
change was primarily due to a decrease in proceeds from borrowings of $3.536
million in fiscal 2000, as well as payments for debt issuance costs totaling
$295,000 in fiscal 1999 not present in fiscal 2000. New debt in fiscal 2000 was
a result of continued renovations and upgrades at the company's travel centers
As of July 31, 2000, the company was indebted to various banks and
individuals in an aggregate principal amount of approximately $6.451 million
under various loans and promissory notes, compared to $6.724 as of January 31,
2000. 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 7.75 % to 10% per annum. Our total monthly payments on our
outstanding long-term debt obligations are approximately $87,000.
Approximately $5.3 million of the approximately $6.5 million in loans and
promissory notes outstanding as of July 31, 2000, was borrowed under the Master
Loan Agreement dated as of November 10, 2000, by and among us, Bowlin Outdoor
and First Security Bank. Under this master loan agreement, Bowlin Outdoor and
Bowlin Travel Centers cross-collateralize their assets and property as security
interests against both of their obligations under the agreement. Under this
arrangement, the assets and property of Bowlin Travel Centers secure the
obligations of Bowlin Travel Centers and Bowlin Outdoor, and vice versa.
However, upon distribution of the Bowlin Travel Centers shares to the
stockholders of Bowlin Outdoor, First Security Bank has agreed to release its
security interests in and to any of the assets and property of Bowlin Travel
Centers as security against any obligations of Bowlin Outdoor under the
agreement. Lamar has indicated that upon consummation of the merger with Bowlin
Outdoor, it intends to completely pay off any outstanding obligations of Bowlin
Outdoor under the agreement. We anticipate that upon distribution of the shares
of Bowlin Travel Centers by Bowlin Outdoor, only our assets and property will
secure our obligations under the master loan agreement, and only the assets and
property of Bowlin Outdoor will secure the obligations of Bowlin Outdoor. See
Item 7 - Certain Relationships and Related Transactions, MASTER LOAN AGREEMENT.
Under the Master Loan Agreement, we must:
* comply with all material laws, rules, regulations and orders;
* pay and discharge all taxes, assessments and governmental charges or
levies imposed upon us or our property before they become delinquent,
so long as it is not being contested;
* maintain insurance with responsible and reputable insurance companies
or associations in amounts covering such risks as are acceptable to
First Security Bank;
* preserve and maintain our corporate existence, rights, franchises and
privileges in the jurisdiction or our incorporation, and qualify and
remain qualified in each jurisdiction in which such qualification is
necessary or desirable in view of our business and operations or
ownership of our properties;
17
* maintain and preserve in good working order, save ordinary wear and
tear, all of our properties that are used or useful in the conduct of
our business; and
* perform and observe all of the terms and provisions of all other
loans, debts and obligations.
Under the Master Loan Agreement, we must also maintain, individually, and
on a consolidated basis with Bowlin Outdoor, each of the following minimum
financial ratios, calculated quarterly from our fiscal quarter audited
statements with income and expense items annualized:
* debt coverage ratio of 1.15 to 1.0;
* interest coverage ratio of 1.5 to 1.0;
* net worth of company must increase by at least 50% of net profit on an
annual basis; and
* tangible leverage ratio of not more than 3.5 to 1.0;
For purposes of calculating these ratios, the following definitions and formulas
apply:
"earnings" means earnings before interest, taxes, depreciation and
amortization;
"interest coverage ratio" means earnings divided by (Interest expense (+)
taxes);
"debt coverage ratio" means earnings divided by (prior year current
maturities of long term debt (+) interest expense (+) taxes); and
"tangible leverage ratio" means total liabilities / tangible net worth.
Tangible net worth is defined as the sum of (capital stock, paid in capital
and returned earnings) less the sum of goodwill or other intangible assets.
Beginning May 1, 2001, and annually thereafter, if the merger transaction
between Bowlin Outdoor and Lamar has not been consummated, and we are continuing
to operate jointly with Bowlin Outdoor under the Master Loan Agreement, we will
be obligated to pay additional principal payments of up to a maximum amount of
$400,000 per year, based on our "excess cash flow". Excess cash flow means 50%
of the excess EBITDA above the 1.3 to 1.0 debt service coverage ratio calculated
as of the fiscal year-end. The May 1, 2001 additional debt service payment will
be calculated based on our fiscal year ending January 31, 2001. However, upon
closing of the proposed merger transaction with Lamar, and payment of the
outstanding Bowlin Outdoor notes, this obligation terminates. Lamar has
indicated that upon closing of the proposed merger transaction, it intends to
pay off all outstanding Bowlin Outdoor notes under the Master Loan Agreement
Also, during the term of the Master Loan Agreement, we may not, except with
First Security Bank's prior written consent:
* merge with another entity (excluding the proposed merger between
Bowlin Outdoor and Lamar);
* sell, pledge or dispose of all or substantially all of our assets;
* invest in another entity in excess of $500,000; |X| materially change
our business operations;
* make any non-GAPP required or recommend changes in our accounting
methods;
* incur, assume or otherwise become obligated on loans, borrowings,
debts, leases, or other financing with any person or entity in an
amount exceeding the aggregate of $500,000 per fiscal year and the
aggregate maximum amount of $1,000,000 (not including amounts due to
18
vendors for fuels, supplies, materials, labor, and similar day to day
operating expenses incurred in the ordinary course of the travel
center and outdoor advertising business);
* incur any indebtedness or other obligations to any lender to finance
the acquisition of any outdoor advertising business or billboards; or
* incur any indebtedness or other obligations to the owner or seller of
any single or related group of outdoor advertising assets or
businesses to finance the purchase of such assets (seller financing)
in excess of $500,000 and in no event in excess of the aggregate
maximum amount of $1,000,000 for all such types of indebtedness.
Under the Master Loan Agreement if Michael L. Bowlin or Chris Bess or both of
them is, for any reason, no longer able to perform their present full time
duties for Bowlin Outdoor prior to the consummation of the proposed merger
transaction with Lamar, other than because of their death or incapacity, First
Security Bank has the option, upon 30 days written notice, to declare all sums
due and owing under the notes, and all other obligations of Bowlin Travel
Centers and Bowlin Outdoor under the Master Loan Agreement, immediately due and
payable in full.
19
The following table shows our long-term debt obligations as of July 31,
2000:
JULY 31,
2000
-----------
Due bank, maturity November 2005, variable interest $ 2,570,493
(8.50% at January 31, 2000), monthly
installments of $34,347, secured by buildings
and equipment
Due bank, maturity October 2013, variable interest
(8.50% at January 31, 2000), monthly
installments of $9,860, secured by land and
buildings 925,698
Due bank, maturity October 2013, variable interest
(8.50% at January 31, 2000), monthly
installments of $6,329, secured by land and
buildings 547,151
Due bank, maturity January 2005, variable interest
at index rate (8.00% at January 31, 2000),
monthly installments of $4,818 secured by
buildings and equipment 460,011
Due bank, maturity May 2005, variable interest at
index rate plus .5 (8.50% at January 31, 2000),
monthly installments of $8,614, secured by
buildings and equipment 713,923
Due banks and other financing companies, with
maturity dates ranging from 2000 to 2013. Most
bear interest at adjustable rate of 7.75% with
certain fixed rate notes at 8.9%. Monthly
payments totaling $19,188. Secured by land,
buildings, equipment, and inventories 1,114,104
Due individuals, various payment schedules with
maturity dates in 2003, including interest
ranging from 8.00% to 10.00%. Monthly payments
totaling $3,818. Secured by land and buildings 119,672
-----------
6,451,052
Less current maturities 482,926
-----------
$ 5,968,126
===========
The table below shows our future maturities of long-term debt for the years
indicated ending January 31.
2001 $ 491,701
2002 528,349
2003 554,293
2004 524,976
2005 476,743
Thereafter 4,147,493
-----------
Total $ 6,723,555
===========
See "Notes to Financial Statements - Footnote 4".
We have forecasted approximately $300,000 for capital commitments for
fiscal year 2001. We expect to use current working capital and cash flows from
operations to fund these commitments and do not anticipate obtaining any outside
sources for these commitments.
We are unaware of any trends or demands, commitments or uncertainties that
will result or are reasonably likely to result in our liquidity increasing or
decreasing in any material way over the next 12 months. We can borrow up to $1.3
million under our credit facility with First Security Bank. (See "Certain
Relationships and Related Party Transactions" for a summary of our Master Loan
20
Agreement, by and among First Security Bank, Bowlin Outdoor and Bowlin Travel
Centers). We believe that our working capital and the cash flow generated from
our current operations will be sufficient to fund our operations over the next
12 months without borrowing any additional funds under our credit facility.
While we are not currently a party to any agreements to acquire any additional
travel centers, nor do we have plans to build any additional travel centers in
the near term, if we were to acquire or construct any additional travel centers
we would likely have to obtain additional financing to do so, either under our
current credit facility or through other means. We could not predict with any
certainty what the terms of such financing might be.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of July 31, 2000, approximately $5.750 million of the company's total
indebtedness accrued 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. We do not, however,
believe that any risk inherent in the variable rate nature of our debt is likely
to have a material effect on our financial position, results of operations or
liquidity.
We have not entered into any market risk sensitive instruments for trading
purposes. Further, we do not currently have any derivative instruments
outstanding and have no plans to use any form of derivative instruments to
manage our business in the foreseeable future.
21
RISK FACTORS
We do not provide forecasts of potential future financial performance.
While our management is optimistic about long-term prospects, the following
issues and uncertainties, among others, should be considered in evaluating our
growth outlook.
This information statement contains forward-looking statements that involve
risks and uncertainties. You should not rely on these forward-looking
statements. We use words such as "anticipate," "believe," "plan," "expect,"
"future," "intend" and similar expressions to identify such forward-looking
statements. This information statement 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 statements. Our actual results could differ materially
from those anticipated in the forward-looking statements for many reasons,
including the risks faced by us described below and elsewhere in this
information statement.
THERE IS NO TRADING MARKET FOR OUR SHARES OF COMMON STOCK AND THERE MIGHT NEVER
BE ONE, AND IF A TRADING MARKET DOES DEVELOP OUR SHARES OF COMMON STOCK WILL
LIKELY BE SUBJECT TO SIGNIFICANT PRICE VOLATILITY AND AN ILLIQUID MARKET.
We are not applying to any exchange to list our shares of common stock. We
anticipate that one or more potential Market Makers might apply to quote prices
for, and trade in, our shares of common stock on the OTC Bulletin Board.
However, there can be no assurance that if accepted by the OTC Bulletin Board,
that a market will ever result. Even if our shares begin trading on the OTC
Bulletin Board, or through any other market or system, the market price of the
common stock could also be subject to significant fluctuations in response to
such factors as variations in our anticipated or actual results of operations or
of other companies engaged in similar businesses, changes in conditions
affecting the economy generally, analyst reports, general trends in the industry
or changes in the stock markets generally. It is likely that any market in our
common shares that develops will be very illiquid making it difficult to buy or
sell our shares.
OUR HISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF OUR
RESULTS AS A SEPARATE COMPANY.
The historical financial information we have included in this information
statement may not reflect what our results of operations, financial position and
cash flows would have been had we been a separate, stand-alone entity during the
periods presented or what our results of operations, financial position and cash
flows will be in the future. This is because:
* we have made adjustments and allocations, primarily with respect to
corporate-level expenses and administrative functions, because Bowlin
Outdoor did not account for us as, and we were not operating as, a
separate stand-alone business for all periods presented; and
the information does not reflect changes that may occur in the future as a
result of our separation from Bowlin Outdoor
For additional information, see "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
WE MIGHT INCUR GREATER COSTS AND EXPENSES IN PROPORTION TO OUR REVENUES
OPERATING AS A STAND-ALONE ENTITY THAT COULD ADVERSELY AFFECT OUR PROFITABILITY.
We have not operated as a stand-alone entity separate from Bowlin Outdoor. We
may have benefited from operating as a division of Bowlin Outdoor by sharing
some expenses, personnel and other costs. Our general and administrative costs,
as a percentage of revenue, could increase as a result of our 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 our
profitability and an adverse affect on our business operations and financial
condition.
22
WE MIGHT NOT BE ABLE TO SECURE ADDITIONAL FINANCING.
We have 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, Bowlin Outdoor obtained this financing as a single
consolidated entity. We 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 that any additional financing will be
available in the future on terms acceptable to us. We anticipate that any
financing that we do secure could impose certain financial and other restrictive
covenants upon our operations and us.
THERE IS NO ASSURANCE THAT WE WILL BE ABLE TO SUCCESSFULLY EXPAND OUR
BUSINESS.
We intend to continue to explore the possibilities of acquiring or building
additional travel centers. Although our existing operations are based primarily
in the Southwest, our 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 we 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 we 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 our existing operations. The success of our expansion program
will depend on a number of factors, including the availability of sufficient
capital, the identification of appropriate expansion opportunities, our ability
to attract and retain qualified employees and management, and the continuing
profitability of existing operations. There can be no assurance that we will
achieve our planned expansion or that any expansion will be profitable.
OUR USE OF PETROLEUM PRODUCTS SUBJECTS US TO VARIOUS LAWS AND REGULATIONS,
AND EXPOSES US TO SUBSTANTIAL RISKS.
We are subject to federal, state and local laws and regulations governing the
use, storage, handling, and disposal of petroleum products. While we believe
that we are 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, we could be held liable for any damages that
result and any such liability could exceed our available resources. We could be
required to incur significant costs to comply with environmental laws and
regulations that may be enacted in the future.
BECAUSE ALL OF OUR TRAVEL CENTERS ARE LOCATED IN ARIZONA AND NEW MEXICO, A
DOWNTURN IN THE ECONOMIC CONDITIONS IN THE SOUTHWESTERN UNITED STATES COULD
ADVERSELY AFFECT OUR BUSINESS OPERATIONS AND FINANCIAL CONDITIONS.
Our travel centers are located only in Arizona and New Mexico. We rely on the
business generated from travelers and patrons within these two states, and those
traveling through these states. Our risks from economic downturns are not
diversified or spread out across several regions. Because of the geographic
concentration of our travel centers, our 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.
WE DEPEND ON THIRD PARTY RELATIONSHIPS.
We are dependent on a number of third party relationships under which we offer
brand name and other products at our travel centers. These brand name
relationships include distributorship relationships with CITGO and EXXON and
existing franchise agreements with Dairy Queen/Brazier and Stuckey's. Our
existing operations and plans for future growth anticipate the continued
existence of such relationships.
The CITGO distribution agreement had an initial three-year term that expired
September 30, 1998, and automatically renewed for a three-year term through
2001. The EXXON distribution agreement has a three-year term that expires March
31, 2001. CITGO's and EXXON's ability to terminate or refuse to renew the
agreement with us 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 us, or termination by CITGO or EXXON of its petroleum marketing
activities in our 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.
23
Under four of our Dairy Queen agreements, the term continues until we elect to
terminate it with 60 days prior written notice, or if we 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. We may not terminate
either of these agreements unless we give 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 us that we are in breach of the agreement and we do not cure
that breach within 14 days of that notice.
The franchise agreement for our Stuckey's location in Edgewood was entered into
on July 7, 1982. This agreement had an initial term of ten years and is
renewable for additional five-year terms at our option. The current term of this
agreement, if not extended or terminated before, will end on July 7, 2002. We
entered into a letter agreement on March 1, 1987 for our Stuckey's location in
Benson, Arizona. Under its terms, we may cancel this agreement at any time with
ninety days prior written notice. Stuckey's may cancel this agreement with 12
months prior written notice, or if we are in non-compliance with the agreement.
The current term of this agreement, if not extended or terminated before, will
end on March 1, 2002.
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 us from offering
additional products or services that are competitive to those of its suppliers.
Although we do 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 us 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.
We also rely upon several at-will relationships with various third parties for
much of our souvenir and gift merchandise. Although we believe we have good
relationships with our suppliers, there can be no assurance that we will be able
to maintain relationships with suppliers of suitable merchandise at appropriate
prices and in sufficient quantities.
IF WE ARE NOT ABLE TO SUCCESSFULLY COMPETE IN OUR INDUSTRY IT COULD HAVE AN
ADVERSE IMPACT ON OUR BUSINESS OPERATIONS OR FINANCIAL CONDITION.
Our travel centers face competition from
* major and independent oil companies;
* independent service station operators;
* national and independent operators of restaurants, diners and other
eating establishments; and
* national and independent operators of convenience stores and other
retail outlets.
Some of our 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 we do. There can be no
assurance that our travel centers will be able to compete successfully in their
respective markets in the future.
OUR BUSINESS IS SEASONAL AND OUR REVENUES FLUCTUATE QUARTERLY.
Our 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. Our revenues and earnings may experience substantial
fluctuations from quarter to quarter. These fluctuations could result in periods
of decreased cash flow that might cause us to use our lending sources, or to
secure additional financing, in order to cover our expenses during those
24
periods. This could increase the interest expense of our operations and decrease
net income and have a material adverse effect on our business and results of
operations.
WE ARE SUBJECT TO NUMEROUS GOVERNMENTAL REGULATIONS, INCLUDING THOSE
RELATED TO FOOD HANDLING, FIREWORKS SALES, TOBACCO SALES, AND UNDERGROUND
STORAGE TANKS.
Each of our 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. Our travel center operations are also subject to extensive laws and
regulations governing the sale of tobacco and fireworks in our New Mexico travel
centers. In addition, we have 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
our gasoline dispensing operations.
Such regulations include certain mandatory licensing procedures and the ongoing
compliance measures, as well as special sales tax measures. We believe that
operations at our thirteen 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 our business
and results of operations.
OUR CURRENT CAPITALIZATION COULD DELAY, DEFER OR PREVENT A CHANGE OF
CONTROL.
In our Articles of Incorporation, pursuant to Nevada Revised Statues Section
78.378, we 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, we 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 we have 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, our 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 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. See Item 11 "Description of
Registrant's Securities to be Registered".
25
PROPERTIES.
As of November 30, 2000, we operated thirteen travel centers. We own the real
estate and improvements where seven of our travel centers are located, all of
which are subject to mortgages. Six of our existing travel centers are located
on real estate that we lease from various third parties. These leases have terms
ranging from five to forty years, assuming we exercise all renewal options
available under certain leases. Our future minimum rental payments under these
leases are as follows:
YEAR ENDING JANUARY 31:
-----------------------
2001 $ 151,383
2002 132,783
2003 128,783
2004 98,783
2005 98,233
Thereafter 383,733
---------
Total $ 993,698
=========
See "Notes to Financial Statements - Note 7 Contingencies and Commitments".
Bowlin Travel Centers' principal executive offices occupy approximately 20,000
square feet of space that we own in Albuquerque, New Mexico. The 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 (8.5% at January
31, 2000). We own a central warehouse and distribution facility occupying 27,000
square feet in Las Cruces, New Mexico. The Las Cruces property is subject to a
mortgage that matures on December 1, 2014 and accrues interest on the unpaid
principal balance at a rate of 8.65% per annum. We believe that our headquarters
and warehouse facilities are adequate for our operations for the foreseeable
future.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Bowlin Outdoor is the sole shareholder of Bowlin Travel Centers. It holds
4,583,348 shares of our common stock, which constitutes 100% of the issued and
outstanding common stock of Bowlin Travel Centers, Inc.
As of January 15, 2001, there were 4,583,348 shares of Bowlin Outdoor common
stock outstanding.
The following table sets forth the number of shares of our common stock that we
expect will be beneficially owned after the spin-off 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.
26
All of the holdings listed below, and referred to in the footnotes to this
table, are holdings of shares of common stock of Bowlin Outdoor. Based on a
one-to-one distribution ratio, the number of shares and percentage interest of
Bowlin Outdoor stockholders would be identical to the number of shares held and
percentage interest of Bowlin Travel Centers stockholders. There would be
4,583,348 shares of Bowlin Travel Centers stock outstanding following the
distribution, none of which would be held by Bowlin Outdoor.
NAME OF BENEFICIAL AMOUNT AND NATURE OF PERCENT OF
OWNER (1) BENEFICIAL OWNERSHIP (2) CLASS (3)
- --------- ------------------------ ---------
Michael L. Bowlin (4) 1,687,613 36.8%
C. Christopher Bess (5) 488,623 10.7%
William J. McCabe 101,590 2.2%
Monica A. Bowlin (6) 1,687,613 36.8%
The Francis W. McClure and Evelyn
Hope McClure Revocable Trust (7) 371,695 8.1%
All directors and executive officers
as a group (3 persons) (4)(5)(6) 2,277,826 49.7%
- ----------
(1) All of the holders have an address at c/o Bowlin Travel Centers, Inc., 150
Louisiana NE, Albuquerque, NM, 87108.
(2) 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.
(3) The shares and percentages shown include the shares of common stock
actually owned as of September 1, 2000.
(4) 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.
(5) Includes 48,006 shares held by Mr. Bess' wife and 26,623 shares held by Mr.
Bess' minor daughter.
(6) Includes 747,930 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.
(7) 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.
27
DIRECTORS AND EXECUTIVE OFFICERS.
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 58 Chairman of the Board, President and Chief
Executive Officer
C. Christopher Bess 54 Executive Vice President, Chief Operating
Officer and Director
William J. McCabe 50 Senior Vice President, Management
Information Systems and Assistant
Secretary and Director
Michael L. Bowlin. Mr. Bowlin has served as Chairman of the Board and Chief
Executive Officer of Bowlin Outdoor since 1991 and as President since 1983. Mr.
Bowlin has been employed by Bowlin Outdoor since 1968. Mr. Bowlin is the past
Chairman of the Board for the Outdoor Advertising Association of America and has
served on the Board of Directors in various capacities for twenty years. Mr.
Bowlin also served as President and a member of the Board of Directors of
Stuckey's Incorporated, a restaurant and specialty store franchisor (including
specialty stores located at four of the company's travel centers) from 1986 to
July of 2000; however, substantially all of Mr. Bowlin's professional time is
devoted to his duties at Bowlin Outdoor. Mr. Bowlin holds a Bachelor's degree in
Business Administration from Arizona State University.
C. Christopher Bess. Mr. Bess has served as Bowlin Outdoor's Executive Vice
President and Chief Operating Officer since 1983. Mr. Bess has served as a
member of Bowlin Outdoor's Board of Directors since 1974. During his 28 years
with Bowlin Outdoor, Mr. Bess has 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 Bowlin Outdoor's Senior Vice
President, Management Information Systems since 1997 and as Assistant Secretary
since 1996. Mr. McCabe served as a member of the Board of Directors 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 has been
employed by Bowlin Outdoor 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.
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 President and the Chief Operating
Officer of Bowlin Outdoor currently have employment agreements with Bowlin
Outdoor that became effective February 1, 1997. Each of the agreements has a
perpetual five-year term, such that on any given date, each agreement has a
five-year remaining term. Upon consummation of the proposed merger with Lamar
Advertising Company, the President and the Chief Operating Officer of Bowlin
Outdoor will each resign their positions with Bowlin Outdoor and continue to be
the President and Chief Operating Officer of Bowlin Travel Centers. However, the
employment agreements to which each was a party will terminate upon
effectiveness of the proposed merger with Lamar Advertising Company and Bowlin
Travel Centers will not execute new employment agreements.
The following table summarizes all compensation paid by Bowlin Outdoor to our
Chief Executive Officer and Chief Operating Officer for services rendered to
Bowlin Outdoor during the fiscal years ended January 31, 2000, 1999 and 1998. We
have no other executive officer whose total annual salary and bonus paid to them
by Bowlin Outdoor exceeded $100,000. All information set forth in this table
reflects compensation earned by these individuals for services with Bowlin
28
Outdoor. We anticipate that our Chief Executive Officer and Chief Operating
Officer will be compensated at levels consistent with their compensation at
Bowlin Outdoor.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
----------------------------
ANNUAL COMPENSATION AWARDS
------------------------------------------------- ----------------------------
SECURITIES
OTHER UNDERLYING
NAME AND ANNUAL OPTIONS/ ALL OTHER
PRINCIPAL POSITION FISCAL SALARY ($)(1) BONUS ($) COMPENSATION ($) SARS # COMPENSATION ($)
- ------------------ ------ ------------- --------- ---------------- ------ ----------------
Michael L. Bowlin 2000 195,000 -- 17,779 (2) -- --
Chairman of the Board, 1999 144,700 -- 14,458 (2) -- --
President & CEO 1998 136,000 -- 14,535 (2) -- --
C. Christopher Bess 2000 145,000 -- 4,143 (3) -- --
Executive Vice President, 1999 95,000 -- 3,754 (3) -- --
COO & Director 1998 90,000 -- 4,967 (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 2000 includes (i) $1,950 of Bowlin Outdoor'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. Amount for 1999
includes (i) $1,775 of Bowlin's discretionary matching contributions
allocated to Mr. Bowlin's 401(k) Profit Sharing Plan account; (ii) $11,449
for premiums on term life, auto and disability insurance policies of which
Mr. Bowlin or his wife is the owner; and (iii) $1,234 for Mr. Bowlin's use
of a company owned vehicle. Amount for 1998 includes (i) $2,901 of Bowlin
Outdoor's discretionary matching contributions allocated to Mr. Bowlin's
401(k) Profit Sharing Plan account; (ii) $10,426 for premiums on term life,
auto and disability insurance policies of which Mr. Bowlin or his wife is
the owner; and (iii) $1,208 for Mr. Bowlin's use of a company owned
vehicle.
(3) Amount for 2000 includes (i) $1,700 of Bowlin Outdoor's discretionary
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. Amount for
1999 includes (i) $1,775 of Bowlin Outdoor's discretionary matching
contributions allocated to Mr. Bess' 401(k) Profit Sharing Plan account;
and (ii) $1,979 for premiums on term life, auto and disability insurance
policies of which Mr. Bess or his wife is the owner. Amount for 1998
includes (i) $2,888 of Bowlin Outdoor's discretionary matching
contributions allocated to Mr. Bess' 401(k) Profit Sharing Plan account;
and (ii) $2,079 for premiums on term life, auto and disability insurance
policies of which Mr. Bess or his wife is the owner.
Compensation Of Directors
Directors who are not employees of the company are entitled to receive $1,000
per each meeting of the Board of Directors, or any committee thereof, attended
plus reimbursement of reasonable expenses. Currently, none of the directors is a
non-employee director.
To date, no stock options have been granted to the named executive officers of
Bowlin Travel Centers. We do not anticipate having a stock option plan for our
directors, officers or employees.
29
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
MERGER AGREEMENT BETWEEN LAMAR AND BOWLIN OUTDOOR
Pursuant to Section 5.12 of the Agreement and Plan of Merger between Lamar and
Bowlin Outdoor, if the merger is consummated, Lamar will pay or will cause the
surviving corporation of the merger to pay up to $1,250,000 of Bowlin Outdoor's
aggregate costs and expenses associated with the consummation of the merger and
the other transactions contemplated by the merger agreement, including financial
advisory fees, a fairness opinion, legal fees and accounting fees. However,
under the Contribution Agreement, and as part of the proposed merger
transaction, we assumed the obligation under the merger agreement to pay any
closing costs that are in excess of $1,250,000. We cannot predict what the final
aggregate closing costs for the proposed merger transaction will be, however, we
believe that the aggregate closing costs will not exceed $1,250,000 by a
material amount, if at all.
RELATIONSHIP WITH STUCKEY'S
Michael L. Bowlin was the President and Chairman of the Board of, and until July
of 2000, a 25% stockholder in, Stuckey's Corporation ("Stuckey's"), a franchiser
of restaurants and specialty stores, including specialty stores located at two
of the company's travel centers. In fiscal year 2000, aggregate franchise and
other related fees paid by Bowlin Outdoor to Stuckey's totaled approximately
$34,029. We expect to continue the relationship with Stuckey's as a stand-alone
company.
CONTRIBUTION AGREEMENT BETWEEN BOWLIN OUTDOOR AND BOWLIN TRAVEL CENTERS
We entered into a Contribution Agreement with Bowlin Outdoor, dated as of
November 1, 2000. Under the Contribution Agreement, Bowlin Outdoor contributed
all of the assets and liabilities directly associated with the ownership and
operation of the travel centers business to Bowlin Travel Centers. Bowlin
Outdoor and Bowlin Travel Centers each represented that it was duly organized,
had the authority to enter into the agreement, and that there were no conflicts
or violations resulting from, or consents required by, the execution and
delivery of the agreement. Bowlin Travel Centers also covenanted under the
agreement to offer employment to all of the employees of Bowlin Outdoor that
work in the travel centers business, on the same terms and conditions of
employment they then enjoyed with Bowlin Outdoor, and to assume all obligations
and liabilities associated with those employees. Under the agreement, Bowlin
Travel Centers agreed to indemnify Bowlin Outdoor, its directors, officers,
shareholders, employees, affiliates, successors and assigns for any and all
losses, liabilities, claims, demands, penalties, fines, settlements, damages, or
expenses (including, without limitation, interest, penalties, costs of
preparation and investigation, and the reasonable fees, disbursements and
expenses of attorneys, accountants and professional advisors) incurred by any of
the Bowlin Outdoor indemnitees:
* arising under federal, state or local environmental laws and arising
out of or in connection with the travel center business or the
ownership or operation of any of the assets or assumed liabilities;
* resulting from any labor or employment dispute arising out of or in
connection with the operation of the travel center business or
otherwise involving a travel centers business employee; and
* any attempt (whether or not successful) by any person to cause or
require Bowlin Outdoor to discharge or pay any assumed liability, or
otherwise arising out of or relating to any assumed liability.
TAX AND DISAFFILIATION AGREEMENT BETWEEN BOWLIN OUTDOOR AND BOWLIN TRAVEL
CENTERS
As part of the Contribution Agreement, Bowlin Outdoor and Bowlin Travel Centers
entered into a Tax Sharing and Disaffiliation Agreement ("Tax Agreement"). The
Tax Agreement sets forth rights and obligations of Bowlin Outdoor and Bowlin
Travel Centers with respect to taxes imposed on their respective businesses both
before and after the distribution of Bowlin Travel Centers stock to the Bowlin
Outdoor stockholders and with respect to "Restructuring Taxes." For purposes of
the Tax Agreement, "Restructuring Taxes" are taxes imposed in connection with
the contribution by Bowlin Outdoor of the travel centers-related assets and
liabilities to Bowlin Travel Centers and the distribution of the Bowlin Travel
Centers stock.
GENERAL TAXES. Under the Tax Agreement, Bowlin Travel Centers will be
liable for and indemnify Bowlin Outdoor against any taxes that are attributable
to the travel centers business (both before and after transfer of such business
to Bowlin Travel Centers ), Restructuring Taxes and sales, transfer and other
similar taxes incurred in connection with the Contribution and Distribution.
30
Bowlin Outdoor will be liable for and indemnify Bowlin Travel Centers against
any taxes that are attributable to the outdoor advertising business. The Tax
Agreement sets forth additional rules for determining the tax obligations of
Bowlin Outdoor and Bowlin Travel Centers.
RESTRUCTURING TAXES. Under the Tax Agreement, Bowlin Travel Centers is
generally responsible for all Restructuring Taxes. Bowlin Outdoor and Bowlin
Travel Centers anticipate that the Contribution will not result in any tax
liability and that the Distribution will not result in any tax liability to
Bowlin Outdoor shareholders. However, Bowlin Outdoor may be liable for
Restructuring Taxes in connection with the Distribution. More specifically,
Bowlin Outdoor will be required to pay tax on gain (if any) equal to the value
of Bowlin Travel Centers on the date of the distribution of the Bowlin Travel
Centers stock, less Bowlin Outdoor's basis in Bowlin Travel Centers stock
immediately before the distribution. Bowlin Outdoor and Bowlin Travel Centers
plan to base the value of Bowlin Travel Centers on the first-day trading price
of Bowlin Travel Centers stock. Therefore, the amount of this gain and any
consequent Restructuring Taxes will not be determined until the time of the
distribution. Depending upon the value of Bowlin Travel Centers as of the
distribution, the amount of Restructuring Taxes could be substantial. In
addition, it is possible that the IRS may successfully challenge any valuation
of Bowlin Travel Centers for this purpose and thereby assess additional
Restructuring Taxes. As stated previously, under the Tax Agreement, Bowlin
Travel Centers is required to reimburse Bowlin Outdoor for any Restructuring
Taxes.
MANAGEMENT SERVICE AGREEMENT BETWEEN BOWLIN OUTDOOR AND BOWLIN TRAVEL CENTERS
Bowlin Outdoor historically has attempted to accurately allocate costs, expenses
and revenues of its two business segments, namely outdoor advertising and travel
centers. However, the same personnel performed many administrative and
managerial tasks for both Bowlin Outdoor and Bowlin Travel Centers. In order to
accurately reflect the costs of these shared resources, Bowlin Travel Centers
attributes Bowlin Outdoor with a management fee equal to the expense of certain
management services. Prior to August 1, 2000, this relationship was not
formalized by a written agreement. On August 1, 2000, Bowlin Outdoor and Bowlin
Travel Centers entered into a Management Services Agreement to memorialize this
relationship. Under the Management Services Agreement, Bowlin Travel Centers
agrees to provide management, corporate general and administrative services,
including but not limited to, treasury, accounting, tax, human resources, and
other support services, as follows. Under this agreement, Bowlin Outdoor agrees
to pay for the services rendered on a monthly basis. The amount due each month
is determined by Bowlin Travel Centers based on actual amounts incurred on
behalf of Bowlin Outdoor as well as a proportionate amount of overall general
and administrative expenses based on the level of effort necessary to provide
such services. The level of effort is determined through a percentage allocation
of time and related expenditures for corporate personnel that perform duties
and/or provide support for Bowlin Outdoor. The agreement is month-to-month and
may be canceled with thirty days prior written notice. Lamar Advertising Company
has already indicated that, upon consummation of the merger between Bowlin
Outdoor and Lamar Advertising Company, it will terminate this agreement. See,
also, "Notes to Financial Statement - Note 8".
LEASES AGREEMENT BETWEEN BOWLIN OUTDOOR AND BOWLIN TRAVEL CENTERS
In furtherance of adequately and accurately allocating costs and expenses to the
outdoor advertising and travel centers business, on August 1, 2000, we entered
into a lease agreement with Bowlin Outdoor. Under this lease agreement, Bowlin
Outdoor leases
* approximately 5500 square feet of office space in the building located
at 136 Louisiana NE, Albuquerque, New Mexico 87108, at an annual rate
of $12.00 per square foot for a total annual rental sum due of
$66,600.00;
* approximately 1000 square feet of office space in the building located
at 3415 South Harrelson, Las Cruces, New Mexico 88005, at an annual
rate of $6.00 per square foot for a total annual rental sum due of
$6,000.00;
31
* approximately 2000 square feet of warehouse space in the building
located at 3415 South Harrelson, Las Cruces, New Mexico 88005, at an
annual rate of $3.00 per square foot for a total annual rental sum due
of $6,000.00; and
* approximately 12,000 square feet of outside storage yard space on the
premises located at 3415 and 3418 South Harrelson, Las Cruces, New
Mexico 88005, at an annual rate of $.50 per square foot for a total
annual rental sum due of $6,000.00.
This lease is for a term of one year, ending on July 31, 2001. We do not know,
and Lamar Advertising Company has not indicated with any certainty, whether this
lease will be extended beyond its current termination date of July 31, 2001.
MASTER LOAN AGREEMENT BY AND AMONG BOWLIN TRAVEL CENTERS, BOWLIN OUTDOOR AND
FIRST SECURITY BANK
On November 10, 2000, Bowlin Travel Centers and Bowlin Outdoor entered into a
Master Loan Agreement with First Security Bank. This agreement superceded the
Credit Agreement with First Security Bank, dated as of November 10, 1998, which
made available to Bowlin Outdoor funds in the aggregate amount of $30 million.
Bowlin Outdoor and Bowlin Travel Centers entered into the master loan agreement
in anticipation of the proposed merger with Lamar, and the separation of Bowlin
Travel Centers from Bowlin Outdoor, as well as the anticipated distribution of
Bowlin Travel Centers stock to the stockholders of Bowlin Outdoor Under this
master loan agreement, various promissory notes issued by Bowlin Outdoor that
represent obligations of Bowlin Outdoor to First Security Bank, were identified
as either being an obligation of Bowlin Outdoor or an obligation of Bowlin
Travel Centers. Of the approximately $21 million owed in aggregate under the
agreement, approximately $5.3 is attributable to Bowlin Travel Centers. Under
this master loan agreement, Bowlin Outdoor and Bowlin Travel Centers
cross-collateralize their assets and property as security interests against both
of their obligations under the agreement. Under this arrangement, the assets and
property of Bowlin Travel Centers secure the obligations of Bowlin Travel
Centers and Bowlin Outdoor, and vice versa. However, upon distribution of the
Bowlin Travel Centers shares to the stockholders of Bowlin Outdoor, First
Security Bank has agreed to release its security interests in and to any of the
assets and property of Bowlin Travel Centers as security against any obligations
of Bowlin Outdoor under the agreement. Lamar has indicated that upon
consummation of the merger with Bowlin Outdoor, it intends to completely pay off
any outstanding obligations of Bowlin Outdoor under the agreement. We anticipate
that upon distribution of the shares of Bowlin Travel Centers by Bowlin Outdoor,
only our assets and property will secure our obligations under the master loan
agreement, and the obligations of Bowlin Outdoor will be secured only by the
assets and property of Bowlin Outdoor.
WHOLESALING TO RELATIVE OF OFFICER AND DIRECTOR AND STOCKHOLDER OF BOWLIN TRAVEL
CENTERS
We currently sell gasoline to a travel center that is owned by the niece of
Michael L. Bowlin During the years ended January 31, 2000, 1999 and 1998,
wholesale gasoline distribution sales totaling $1,328,418, $1,227,681 and
$916,733 were sold to this travel center. We sell gasoline to this travel center
with our standard wholesale distributor mark-up. No special consideration is
given with regard to the price at which we sell gasoline to this travel center.
LEGAL PROCEEDINGS.
We anticipate that Bowlin Travel Centers will, from time to time, be involved in
litigation in the ordinary course of business. Historically, Bowlin Outdoor,
from time to time has been involved in litigation in the ordinary course of
business, including disputes involving employment claims and construction
matters. Bowlin Outdoor is not a party to any lawsuit or proceeding which, in
the opinion of management, is likely to have a material adverse effect on Bowlin
Travel Centers.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
As of January 15, 2001, 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. Bowlin Outdoor currently holds all of the outstanding shares of Bowlin
Travel Centers.
32
Currently, there is no market for the common stock of Bowlin Travel Centers. We
cannot predict with any certainty what the price of shares of common stock would
trade at, if traded at all, on any securities exchange. Bowlin Travel Centers
does not intend to apply for its shares to trade on any securities exchange. See
"Risk Factors" above.
DESCRIPTION OF BOWLIN TRAVEL CENTERS SECURITIES
We are 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 our Articles of Incorporation, pursuant to Nevada Revised Statues Section
78.378, we 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, we 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 we have 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".
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Articles of Incorporation and Bylaws provide for the company to indemnify
our directors and officers to the fullest extent provided by Nevada law. Under
Nevada corporation law, a corporation is authorized to indemnify officers,
directors, employees and agents who are made or threatened to be made parties to
any civil, criminal, administrative or investigative suit or proceeding by
reason of the fact that they are or were a director, officer, employee or agent
of the corporation or are or were acting in the same capacity for another entity
at the request of the corporation. The indemnification may include expenses
(including attorney's fees), judgment, fines and amounts paid in settlement
actually and reasonably incurred by such persons if they acted in good faith and
in a manner reasonably believed to be in or not opposed to the best interests of
the corporation, or, with respect to any criminal action or proceeding, if they
had no reasonable cause to believe their conduct was unlawful.
In the case of any action or suit by or in the right of the corporation against
such persons, the corporation is authorized to provide similar indemnification,
provided that, should any such persons be adjudged to be liable for negligence
or misconduct in the performance of duties to the corporation, the court
conducting the proceeding must determine that such persons are nevertheless
fairly and reasonably entitled to indemnification. To the extent any such
persons are successful on the merits in defense of any such action, suit or
proceeding, Nevada law provides that they shall be indemnified against
reasonable expenses, including attorney fees.
A corporation is authorized to advance anticipated expenses for such suits or
proceedings upon an undertaking by the person to whom such advance is made to
repay such advances if it is ultimately determined that such person is not
entitled to be indemnified by the corporation.
Indemnification and payment of expenses provided by Nevada law are not deemed
exclusive of any other rights by which an officer, director, employee or agent
may seek indemnification or payment of expenses or may be entitled to under any
bylaw, agreement, or vote of stockholders or disinterested directors. In such
regard, a Nevada corporation is empowered to, and may, purchase and maintain
liability insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation. As a result of such corporation law, the
company may, at some future time, be legally obligated to pay judgments
(including amounts paid in settlement) and expenses in regard to civil or
criminal suits or proceedings brought against one or more of its officers,
directors, employees or agents.
33
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
company pursuant to the foregoing provisions or otherwise, the company has been
advised that in the opinion of the Commission, such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
34
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bowlin Travel Centers Inc.:
We have audited the accompanying balance sheets of Bowlin Travel Centers Inc. as
of January 31, 2000 and 1999, and the related statements of income and parent's
equity in division, and cash flows for each of the years in the three-year
period ended January 31, 2000. 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 audits.
We conducted our audits 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 that our audits provide 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, 2000 and 1999, and the results of its operations and its cash
flows for each of the years in the three-year period ended January 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
August 15, 2000
Albuquerque, New Mexico
F-1
BOWLIN TRAVEL CENTERS, INC.
Balance Sheets
JULY 31,
2000 JANUARY 31, JANUARY 31,
ASSETS (UNAUDITED) 2000 1999
----------- ----------- -----------
Current assets:
Cash and cash equivalents $ 2,052,572 1,388,934 1,792,008
Accounts receivable, net 259,380 558,944 726,070
Accounts receivable - related parties 123,567 122,121 48,412
Inventories 3,444,266 3,529,690 3,684,552
Prepaid expenses 229,722 105,512 181,743
Income taxes -- -- 223,976
Notes receivable - related parties 13,512 13,512 13,512
Other current assets 23,426 13,329 9,051
----------- ----------- -----------
Total current assets 6,146,445 5,732,042 6,679,324
----------- ----------- -----------
Property and equipment, net 10,363,964 10,760,855 9,017,149
Intangible assets, net 313,534 328,268 395,161
Other assets 325,405 169,511 72,037
----------- ----------- -----------
Total assets $17,149,348 16,990,676 16,163,671
=========== =========== ===========
LIABILITIES AND PARENT'S EQUITY IN DIVISION
Current liabilities:
Current installments of long-term debt $ 482,926 491,701 502,487
Accounts payable 1,186,396 1,218,265 1,273,155
Accrued salaries 155,723 152,019 130,236
Accrued liabilities 271,173 183,013 127,697
----------- ----------- -----------
Total current liabilities 2,096,218 2,044,998 2,033,575
Deferred income taxes 610,300 592,800 229,900
Long-term debt, less current installments 5,968,126 6,231,854 6,266,538
----------- ----------- -----------
Total liabilities 8,674,644 8,869,652 8,530,013
----------- ----------- -----------
Parent's equity in division 8,474,704 8,121,024 7,633,658
Commitments and contingencies (notes 6 and 7)
----------- ----------- -----------
Total liabilities and parent's
equity in division $17,149,348 16,990,676 16,163,671
=========== =========== ===========
See accompanying notes to financial statements.
F-2
BOWLIN TRAVEL CENTERS, INC.
Statements of Income and Parent's Equity in Division
SIX MONTHS ENDED
JULY 31,
(UNAUDITED) YEARS ENDED JANUARY 31,
---------------------------- --------------------------------------------
2000 1999 2000 1999 1998
------------ ------------ ------------ ------------ ------------
Gross sales $ 14,752,567 14,071,987 27,242,403 23,803,173 22,583,588
Less discounts on sales 201,385 181,286 386,622 283,264 279,943
------------ ------------ ------------ ------------ ------------
Net sales 14,551,182 13,890,701 26,855,781 23,519,909 22,303,645
Cost of goods sold 10,171,372 9,475,026 18,660,049 15,817,507 15,042,323
------------ ------------ ------------ ------------ ------------
Gross profit 4,379,810 4,415,675 8,195,732 7,702,402 7,261,322
General and administrative expense (3,401,607) (3,519,248) (7,128,511) (6,546,116) (5,925,026)
Depreciation and amortization (376,622) (355,187) (719,085) (716,640) (467,420)
Management fee income 102,939 103,566 207,390 186,867 183,522
Other operating income -- -- 30,661 7,345 35,335
------------ ------------ ------------ ------------ ------------
Operating income 704,520 644,806 586,187 633,858 1,087,733
Other income (expense):
Interest income 57,493 48,721 95,570 85,696 48,340
Gain on sale of property and equipment 131,235 5,816 1,024 7,180 101,770
Gain from insurance proceeds -- 227,362 711,805 -- --
Interest expense (318,468) (293,216) (598,420) (310,762) (268,720)
------------ ------------ ------------ ------------ ------------
Total other income (expense) (129,740) (11,317) 209,979 (217,886) (118,610)
------------ ------------ ------------ ------------ ------------
Income before income taxes 574,780 633,489 796,166 415,972 969,123
Income taxes (note 5) 221,100 243,900 308,800 162,300 373,000
------------ ------------ ------------ ------------ ------------
Net income 353,680 389,589 487,366 253,672 596,123
Parent's equity in division -
beginning of period 8,121,024 7,633,658 7,633,658 7,379,986 6,783,863
------------ ------------ ------------ ------------ ------------
Parent's equity in division -
end of period $ 8,474,704 8,023,247 8,121,024 7,633,658 7,379,986
============ ============ ============ ============ ============
Pro forma earnings per share (unaudited):
Weighted average common shares 4,390,098 4,390,098 4,390,098
============ ============ ============
Basic and diluted earnings per share $ 0.08 0.09 0.11
============ ============ ============
See accompanying notes to financial statements.
F-3
BOWLIN TRAVEL CENTERS, INC.
Statements of Cash Flows
SIX MONTHS ENDED
JULY 31,
(UNAUDITED) YEARS ENDED JANUARY 31,
-------------------------- -----------------------------------------
2000 1999 2000 1999 1998
----------- ----------- ----------- ----------- -----------
Cash flows from operating activities:
Net income $ 353,680 389,589 487,366 253,672 596,123
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 376,622 355,187 719,085 716,640 467,420
Income from partnership investment -- -- (1,408) (3,025) --
Gain on sale of assets (131,235) (5,816) (1,024) (7,180) (101,770)
Gain from insurance proceeds -- (227,362) (711,805) -- --
Deferred income taxes 17,500 154,300 362,900 81,300 106,100
Changes in operating assets and liabilities:
Accounts receivable 298,118 114,007 93,417 (595,942) 14,667
Inventories 85,424 151,635 154,862 (530,864) (445,195)
Prepaid expenses and other (128,633) 77,806 71,953 (74,859) (13,251)
Accounts payable and accrued liabilities 59,995 378,341 22,209 82,259 104,877
Income taxes -- 223,976 223,976 (151,583) (217,365)
----------- ----------- ----------- ----------- -----------
Net cash from operating activities 931,471 1,611,663 1,421,531 (229,582) 511,606
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital received from (contributed to) partnership -- -- 21,400 -- (4,205)
Proceeds from sale of assets 202,428 16,000 138,828 13,413 231,147
Proceeds from insurance -- 599,332 1,086,865 -- --
Purchases of property and equipment (204,939) (1,723,853) (2,908,762) (2,060,507) (1,774,280)
Franchise fee payments -- -- -- (25,000) --
Notes receivable, net 7,181 2,625 (117,466) 43,196 6,168
----------- ----------- ----------- ----------- -----------
Net cash from investing activities 4,670 (1,105,896) (1,779,135) (2,028,898) (1,541,170)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities
Payments on long-term debt (272,503) (231,946) (821,670) (611,151) (372,983)
Payments for debt issuance costs -- -- -- (294,868) --
Proceeds from borrowings -- 250,000 776,200 4,311,802 255,000
----------- ----------- ----------- ----------- -----------
Net cash from financing activities (272,503) 18,054 (45,470) 3,405,783 (117,983)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 663,638 523,821 (403,074) 1,147,303 (1,147,547)
Cash and cash equivalents at beginning of period 1,388,934 1,792,008 1,792,008 644,705 1,792,252
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 2,052,572 2,315,829 1,388,934 1,792,008 644,705
=========== =========== =========== =========== ===========
Supplemental disclosure of cash flow information:
=========== =========== =========== =========== ===========
Non-cash investing activities - Sale of property and
equipment in exchange for note receivable $ 168,749 -- -- -- --
=========== =========== =========== =========== ===========
Interest paid $ 318,468 293,216 618,105 291,944 269,589
=========== =========== =========== =========== ===========
Income taxes paid $ 203,600 (134,376) (270,376) 232,583 484,265
=========== =========== =========== =========== ===========
See accompanying notes to financial statements.
F-4
(1) Summary of Significant Accounting Policies
(a) DESCRIPTION OF BUSINESS
Bowlin Travel Centers Inc. (BTC or the Company) is located in
Albuquerque, New Mexico. For all periods presented in these financial
statements, the Company has operated as a separate division of Bowlin
Outdoor Advertising & Travel Centers, Inc. (BOATC), a public company
traded on the American Stock Exchange.
On August 8, 2000, the Company was incorporated in the state of
Nevada. 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 is a wholly owned subsidiary 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.
The Company's principal business activities include the operation of
full-service travel centers and restaurants that offer brand name food
and gasoline, and a unique variety of Southwestern merchandise to the
traveling public in the Southwestern United States.
(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.
(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 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
The Company is included in the federal income tax return of BOATC. The
Company's U.S. federal and state income tax liabilities are computed
as if BTC filed separate tax returns. The Tax and Disaffiliation
Agreement between BOATC and the Company requires the Company to
reimburse BOATC for any taxes payable upon the distribution of the
Company's stock to the shareholders of BOATC. The distribution will be
taxable to BOATC to the extent the fair value of the net assets
distributed exceeds their basis for income tax purposes in those
assets on the date distributed.
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
35
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) PRO FORMA EARNINGS PER SHARE
Pro forma earnings per share of common stock, both basic and diluted,
are computed by dividing net income by the weighted average common
shares outstanding for the Company's parent, BOATC. Diluted earnings
per share is calculated in the same manner as basic earnings per share
as there were no dilutive potential securities outstanding for all
periods presented.
(2) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
ESTIMATED JULY 31, JANUARY 31, JANUARY 31,
LIFE (YEARS) 2000 2000 1999
------------ ----------- ----------- -----------
Land -- $ 2,470,861 2,610,341 1,954,218
Buildings and improvements 10 - 40 8,150,829 8,203,173 6,309,657
Machinery and equipment 3 - 10 6,328,961 6,653,358 5,736,501
Autos, trucks and mobile homes 3 - 10 1,425,321 1,451,987 1,394,915
Billboards 15 - 20 1,050,500 951,026 827,570
======= ----------- ----------- -----------
Subtotal, at cost 19,426,472 19,869,885 16,222,861
Less accumulated depreciation (9,114,942) (9,129,271) (8,597,517)
Construction in progress 52,434 20,241 1,391,805
----------- ----------- -----------
$10,363,964 10,760,855 9,017,149
=========== =========== ===========
36
In May 2000, the Company sold certain assets, including land and equipment,
to a third party for $25,000 cash and a note receivable for $400,000. The
note receivable has a stated rate of interest of 8 percent and is payable
in annual installments of $37,500 through 2004 with the balance due in
2005. The assets sold had a carrying value of $170,258 and the costs
incurred to sell the assets was $6,043. The gain on the sale of the
property was $248,699, of which $14,625 was recognized initially and
$234,074 was deferred and will be recognized into income using the
installment method as payments are received. The deferred gain is reflected
as a reduction to the note receivable in the accompanying balance sheet.
Through January 31, 2000, the Company received proceeds from insurance
totaling $1,086,865 to replace assets destroyed by a fire at the Company's
headquarters during November 1998, which resulted in recognition of a
$711,805 gain.
(3) INTANGIBLE ASSETS
Intangible assets, at cost, consist of the following:
JULY 31, JANUARY 31, JANUARY 31,
2000 2000 1999
--------- --------- ---------
Franchise fees $ 183,000 183,000 234,500
Debt issuance costs 295,267 295,267 294,668
--------- --------- ---------
478,267 478,267 529,168
Less accumulated amortization (164,733) (149,999) (134,007)
--------- --------- ---------
Intangible assets, net $ 313,534 328,268 395,161
========= ========= =========
(4) LONG-TERM DEBT
Long-term debt is as follows:
JULY 31, JANUARY 31, JANUARY 31,
2000 2000 1999
----------- ---------- ----------
Due bank, maturity November 2005, variable interest $ 2,570,493 2,661,329 2,846,007
(8.50% at January 31, 2000), monthly
installments of $34,347, secured by buildings
and equipment
Due bank, maturity October 2013, variable interest
(8.50% at January 31, 2000), monthly
installments of $9,860, secured by land and
buildings 925,698 941,732 978,428
Due bank, maturity October 2013, variable interest
(8.50% at January 31, 2000), monthly
installments of $6,329, secured by land and
buildings 547,151 606,494 629,740
Due bank, maturity January 2005, variable interest
at index rate (8.00% at January 31, 2000),
monthly installments of $4,818 secured by
buildings and equipment 460,011 467,501 486,355
Due bank, maturity May 2005, variable interest at
index rate plus .5 (8.50% at January 31, 2000),
monthly installments of $8,614, secured by
buildings and equipment 713,923 732,194 774,006
Due banks and other financing companies, with
maturity dates ranging from 2000 to 2013. Most
bear interest at adjustable rate of 7.75% with
certain fixed rate notes at 8.9%. Monthly
payments totaling $19,188. Secured by land,
buildings, equipment, and inventories 1,114,104 1,177,768 886,256
Due individuals, various payment schedules with
maturity dates in 2003, including interest
ranging from 8.00% to 10.00%. Monthly payments
totaling $3,818. Secured by land and buildings 119,672 136,537 168,233
----------- ---------- ----------
6,451,052 6,723,555 6,769,025
Less current maturities 482,926 491,701 502,487
----------- ---------- ----------
$ 5,968,126 6,231,854 6,266,538
=========== ========== ==========
37
Future maturities of long-term debt for the years ending January 31 are as
follows:
2001 $ 491,701
2002 528,349
2003 554,293
2004 524,976
2005 476,743
Thereafter 4,147,493
-----------
Total $ 6,723,555
===========
On November 10, 1998, the Company entered into a credit agreement with one
of its existing lenders for a new term note in the amount of $2,884,000,
which was used to refinance existing borrowings and provide funds for
working capital.
(5) INCOME TAXES
Income taxes consist of the following for the years ended January 31:
CURRENT DEFERRED TOTAL
--------- --------- ---------
2000:
U.S. Federal $ (45,000) 302,300 257,300
State and local (9,100) 60,600 51,500
--------- --------- ---------
$ (54,100) 362,900 308,800
========= ========= =========
1999:
U.S. Federal $ 67,500 67,700 135,200
State and local 13,500 13,600 27,100
--------- --------- ---------
$ 81,000 81,300 162,300
========= ========= =========
1998:
U.S. Federal $ 222,400 88,400 310,800
State and local 44,500 17,700 62,200
--------- --------- ---------
$ 266,900 106,100 373,000
========= ========= =========
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:
2000 1999 1998
-------- -------- --------
Computed "expected" tax $270,696 141,430 329,502
State income taxes, net of federal
tax benefit 34,014 17,872 41,084
Other 4,090 2,998 2,414
-------- -------- --------
Total $308,800 162,300 373,000
======== ======== ========
38
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:
2000 1999
-------- --------
Deferred tax assets:
Compensated absences, principally due to accrual for
financial reporting purposes $ 37,519 15,056
Other -- 7,800
-------- --------
Total gross deferred tax assets 37,519 22,856
Less valuation allowance -- --
-------- --------
Net deferred tax assets 37,519 22,856
-------- --------
Deferred tax liabilities:
Property and equipment, principally due to differences
in depreciation 625,375 247,436
Other 4,944 5,320
-------- --------
Total gross deferred liabilities 630,319 252,756
-------- --------
Net deferred tax liability $592,800 229,900
======== ========
There was no valuation allowance for deferred tax assets as of February 1,
1999, 1998 or 1997. 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.
(6) PROFIT SHARING PLAN
The Company maintains a qualified defined contribution profit sharing plan
that covers substantially all employees. The plan year end is December 31.
The elected salary reduction is subject to limits as defined by the
Internal Revenue Code. The Company provides a matching contribution and
additional discretionary contributions as determined by resolution of the
board of directors. Legal and accounting expenses related to the plan are
absorbed by the Company. The Company's contributions to the profit sharing
plan were $42,237, $29,083 and $37,386 in fiscal 2000, 1999 and 1998,
respectively.
(7) 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 and parent's equity in division is rental expense for
these land leases of $419,176, $370,761 and $306,283 for the years ended
January 31, 2000, 1999 and 1998, respectively. The Company also leases land
where several of its retail billboards are located and rent expense for
these leases was $91,148, $43,809 and $54,099 for the years ended January
31, 2000, 1999 and 1998, respectively.
The leasing agreements for the various locations include 5-35 year leases
with remaining lives on those leases ranging from approximately 5-25 years
at January 31, 2000. Renewal options vary, with the most extensive
including three 5-year renewal options. Contingent rentals are generally
based on percentages of specified gross receipts. Several leases include
terms for computation of rent expense as the greater of a percent of gross
receipts or a percent of land value as defined by the lease. In most cases,
the Company is responsible for certain repairs and maintenance, insurance,
property taxes or property tax increases, and utilities.
39
Future minimum rental payments under these leases are as follows:
Year ending January 31:
-----------------------
2001 $ 151,383
2002 132,783
2003 128,783
2004 98,783
2005 98,233
Thereafter 383,733
---------
Total $ 993,698
=========
(8) RELATED PARTY TRANSACTIONS
Notes receivable - related parties consist of the following:
JULY 31, JANUARY 31, JANUARY 31,
2000 2000 1999
------- ------- -------
Stockholder, plus interest
at 7%, unsecured $10,012 10,012 10,012
Employees, receivable in annual
installments totaling $875 plus
interest at 10%, unsecured 3,500 3,500 3,500
------- ------- -------
Total $13,512 13,512 13,512
======= ======= =======
The Company and BOATC have entered into an agreement whereby the Company is
reimbursed for certain corporate general and administrative functions
performed on behalf of BOATC. These fees are included in the caption
"management fees" in the accompanying statements of income and parent's
equity in division and they include treasury, accounting, tax, human
resources, and other support services. Management fees receivable from
BOATC are based on actual amounts incurred on behalf of BOATC as well as a
proportionate amount of the Company's general and administrative expenses
determined based on the level of effort necessary to provide such services.
The level of effort is determined through a percentage allocation of time
and related expenditures for corporate personnel that perform duties and/or
provide support for BOATC. While Company management has no practical means
to estimate the costs that would not have been received for such services
had it been a stand alone company, management believes the amount of such
allocations are reasonable. However, BOATC may discontinue such cost
sharing in the future, which would have the effect of reducing BTC's net
income, and earnings per share to the pro forma (unaudited) amounts that
follow:
PRO FORMA
EXCLUDING
UNAUDITED AS MANAGEMENT MANAGEMENT
- --------- REPORTED FEE FEE
----------- ----------- -----------
Net income:
Year ended January 31, 2000 $ 487,366 (207,390) 279,976
Six months ended July 31, 2000 353,680 (102,939) 250,741
----------- ----------- -----------
Pro forma earnings per share:
Year ended January 31, 2000 $ 0.11 (0.05) 0.06
Six months ended July 31, 2000 0.08 (0.02) 0.06
----------- ----------- -----------
An individual who is an officer and stockholder in the Company is also an
officer and stockholder in Stuckey's Corporation (Stuckey's). The Company
41
paid Stuckey's franchise fees for four stores in the amount of $34,029,
$36,356 and $35,690 for the years ended January 31, 2000, 1999 and 1998,
respectively. Franchise fees are included in general and administrative
expenses in the accompanying statements of income and parent's equity in
division.
During the years ended January 31, 2000, 1999 and 1998, wholesale gasoline
distribution sales totaling $1,328,418, $1,227,681 and $916,733 were sold
to a Stuckey's franchise travel center not owned by the Company. The travel
center is owned by the daughter of an individual who is a stockholder in
the Company.
42