A United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from [ ] to [ ]
Commission File Number 0-21451
BOWLIN OUTDOOR ADVERTISING & TRAVEL CENTERS INCORPORATED
(Exact name of registrant as specified in its charter)
NEVADA 85-0113644
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
150 LOUISIANA NE, ALBUQUERQUE, NM 87108
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 505-266-5985
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes[X] No[ ]
As of December 14, 1998, 4,384,848 shares of the issuer's common stock were
outstanding.
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Page No.
--------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of
October 31, 1998 and January 31, 1998....................2
Consolidated Statements of Income for the
Three Months Ended and Nine Months Ended
October 31, 1998 and 1997.................................4
Consolidated Statements of Stockholders'
Equity for the Nine months ended October 31, 1998.........5
Consolidated Statements of Cash Flows for the
Nine Months Ended October 31, 1998 and 1997...............6
Notes to the Consolidated Financial Statements............8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk..............................................17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................17
Item 2. Changes in Securities and Use of Proceeds................17
Item 3. Defaults Upon Senior Securities..........................17
Item 4. Submission of Matters to a Vote of Security Holders......17
Item 5. Other Information........................................17
Item 6. Exhibits and Reports on Form 8-K ........................17
Signatures ..............................................18
1
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(IN THOUSANDS, EXCEPT SHARE DATA)
OCTOBER 31, JANUARY 31,
1998 1998
(UNAUDITED) (UNAUDITED)
----------- -----------
Current assets:
Cash and cash equivalents $ 1,701 $ 4,054
Accounts receivable, net 762 579
Notes receivable, related
parties - current maturities 11 30
Inventories 4,197 3,623
Prepaid expenses 558 448
Income taxes 106 90
Other current assets 34 11
----------- -----------
Total current assets 7,369 8,835
Notes receivable, related parties,
less current maturities 3 20
Property & equipment, net 21,186 15,728
Intangible assets, net 1,230 1,200
Other assets 71 76
----------- -----------
Total assets $ 29,859 $ 25,859
=========== ===========
(Continued)
2
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
OCTOBER 31, JANUARY 31,
1998 1998
(UNAUDITED) (UNAUDITED)
----------- -----------
Current liabilities:
Short-term borrowing, bank $ 689 $ 745
Accounts payable 1,176 1,351
Long-term debt, current maturities 1,345 779
Accrued liabilities 340 456
----------- -----------
Total current liabilities 3,550 3,331
Deferred income taxes 236 177
Long-term debt, less current maturities 11,018 8,124
----------- -----------
Total liabilities 14,804 11,632
Stockholders' equity
Common stock, $.001 par value; authorized
100,000,000 shares; issued and outstand-
ing 4,384,848 shares 4 4
Additional paid-in capital 11,604 11,604
Retained earnings 3,447 2,619
----------- -----------
Total stockholders' equity 15,055 14,227
----------- -----------
Total liabilities and stockholders' equity $ 29,859 25,859
=========== ===========
See accompanying notes to consolidated financial statements.
3
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ -----------------------------
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1998 1997 1998 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
Gross sales $ 7,897 $ 6,702 $ 23,648 $ 21,276
Less discounts on sales 73 66 208 221
----------- ----------- ----------- -----------
Net sales 7,824 6,636 23,440 21,055
Cost of goods sold 4,819 4,230 14,636 13,720
----------- ----------- ----------- -----------
Gross profit 3,005 2,406 8,804 7,335
General and administrative expenses (1,885) (1,590) (5,462) (4,902)
Other income 3 8 6 78
Depreciation and amortization (493) (305) (1,354) (833)
----------- ----------- ----------- -----------
Operating income 630 519 1,994 1,678
Other non-operating income (expense):
Interest income 23 71 84 216
Gain on sale of property and
equipment 8 -- 12 189
Interest expense (255) (186) (729) (534)
----------- ----------- ----------- -----------
Total other non-operating
income (expense), net (224) (115) (633) (129)
----------- ----------- ----------- -----------
Income before taxes 406 404 1,361 1,549
Income taxes 163 146 533 604
----------- ----------- ----------- -----------
Net Income $ 243 $ 258 $ 828 $ 945
=========== =========== =========== ===========
Weighted average common shares 4,384,848 4,384,848 4,384,848 4,384,848
Weighted average common and potential
dilutive common shares 4,384,848 4,384,848 4,388,166 4,384,848
Earnings per share
Basic $ 0.06 $ 0.06 $ 0.19 $ 0.22
=========== =========== =========== ===========
Diluted $ 0.06 $ 0.06 $ 0.19 $ 0.22
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
4
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED
UNAUDITED
---------
COMMON ADDITIONAL
NUMBER STOCK, PAID-IN RETAINED
OF SHARES AT PAR CAPITAL EARNINGS TOTAL
--------------------------------------------------------------------------
Balance at January 31, 1998 4,384,848 $ 4 $ 11,604 $ 2,619 $ 14,227
Net income 828 828
--------------------------------------------------------------------------
Balance at October 31, 1998 4,384,848 $ 4 $ 11,604 $ 3,447 $ 15,055
==========================================================================
See accompanying notes to consolidated financial statements.
5
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED
-------------------------------
OCTOBER 31, OCTOBER 31,
1998 1997
(UNAUDITED) (UNAUDITED)
----------- -----------
Cash flows from operating activities:
Net income $ 828 $ 945
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,354 833
Gain on sales of property and equipment (12) (189)
Deferred income taxes 59 50
Imputed interest 24 --
Changes in operating assets and
liabilities (1,127) (764)
----------- -----------
Net cash provided by operating activities 1,126 875
Cash flows from investing activities:
Proceeds from sale of assets 16 423
Business acquisitions (note 2) (2,047) (4,865)
Purchases of property and equipment, net (3,084) (2,110)
Proceeds (disbursements) on notes receivable, net 36 4
----------- -----------
Net cash used in investing activities (5,079) (6,548)
Cash flows from financing activities:
Borrowings on short-term debt 689 3,532
Borrowings on long-term debt 2,341 --
Payments on short-term debt (745) (621)
Payments on long-term debt (685) --
----------- -----------
Net cash provided by financing activities 1,600 2,911
Net decrease in cash and cash equivalents (2,353) (2,762)
Cash and cash equivalents at beginning of period 4,054 7,519
----------- -----------
Cash and cash equivalents at end of period $ 1,701 $ 4,757
=========== ===========
(Continued)
6
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(IN THOUSANDS)
OCTOBER 31, OCTOBER 31,
1998 1997
(UNAUDITED) (UNAUDITED)
----------- -----------
Supplemental disclosure of cash flow
information:
Noncash investing and financing activities:
Acquisition of outdoor advertising
assets in exchange for long-term debt $ 1,650 $ 2,775
=========== ===========
Acquisition of covenants not-to-compete
in exchange for long-term debt $ 130 $ --
=========== ===========
Exchange of property and equipment and
note payable on sale of partnership
investment $ -- $ 1,284
=========== ===========
Acquisitions:
Fair value of assets acquired and
liabilities assumed at the date of
the acquisitions were as follows:
Accounts receivable $ 34 $ 74
Prepaid expenses 31 15
Billboards 1,927 3,865
Vehicles and equipment 55 63
Goodwill -- 863
Accounts payable -- (15)
=========== ===========
See accompanying notes to consolidated financial statements.
7
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The consolidated financial statements for the nine months ended October 31,
1998 and October 31, 1997 are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion
of management, necessary for a fair presentation of the financial position
and operating results for the interim periods. The consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes, together with management's discussion and analysis of
financial condition and results of operations, contained in the Company's
annual report on Form 10-KSB for the fiscal year ended January 31, 1998.
Results of operations for interim periods are not necessarily indicative of
results that may be expected for the year as a whole. Certain amounts in
the January 31, 1998 financial statements have been reclassified to conform
with the October 31, 1998 presentation.
2. Earnings per Share. The following table is a reconciliation of the
numerators and denominators of the basic and diluted per share computations
for income from continuing operations.
Three months ended October 31,
-------------------------------------------------------------------------------
1998 1997
------------------------------------- --------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Basic EPS $ 243,000 4,384,848 $ 0.06 $ 258,000 4,384,848 $ 0.06
--------- ---------
Income available to
common stockholders
Effect if Dilutive Securities:
Stock options
----------- ------------- ----------- -------------
Diluted EPS
Income available to common
stockholders plus assumed
conversions $ 243,000 4,384,848 $ 0.06 $ 258,000 4,384,848 $ 0.06
----------- ------------- --------- ----------- ------------- ---------
Nine months ended October 31,
-------------------------------------------------------------------------------
1998 1997
------------------------------------- --------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Basic EPS $ 828,000 4,384,848 $ 0.19 $ 945,000 4,384,848 $ 0.22
--------- ---------
Income available to
common stockholders
Effect if Dilutive Securities:
Stock options 3,318
----------- ------------- ----------- -------------
Diluted EPS
Income available to common
stockholders plus assumed
conversions $ 828,000 4,388,166 $ 0.19 $ 945,000 4,384,848 $ 0.22
----------- ------------- --------- ----------- ------------- ---------
8
3. Acquisitions. On February 1, 1998, the Company acquired the outdoor
advertising assets of Big-Tex Outdoor Advertising (Big-Tex) for $1,559,000.
The Company paid $559,000 from the proceeds of the initial public offering
and financed $1,000,000 with bank debt. Big-Tex owned and operated
approximately 285 poster and painted faces in the Brownwood, Texas metro
area. The Company also entered into a non-compete agreement with the former
principals of Big-Tex for a period of ten years from the date of the
acquisition, payable in ten annual installments of $10,000 beginning in
February 1999. The acquisition was accounted for as a purchase. The results
of Big-Tex's operations have been combined with the Company's since the
date of acquisition. The purchase price was allocated to the assets
acquired based on their estimated fair values and no goodwill was recorded
in connection with the purchase.
On March 3, 1998, the Company acquired the outdoor advertising assets of
Norwood Outdoor, Inc. (Norwood) for $1,006,000. The Company paid $350,000
from the proceeds of the initial public offering, $6,000 cash and financed
$650,000 with bank debt. Norwood owned and operated approximately 140
poster and painted bulletin faces in the Brady, Texas metro area. The
acquisition was accounted for as a purchase. The results of Norwood's
operations have been combined with the Company's since the date of
acquisition. The purchase price was allocated to the assets acquired based
on their estimated fair values and no goodwill was recorded in connection
with the purchase.
On May 1, 1998 the Company purchased the outdoor advertising assets of
Edgar Outdoor Advertising Co. for $900,000. The Company paid $900,000 at
closing from the proceeds of the initial public offering. Edgar owned and
operated approximately 62 painted bulletin faces in central Texas. The
acquisition was accounted for as a purchase. The results of Edgar's
operations have been combined with the Company's since the date of
acquisition. The purchase price was allocated to the assets acquired based
on their estimated fair values and no goodwill was recorded in connection
with the purchase.
On June 1, 1998 the Company purchased the outdoor advertising assets of J &
J Sign Company, located in Silver City, New Mexico. The Company paid
$332,000 from the proceeds of the initial public offering. J & J owned and
operated approximately 40 painted bulletin faces in Southwestern New
Mexico. The acquisition was accounted for as a purchase. The purchase price
was allocated to the assets acquired based on their estimated fair values
and no goodwill was recorded in connection with the purchase.
On August 14, 1998 the Company purchased the outdoor advertising assets of
T & C Outdoor for $160,000 cash. T & C owned and operated approximately 20
faces in central Texas. The acquisition was accounted for as a purchase.
The purchase price was allocated to the assets acquired based on their
estimated fair values and no goodwill was recorded in connection with the
purchase.
The following unaudited proforma consolidated results of operations have
been prepared as if the acquisitions of Big-Tex, Norwood and Edgar occurred
on February 1, 1998 and 1997. The effect of the Company's acquisitions of
the assets of J & J and T & C are not material to the combined results of
operations of the Company.
9
(in thousands except per share amounts)
Nine Months Ended October 31
(unaudited)
1998 1997
---- ----
Gross sales $ 23,745 $ 22,218
Net income 848 1,041
Earnings per basic and
diluted share $ .19 $ .24
========== ===========
The proforma information is presented for informational purposes only and
is not necessarily indicative of the results of operations that actually
would have been achieved had the acquisition been consummated as of that
time, nor is it intended to be a projection of future results.
4. Subsequent Events: On November 10, 1998, the Company entered into a credit
agreement with one of its existing lenders for the following: 1) a new term
note, in the amount of $12,000,000, created to refinance existing
borrowings and to provide funds for working capital; 2) a new line of
credit, which is a multiple advance line, in the amount of $10,000,000, to
fund purchases of existing outdoor advertising business and/or billboard
properties; 3) an increase in the existing $500,000 working capital line to
$2,000,000; 4) the existing facility line to fund the acquisition and/or
construction of travel centers is reduced to $6,000,000; and 5) the
existing leasing line of $2,000,000 was terminated. Each note will bear
interest based on the LIBOR 90 day rate index for the first 90 day rate
period. At the end of each rate period the Company will have the option to
choose a different rate period or remain at the 90 day index if no election
is made. The Matrix rate will be based on the Company's earnings as
reported in the Company's most recently available 10Q.
On November 16, 1998 the Company purchased the outdoor advertising assets
of Faris Outdoor Advertising, Inc. for $2,500,000 which was financed with
bank debt. Faris owned and operated approximately 132 painted bulletin
faces in central Texas.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The following is a discussion of the consolidated financial condition and
results of operations of the Company as of and for the two fiscal periods ended
October 31, 1998 and 1997. This discussion should be read in conjunction with
the Consolidated Financial Statements of the Company and the related notes
included in the Company's Form 10-KSB for the fiscal year ended January 31,
1998.
The Company operates in two industry segments, travel centers and outdoor
advertising. In order to perform a meaningful evaluation of the Company's
performance in each of its operating segments, the Company has presented
selected operating data which separately sets forth the revenue, expenses and
operating income attributable to each segment, and also separately sets forth
10
the corporate expenses of the Company which are not properly allocable to either
of the Company's segments for purposes of determining their respective operating
income. The discussion of results of operations which follows compares such
selected operating data and corporate expense data for the interim periods
presented.
The forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, which reflect management's
best judgment based on factors currently known, involve risks and uncertainties.
Actual results could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including but not
limited to those discussed.
11
RESULTS OF OPERATIONS
The following table presents certain income and expense items derived from the
Consolidated Statements of Income for the nine months ended October 31
(unaudited and amounts in thousands):
% INCR/
1998 1997 (DECR)
---- ---- -------
TRAVEL CENTERS:
Gross sales 18,617 17,749 4.9%
Discounts on sales 208 221 (5.9%)
------ ------
Net sales 18,409 17,528 5.0%
Cost of sales 12,394 11,814 4.9%
------ ------
6,015 5,714 5.3%
General and administrative
expenses 4,369 4,006 9.1%
Depreciation and
amortization 450 318 41.5%
------ ------
Operating income 1,196 1,390 (14.0%)
OUTDOOR ADVERTISING:
Gross sales 5,031 3,527 42.6%
Direct operating expenses 2,242 1,906 17.6%
------ ------
2,789 1,621 72.1%
General and administrative expenses 741 538 37.7%
Depreciation and amortization 820 419 95.7%
------ ------
Operating income 1,228 664 84.9%
CORPORATE AND OTHER:
General and administrative expenses (352) (358) (1.7%)
Depreciation and amortization (84) (96) (12.5%)
Interest expense (729) (534) 36.5%
Other income, net 102 483 (78.9%)
------ ------
INCOME BEFORE TAXES 1,361 1,549 (12.1%)
INCOME TAXES 533 604 (11.8%)
------ ------
NET INCOME 828 945 (12.4%)
12
COMPARISON OF THE NINE MONTHS ENDED OCTOBER 31, 1998 AND OCTOBER 31, 1997
TRAVEL CENTERS. Gross sales at the Company's Travel Centers increased by 4.9% to
$18.617 million for the nine months ended October 31, 1998 from $17.749 million
for the nine months ended October 31, 1997. This increase is primarily
attributable to a 11.3% increase in merchandise sales which were $6.183 million
for the nine months ended October 31,1998 compared with $5.556 million for the
nine months ended October 31,1997. Gasoline sales increased 2.0% to $9.242
million for the nine months ended October 31, 1998 from $9.058 million for the
same period in 1997. Wholesale gasoline sales increased 42.6% to $967,000 for
the nine months ended October 31, 1998, as compared to $678,000 for the nine
months ended October 31, 1997. Restaurant sales decreased by 9.4% to $2.225
million for the nine months ended October 31, 1998 compared with $2.457 for the
nine months ended October 31, 1997. Cost of goods sold for the travel centers
increased 4.9% to $12.394 million for the nine months ended October 31, 1998
from $11.814 million for the nine months ended October 31, 1997, primarily as a
result of an increase in merchandise sales.
General and administrative expenses for travel centers consist of salaries,
bonuses and commissions for travel center personnel, property costs and repairs
and maintenance. General and administrative expenses for the travel centers
increased to $4.369 million for the nine months ended October 31 1998 from
$4.006 million for the nine months ended October 31, 1997.
Depreciation and amortization expense increased by 41.5% to $450,000 for the
nine months ended October 31, 1998 as compared to $318,000 for the nine months
ended October 31, 1997. The increase is attributable to additions of depreciable
assets during the current period.
The above factors contributed to an overall decrease in travel center operating
income of 14.0% to $1.196 million for the nine months ended October 31,1998 from
$1.390 million for the nine months ended October 31, 1997. This decrease is
primarily attributable to increases in depreciation and general and
administrative expenses.
OUTDOOR ADVERTISING. Gross sales from the Company's Outdoor Advertising
increased 42.6% to $5.031 million for the nine months ended October 31, 1998
from $3.527 million for the nine months ended October 31, 1997. The increase was
primarily attributable to the continual assimilation of the Company's
acquisitions, increased usage of available sign inventory, and increases in
rates.
Direct operating expenses related to outdoor advertising consist of rental
payments to property owners for the use of land on which advertising displays
are located, production expenses and selling expenses. Production expenses
include salaries for operations personnel and real estate representatives,
property taxes, materials and repairs and maintenance of advertising displays.
Selling expenses consist primarily of salaries and commissions for salespersons
and travel related to sales. Direct operating costs increased 17.6% to $2.242
million for the nine months ended October 31, 1998 from $1.906 million for the
nine months ended October 31, 1997, principally due to additional direct
operating costs associated with the acquisitions.
General and administrative expenses for outdoor advertising consist of salaries
and wages for administrative personnel, insurance, legal fees, association dues
and subscriptions and other indirect operating expenses. General and
administrative expenses increased 37.7% to $741,000 for the nine months ended
October 31, 1998 from $538,000 for the nine months ended October 31, 1997.
13
Depreciation and amortization expense increased 95.7% to $820,000 for the nine
months ended October 31, 1998 from $419,000 for the nine months ended October
31, 1997. The increase is attributable to scheduled depreciation of advertising
display structures and machinery and equipment primarily associated with
acquisitions as well as the amortization of goodwill and non-compete covenants.
The above factors contributed to the increase in outdoor advertising operating
income of 84.9% to $1.228 million for the nine months ended October 31, 1998
from $664,000 for the nine months ended October 31, 1997. In addition, earnings
before interest, taxes, depreciation and amortization (EBITDA) for outdoor
advertising increased 89.1% to $2.048 million for the nine months ended October
31, 1998 from $1.083 million for the nine months ended October 31, 1997. The
EBITDA margin for outdoor advertising increased to 40.7% for the nine months
ended October 31, 1998 as compared to 30.7% for the nine months ended October
31, 1997.
CORPORATE AND OTHER. General and administrative expenses for corporate and other
operations of the Company consist primarily of executive and administrative
compensation and benefits, accounting, legal and investor relations fees.
General and administrative expenses decreased slightly to $352,000 for the nine
months ended October 31, 1998 as compared to $358,000 for the nine months ended
October 31, 1997.
Depreciation and amortization expenses for the Company's corporate and other
operations consist of depreciation associated with the corporate headquarters,
furniture and fixtures and vehicles. Depreciation and amortization expenses
decreased to $84,000 for the nine months ended October 31, 1998 as compared to
$96,000 for the nine months ended October 31, 1997.
Interest expense increased by 36.5% to $729,000 for the nine months ended
October 31, 1998 as compared to $534,000 for the nine months ended October 31,
1997. The increase is primarily attributable to the increase in debt associated
with the Company's acquisitions.
Other income, net, primarily includes operating rental revenues from the
Company's former subsidiary, gains and/or losses from the sales of assets, and
interest income. Other income, net, decreased 78.9% to $102,000 for the nine
months ended October 31, 1998 as compared to $483,000 for the nine months ended
October 31, 1997. The decrease is due to certain non-operating gains in 1997 not
present in 1998 and a decrease in interest income due to use of IPO proceeds for
acquisitions.
Income before taxes decreased 12.1% to $1.361 million for the nine months ended
October 31, 1998 as compared to $1.549 million for the nine months ended October
31, 1997. As a percentage of gross revenues, income before taxes decreased to
5.8% for the nine months ended October 31, 1998 as compared to 7.3% for the nine
months ended October 31, 1997.
Income taxes were $533,000 for the nine months ended October 31, 1998 as
compared to $604,000 for the nine months ended October 31, 1997, as the result
of lower pretax income.
The foregoing factors contributed to a decrease in the Company's net income for
the nine months ended October 31, 1998 to $828,000 as compared to $945,000 for
the nine months ended October 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
At October 31,1998, the Company had working capital of $3.819 million and a
current ratio of 2.1:1, compared to working capital of $5.504 million and a
current ratio of 2.7:1 at January 31, 1998. Working capital and the current
ratio decreased for the nine months ended October 31, 1998 as a result of IPO
proceeds used in the current period but present at January 31, 1998.
14
Net cash provided by operating activities was $1.126 million for the nine months
ended October 31, 1998 as compared to net cash provided by operating activities
of $875,000 for the nine months ended October 31, 1997. Net cash provided in the
current period is primarily attributable to increased depreciation and
amortization from acquisitions and decreases in gains on sales of property and
equipment as well as an increase in cash used to fund operating assets and
liabilities. Net cash used for investing activities for the nine months ended
October 31, 1998 was $5.079 million, of which $2.047 million was used in the
purchase of the outdoor advertising assets of Big-Tex, Norwood, Edgar, J & J and
T & C, and $3.084 million was used for purchases of property and equipment. For
the nine months ended October 31, 1997, net cash used for investing activities
was $6.548 million, of which $4.865 million was used for acquisitions.
Net cash provided by financing activities for the nine months ended October 31,
1998 was $1.600 million as compared to $2.911 million for the nine months ended
October 31, 1997. At October 31, 1998 and 1997 financing activities were a
result of borrowings and payments on debt.
On February 1, 1998, the Company acquired the outdoor advertising assets of
Big-Tex Outdoor Advertising (Big-Tex) for $1,559,000. The Company paid $559,000
from the proceeds of the initial public offering and financed $1,000,000 with
bank debt. Big-Tex owned and operated approximately 285 poster and painted faces
in the Brownwood, Texas metro area. The Company also entered into a non-compete
agreement with the former principals of Big-Tex for a period of ten years from
the date of the acquisition, payable in ten annual installments of $10,000
beginning in February 1999. The acquisition was accounted for as a purchase. The
results of Big-Tex's operations have been combined with the Company's since the
date of acquisition. The purchase price was allocated to the assets acquired
based on their estimated fair values and no goodwill was recorded in connection
with the purchase.
On March 3, 1998, the Company acquired the outdoor advertising assets of Norwood
Outdoor, Inc. (Norwood) for $1,006,000. The Company paid $350,000 from the
proceeds of the initial public offering, $6000 cash and financed $650,000 with
bank debt. Norwood owned and operated approximately 140 poster and painted
bulletin faces in the Brady, Texas metro area. The acquisition was accounted for
as a purchase. The results of Norwood's operations have been combined with the
Company's since the date of acquisition. The purchase price was allocated to the
assets acquired based on their estimated fair values and no goodwill was
recorded in connection with the purchase.
On May 1, 1998 the Company purchased the outdoor advertising assets of Edgar
Outdoor Advertising Co. for $900,000 with the proceeds of the initial public
offering. Edgar owned and operated approximately 62 painted bulletin faces in
central Texas. The acquisition was accounted for as a purchase. The results of
Edgar's operations have been combined with the Company's since the date of
acquisition. The purchase price was allocated to the assets acquired based on
their estimated fair values and no goodwill was recorded in connection with the
purchase.
On June 1, 1998 the Company purchased the outdoor advertising assets of J & J
Sign Company, located in Silver City, New Mexico. The Company paid $332,000 from
the proceeds of the initial public offering. J & J owned and operated
approximately 40 painted bulletin faces in Southwestern New Mexico. The
acquisition was accounted for as a purchase. The purchase price was allocated to
the assets acquired based on their estimated fair values and no goodwill was
recorded in connection with the purchase.
On August 14, 1998 the Company purchased the outdoor advertising assets of T & C
Outdoor for $160,000 cash. T & C owned and operated approximately 20 faces in
central Texas. The acquisition was accounted for as a purchase. The purchase
price was allocated to the assets acquired based on their estimated fair values
and no goodwill was recorded in connection with the purchase.
On November 10, 1998, the Company entered into a credit agreement with one of
its existing lenders for the following: 1) a new term note, in the amount of
$12,000,000, created to refinance existing borrowings and to provide funds for
working capital; 2) a new line of credit, which is a multiple advance line, in
the amount of $10,000,000, to fund purchases of existing outdoor advertising
business and/or billboard properties, 3) an increase in the existing $500,000
working capital line to $2,000,000; 4) the existing facility line to fund the
acquisition and/or construction of travel centers is reduced to $6,000,000; and
5) the existing leasing line of $2,000,000 was terminated. Each note will bear
interest based on the LIBOR 90 day rate index for the first 90 day rate period.
At the end of each rate period the Company will have the option to choose a
different rate period or remain at the 90 day index if no election is made. The
Matrix rate will be based on the Company's earnings as reported in the Company's
most recently available 10Q.
On November 16, 1998 the Company purchased the outdoor advertising assets of
Faris Outdoor Advertising, Inc. for $2,500,000 which was financed with bank
debt. Faris owned and operated approximately 132 painted bulletin faces in
central Texas.
The construction of a new travel center located approximately 20 miles west of
Albuquerque, New Mexico, on Interstate 40 is scheduled to open by the end of
December. Renovation and upgrades of existing facilities continues.
15
Although the Company does not have any agreements in place, it will continue
discussions with acquisition candidates throughout the Southwestern United
States. The Company has not executed a letter of intent or other agreement,
binding or non-binding, to make such acquisitions. Any such acquisition would be
subject to the negotiation and execution of definitive agreements, appropriate
financing arrangements, performance of due diligence, approval of the Company's
Board of Directors, and the satisfaction of other customary closing conditions.
The Company would likely finance any such acquisitions with cash, additional
indebtedness or a combination of the two. Any commercial financing obtained for
purposes of acquiring additional assets is likely to impose certain financial
and other restrictive covenants upon the Company and increase the Company's
interest expense.
YEAR 2000
The Year 2000 Issue is the result of computer programs that were written using
two digits rather than four to define the applicable year. As a result, any of
the Company's computer programs that have date-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations which could result in disruptions in the
operations of the Company and its suppliers and customers.
STATE OF READINESS. The Company has conducted a comprehensive review of its
computer systems to identify those portions that could be affected by the Year
2000 Issue. The evaluation revealed that the Company's network hardware and
operating system, voice mail system, e-mail system, and accounting software are
the major resources that do have Year 2000 compliance issues. Fortunately, the
identified systems are "off-the-shelf" products with Year 2000 compliant
versions now available.
The Company has not yet completed its survey of its significant suppliers,
vendors, and pertinent institutions to determine the extent to which the Company
is vulnerable to those third parties' failure to remediate their Year 2000
issues. The Company will complete its survey by the end of the first quarter of
1999. There can be no guarantee that the systems of other companies on which the
Company's business relies will be timely converted or that failure to convert by
another company, or a conversion that is incompatible with the Company's
systems, would not have a material adverse effect on the Company and its
operations.
COSTS TO ADDRESS YEAR 2000 ISSUES. The Company estimates over the next twelve
months that the costs associated with the implementation plan will not exceed
$50,000.
RISKS ASSOCIATED WITH YEAR 2000 ISSUES. The Company's failure to resolve Year
2000 Issues on or before December 31, 1999 could result in system
miscalculations causing disruption in operations, including, among other things,
a temporary inability to process transactions, send invoices, determine payments
due, send and/or receive e-mail, or engage in similar normal business
activities. Additionally, failure of third parties upon whom the Company's
business relies to timely remediate their Year 2000 Issues could result in
disruptions in the Company's supply of parts and materials, late, missed or
unapplied payments, temporary disruptions in order processing and other general
problems related to the Company's daily operations. The Company presently
believes that, with modifications to existing software and conversions to new
software, the Year 2000 problem will not pose significant operational problems
for the Company. Until the Company receives responses from significant
suppliers, vendors and pertinent institutions, the overall risks associated with
the Year 2000 Issue remain difficult to accurately describe and quantify, and
there can be no guarantee that the Year 2000 Issue will not have a material
adverse effect on the Company and its operations.
CONTINGENCY PLAN. The Company has not determined the specific risks that may
need to be addressed by a contingency plan. It is the Company's goal to have the
internal major Year 2000 Issues resolved and external effects determined by the
end of the second quarter of 1999.
16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.
ITEM 5. OTHER INFORMATION. None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a). Exhibit No. Exhibit Name
----------- ------------
2.7 Purchase Agreement dated November 16, 1998 between the
Registrant and Faris Outdoor Advertising, Inc.
10.46 Credit Agreement with First Security Bank, dated as of
November 10, 1998 granting the Registrant funds in the
aggregate principal amount of $30,000,000
27 Financial Data Schedule
(b). No reports were filed on Form 8-K during the nine months ended
October 31, 1998.
17
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: December 14, 1998
BOWLIN Outdoor Advertising &
Travel Centers Incorporated
/s/ Michael L. Bowlin
--------------------------------------------
Michael L. Bowlin, Chairman of the Board,
President and Chief Executive Officer
/s/ Nina J. Pratz
--------------------------------------------
Nina J. Pratz, Chief Financial Officer
(Principal Financial and Accounting Officer)
18