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 July 31, 2002 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________ Commission File Number 000-31701 BOWLIN TRAVEL CENTERS, INC. (Exact name of registrant as specified in its charter) NEVADA 85-0473277 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 150 LOUISIANA NE, ALBUQUERQUE, NM 87108 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 505-266-5985 Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of September 12, 2002, 4,583,348 shares of the issuer's common stock were outstanding. BOWLIN TRAVEL CENTERS, INC. INDEX PART I. FINANCIAL INFORMATION Page No Item 1. Financial Statements Condensed Balance Sheets as of July 31, 2002 and January 31, 2002.......................................... 2 Condensed Statements of Income for the Three Months and Six Months Ended July 31, 2002 and 2001................... 3 Condensed Statements of Cash Flows for the Six Months Ended July 31, 2002 and 2001........................... 4 Notes to the Condensed Financial Statements................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 5 Item 3. Quantitative and Qualitative Disclosures About Market Risk................................................... 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................. 9 Item 2. Changes in Securities and Use of Proceeds..................... 9 Item 3 Defaults Upon Senior Securities............................... 9 Item 4. Submission of Matters to a Vote of Security Holders........... 9 Item 5. Other Information............................................. 9 Item 6. Exhibits and Reports on Form 8-K.............................. 9 Signatures.................................................... 10 1 PART I. FINANCIAL INFORMATION Item 1. Financial Statements BOWLIN TRAVEL CENTERS, INC. CONDENSED BALANCE SHEETS (in thousands, except share data) July 31, January 31, 2002 2002 (Unaudited) ----------- ----------- Assets Current assets: Cash and cash equivalents $ 3,445 $ 2,671 Accounts receivable 256 267 Accounts receivable, related parties 7 3 Inventories 2,634 2,996 Prepaid expenses 289 280 Mortgages receivable, current maturities 3 4 Notes receivable 33 39 ----------- ----------- Total current assets 6,667 6,260 Property & equipment, net 9,209 9,397 Intangible assets, net 259 278 Interest receivable 11 27 Mortgages receivable 340 341 Notes receivable 218 229 ----------- ----------- Total assets $ 16,704 $ 16,532 =========== =========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 1,018 $ 989 Current installments of long-term debt 632 709 Accrued liabilities 354 246 Deferred revenue 6 33 Income taxes payable 66 -- ----------- ----------- Total current liabilities 2,076 1,977 Deferred income taxes 618 626 Long-term debt, less current installments 3,654 3,976 ----------- ----------- Total liabilities 6,348 6,579 ----------- ----------- Stockholders' equity: Preferred stock, $0.001 par value; 1,000,000 shares authorized, none issued or outstanding at July 31, 2002 and January 31, 2002 -- -- Common stock, $.001 par value; 10,000,000 shares authorized, 4,583,348 issued and outstanding at July 31, 2002 and January 31, 2002 5 5 Additional paid in capital 9,775 9,775 Retained earnings 576 173 ----------- ----------- Total stockholders' equity 10,356 9,953 ----------- ----------- Total liabilities and stockholders' equity $ 16,704 $ 16,532 =========== =========== See accompanying notes to condensed financial statements. 2 BOWLIN TRAVEL CENTERS, INC. CONDENSED STATEMENTS OF INCOME (in thousands, except share and per share data) Three Months Ended Six Months Ended -------------------------- -------------------------- July 31, July 31, July 31, July 31, 2002 2001 2002 2001 (Unaudited) (Unaudited) (Unaudited) (Unaudited) ----------- ----------- ----------- ----------- Gross sales $ 6,845 $ 7,249 $ 12,130 $ 12,997 Less discounts on sales 120 117 212 205 ----------- ----------- ----------- ----------- Net sales 6,725 7,132 11,918 12,792 Cost of goods sold 4,368 4,864 7,821 8,809 ----------- ----------- ----------- ----------- Gross profit 2,357 2,268 4,097 3,983 General and administrative expenses (1,628) (1,580) (3,122) (3,053) Depreciation and amortization (184) (188) (373) (384) ----------- ----------- ----------- ----------- Operating income 545 500 602 546 Non-operating income (expense): Interest income 28 40 54 78 Gain on sale of property and equipment 3 3 5 3 Interest expense (57) (107) (115) (233) Miscellaneous income 39 -- 40 -- Rental income 23 23 43 45 ----------- ----------- ----------- ----------- Total non-operating income (expense) 36 (41) 27 (107) ----------- ----------- ----------- ----------- Income before income taxes 581 459 629 439 Income taxes 208 175 226 169 ----------- ----------- ----------- ----------- Net income $ 373 $ 284 $ 403 $ 270 ============ =========== =========== =========== Earnings per share: Basic and diluted $ 0.08 $ 0.06 $ 0.09 $ 0.06 ============ =========== =========== =========== Weighted average common shares outstanding 4,583,348 4,583,348 4,583,348 4,583,348 ============ =========== =========== =========== See accompanying notes to condensed financial statements. 3 BOWLIN TRAVEL CENTERS, INC. CONDENSED STATEMENTS OF CASH FLOWS (in thousands) For the Six Months Ended -------------------------- July 31, July 31, 2002 2001 (Unaudited) (Unaudited) ----------- ----------- Cash flows from operating activities: Net income $ 403 $ 270 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 373 384 Amortization of loan fee 14 13 Gain on sale of property and equipment (5) (3) Deferred income taxes (8) (26) Changes in operating assets and liabilities, net 536 259 ----------- ----------- Net cash provided by operating activities 1,313 897 ----------- ----------- Cash flows from investing activities: Proceeds from sale of assets 4 53 Purchases of property and equipment, net (179) (464) Accrued interest receivable 16 -- Mortgages receivable, net 2 -- Notes receivable, net 17 (10) ----------- ----------- Net cash used in investing activities (140) (421) ----------- ----------- Cash flows from financing activities: Payments on long-term debt (399) (373) ----------- ----------- Net cash used in financing activities (399) (373) ----------- ----------- Net increase in cash and cash equivalents 774 103 Cash and cash equivalents at beginning of period 2,671 4,043 ----------- ----------- Cash and cash equivalents at end of period $ 3,445 $ 4,146 =========== =========== See accompanying notes to condensed financial statements. 4 BOWLIN TRAVEL CENTERS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. The condensed financial statements of Bowlin Travel Centers, Inc. (the Company) as of and for the three months and six months ended July 31, 2002 and 2001 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 interim financial statements should be read in conjunction with the 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-K for the fiscal year ended January 31, 2002. Results of operations for interim periods are not necessarily indicative of results that may be expected for the year as a whole. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Certain statements contained herein with respect to factors which may affect future earnings, including management's beliefs and assumptions based on information currently available, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements that are not historical facts involve risks and uncertainties, and results could vary materially from the descriptions contained herein. OVERVIEW The following is a discussion of the financial condition and results of operations of the Company as of and for the periods ended July 31, 2002 and 2001. This discussion should be read in conjunction with the Financial Statements of the Company and the related notes included in the Company's annual report on Form 10-K for fiscal year ended January 31, 2002. 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, primarily New Mexico. The discussion of results of operations which follows compares such selected operating data for the interim periods presented. RESULTS OF OPERATIONS The following table presents certain income and expense items derived from the Statements of Operations for the three months and six months ended July 31 (unaudited and amounts in thousands): Three Months Ended Six Months Ended ------------------ ------------------ 2002 2001 2002 2001 ------- ------- ------- ------- Selected Statement of Operations Data: (in thousands, except per share data) Gross sales $ 6,845 $ 7,249 $12,130 $12,997 ======= ======= ======= ======= Net income $ 373 $ 284 $ 403 $ 270 ======= ======= ======= ======= Earnings per share $ 0.08 $ 0.06 $ 0.09 $ 0.06 ======= ======= ======= ======= 5 BOWLIN TRAVEL CENTERS, INC. COMPARISON OF THE THREE MONTHS ENDED JULY 31, 2002 AND JULY 31, 2001 Gross sales at the Company's travel centers decreased by 5.6% to $6.845 million for the three months ended July 31, 2002, from $7.249 million for the three months ended July 31, 2001. Merchandise sales increased 7.2% to $3.087 million for the three months ended July 31, 2002, from $2.881 million for the three months ended July 31, 2001. The increase is primarily due to new sales incentive programs in the current fiscal year as well as more efficient sales management. Gasoline sales decreased 15.4% to $2.560 million for the three months ended July 31, 2002, for $3.025 million for the same period in 2001. The decrease is primarily due to price decreases for the three months ended July 31, 2002, compared to July 31, 2001 prices. Restaurant sales increased 2.2% to $604,000 for the three months ended July 31, 2002, from $591,000 for the three months ended July 31, 2001. The increase is due to new sales incentive programs in the current fiscal year as well as upgrades to facilities. Wholesale gasoline sales to independent retailers decreased 21.0% to $594,000 for the three months ended July 31, 2002, from $752,000 for the three months ended July 31, 2001 primarily due to price decreases for the three months ended July 31, 2002, compared to July 31, 2001 prices. Cost of goods sold decreased 10.2% to $4.368 million for the three months ended July 31, 2002, from $4.864 million for the three months ended July 31, 2001. Merchandise cost of goods increased 6.1% to $1.306 million for the three months ended July 31, 2002, from $1.231 million for the three months ended July 31, 2001. The increase directly corresponds to the increase in merchandise sales. Gasoline cost of goods decreased 15.6% to $2.309 million for the three months ended July 31, 2002, from $2.737 million for the three months ended July 31, 2001. The decrease is primarily attributable to price decreases for the three months ended July 31, 2002, compared to July 31, 2001 prices. Restaurant cost of goods decreased 3.0% to $164,000 for the three months ended July 31, 2002, from $169,000 for the three months ended July 31, 2001. The decrease is a result of more efficient management of costs. Wholesale gasoline cost of goods decreased 19.0% to $589,000 for the three months ended July 31, 2002, from $727,000 for the three months ended July 31, 2001, primarily due to prices decreases for the three months ended July 31, 2002, compared to July 31, 2001 prices. Cost of goods sold as a percentage of gross revenues improved for the three months ended July 31, 2002 to 63.8%, as compared to 67.1% for the three months ended July 31, 2001. Gross profit increased 3.9% to $2.357 million for the three months ended July 31, 2002, from $2.268 million for the three months ended July 31, 2001. The increase is primarily attributable to improved management of cost of goods as well as improved merchandise mix. 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 increased 3.0% to $1.628 million for the three months ended July 31, 2002, from $1.580 million for the three months ended July 31, 2001. The increase is primarily due to higher salaries, bonuses and commissions for travel center personnel as a result of the new sales incentive programs as well as higher repairs and maintenance. Depreciation and amortization expense decreased 2.1% to $184,000 for the three months ended July 31, 2002 from $188,000 for the three months ended July 31, 2001. The decrease is associated with certain assets becoming fully depreciated. The above factors contributed to an overall increase in operating income of 9.0% to $545,000 for the three months ended July 31, 2002, from $500,000 for the three months ended July 31, 2001. 6 Non-operating income (expense) includes interest income, gains and/or losses from the sale of assets, rental income and interest expense. Interest income decreased 30.0% to $28,000 for the three months ended July 31, 2002, from $40,000 for the three months ended July 31, 2001. The decrease is due to lower cash balances in the current period as well as lower interest rates. Gain on the sale of property and equipment was $3,000 for the three months ended July 31, 2002 and for the three months ended July 31, 2001. Rental income was $23,000 for both the three months ended July 31, 2002 and the three months ended July 31, 2001. Interest expense decreased 46.7% to $57,000 for the three months ended July 31, 2002, from $107,000 for the three months ended July 31, 2001. The decrease is primarily due to lower interest rates as well as lower debt balances. Income before income taxes increased 26.6% to $581,000 for the three months ended July 31, 2002, compared to $459,000 for the three months ended July 31, 2001. As a percentage of gross revenues, income before income taxes was 8.5% for the three months ended July 31, 2002, compared to 6.3% for the three months ended July 31, 2001. Income tax expense increased 18.9% to $208,000 for the three months ended July 31, 2002, compared to $175,000 for the three months ended July 31, 2001 as a result of higher pre-tax income. The foregoing factors contributed to net income for the three months ended July 31, 2002 of $373,000 compared to a net income of $284,000 for the three months ended July 31, 2001. COMPARISON OF THE SIX MONTHS ENDED JULY 31, 2002 AND JULY 31, 2001 Gross sales at the Company's travel centers decreased by 6.7% to $12.130 million for the six months ended July 31, 2002, from $12.997 million for the six months ended July 31, 2001. Merchandise sales increased 6.3% to $5.282 million for the six months ended July 31, 2002, from $4.968 million for the six months ended July 31, 2001. The increase is primarily due to new sales incentive programs in the current fiscal year as well as more efficient sales management. Gasoline sales decreased 19.2% to $4.689 million for the six months ended July 31, 2002, from $5.802 million for the same period in 2001. The decrease is primarily due to price decreases for the six months ended July 31, 2002, compared to July 31, 2001 prices. Restaurant sales decreased 2.0% to $1.102 million for the six months ended July 31, 2002, from $1.124 million for the six months ended July 31, 2001. Wholesale gasoline sales to independent retailers decreased 4.2% to $1.057 million for the six months ended July 31, 2002, from $1.103 million for the six months ended July 31, 2001. The decrease is primarily due to price decreases for the six months ended July 31, 2002, compared to July 31, 2001 prices. Cost of goods sold decreased 11.2% to $7.821 million for the six months ended July 31, 2002, from $8.809 million for the six months ended July 31, 2001. Merchandise cost of goods increased 5.4% to $2.243 million for the six months ended July 31, 2002, from $2.129 million for the six months ended July 31, 2001. The increase directly corresponds to the increase in merchandise sales. Gasoline cost of goods decreased 19.9% to $4.240 million for the six months ended July 31, 2002, from $5.293 million for the six months ended July 31, 2001. The decrease is primarily due to price decreases for the six months ended July 31, 2002, compared to July 31, 2001 prices. Restaurant cost of goods decreased 3.4% to $308,000 for the six months ended July 31, 2002, from $319,000 for the six months ended July 31, 2001. Wholesale gasoline cost of goods decreased 3.6% to $1.030 million for the six months ended July 31, 2002, from $1.068 million for the six months ended July 31, 2001. The decrease is primarily due to price decreases for the six months ended July 31, 2002, compared to July 31, 2001 prices. Cost of goods sold as a percentage of gross revenues improved for the six months ended July 31, 2002 to 64.5%, as compared to 67.8% for the six months ended July 31, 2001. 7 BOWLIN TRAVEL CENTERS, INC. Gross profit increased 2.9% to $4.097 million for the six months ended July 31, 2002, from $3.983 million for the six months ended July 31, 2001. The increase is primarily attributable to improved management of cost of goods as well as improved merchandise mix. 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 increased 2.3% to $3.122 million for the six months ended July 31, 2002, from $3.053 million for the six months ended July 31, 2001. The increase is primarily due to higher salaries, bonuses and commissions for travel center personnel as a result of the new sales incentive programs as well as higher repairs and maintenance. Depreciation and amortization expense decreased 2.9% to $373,000 for the six months ended July 31, 2002 from $384,000 for the six months ended July 31, 2001. The decrease is associated to certain assets becoming fully depreciated. The above factors contributed to an overall increase in operating income of 10.3% to $602,000 for the six months ended July 31, 2002, from $546,000 for the six months ended July 31, 2001. Non-operating income (expense) includes interest income, gains and/or losses from the sale of assets, rental income and interest expense. Interest income decreased 30.8% to $54,000 for the six months ended July 31, 2002, from $78,000 for the six months ended July 31, 2001. The decrease is due to lower cash balances in the current period as well as lower interest rates. Gain on the sale of property and equipment was $5,000 for the six months ended July 31, 2002, compared to $3,000 for the six months ended July 31, 2001. Rental income decreased 4.4% to $43,000 for the six months ended July 31, 2002, from $45,000 the six months ended July 31, 2001. Interest expense decreased 50.6% to $115,000 for the six months ended July 31, 2002, from $233,000 for the six months ended July 31, 2001. The decrease is primarily due to lower interest rates as well as lower debt balances. Income before income taxes increased 43.3% to $629,000 for the six months ended July 31, 2002, compared to income before income taxes of $439,000 for the six months ended July 31, 2001. As a percentage of gross revenues, income before income taxes was 5.2% for the six months ended July 31, 2002, compared to 3.4% for the six months ended July 31, 2001. Income tax expense increased 33.7% to $226,000 for the three months ended July 31, 2002, compared to $169,000 for the three months ended July 31, 2001 as a result of higher pre-tax income. The foregoing factors contributed to net income for the six months ended July 31, 2002 of $403,000 compared to $270,000 for the six months ended July 31, 2001. LIQUIDITY AND CAPITAL RESOURCES At July 31, 2002, the Company had working capital of $4.591 million and a current ratio of 3.2:1, compared to working capital of $4.283 million and a current ratio of 3.2:1 as of January 31, 2002. Net cash provided by operating activities was $1.313 million for the six months ended July 31, 2002, compared to $897,000 for the six months ended July 31, 2001. Net cash provided in the current period is primarily attributable to net income adjusted for depreciation and amortization expense and changes in other operating assets and liabilities. Net cash provided for the six months ended July 31, 2001 is primarily attributable to net income adjusted for depreciation and amortization expense and changes in other operating assets and liabilities. 8 BOWLIN TRAVEL CENTERS, INC. Net cash used in investing activities for the six months ended July 31, 2002 was $140,000, of which $179,000 was used for purchases of property and equipment, partially offset by notes and interest receivable. For the six months ended July 31, 2001, net cash used in investing activities was $421,000, of which $464,000 was used for purchases of property and equipment, partially offset by proceeds of $53,000. Net cash used in financing activities for the six months ended July 31, 2002 was $399,000, which were payments on long-term debt. For the six months ended July 31, 2001, net cash used in financing activities was $373,000, which were payments on long-term debt. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The principal market risk to which the Company is exposed are interest rates on the Company's debt. The Company's interest sensitive liabilities are its debt instruments. Variable interest on the majority of the Company's debt equals LIBOR plus an applicable margin. Because rates may increase or decrease at any time, the Company is exposed to market risk as a result of the impact that changes in these base rates may have on the interest rate applicable to Company borrowings. Management does not, however, believe that any risk inherent in the variable rate nature of its debt is likely to have a material effect on the Company's financial position, results of operations or liquidity. The Company has not entered into any market risk sensitive instruments for trading purposes. Further, the Company does not currently have any derivative instruments outstanding and has no plans to use any form of derivative instruments to manage the Company's business in the foreseeable future. Profit margins on gasoline sales can be adversely affected by factors beyond the control of the Company, including supply and demand in the retail gasoline market, price volatility and price competition from other gasoline marketers. The availability and price of gas could have an adverse impact on general highway traffic. The Company has not entered into any long-term fixed-price supply agreements for gasoline. Any substantial decrease in profit margins on gasoline sales or number of gallons sold could have a material adverse effect on the Company's gross margins and operating income. 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. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a). 99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 9 BOWLIN TRAVEL CENTERS, INC. Signatures Date: September 12, 2002 /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 10 BOWLIN TRAVEL CENTERS, INC. CERTIFICATION I, Michael L. Bowlin, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Bowlin Travel Centers, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. Date: September 12, 2002 /s/ Michael L. Bowlin ----------------------------------------- Michael L. Bowlin, Chairman of the Board, President and Chief Executive Officer CERTIFICATION I, Nina J. Pratz, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Bowlin Travel Centers, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. Date: September 12, 2002 /s/ Nina J. Pratz ----------------------------------------- Nina J. Pratz, Chief Financial Officer 11