ITEM 1. BUSINESS
COMPANY OVERVIEW
The Company operates travel centers dedicated to serving the traveling public in rural and smaller metropolitan areas of the Southwestern United States. The Company's tradition of serving the public dates back to 1912, when the founder, Claude M. Bowlin, started trading goods and services with Native Americans in New Mexico. Bowlin Travel Centers currently operates eleven full-service travel centers along interstate highways in Arizona and New Mexico. The Company advertises its travel centers through a network of approximately 300 outdoor advertising display faces. The Company's travel centers offer brand name food, gasoline and a variety of unique Southwestern merchandise to the traveling public.
The Company was formed on August 8, 2000, as a wholly owned subsidiary of Bowlin Outdoor Advertising and Travel Centers Incorporated ("Bowlin Outdoor"). Pursuant to a Contribution Agreement, dated as of November 1, 2000, Bowlin Outdoor contributed substantially all of the assets and liabilities directly related to its travel centers business to Bowlin Travel Centers.
Prior to August 8, 2000, the Company's travel centers were owned and operated as a business segment of Bowlin Outdoor. Bowlin Outdoor operated two business segments: travel centers and outdoor advertising. Bowlin Outdoor's common stock was traded on the American Stock Exchange and was a public reporting company. On January 30, 2001, the Company became an independent company through a spin-off transaction whereby shares of the Company's common stock were distributed to the shareholders of Bowlin Outdoor.
RECENT DEVELOPMENTS
On October 30, 2003, the Company sold one of its Dairy Queens located in Deming, New Mexico. Certain asssets, including building and equipment, were sold to a third party for $150,000 cash and a note receivable for $10,000. The note receivable has a stated interest rate of 7% with the balance due August 2004. The assets sold had a carrying value of $164,292. The loss on the sale of the Dairy Queen was $4,292.
SUBSEQUENT EVENT
On March 24, 2004, the Company disposed of land and building located in Las Cruces, New Mexico to a third party. The assets had a carrying book value of approximately $268,000. The Company exchanged the assets for land and building adjacent to the Company's warehouse facility located in Las Cruces, New Mexico. The fair value of assets received and the carrying value of the assets exchanged by the Company was approximately equal. Therefore, no gain or loss was recorded on the transaction.
INDUSTRY OVERVIEW
The travel services industry in which the Company competes includes convenience stores that may or may not offer gasoline, and fast food and full-service restaurants located along rural interstate highways. The Company believes that the current trend in the travel services industry is toward strategic pairings at a single location of complementary products that are noncompetitive, such as brand name gasoline and brand name fast food restaurants. This concept, known as "co-branding," has recently seen greater acceptance by both traditional operators and larger petroleum companies. The travel services industry has also been characterized in recent periods by consolidation or closure of smaller operators. The convenience store industry includes both traditional operators that focus primarily on the sale of food and beverages but also offer gasoline, and large petroleum companies that offer food and beverages primarily to attract gasoline customers.
The restaurant segment of the travel services industry is highly competitive, most notably in the areas of consistency of quality, variety, price, location, speed of service and effectiveness of marketing. The major chains are aggressively increasing market penetration by opening new restaurants, including restaurants at "special sites" such as retail centers, travel centers and gasoline outlets. Smaller quick-service restaurant chains and franchise operations are focusing on brand and image enhancement and co-branding strategies.
BUSINESS STRATEGY
The Company's business strategy is to capture a greater market share of the interstate traveler market in Arizona and New Mexico by offering name brand recognized food service operations and gasoline, and unique Southwestern souvenirs and gifts, at a single location and at competitive prices delivered with a high standard of service.
The Company's travel centers are strategically located along well-traveled interstate highways in Arizona and New Mexico where there are generally few gas stations, convenience stores or restaurants. Most of the Company's travel centers offer food and beverages, ranging from drinks and snack foods at some locations to full-service restaurants at others. The Company's food service operations at five of the Company's eleven travel centers operate under the Dairy Queen/Brazier or Dairy Queen trade names.
The Company's travel centers offer brand name gasoline such as ExxonMobil, CITGO, and Chevron. The Company is an authorized distributor of ExxonMobil and CITGO petroleum products. Seven of the Company's locations are ExxonMobil stations and three of its locations are CITGO stations. One travel center is a Chevron station.
The Company's billboard advertising for its travel centers emphasizes the wide range of unique Southwestern souvenirs and gifts available at the travel centers, as well as the availability of gasoline and food. Merchandise at each
of the Company's stores is offered at prices intended to suit the budgets and tastes of a diverse traveling population. The merchandise ranges from inexpensive Southwestern gifts and souvenirs to unique handcrafted jewelry, rugs, pottery, and other gifts.
GROWTH STRATEGY
TRAVEL CENTERS
o The Company is committed to expanding its travel center operations through internal development.
o The Company believes that the co-branding concept implemented at its travel centers has resulted in increased revenues, and intends to pursue opportunities to acquire rights to additional brand name products.
o The Company intends to continue to offer high quality brand name food and products in a clean, safe environment designed to appeal to travelers on interstate highways.
o The Company intends to continue to increase sales at existing locations through ongoing renovation and upgrading of facilities, including gasoline sales by focusing on the marketing of ExxonMobil and CITGO gasoline brands through its travel center outlets.
GASOLINE WHOLESALING
The Company has been wholesaling gasoline since 1997. Since 1997, revenues from wholesaling gasoline have accounted for an average of approximately 6.5% of gross revenues. Other than purchasing gas for retail sales through its travel centers, the Company currently wholesales gasoline to only two customers. The Company intends to maintain its current level of gasoline wholesaling and does not anticipate expanding or actively marketing its wholesaling business. See "Business Operations - Gasoline Wholesaling".
BUSINESS OPERATIONS
The Company sells food, gasoline and merchandise through its eleven travel centers located along two interstate highways (I-10 and I-40) in Arizona and New Mexico. These are key highways for travel to numerous tourist and recreational destinations as well as arteries for regional traffic among major Southwestern cities. All of the Company's travel centers are open every day of the year except Christmas.
Each of the Company's travel centers maintains a distinct, theme-oriented atmosphere. In addition to the Southwestern merchandise it purchases from Native American tribes, the Company also imports approximately 650 items from Mexico, including handmade blankets, earthen pottery and wood items. Additional goods, novelties and imprinted merchandise are imported from several Pacific Rim countries. The Company has long-standing relationships with many of its vendors and suppliers. While the Company has no formal agreements with any of its vendors and suppliers of Southwestern merchandise and items from Mexico, the Company believes that there are adequate resources outside of those that are regularly used so that the Company could continue to provide these items even if it were unable to use its regular sources.
The Company sells food under the Dairy Queen and Dairy Queen/Brazier brand names. The Company's terms of its agreements with Dairy Queen obligate the Company to pay a franchise royalty and in some instances a promotion fee, each
equal to a percentage of gross sales revenues from products sold, as well as comply with certain provisions governing the operation of the franchised stores. The Company is obligated to pay Dairy Queen 4% of its sales of their products.
The Company currently operates five Dairy Queens at its travel centers. It has individual franchise agreements for each Dairy Queen operated at the travel centers. None of these agreements are exclusive nor do they prevent the Company from entering into agreements with other food franchisors. Several of the agreements have different termination provisions and are effective for different terms. Under three of the Dairy Queen agreements, the term continues until the Company elects to terminate it with 60 days prior written notice, or if the Company or Dairy Queen elect to terminate the agreement because the other has breached the agreement and has not cured that breach within 14 days of notice of the breach. The other two Dairy Queen agreements are for specific terms. One of those Dairy Queen agreements, entered into February 1, 1984, is for a term of 25 years and the other, entered into on November 18, 1986, is for a term of 20 years. The Company may not terminate either of these agreements unless it gives notice to Dairy Queen that it is 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 it delivers notice to the Company that it is in breach of the agreement and it does not cure that breach within 14 days of that notice.
The Company continuously monitors and upgrades its travel center facilities to maintain a high level of comfort, quality and appearance. Periodic improvements typically include new awnings and facings, new signage and enhanced lighting, furnishings, buildings and parking lot improvements.
The Company is an authorized ExxonMobil and CITGO distributor. The Company sells ExxonMobil gasoline at seven travel centers, and CITGO gasoline at three travel centers. One of the travel centers sells Chevron gasoline.
The fact that the Company is an authorized ExxonMobil and CITGO distributor has significance in the Company's industry. As licensed distributors for ExxonMobil and CITGO, the Company purchases gasoline directly from ExxonMobil and CITGO as direct marketers at the lowest wholesale prices they offer. Prior to becoming a licensed distributor, the Company purchased gasoline through other distributors, paying a distributor's markup price. This required the Company to negotiate and enter into agreements with other distributors to try to purchase gasoline at the lowest possible price. The ExxonMobil and CITGO distribution agreement allows the Company to streamline its gasoline supply arrangements and take advantage of volume-driven pricing by consolidating purchases from these suppliers.
The ExxonMobil distribution agreement has a three-year term beginning April 1, 2002 and expiring March 31, 2005. The CITGO distribution agreement has an initial three-year term beginning February 1, 2001 and expiring January 31, 2004, and automatically renews for a three-year term through 2007. ExxonMobil's and CITGO's ability to terminate or refuse to renew the agreement is subject to the occurrence of certain events set forth in the Petroleum Marketing Practices Act, which includes bankruptcy, or breach of the agreement, or termination by ExxonMobil or CITGO of its petroleum marketing activities in the Company's distribution area. ExxonMobil and CITGO may terminate or refuse to renew these agreements only if it terminates or refuses to renew the agreement in compliance with the Petroleum Marketing Practices Act.
The Company's agreements with ExxonMobil and CITGO do not prohibit it from entering into similar arrangements with other petroleum companies. The terms of the distribution agreements require the Company to purchase certain monthly minimum quantities of gasoline during the term of the agreement, which includes
gasoline purchased for sale at its travel centers. The amount of required gasoline purchase ranges from a low of 78,000 gallons to a high of 234,000 gallons per month. The Company determines the amount of gasoline it will purchase under the agreements based on what it believes its needs will be for gasoline, including seasonal demands. These determinations are based on historical sales and internal forecasts. Since the effective date of the ExxonMobil distribution agreement, purchases of ExxonMobil products have not met the minimum quantities. Since the effective date of the CITGO agreement, purchases have not met the minimum quantities. There are no penalties associated with not meeting the minimum quantities for ExxonMobil or CITGO. 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 ExxonMobil and CITGO distribution agreements, the Company is also required to pay a processing fee of approximately 3% of the value of the sale for purchases of gasoline made by customers using a credit card.
GASOLINE WHOLESALING
The Company currently wholesales gasoline to only two customers. Over the past five years, wholesaling of gasoline has accounted for, on average, approximately 7.0% of overall revenues. The Company intends to maintain its current level of gasoline wholesaling and does not anticipate expanding or actively marketing its wholesaling business. Below is a table that shows the revenues generated from gasoline wholesaling, total revenues for the periods reflected, and the percentage total of overall revenues attributable to gasoline wholesaling.
Gasoline wholesaling revenues as a percentage of Gross Revenues (unaudited):
The Company does not derive a material amount of net revenue from the wholesaling of gasoline. The cost of goods sold as a percentage of gross revenues for gasoline wholesaling is approximately 96%.
COMPETITION
The Company faces competition at its travel centers from quick-service and full-service restaurants, convenience stores, gift shops and, to some extent, from truck stops located along interstate highways in Arizona and New Mexico. Large petroleum companies operate some of the travel centers that the Company competes with, while many others are small independently owned operations that do not offer brand name food service or gasoline. Giant Industries, Inc., a refiner and marketer of petroleum products, operates two travel centers, one in Arizona and one in New Mexico, which are high volume diesel fueling and large truck repair facilities that also include small shopping malls, full-service
restaurants, convenience stores, fast food restaurants and gift shops. The Company's principal competition from truck stops includes Love's Country Stores, Inc., Petro Corporation and Flying J. Many convenience stores are operated by large, national chains that are substantially larger, better capitalized and have greater name recognition and access to greater financial and other resources than the Company. Although the Company faces substantial competition, the Company believes that few of its competitors offer the same breadth of products and services dedicated to the traveling public that the Company offers.
EMPLOYEES
As of January 31, 2004, the Company had approximately 129 full-time and 52 part-time employees; 43 were located in Arizona, 138 were located in New Mexico. None of the Company's employees are covered by a collective bargaining agreement and the Company believes that relations with its employees are good.
REGULATION
The Company's operations are subject to regulation for dispensing gasoline, maintaining mobile homes, dispensing food, sales of fireworks, sales of cactus, operating outdoor advertising signs, waste disposal and air quality control. The Company also must maintain registration of company vehicles, general business licenses and corporate licenses.
Each food service operation is subject to licensing and regulation by a number of governmental authorities relating to health, safety, cleanliness and food handling. The Company's food service operations are also subject to federal and state laws governing such matters as working conditions, overtime, tip credits and minimum wages. The Company believes that operations at its travel centers comply in all material respects with applicable licensing and regulatory requirements; however, future changes in existing regulations or the adoption of additional regulations could result in material increases in operating costs.
Travel center operations are also subject to extensive laws and regulations governing the sale of tobacco, and in New Mexico travel centers, the sale of fireworks. Such regulations include certain mandatory licensing procedures and ongoing compliance measures, as well as special sales tax measures. These regulations are subject to change and future modifications may result in decreased revenues or profit margins at the Company's travel centers as a result of such changes.
Nearly all licenses and registrations are subject to renewal each year. The Company is not aware of any reason it would be unable to renew any of its licenses and registrations. The Company estimates that the total cost spent on an annual basis for all licenses and registrations is less than $15,000.
Historically, ongoing costs have been incurred to comply with Federal, state and local environmental laws and regulations, primarily relating to underground storage tanks. These costs include assessment, compliance, and remediation costs, as well as certain ongoing capital expenditures relating to gasoline dispensing operations. In general, the Company is responsible for the first $10,000 to clean up a previous underground storage tank site. The remaining costs are generally reimbursable by the State.
The Company anticipates that the regulating agencies will develop regulations for above ground storage of fuel and anticipate that because of its expenditures and compliance, ongoing costs for compliance should not be material. Over the next twelve months, the Company anticipates spending less than $100,000 to complete any remaining clean up from underground storage tank sites. Of this amount, the Company anticipates being reimbursed for all but
approximately $10,000. The Company does not anticipate any other material costs for regulatory compliance during the next twelve months.
TRADEMARKS
The Company operates its travel centers under a number of its own trademarks such as The Thing, Trails West, Butterfield Station and Bowlin's Running Indian, as well as certain trademarks owned by third parties and licensed to the Company, such as the Dairy Queen, Dairy Queen/Brazier, ExxonMobil and CITGO trademarks. The Company's right to use the trademarks Dairy Queen, Dairy Queen/Brazier, ExxonMobil and CITGO are derived from the agreements entered into with these companies, and these rights expire when those agreements expire or are terminated. The Company has a Federal trademark for "BOWLIN" that is effective through 2008. All other rights to trade names that the Company uses in its operations are protected through common law or state rights granted through a registration process. The Company believes that its trademark rights will not materially limit competition with its travel centers. The Company also believes that, other than its Federal trademark for "BOWLIN", none of the trademarks owned are material to overall business; however, the loss of one or more of our licensed trademarks could have an adverse effect.
TRADEMARK / TRADE NAME WHERE REGISTERED EXPIRATION OF REGISTRATION - ---------------------- ------------------------ --------------------------
BOWLIN United States Patent and October 27, 2008 Trademark Office Trails West New Mexico July 29, 2004 Bowlin's Running Indian New Mexico March 30, 2006 Bowlin Travel Centers Arizona April 26, 2006
ITEM 2.
ITEM 2. PROPERTIES
As of January 31, 2004, the Company operated eleven travel centers, nine of which are in New Mexico and two of which are in Arizona. The Company owns the real estate and improvements where seven of its travel centers are located, all of which are subject to mortgages. Four of the Company's existing travel centers are located on real estate that the Company leases from various third parties. These leases have terms ranging from five to thirty-five years, assuming exercise by the Company of all renewal options available under certain leases.
The Company's principal executive offices occupy approximately 20,000 square feet of space owned by the Company in Albuquerque, New Mexico. The Company's principal office space is subject to a mortgage, which matures on November 1, 2005, and the principal balance accrues interest at the bank's prime rate (4% at January 31, 2004). The Company owns a central warehouse and distribution facility occupying approximately 27,000 square feet in Las Cruces, New Mexico. The Company believes that its headquarters and warehouse facilities are adequate for its operations for the foreseeable future.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company from time to time may be involved in litigation in the ordinary course of business, including disputes involving employment claims and construction matters. The Company is not currently a party to any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse effect on the Company's business operations or financial condition.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders in the fourth quarter of fiscal 2004.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of April 15, 2004, there were 4,583,348 shares of common stock of Bowlin Travel Centers outstanding. There are no outstanding options or warrants to purchase, or securities convertible into shares of common stock of Bowlin Travel Centers. Shares of the common stock of the Company are traded on the OTC Bulletin Board under the symbol "BWTL". On April 15, 2004, there were approximately 28 holders of record of the Company's common stock. The following table sets forth the high and low sales prices for the Company's common stock for each quarter during the past two fiscal years. These over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.
Fiscal Year Ended January 31, 2003 High Low ----------------- ---- ---
Fiscal Quarter Ended 4/30 $ 1.75 $ 1.35 Fiscal Quarter Ended 7/31 $ 1.80 $ 1.50 Fiscal Quarter Ended 10/31 $ 1.85 $ 1.55 Fiscal Quarter Ended 1/31 $ 1.61 $ 1.26
Fiscal Year Ended January 31, 2004 High Low ----------------- ---- ---
Fiscal Quarter Ended 4/30 $1.90 $1.26 Fiscal Quarter Ended 7/31 $2.00 $1.60 Fiscal Quarter Ended 10/31 $2.00 $1.60 Fiscal Quarter Ended 1/31 $2.00 $1.75
The Company is authorized to issue up to 10,000,000 shares of common stock, par value $.001 per share, and up to 1,000,000 shares of preferred stock, par value $.001. Holders of shares of common stock are entitled to one vote per share on all matters to be voted on by stockholders and do not have cumulative voting rights. Subject to the rights of holders of outstanding shares of preferred stock, if any, the holders of common stock are entitled to receive such dividends, if any, as may be declared from time to time by the Board of Directors in its discretion from funds legally available therefor, and upon liquidation, dissolution, or winding up are entitled to receive all assets available for distribution to the stockholders. The common stock has no preemptive or other subscription rights, and there are no conversion rights or redemption or sinking fund provisions with respect to such shares. All of the outstanding shares of common stock are fully paid and nonassessable. Since becoming a publicly traded company, Bowlin Travel Centers has not paid dividends and has no intention of paying cash dividends in the foreseeable future.
In the Company's Articles of Incorporation, pursuant to Nevada Revised Statues Section 78.378, the Company elected not to be governed by the provisions of Nevada Revised Statutes Section 78.378 to 78.3793, inclusive. Pursuant to Nevada Revised Statutes Section 78.434, the Company also elected not to be governed by the provisions of Nevada Revised Statutes Sections 78.411 to 78.444, inclusive. These statutes are sometimes referred to as "interested stockholder" statutes and their purpose is to limit the way in which a stockholder may effect a business combination with the corporation without board or stockholder
approval. Because the Company has elected not to be governed by these statutes, a person or entity could attempt a takeover, or attempt to acquire a controlling interest of, and effect a business combination with, Bowlin Travel Centers without the restrictions of these Nevada Revised Statutes provisions. See, also, "Risk Factors - OUR CURRENT CAPITALIZATION COULD DELAY, DEFER OR PREVENT A CHANGE OF CONTROL".
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below are derived from the audited financial statements of the Company for the five years ended January 31, 2004. The data presented below should be read in conjunction with the audited financial statements, related notes and Management's Discussion and Analysis of Financial Condition and Results of Operations included herein.
Because Bowlin Travel Centers did not operate independently of Bowlin Outdoor, and was a segment of the business operations of Bowlin Outdoor during the periods prior to the fiscal year ended January 31, 2002, it might have recorded different results had it been operated independently of Bowlin Outdoor. Therefore, the financial information presented below is not necessarily indicative of the results of operations or financial position that would have resulted if Bowlin Travel Centers had been a separate, stand-alone business during the periods shown, or of its future performance as a separate, stand-alone business.
SELECTED FINANACIAL DATA
* The Company did not operate independently during fiscal periods 2001 and 2000.
ITEM 7.
ITEM 7. 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 the Company as of and for the three fiscal years ended January 31, 2004, 2003 and 2002. This discussion should be read in conjunction with the Financial Statements of the Company and the related notes included elsewhere in this Form 10-K. References to specific years refer to the Company's fiscal year ending January 31 of such year.
The forward-looking statements included in Management's Discussion and Analysis of Financial Condition and Results of Operations reflect management's best judgement based on factors currently known and involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including but not limited to, those discussed.
FISCAL YEAR ENDED JANUARY 31, 2004 (FISCAL 2004) COMPARED TO FISCAL YEAR ENDED JANUARY 31, 2003 (FISCAL 2003)
Gross sales at the Company's travel centers decreased 2.9% to $21.952 million for fiscal 2004, from $22.603 million for fiscal 2003. Merchandise sales decreased 3.7% to $9.387 million for fiscal 2004, from $9.750 million for fiscal 2003. The decrease is primarily due a major interstate construction project that adversely affected merchandise sales at one location by $226,000 as well as uncertainties in the national economy. Gasoline sales decreased 5.0% to $8.605 million for fiscal 2004, from $9.058 million for fiscal 2003. The decrease is primarily due to a major interstate project that adversely affected gasoline sales at one location by $1.110 million. Restaurant sales increased 10.2% to $2.211 million for fiscal 2004, from $2.006 million for fiscal 2003. The increase is primarily due new sales incentive programs in the current fiscal year as well as additional supervisory support dedicated to the restaurants. Wholesale gasoline sales to independent retailers decreased 2.2% to $1.749 million for fiscal 2004, from $1.789 million for fiscal 2003. The decrease is due to a general decline in highway travel for fiscal 2004 compared to fiscal 2003 as well as a discontinued wholesale location that was present in fiscal 2003 not present in fiscal 2004.
Cost of goods sold for the travel centers decreased 6.2% to $13.450 million for fiscal 2004, from $14.333 million for fiscal 2003. Merchandise cost of goods decreased 7.3% to $3.614 million for fiscal 2004, from $3.897 million for fiscal 2003. The decrease directly corresponds to the decrease in merchandise sales that adversely affected one location by $129,000, improved purchase pricing as well as maintaining mark-ups. Gasoline cost of goods decreased 7.5% to $7.547 million for fiscal 2004, from $8.157 million for fiscal 2003. The decrease directly corresponds to the decrease in gasoline sales that adversely affected gas cost of goods at one location by $1.001 million. Restaurant cost of goods increased 11.1% to $589,000 for fiscal 2004, from $530,000 for fiscal 2003. The increase directly corresponds to the increase in restaurant sales. Wholesale gasoline cost of goods decreased 2.8% to $1.700 million in fiscal 2004, from $1.749 million for fiscal 2003. The decrease is primarily due to an additional wholesale location in the prior year not present in the current year. Cost of goods sold as a percentage of gross revenues improved for fiscal 2004 to 61.3%, compared to 63.4% for fiscal 2003.
Gross profit for the travel centers increased 2.1% to $8.017 million for fiscal 2004 from $7.851 million for fiscal 2003. The increase is primarily due attributable to improved management of cost of goods due to increases in volume purchasing.
General and administrative expenses for travel centers consist of salaries, bonuses and commissions for travel center personnel, property costs and repairs and maintenance. General and administrative expenses also include executive and administrative compensation and benefits, investor relations and accounting and legal fees. General and administrative expenses for the travel centers increased 3.8% to $6.573 million for fiscal 2004, from $6.330 million for fiscal 2003. The increase is primarily due to bonuses related to the new sales incentive programs present in the current fiscal year. The increase is also due to continuing bonuses and commissions for travel center personnel related to sales incentive programs as well as an accrual of management bonuses.
Depreciation and amortization expenses decreased by 6.8% to $685,000 for fiscal 2004, from $735,000 for fiscal 2003. The decrease is primarily associated with assets becoming fully depreciated.
The above factors contributed to a decrease in travel centers operating income of 3.4% to $759,000 for fiscal 2004, from $786,000 for fiscal 2003.
Other income (expense) includes interest income, gains and losses from the sale of assets, rental income and interest expense. Interest income decreased 15.1% to $90,000 in fiscal 2004, from $106,000 in fiscal 2003. The decrease is primarily due to lower cash balances in the current period partially offset by the interest earned on a 4.24% bond held for approximately nine months in fiscal 2004. Gains from the sale of property and equipment increased to $54,000 in fiscal 2004 from $4,000 in fiscal in 2003. Property and equipment sold in fiscal year 2004 include land, one of the Company's Dairy Queens, a lot and manufactured home associated with the Company's investment in real estate, various vehicles as well as three gas tanks. Miscellaneous income decreased 97.5% to $1,000 in fiscal 2004, from $40,000 in fiscal 2003. The decrease is primarily due to a refund of excise taxes in the second quarter of fiscal 2003 not present in fiscal 2004. Rental income was $89,000 in fiscal 2004, compared to $87,000 in fiscal 2003. The Company leases available office space at the Company's corporate headquarters. Interest expense decreased 15.5% to $185,000 for fiscal 2004, from $219,000 for fiscal 2003. The decrease is primarily attributable to lower interest rates as well as lower debt balances for most of fiscal 2004.
Income before income taxes increased 0.5% to $809,000 for fiscal 2004, from $805,000 for fiscal 2003. The increase is primarily due to the decrease in cost of goods sold, a decrease in miscellaneous income and a decrease in interest expense partially offset by the increase in general and administrative expenses. As a percentage of gross revenues, income before income taxes increased to 3.7% for fiscal 2004, from 3.6% for fiscal 2003.
Income taxes increased to $315,000 for fiscal 2004, compared to $298,000 for fiscal 2003, as a result of higher pre-tax income and the $40,000 excise tax refund that reduced taxable income in fiscal 2003. The effective tax rate for fiscal 2004 was 38.9%, compared to 37.0% for fiscal 2003.
The foregoing factors contributed to the Company's decrease in net income for fiscal 2004 to $494,000, compared to $507,000 for fiscal 2003.
FISCAL YEAR ENDED JANUARY 31, 2003 (FISCAL 2003) COMPARED TO FISCAL YEAR ENDED JANUARY 31, 2002 (FISCAL 2002)
Gross sales at the Company's travel centers decreased 4.4% to $22.603 million for fiscal 2003, from $23.649 million for fiscal 2002. Merchandise sales increased 5.6% to $9.750 million for fiscal 2003, from $9.236 million for fiscal 2002. The increase is primarily due to new sales incentive programs in the current fiscal year as well as more efficient purchasing and turns on inventory. Gasoline sales decreased 12.0% to $9.058 million for fiscal 2003, from $10.291 million for fiscal 2002. The decrease is primarily due to a decrease in gasoline gallon sales as a result of a general decline in highway travel for fiscal 2003 compared to fiscal 2002. Restaurant sales increased 0.5% to $2.006 million for fiscal 2003, from $1.997 million for fiscal 2002. The increase is primarily due new sales incentive programs in the current fiscal year as well as additional supervisory support dedicated to the restaurants. Wholesale gasoline sales decreased 15.8% to $1.789 million for fiscal 2003, from $2.125 million for fiscal 2002 due to a decrease in gasoline gallon sales as a result of a general decline in highway travel for fiscal compared to fiscal 2002 as well as a discontinued wholesale location occurring during fiscal 2003.
Cost of goods sold for the travel centers decreased 10.3% to $14.333 million for fiscal 2003, from $15.974 million for fiscal 2002. Merchandise cost of goods decreased 1.1% to $3.897 million for fiscal 2003, from $3.943 million for fiscal 2002. The decrease is primarily due to the new sales incentive programs in the current fiscal year, improved purchase pricing as well as maintaining mark-ups. Gasoline cost of goods decreased 13.1% to $8.157 million for fiscal 2003, from $9.391 million for fiscal 2002. The decrease directly corresponds to the decrease in gasoline sales. Restaurant cost of goods decreased 8.0% to $530,000 for fiscal 2003, from $576,000 for fiscal 2002. The decrease is primarily due to better inventory control. Wholesale gasoline cost of goods decreased 15.3% to $1.749 million in fiscal 2003, from $2.064 million for fiscal 2002 which directly corresponds to the decrease in wholesale gasoline sales. Cost of goods sold as a percentage of gross revenues improved for fiscal 2003 is 63.4%, compared to 67.5% for fiscal 2002.
Gross profit for the travel centers increased 8.3% to $7.851 million for fiscal 2003 from $7.250 million for fiscal 2002. The increase is primarily due to the decrease in cost of goods sold due to new sales incentive programs present in the current fiscal year.
General and administrative expenses for travel centers consist of salaries, bonuses and commissions for travel center personnel, property costs and repairs and maintenance. General and administrative expenses also include executive and administrative compensation and benefits, investor relations and accounting and legal fees. General and administrative expenses for the travel centers increased 4.3% to $6.329 million for fiscal 2003, from $6.070 million for fiscal 2002. The increase is primarily due to bonuses related to the new sales incentive programs present in the current fiscal year. The increase is also due to the increases in insurance, rents and leases and divisional allocation of administrative support of the retail locations.
Depreciation and amortization expenses decreased by 2.3% to $735,000 for fiscal 2003, from $752,000 for fiscal 2002. The decrease is primarily associated with assets becoming fully depreciated.
The above factors contributed to an increase in travel centers operating income of 83.9% to $787,000 for fiscal 2003, from $428,000 for fiscal 2002.
Other income (expense) includes interest income, gains and losses from the sale of assets, rental income and interest expense. Interest income decreased
20.9% to $106,000 in fiscal 2003, from $134,000 in fiscal 2002 primarily as a result of lower cash balances as well as lower interest rates. Gains from the sale of assets decreased to $4,000 in fiscal 2003 from $35,000 in fiscal in 2002. Miscellaneous income increased 566.7% to $40,000 in fiscal 2003, from $6,000 in fiscal 2002. The increase is primarily due to a refund of excise taxes in the second quarter of fiscal 2003. Rental income was $87,000 in fiscal 2003, compared to $86,000 in fiscal 2002. The Company leases available office space at the Company's corporate headquarters. Interest expense decreased 45.5% to $219,000 for fiscal 2003, from $402,000 for fiscal 2002. The decrease is primarily attributable to lower interest rates as well as lower debt balances.
Income before income taxes increased 178.5% to $805,000 for fiscal 2003, from $290,000 for fiscal 2002. The increase is primarily due to the decrease in cost of goods sold, an increase in miscellaneous income and a decrease in interest expense partially offset by the increase in general and administrative expenses. As a percentage of gross revenues, income before income taxes increased to 3.6% for the fiscal ended 2003, from 1.2% for fiscal 2002.
Income taxes increased to $298,000 for fiscal 2003, compared to $116,000 for fiscal 2002, as a result of higher pre-tax income. The effective tax rate for fiscal 2003 was 37.0%, compared to 40.0% for fiscal 2002.
The foregoing factors contributed to the Company's increase in net income for fiscal 2003 to $507,000, compared to $173,000 for fiscal 2002.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 2004, the Company had working capital of $3.791 million compared to working capital of $4.038 million at January 31, 2003. At January 31, 2004, the company had a current ratio of 2.6:1 compared to a current ratio of 3.1:1 at January 31, 2003 ("current ratio" is the ratio of current assets to current liabilities). The decrease in working capital is primarily due to a decrease in cash of $177,000, increases in inventory of $159,000 and prepaid expenses of $204,000, partially offset by an increase in accounts payable and accrued liabilities of $269,000.
The net cash provided by operating activities was $1.260 million at January 31, 2004, compared to $1.281 million at January 31, 2003. During fiscal 2004, there were decreases in operating assets and liabilities of $93,000, an increase in gains on sale of property and equipment of $54,000, and a decrease in depreciation and amortization expense of $50,000, partially offset by an increase in the provision for deferred income taxes of $241,000.
Net cash used in investing activities was $1.533 million at January 31, 2004, compared to net cash used by investing activities of $898,000 at January 31, 2003. The increase was due primarily to an increase in purchases of property and equipment of $1.670 million offset by an increase in proceeds from the sale of assets of $295,000 as well an increase in payments from mortgages receivable of $276,000. As of January 31, 2004, all mortgages receivable were paid off. The mortgages were at a high interest rate. Financing was secured at a lesser interest rate and the mortgages were paid off. There were no early pay off penalties.
Net cash provided by financing activities was $96,000 at January 31, 2004, compared to net cash used by financing activities of $638,000 at January 31, 2003. Payments on long-term debt were $652,000 at January 31, 2004 compared to payments on long-term debt of $723,000 at January 31, 2003. Proceeds from borrowing were $760,000 at January 31, 2004 compared to proceeds from borrowing of $85,000 at January 31, 2003. Payments for debt issuance costs were $13,000 at January 31, 2004. There were no debt issuance costs at January 31, 2003.
As of January 31, 2004, the Company was indebted to various banks and individuals in an aggregate principal amount of approximately $4.155 million under various loans and promissory notes, compared to $4.046 million as of January 31, 2003. 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 November 2005 to October 2013 and accrue interest at rates ranging from 3.179% to 6% per annum. The Company's total monthly payments on outstanding long-term debt obligations are approximately $78,000.
Approximately $4.076 million of the approximately $4.155 million outstanding as of January 31, 2004 was borrowed under the Master Loan Agreement with Bank of the West. Under this master loan agreement, the Company grants a security interest in substantially all of its assets and property as security interests against its obligations under the agreement.
In July 2003, the Company entered into a $2,000,000 open line of credit with one of its existing lenders. The Company borrowed $760,250 during fiscal year 2004 that was turned into permanent financing in January 2004. As of January 31, 2004, $1,240,000 remains on the open line of credit which will mature July 2004 and requires variable interest at the bank's prime rate. The rate was 4% at January 31, 2004.
Under the Master Loan Agreement, the Company must maintain minimum financial ratios, calculated quarterly from fiscal quarter reviewed statements with income and expense items annualized. For fiscal year ending January 31, 2004, the Company was in compliance with the minimum financial ratios.
The Company has forecasted approximately $2.5 million for capital commitments for fiscal year 2005 consisting of renovation and upgrading of facilities as well as building a new travel center facility. The Company expects to use current working capital and cash flows from operations to fund these commitments as well as debt sources for these commitments.
The Company is unaware of any trends or demands, commitments or uncertainties that will result or are reasonably likely to result in liquidity increasing or decreasing in any material way over the next twelve months. The Company believes that its working capital and the cash flow generated from current operations will be sufficient to fund operations over the next twelve months without borrowing any additional funds under the credit facility. The Company is not currently a party to any agreements to acquire any additional travel centers. But if the Company were to additional travel centers it would likely have to obtain additional financing to do so, either under the current credit facility or through other means. The Company cannot predict with any certainty what the terms of such financing might be.
RISK FACTORS
The Company does not provide forecasts of potential future financial performance. While management is optimistic about long-term prospects, the following issues and uncertainties, among others, should be considered in evaluating our growth outlook.
This Form 10-K contains forward-looking statements that involve risks and uncertainties. You should not rely on these forward-looking statements. The Company uses words such as "anticipate," "believe," "plan," "expect," "future," "intend" and similar expressions to identify such forward-looking statements. This Form 10-K also contains forward-looking statements attributed to certain third parties relating to their estimates regarding the travel center industry,
among other things. You should not place undue reliance on those forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks faced described below and elsewhere in this Form 10-K.
THE COMPANY'S SHARES OF COMMON STOCK ARE TRADED ON THE OTC BULLETIN BOARD AND WILL LIKELY BE SUBJECT TO SIGNIFICANT PRICE VOLATILITY AND AN ILLIQUID MARKET.
The Company's shares trade on the OTC Bulletin Board. In order to purchase and sell shares of the Company's common stock on the OTC Bulletin Board, you must use one of the market makers then making a market in the stock. Because of the wide variance in the BID and ASK spreads, there is significant risk that an investor that sold shares on the OTC Bulletin Board would sell them for a price that was significantly lower than the price at which the shares could be purchased, and vice versa. The number of shares traded to date indicates that the market for the Company's shares of common stock is illiquid which could make it difficult to purchase or sell shares.
THE COMPANY'S HISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF ITS RESULTS AS A SEPARATE COMPANY.
The historical financial information prior to fiscal year 2002 included in this Form 10-K may not reflect what results of operations, financial position and cash flows would have been had the Company been a separate, stand-alone entity during the periods presented or what results of operations, financial position and cash flows will be in the future. This is because:
o adjustments and allocations have been made, primarily with respect to corporate-level expenses and administrative functions, because Bowlin Outdoor did not account for the Company as, and the Company was not operating as, a separate stand-alone business for all periods presented; and
o the information does not reflect changes that may occur in the future as a result of the Company's separation from Bowlin Outdoor
For additional information, see "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
THE COMPANY MIGHT INCUR GREATER COSTS AND EXPENSES IN PROPORTION TO ITS REVENUES OPERATING AS A STAND-ALONE ENTITY THAT COULD ADVERSELY AFFECT PROFITABILITY.
The Company has operated as a stand-alone entity separate from Bowlin Outdoor for fiscal 2002, 2003 and 2004 only. The Company may have benefited in periods prior to fiscal 2002 from operating as a division of Bowlin Outdoor by sharing some expenses, personnel and other costs. General and administrative costs, as a percentage of revenue, could increase as a result of the Company operating independently of Bowlin Outdoor. If the costs and expenses of operating independently are substantially greater than the costs and expenses of operating as a division of Bowlin Outdoor, it could have a negative effect on profitability and an adverse effect on business operations and financial condition.
THE COMPANY MIGHT NOT BE ABLE TO SECURE ADDITIONAL FINANCING.
The Company has been able to secure financing for the purchase of additional assets from commercial lenders in amounts up to 100% of the fair
market value of the acquired assets. There can be no assurance that any additional financing will be available in the future on terms acceptable to the Company. The Company anticipates that any financing secured could impose certain financial and other restrictive covenants upon operations.
THERE IS NO ASSURANCE THAT THE COMPANY WILL BE ABLE TO SUCCESSFULLY EXPAND BUSINESS.
The Company intends to continue to explore the possibilities of acquiring or building additional travel centers. Although existing operations are based primarily in the Southwest, current expansion plans include consideration of acquisition opportunities in both the Southwest and other geographic regions of the United States. However, there can be no assurance that suitable acquisitions can be identified, and the Company will likely face competition from other companies for available acquisition opportunities. Any such acquisition would be subject to negotiation of definitive agreements, appropriate financing arrangements and performance of due diligence. There can be no assurance that the Company will be able to complete such acquisitions, obtain acceptable financing, or any required consent of our bank lenders, or that such acquisitions, if completed, can be integrated successfully into existing operations. The success of an expansion program will depend on a number of factors, including the availability of sufficient capital, the identification of appropriate expansion opportunities, the Company's ability to attract and retain qualified employees and management, and the continuing profitability of existing operations. There can be no assurance that the Company will achieve its planned expansion or that any expansion will be profitable.
THE COMPANY'S USE OF PETROLEUM PRODUCTS SUBJECTS IT TO VARIOUS LAWS AND REGULATIONS, AND EXPOSES IT TO SUBSTANTIAL RISKS.
The Company is subject to federal, state and local laws and regulations governing the use, storage, handling, and disposal of petroleum products. While the Company believes that it is compliant with environmental laws and regulations, the risk of accidental contamination to the environment or injury cannot be eliminated. In the event of such an accident, the Company could be held liable for any damages that result and any such liability could exceed available resources. The Company could be required to incur significant costs to comply with environmental laws and regulations that may be enacted in the future.
BECAUSE ALL OF THE COMPANY'S TRAVEL CENTERS ARE LOCATED IN ARIZONA AND NEW MEXICO, A DOWNTURN IN THE ECONOMIC CONDITIONS IN THE SOUTHWESTERN UNITED STATES COULD ADVERSELY AFFECT BUSINESS OPERATIONS AND FINANCIAL CONDITIONS.
The Company's travel centers are located only in Arizona and New Mexico. The Company relies on the business generated from travelers and patrons within these two states, and those traveling through these states. Risks from economic downturns are not diversified or spread out across several regions. Because of the geographic concentration of the Company's travel centers, business may be adversely affected in the event of a downturn in general economic conditions in the Southwestern United States generally, or in Arizona or New Mexico.
THE COMPANY DEPENDS ON THIRD PARTY RELATIONSHIPS.
The Company is dependent on a number of third party relationships under which it offers brand name and other products at its travel centers. These brand name relationships include distributorship relationships with ExxonMobil and CITGO and existing franchise agreements with Dairy Queen/Brazier. The Company's existing operations and plans for future growth anticipate the continued existence of such relationships.
The ExxonMobil distribution agreement has a three-year term beginning April 1, 2002 and expiring March 31, 2005. The CITGO distribution agreement has an initial three-year term beginning February 2, 2001 and expiring January 31, 2004, and automatically renews for a three-year term through 2007. ExxonMobil's and CITGO's ability to terminate or refuse to renew the agreement with the Company is subject to the occurrence of certain events set forth in the Petroleum Marketing Practices Act, which includes bankruptcy, or breach of the agreement by the Company, or termination by ExxonMobil or CITGO of its petroleum marketing activities in the Company's distribution area. ExxonMobil and CITGO may terminate or refuse to renew these agreements only if it terminates or refuses to renew the agreement in compliance with the Petroleum Marketing Practices Act.
Under three of the Company's Dairy Queen agreements, the term continues until the Company elects to terminate it with 60 days prior written notice, or if the Company or Dairy Queen elect to terminate the agreement because the other has breached the agreement and has not cured that breach within 14 days of notice of the breach. The other two Dairy Queen agreements are for specific terms. One of those Dairy Queen agreements, entered into February 1, 1984, is for a term of 25 years and the other, entered into on November 18, 1986, is for a term of 20 years. The Company may not terminate either of these agreements unless it gives notice to Dairy Queen that they are in breach of the agreement and Dairy Queen has not cured that breach within thirty days of notice. Dairy Queen may terminate either of these agreements if they deliver notice to the Company that it is in breach of the agreement and does not cure that breach within 14 days of that notice.
There can be no assurance that the agreements that govern these relationships will not be terminated (for greater detail regarding the terms of these agreements, see "Item I. Business Operations"). Several of these agreements contain provisions that prohibit the Company from offering additional products or services that are competitive to those of its suppliers. Although the Company does not currently anticipate having to forego a significant business opportunity in order to comply with such agreements, there can be no assurance that adherence to existing agreements will not prevent it from pursuing opportunities that management would otherwise deem advisable. In addition, there are no material early termination provisions under any of the franchise or petroleum distribution agreements.
The Company also relies upon several at-will relationships with various third parties for much of its souvenir and gift merchandise. Although the Company believes it has good relationships with its suppliers, there can be no assurance that the Company will be able to maintain relationships with suppliers of suitable merchandise at appropriate prices and in sufficient quantities.
IF THE COMPANY IS NOT ABLE TO SUCCESSFULLY COMPETE IN ITS INDUSTRY IT COULD HAVE AN ADVERSE IMPACT ON BUSINESS OPERATIONS OR FINANCIAL CONDITION.
The Company's travel centers face competition from
o major and independent oil companies;
o independent service station operators;
o national and independent operators of restaurants, diners and other eating establishments; and
o national and independent operators of convenience stores and other retail outlets.
Some of the Company's competitors, including major oil companies and convenience store operators, are substantially larger, better capitalized, and have greater name recognition and access to greater resources than the Company does. There can be no assurance that the Company's travel centers will be able to compete successfully in their respective markets in the future.
THE COMPANY'S BUSINESS IS SEASONAL AND REVENUES FLUCTUATE QUARTERLY.
The Company's travel center operations are subject to seasonal fluctuations, and revenues may be affected by many factors, including weather, holidays and the price of alternative travel modes. Revenues and earnings may experience substantial fluctuations from quarter to quarter. These fluctuations could result in periods of decreased cash flow that might cause the Company to use its lending sources, or to secure additional financing, in order to cover expenses during those periods. This could increase the interest expense of the Company's operations and decrease net income and have a material adverse effect on business and results of operations.
THE COMPANY IS SUBJECT TO NUMEROUS GOVERNMENTAL REGULATIONS, INCLUDING THOSE RELATED TO FOOD HANDLING, FIREWORKS SALES, TOBACCO SALES, AND UNDERGROUND STORAGE TANKS.
Each of the Company's food service operations is subject to licensing and regulation by a number of governmental authorities, including regulations relating to health, safety, cleanliness and food handling, as well as federal and state laws governing such matters as working conditions, overtime, tip credits and minimum wages. The Company's travel center operations are also subject to extensive laws and regulations governing the sale of tobacco and fireworks in New Mexico travel centers. In addition, the Company has incurred ongoing costs to comply with federal, state and local environmental laws and regulations, primarily relating to underground storage tanks. These costs include assessment, compliance, and remediation costs, as well as certain ongoing capital expenditures relating to gasoline dispensing operations.
Such regulations include certain mandatory licensing procedures and the ongoing compliance measures, as well as special sales tax measures. The Company believes that operations at its eleven travel centers comply with all applicable licensing and regulatory requirements. However, any failure to comply with applicable regulations, or the adoption of additional regulations or changes in existing regulations could impose additional compliance costs, require a cessation of certain activities or otherwise have a material adverse effect on business and results of operations.
THE COMPANY'S CURRENT CAPITALIZATION COULD DELAY, DEFER OR PREVENT A CHANGE OF CONTROL.
In the Company's Articles of Incorporation, pursuant to Nevada Revised Statues Section 78.378, the Company elected not to be governed by the provisions of Nevada Revised Statutes Section 78.378 to 78.3793, inclusive. Pursuant to Nevada Revised Statutes Section 78.434, the Company also elected not to be governed by the provisions of Nevada Revised Statutes Sections 78.411 to 78.444, inclusive. These statutes are sometimes referred to as "interested stockholder" statutes and their purpose is to limit the way in which a stockholder may effect a business combination with the corporation without board or stockholder approval. Because the Company has elected not to be governed by these statutes, a person or entity could attempt a takeover, or attempt to acquire a controlling interest of, and effect a business combination with, Bowlin Travel Centers without the restrictions of these Nevada Revised Statutes provisions.
However, the Company's Board of Directors has the authority to issue up to ten million (10,000,000) shares of common stock, $.001 par value, and up to one million (1,000,000) shares of preferred stock, $.001 par value, in one or more series, and to determine the price, rights, preferences and privileges of the shares of each such series without any further vote or action by the stockholders. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any shares of preferred stock that may be issued in the future. The issuance of preferred stock could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company, thereby delaying, deferring or preventing a change of control of the Company.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of January 31, 2004, approximately $1.413 million of the Company's total indebtedness is accruing interest at variable rates tied to LIBOR or the respective bank's prime lending rate. As such, the Company is subject to fluctuations in interest rates that could have a negative impact on the net income of the Company. In addition, it is likely that future indebtedness incurred by the Company will be at variable rates that could impact the Company's ability to finance internal development and growth of the business. The Company does not, however, believe that any risk inherent in the variable rate nature of its debt is likely to have a material effect on its financial position, results of operations or liquidity.
The Company has not entered into any market risk sensitive instruments for trading purposes. Further, the Company does not currently have any derivative instruments outstanding and has no plans to use any form of derivative instruments to manage its business in the foreseeable future.
Profit margins on gasoline sales can be adversely affected by factors beyond the control of the Company, including supply and demand in the retail gasoline market, price volatility and price competition from other gasoline marketers. The availability and price of gas could have an adverse impact on general highway traffic. The Company has not entered into any long-term fixed-price supply agreements for gasoline. Any substantial decrease in profit margins on gasoline sales or number of gallons sold could have a material adverse effect on the Company's gross margins and operating income.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Following on next page.
BOWLIN TRAVEL CENTERS, INC.
Financial Statements
January 31, 2004 and 2003
INDEPENDENT AUDITORS' REPORT
The Board of Directors Bowlin Travel Centers, Inc. Albuquerque, New Mexico
We have audited the accompanying balance sheets of Bowlin Travel Centers, Inc. as of January 31, 2004 and 2003, and the related statements of income, stockholders' equity and cash flows for each of the three years in the period ended January 31, 2004. 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our 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. at January 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2004, in conformity with accounting principles generally accepted in the United States of America.
/s/ NEFF & RICCI LLP
Albuquerque, New Mexico March 26, 2004
BOWLIN TRAVEL CENTERS, INC. BALANCE SHEETS JANUARY 31, 2004 AND 2003
See accompanying notes to financial statements.
BOWLIN TRAVEL CENTERS, INC. STATEMENTS OF INCOME
See accompanying notes to financial statements.
BOWLIN TRAVEL CENTERS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JANUARY 31, 2004, 2003 AND 2002
See accompanying notes to financial statements.
BOWLIN TRAVEL CENTERS, INC. STATEMENT OF CASH FLOWS
BOWLIN TRAVEL CENTERS, INC. STATEMENT OF CASH FLOWS
See accompanying notes to financial statements.
BOWLIN TRAVEL CENTERS, INC. NOTES TO FINANCIAL STATEMENTS JANUARY 31, 2004
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Bowlin Travel Centers, Inc. (BTC or the Company) is located in Albuquerque, New Mexico. The Company's principal business activities include the operation of full-service travel centers and restaurants which offer brand-name food and gasoline, and a unique variety of Southwestern merchandise to the traveling public in the Southwestern United States, primarily New Mexico.
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.
(b) CASH AND CASH EQUIVALENTS
The Company considers all liquid investments with maturity of three months or less when purchased to be cash equivalents. The Company places its temporary cash in investments with a local financial institution. Excess collected funds are invested in securities repurchase agreements and are collateralized by securities with fair market values of 102 percent. The remaining funds at year-end were covered by Federal Deposit Insurance Corporation insurance.
(c) INVENTORIES
Inventories consist primarily of merchandise and gasoline for resale and are stated at the lower of cost or market value, with cost being determined using the first-in, first-out (FIFO) method.
(d) PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Maintenance and repairs, including the replacement of minor items, are expensed as incurred, and major additions to property and equipment are capitalized. Depreciation is provided by the Company using primarily straight-line as well as accelerated methods.
(e) INTANGIBLE ASSETS
Debt issuance costs are deferred and amortized over the terms of the respective borrowings on a straight-line basis for the revolving portion and the interest method for the term note 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.
BOWLIN TRAVEL CENTERS, INC. NOTES TO FINANCIAL STATEMENTS JANUARY 31, 2004
(g) INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
(h) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews its long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount of fair value less costs to sell.
(i) FINANCIAL INSTRUMENTS
The Company's financial instruments are cash and cash equivalents, accounts receivable, notes receivable, accounts payable, accrued liabilities and long-term debt. The carrying amounts of cash and cash equivalents, accounts receivable, notes receivable, accounts payable, accrued liabilities and long-term debt approximate fair value.
(j) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.
(k) EARNINGS PER SHARE
Earnings per share of common stock, both basic and diluted, are computed by dividing net income by the weighted average common shares outstanding, assuming the shares distributed on January 30, 2001 were outstanding for all periods presented. Diluted earnings per share is calculated in the same manner as basic earnings per share as there were no potential dilutive securities outstanding for all periods presented.
BOWLIN TRAVEL CENTERS, INC. NOTES TO FINANCIAL STATEMENTS JANUARY 31, 2004
(l) RECLASSIFICATIONS
Certain 2003 amounts have been reclassified to conform to 2004 presentation. Such reclassifications had no effect on net income.
(m) ACCOUNTS RECEIVABLE
Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received.
Management believes that all accounts receivable are fully collectable. Therefore, no allowance for doubtful accounts is deemed to be required.
(2) MORTGAGES RECEIVABLE
Mortgages receivable as of January 31, 2004 and 2003 consist of the following:
2004 2003 --------- --------- 14% note, due $560 monthly through November 1, 2004 (including interest) $ -- $ 17,567 14% note, due $1,243 monthly through November 15, 2004 (including interest) -- 95,065 13% note, due $586 monthly through December 20, 2006 (including interest) -- 49,433 12.5% note, due $1,134 monthly through December 1, 2005 (including interest) -- 98,626 12% note, due $586 monthly through January 18, 2007 (including interest) -- 49,438 --------- --------- -- 310,129 Less current portion -- (8,790) --------- --------- $ -- $ 301,339 ========= =========
All mortgages receivable were collateralized by land and buildings. In the event of default, foreclosure would occur and the property would be sold to pay the balance of the loans. The Company had a first priority security interest in the property securing the loans.
As of January 31, 2004, all mortgages receivable were paid off. The mortgages were at a high interest rate. Financing was secured at a lesser interest rate and the mortgages were paid off. There were no early pay off penalties.
BOWLIN TRAVEL CENTERS, INC. NOTES TO FINANCIAL STATEMENTS JANUARY 31, 2004
(3) NOTES RECEIVABLE
Notes receivable as of January 31, 2004 and 2003 consist of the following:
2004 2003 --------- --------- 8% note, due $37,500 annually through 2004 (including interest) with the balance due in 2005 (a) $ 172,003 174,889 9% note, due $691 monthly through June 1, 2008 (including interest) (b) 29,789 35,597 10% note, due $1,592 monthly through October 1, 2003 (including interest) (c) -- 13,749 10% note, due $1,090 monthly through October 15, 2003 (including interest) -- 10,981 7% note, due $10,000 annually in 2004 (unsecured) 10,000 -- --------- --------- 211,792 235,216 Less current portion (19,004) (32,957) --------- --------- $ 192,788 202,259 ========= ========= - ------------------
(a) Collateralized by land and improvements and equipment sold. In the event of default, the property and equipment revert back to the Company. (b) Collateralized by land and buildings sold. In the even of default, the property reverts back to the Company. (c) Collateralized by the equipment sold. In the event of default, the equipment reverts back to the Company.
The gain on the sale of property related to the 8.0% note receivable was $248,699, of which $14,625 was recognized initially and $234,074 was deferred. As payments are received they are recognized as income using the installment method. The deferred gain of $210,143 as of January 31, 2004 is reflected as a reduction to the note receivable in the accompanying balance sheet. In May of 2005, the Company anticipates receiving the remaining balloon payment of $375,216 which includes a deferred gain of $206,331 which will be received and recognized as income.
Management believes that all notes receivable are fully collectable. Therefore, no allowance is deemed to be required.
BOWLIN TRAVEL CENTERS, INC. NOTES TO FINANCIAL STATEMENTS JANUARY 31, 2004
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at January 31:
ESTIMATED LIFE (YEARS) 2004 2003 ------------ ------------ ------------
Land $ 2,606,925 2,561,999 Buildings and improvements 10 - 40 7,762,510 7,422,229 Machinery and equipment 3 - 10 6,419,054 5,897,080 Autos, trucks and mobile homes 3 - 10 1,580,942 1,398,771 Billboards 15 - 20 1,427,686 1,283,065 Construction in progress 511,600 54,225 ------------ ------------
Less accumulated depreciation (9,878,375) (9,450,522) ------------ ------------
$ 10,430,342 9,166,847 ============ ============
On October 30, 2003 the Company sold one of its Dairy Queens located in Deming, New Mexico. Certain assets, including building and equipment, were sold to a third party for $150,000 cash and a note receivable for $10,000. The note receivable has a stated interest rate of 7% with the balance due August 2004. The assets sold had a carrying value of $164,292. The loss on the sale of the Dairy Queen was $4,292.
(5) INTANGIBLE ASSETS
Intangible assets, at cost, consist of the following at January 31:
2004 2003 --------- ---------
Franchise fees $ 132,442 192,442 Debt issuance costs 323,790 311,272 --------- --------- 456,232 503,714 Less accumulated amortization (251,823) (263,837) --------- --------- $ 204,409 239,877 ========= =========
(6) INVESTMENT IN REAL ESTATE
Approximately twelve acres of previously undeveloped land in Alamogordo, New Mexico was sub-divided into thirty-five approximately quarter-acre residential lots. The subdivision includes paved roads, fencing, water, sewer and electricity. Two manufactured homes have been purchased and installed and a realtor listed the property.
On December 9, 2003, the Company sold one of the lots and a manufactured home to a third party for $74,500 cash. The assets sold had a carrying value of $55,699. The cost associated with the sale was $4,917. The gain on the sale of the lot and manufactured home was $13,884.
BOWLIN TRAVEL CENTERS, INC. NOTES TO FINANCIAL STATEMENTS JANUARY 31, 2004
(7) SHORT-TERM BORROWING
In July 2003, the Company entered into a $2,000,000 open line of credit with one of its existing lenders. The Company borrowed $760,250 during fiscal year 2004 that was turned into permanent financing in January 2004. As of January 31, 2004, $1,240,000 remains on the open line of credit which will mature July 2004 and requires variable interest at the bank's prime rate (4% at January 31, 2004).
(8) LONG-TERM DEBT
Long-term debt consists of the following at January 31:
2004 2003 ---------- ----------
Due bank, maturity November 2005, variable $1,412,886 1,799,091 interest (3.179% at January 31, 2004), monthly installments of $37,398, secured by buildings and equipment Due bank, maturity October 2013, variable interest (4% at January 31, 2004), monthly installments of $10,317, secured by land and buildings 650,859 745,153 Due bank, maturity October 2013, variable interest (4% at January 31, 2004), monthly installments of $6,081, secured by land and buildings 389,730 445,056 Due bank, maturity November 2005, variable interest at index rate (4% at January 31, 2004), monthly installments of $4,920 secured by buildings and equipment 337,585 380,907 Due bank, maturity November 2005, variable interest at index rate (4% at January 31, 2004), monthly installments of $7,517, secured by buildings and equipment 524,805 591,433 Due bank, maturity January 2011, variable interest at index rate (4% at January 31, 2004), monthly installments of $10,290, secured by buildings and equipment 760,250 -- Due bank, maturity January 2013, interest at 6%, monthly installments of $944, secured by land 78,754 85,000 ---------- ---------- 4,154,869 4,046,640 Less current maturities (786,283) (646,571) ---------- ---------- $3,368,586 3,400,069 ========== ==========
BOWLIN TRAVEL CENTERS, INC. NOTES TO FINANCIAL STATEMENTS JANUARY 31, 2004
Future maturities of long-term debt for the years ending January 31 are as follows:
2005 $ 786,283 2006 1,637,997 2007 357,854 2008 372,594 2009 387,944 Thereafter 612,197 ---------- Total $4,154,869 ==========
(9) INCOME TAXES
Income taxes consist of the following for the years ended January 31:
CURRENT DEFERRED TOTAL --------- ---------- --------- 2004: U.S. Federal $ 92,600 169,700 262,300 State 18,500 34,000 52,500 --------- ---------- --------- $ 111,100 203,700 314,800 ========= ========== ========= 2003: U.S. Federal $ 278,300 (30,400) 247,900 State 55,700 (6,100) 49,600 --------- ---------- --------- $ 334,000 (36,500) 297,500 ========= ========== ========= 2002: U.S. Federal $ 86,400 10,600 97,000 State 17,300 2,100 19,400 --------- ---------- --------- $ 103,700 12,700 116,400 ========= ========== =========
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:
2004 2003 2002 -------- -------- --------
Computed "expected" tax $274,956 273,618 98,476 State income taxes, net of federal tax benefit 34,673 32,761 12,825 Other 5,171 (8,879) 5,099 -------- -------- -------- Total $314,800 297,500 116,400 ======== ======== ========
BOWLIN TRAVEL CENTERS, INC. NOTES TO FINANCIAL STATEMENTS JANUARY 31, 2004
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:
2004 2003 --------- --------- Deferred tax assets - Compensated absences, principally due to accrual for financial reporting purposes $ (11,991) 51,030 --------- --------- Total gross deferred tax assets (11,991) 51,030
Deferred tax liabilities: Property and equipment, principally due to differences in depreciation 792,773 614,282 Other (11,464) 26,348 --------- --------- Total gross deferred liabilities 781,309 640,630 --------- --------- Net deferred tax liability $ 793,300 589,600 ========= =========
There was no valuation allowance for deferred tax assets as of January 31, 2004, 2003 or 2002. 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.
(10) 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 $48,806, $69,886 and $59,022 in fiscal 2004, 2003 and 2002, respectively.
(11) COMMITMENTS AND CONTINGENCIES
The Company leases land at several of its retail operating locations. Included in general and administrative expenses in the accompanying statements of income is rental expense for these land leases of $246,528, $229,724 and $234,676 for the years ended January 31, 2004, 2003 and 2002, respectively. The Company also leases land where several of its retail billboards are located and rent expense for these leases was $117,148, $138,126 and $132,730 for the years ended January 31, 2004, 2003 and 2002, respectively.
The lease agreements for the various locations include 5 to 30 year leases with remaining lives on those leases ranging from approximately 5 to 15 years at January 31, 2004. Contingent rentals are generally based on percentages of specified gross receipts. Several leases include terms for
BOWLIN TRAVEL CENTERS, INC. NOTES TO FINANCIAL STATEMENTS JANUARY 31, 2004
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.
Future minimum rental payments under these leases are as follows:
Year ending January 31:
2005 $ 210,449 2006 186,023 2007 124,227 2008 114,791 2009 110,579 Thereafter 1,659,774 ----------
Total $2,405,843 ==========
The Company has forecasted approximately $2.0 million to build a new facility during fiscal year 2005. The Company expects to use debt sources to fund this commitment. As of January 31, 2004, $155,387 had been spent for the new facility.
The Company's gasoline agreements with ExxonMobil and CITGO require gasoline purchase ranges from a low of 78,000 gallons to a high of 234,000 gallons per month. The Company determines the amount of gasoline it will purchase under the agreements based on what it believes its needs will be for gasoline, including seasonal demands. These determinations are based on historical sales and internal forecasts. Since the effective date of the ExxonMobil distribution agreement, purchases of ExxonMobil products have not met the minimum quantities. Since the effective date of the CITGO agreement, purchases have not met the minimum quantities. There are no penalties associated with not meeting the minimum quantities ExxonMobil or CITGO. Additionally, the minimum quantities can be increased or decreased, as applicable, to accommodate additional travel centers, or losses of travel centers.
(12) RELATED PARTY TRANSACTIONS
Wholesale gasoline distribution sales were sold to a Stuckey's franchise travel center not owned by the Company. The travel center is owned by the niece of Michael L. Bowlin. The sales with the associated cost of goods and gross profit consist of the following for the year ending January 31:
2004 2003 2002 ---------- ---------- ----------
Gross sales $1,399,527 1,179,052 1,311,206 Cost of goods sold 1,355,553 1,144,956 1,257,959 ---------- ---------- ----------
Gross profit $ 43,974 34,096 53,247 ========== ========== ==========
BOWLIN TRAVEL CENTERS, INC. NOTES TO FINANCIAL STATEMENTS JANUARY 31, 2004
(13) SUBSEQUENT EVENT
On March 24, 2004, the Company disposed of land and building located in Las Cruces, New Mexico to a third party. The assets had a carrying book value of approximately $268,000. The Company exchanged the assets for land and building adjacent to the Company's warehouse facility located in Las Cruces, New Mexico. The fair value of assets received and the carrying value of the assets exchanged by the Company was approximately equal. Therefore, no gain or loss was recorded on the transaction.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
The Company's management, with the participation of the Chief Executive Officer and Chief Financial Officer, has concluded, based on the valuation of the Company's "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15, that as of January 31, 2004, the Company's disclosure controls and procedures were effective and designed to ensure that information required to be disclosed by the Company in reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information regarding the officers and directors of Bowlin Travel CENTERS. A summary of the background and experience of each of these individuals is set forth after the table.
NAME AGE POSITION
Michael L. Bowlin 60 Chairman of the Board, President and Chief Executive Officer William J. McCabe 54 Senior Vice President - Management Information Systems, Secretary, Treasurer and Director David B. Raybould 51 Director Nina J. Pratz 52 Chief Financial Officer, Senior Vice President and Director Kim D. Stake 48 Chief Administrative Officer, Vice President and Director
MICHAEL L. BOWLIN. Mr. Bowlin has served as Chairman of the Board and Chief Executive Officer, President and as a Director of the Company since August of 2000. Mr. Bowlin served as Chairman of the Board and Chief Executive Officer of Bowlin Outdoor from 1991 through January of 2001, and as President from 1983 through 1991. Mr. Bowlin had been employed by Bowlin Outdoor since 1968. Mr. Bowlin holds a Bachelor's degree in Business Administration from Arizona State University.
WILLIAM J. MCCABE. Mr. McCabe has served as Senior Vice President, Management Information Systems, Secretary, Treasurer and as a Director of the Company since August of 2000. Mr. McCabe served as a member of the Board of Directors of Bowlin Outdoor from 1983 until August 1996. Prior to 1997, Mr. McCabe served as Senior Vice President - Advertising Services from 1993 to 1996, Vice President of Outdoor Operations from 1988 to 1992 and as Vice President of Accounting from 1984 to 1987. Mr. McCabe has been employed by the Company 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.
DAVID B. RAYBOULD. Mr. Raybould has been employed as a sales professional by Xpedx, a division of International Paper Company from 1995 until June 2002. During his employment with Xpedx, Mr. Raybould was a consultant to small, independent business firms as well as many Fortune 500 companies. Mr. Raybould holds a Bachelor's degree in Business Administration from the University of New Mexico.
NINA J. PRATZ. Ms. Pratz has served as the Company's Senior Vice President and Chief Financial Officer since April of 2001. Ms. Pratz has served as a member of the Bowlin Outdoor's Board of Directors from 1976 until January 2001. Prior to 1997, Ms. Pratz served as Chief Administrative Officer of Bowlin Outdoor since 1988. Ms. Pratz holds a Bachelor's degree in Business Administration from New Mexico State University.
KIM D. STAKE. Ms. Stake has served as Vice President and Chief Administrative Officer since April of 2002. Ms. Stake has been employed with the Company since December 1997. Ms. Stake also serves in such capacities as Controller and SEC compliance. Prior to December 1997, Ms. Stake was employed in public accounting. Ms. Stake holds a Bachelor's degree in Business Administration from the University of New Mexico.
In lieu of an Audit Committee, the Company's Board of Directors is responsible for reviewing and making recommendations concerning the selection of outside auditors, reviewing the scope, results and effectiveness of the annual audit of the Company's financial statements and other services provided by the Company's independent public accountants. The Board of Directors also reviews the Company's internal accounting controls, practices and policies. The Board of Directors has not made a determination as to whether any of the current members qualify as an "audit committee financial expert".
The Company promotes accountability for adherence to honest and ethical conduct; endeavors to provide full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with the Commission and in other public communications made by the Company; strive to be compliant with applicable governmental laws, rules and regulations; and promotes prompt internal reporting of violations of the code of ethics to an appropriate person or persons. The Company has not formally adopted a written code of business conduct and ethics that governs to the Company's employees, officers and directors as the amendment to Item 406 of Regulation S-K does not require the Company to do so.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
No employee or officer of Bowlin Travel Centers has entered into an employment agreement with Bowlin Travel Centers, nor do we anticipate entering into any employment agreements in the future.
The following table summarizes all compensation paid by Bowlin Travel Centers, Inc. to its Chief Executive Officer for services rendered to Bowlin Travel Centers, Inc. during the fiscal years ended January 31, 2004, 2003 and 2002. The Company has no other executive officer whose total annual salary and bonus paid to them by Bowlin Travel Centers, Inc. exceeded $100,000 for the most recent fiscal year. All information set forth in this table reflects compensation earned by these individuals for services with Bowlin Travel Centers.
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(1) Includes amounts deferred at the election of the CEO to be contributed to his 401(k) Profit Sharing Plan account.
(2) Amount for 2004 includes (i) $1,620 of Bowlin Travel Centers discretionary matching contributions allocated to Mr. Bowlin's 401(k) Profit Sharing Plan account; (ii) $8,544 for premiums on term life, auto and disability insurance policies of which Mr. Bowlin or his wife is the owner; and (iii) $6,500 for Mr. Bowlin's car allowance. Amount for 2003 includes (i) $1,784 of Bowlin Travel Centers discretionary matching contributions allocated to Mr. Bowlin's 401(k) Profit Sharing Plan account; (ii) $8,289 for premiums on term life, auto and disability insurance policies of which Mr. Bowlin or his wife is the owner; and (iii) $6,750 for Mr. Bowlin's use of a company owned vehicle. Amount for 2002 includes (i) $2,216 of Bowlin's discretionary matching contributions allocated to Mr. Bowlin's 401(k) Profit Sharing Plan account; (ii) $7,758 for premiums on term life, auto and disability insurance policies of which Mr. Bowlin or his wife is the owner; and (iii) $6,000 for Mr. Bowlin's use of a company owned vehicle
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are entitled to receive $500 per each meeting of the Board of Directors, or any committee thereof, attended. Directors do not receive any other compensation for services as directors of the Company.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 31, 2004, there were 4,583,348 shares of Bowlin Outdoor common stock outstanding. The following table sets forth the number of shares of common stock beneficially owned by (i) all persons known by the Company to be the beneficial owners of more than five percent of the outstanding shares of common stock; (ii) each Director of the Company; (iii) the executive officers of the Company; and (iv) all Directors and executive officers of the Company as a group.
AMOUNT AND NATURE OF PERCENT OF NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(3) CLASS(4) - ------------------------- ----------------------- ----------
Michael L. Bowlin (5)(1) 2,818,536 61.5%
William J. McCabe (1) 64,548 1.4%
Nina J. Pratz (1) 116,802 2.5%
Kim D. Stake (1) * *
David B. Raybould (1) -- --
Monica A. Bowlin (6)(1) 2,818,536 61.5%
Jonathan Brooks (2) 585,550 12.8%
All directors and executive 2,999,886 65.4% officers as a group (5 persons)
- ------------------------------- * Less than 1.0%
(1) Address is c/o Bowlin Travel Centers, Inc., 150 Louisiana NE, Albuquerque, NM, 87108.
(2) Address is 1999 Avenue of the Stars, Suite 2040, Los Angeles, CA, 90067.
(3) Unless otherwise noted and subject to community property laws, where applicable, the persons named in the table above have sole voting and investment power with respect to all shares of Common Stock as shown beneficially owned by them.
(4) The shares and percentages shown include the shares of common stock actually owned as of April 15, 2004.
(5) Includes 425,687 shares held by Mr. Bowlin's wife and 171,332 shares held by each of three daughters. Mr. Bowlin disclaims beneficial ownership of an aggregate of 513,996 of such shares, which are held by three of his daughters.
(6) Includes 1,878,853 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.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
WHOLESALING TO RELATIVE OF OFFICER AND DIRECTOR AND STOCKHOLDER OF BOWLIN TRAVEL CENTERS
Wholesale gasoline distribution sales were sold to a Stuckey's franchise travel center not owned by the Company. The travel center is owned by the niece of Michael L. Bowlin. The sales with the associated cost of goods and gross profit consist of the following the year ended January 31:
2004 2003 2002 ---------- ---------- ----------
Gross sales $1,399,527 1,179,052 1,311,206 Cost of goods sold 1,355,553 1,144,956 1,257,959 ---------- ---------- ----------
Gross profit $ 43,974 34,096 53,247 ========== ========== ==========
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The Board of Directors approves the fees and other significant compensation to be paid to the independent auditors for the purpose of preparing or issuing an audit report or related work. The Company provides appropriate funding, as determined by the Board of Directors, for payment of fees and other significant compensation to the independent auditor. The Board of Directors also preapproves all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by its independent auditors, subject to the de minimis exceptions for non-audit services described in the Securities Exchange Act of 1934.
The aggregate fees billed by Neff + Ricci LLP ("Neff + Ricci") for professional services rendered for the audit of the Company's annual financial statements for the fiscal year ended January 31, 2003, and for the review of the financial statements included in the Company's Quarterly Reports on Form 10-Q for the fiscal year were approximately $35,000.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits as indexed below are included as part of this Form 10-K.
INDEX TO EXHIBITS
3.1(1) Form of Certificate of Incorporation of Bowlin Travel Centers, Inc. 3.2(1) Bylaws of Bowlin Travel Centers, Inc. 10.1(1) Management Services Agreement, between Bowlin Outdoor Advertising and Travel Centers Incorporated and Bowlin Travel Centers, dated August 1, 2000. 10.2(1) Distributor Franchise Agreement, dated as of July 19, 1995, between the Registrant and CITGO Petroleum Corporation. 10.3(1) Distributor Sales Agreement, dated as of April 1, 1999, between the Registrant and ExxonMobil Company, U.S.A. (a division of ExxonMobil Corporation). 10.8(1) Lease, dated as of January 12, 1987, between Janet Prince and the Registrant.
10.9(1) Commercial Lease, dated as of September 21, 1996, between the State of Arizona and the Registrant, as amended. 10.10(1) Commercial Lease, dated as of March 16, 2000, between the New Mexico Commissioner of Public Lands and the Registrant, as amended. 10.12(1) Lease Agreement, dated as of June 23, 1989, between the Registrant and Rex Kipp, Jr., as amended. 10.13(1) Lease, dated as of September 29, 1983, between J.T. and Ida M. Turner and the Registrant. 10.14(1) Business Lease, dated as of October 1, 1996, between the Registrant and the New Mexico Commission of Public Lands. 10.15(1) Commercial Lease, dated as of September 21, 1996, between the Registrant and the State of Arizona, as amended. 10.19(1) "Dairy Queen" Operating Agreement, dated as of March 10, 1983, between Interstate Dairy Queen Corporation and the Registrant d/b/a DQ/B of Edgewood, NM, together with amendments and ancillary agreements related thereto. 10.20(1) "Dairy Queen" Operating Agreement, dated as of May 1, 1982, between Interstate Dairy Queen Corporation and the Registrant d/b/a DQ/B of Flying C, New Mexico, together with amendments and ancillary agreements related thereto. 10.21(1) "Dairy Queen" Store Operating Agreement, dated as of November 18, 1986, between Dairy Queen of Southern Arizona, Inc. and the Registrant, together with amendments and ancillary agreements related thereto. 10.22(1) "Dairy Queen" Operating Agreement, dated as of September 1, 1982, between Interstate Dairy Queen Corporation and the Registrant d/b/a DQ of Bluewater, New Mexico, together with amendments and ancillary agreements related thereto. 10.23(1) "Dairy Queen" Store Operating Agreement, dated as of February 1, 1984, between Dairy Queen of Arizona, Inc. and the Registrant, together with amendments and ancillary agreements related thereto. 10.25(1) "Dairy Queen" Operating Agreement, dated as of June 7, 1989, between Interstate Dairy Queen Corporation and the Registrant d/b/a "DQ" at Butterfield Station, together with amendments and ancillary agreements related thereto. 10.26(1) Letter of Agreement, dated as of March 1, 1987, between Stuckey's Corporation and the Registrant confirming franchise of Benson, AZ Stuckey's Pecan Shoppe. 10.27(2) Franchise Agreement, dated as of July 7, 1982, between Stuckey's, Inc. and the Registrant, together with a related Personal Guaranty and Indemnity. 10.28(2) Amended and Restated Master Loan Agreement with First Security Bank, dated as of November 10, 2000, by and among the Registrant, Bowlin Outdoor Advertising and Travel Centers Incorporated, and First Security Bank. 10.29(1) Lease Agreement between Bowlin Outdoor Advertising and Travel Centers Incorporated and the Registrant, dated August 1, 2000. 10.30(2) Contribution Agreement, dated as of November 1, 2000, by and between the Registrant and Bowlin Outdoor Advertising and Travel Centers Incorporated. 10.31(2) Tax Sharing and Disaffiliation Agreement, dated as of November 1, 2000, by and between the Registrant and Bowlin Outdoor Advertising and Travel Centers Incorporated. 10.32(3) Loan Agreement with Bank of the West, dated July 10, 2003, by and amount the Registrants, Bowlin Travel Centers, Inc., and Bank of the West. 10.33(4) Purchase and Sale Agreement, dated October 30, 2003, by and between Bowlin Travel Centers, Inc., William D. Kennon and Deming Fast Foods, Inc., for the real estate known as a Dairy Queen restaurant business located in Deming, New Mexico.
10.34 Exchange Agreement, dated March 24, 2004, by and between Bowlin Travel Centers, Inc. and Dona Ana Title Company, for relinquished real estate known as Lot 1 of Farmers Subdivision, with replacement real estate known as a 5.42 parcel of land described as Tract B in Deed dated June 6, 1961 containing 22, 819 square feet. 31.1 Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended. 31.2 Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended. 32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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(1) Incorporated by reference to the correspondingly numbered Exhibits in the Registrant's Form 10, filed November 10, 2000.
(2) Incorporated by reference to the correspondingly numbered Exhibits in the Registrant's Amendment No. 1 to the Form 10, filed December 8, 2000.
(3) Incorporated by reference to the correspondingly numbered Exhibits in the Registrants Form 10-Q, filed September 11, 2003.
(4) Incorporated by reference to the correspondingly numbered Exhibits in the Registrants Form 10-Q, filed December 11, 2003.
(b) Reports on Form 8-K
On December 11, 2003, the Company filed a Current Report on Form 8-K under Item 9 to disclose under Regulation FC a press release dated December 11, 2003, announcing revenue results for the quarter ended October 31, 2003.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Bowlin Travel Centers, Inc.
By: /S/ MICHAEL L. BOWLIN ----------------------------------------- Michael L. Bowlin, Chairman of the Board, President and Chief Executive Officer Date: April 15, 2004
In accordance with the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Company and in the capacities and on the dates indicated:
SIGNATURE DATE
By: /S/ MICHAEL L. BOWLIN April 15, 2004 ------------------------------------------------- Michael L. Bowlin, Chairman of the Board, President, CEO and Director (Principal Executive Officer)
By: /S/ NINA J. PRATZ April 15, 2004 ------------------------------------------------- Chief Financial Officer, Senior Vice President, and Director
By: /S/ WILLIAM J. MCCABE April 15, 2004 ------------------------------------------------- Senior Vice President, Management Information Systems, Secretary, Treasurer and Director
By: /S/ KIM D. STAKE April 15, 2004 ------------------------------------------------- Kim D. Stake, Chief Administrative Officer, Vice President and Director
By: /S/ DAVID B. RAYBOULD April 15, 2004 ------------------------------------------------- David B. Raybould, Director