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1.
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The
condensed financial statements of Bowlin Travel Centers, Inc. (the
“Company”) as of and for the three months ended April 2008 and 2007 are
unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position, operating results and cash flows
for the interim periods. The interim financial statements should be read
in conjunction with the financial statements
and notes,
together with management’s discussion and analysis of financial condition
and results of operations, contained in the Company’s annual report on
Form 10-K for the fiscal year ended January 31, 2008. Results
of operations for interim periods are not necessarily indicative of
results that may be expected for the fiscal year as a
whole.
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2.
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The
Company continues to list for sale two retail locations. One
location is in Alamogordo, New Mexico and the other retail location is in
Edgewood, New Mexico.
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The
property, fixtures and equipment located 4 miles north of Alamogordo listed for
sale have been identified as a component as defined in FAS Statement No. 144 –
Accounting for Impairment or Disposal of Long-Lived Assets (as
amended). The carrying value of the property, fixtures and equipment
of approximately $650,000 and $653,000 have been reclassified as assets held for
sale in the April 30, 2008 and January 31, 2008 balance sheets,
respectively. The results of operations of approximately ($13,000)
and ($10,000) for the three months ended April 30, 2008 and 2007, respectively,
have been reclassified to loss from discontinued operations of a component, net
of the related income tax benefit.
The
property, fixtures and equipment located in Edgewood listed for sale have been
identified as a component as defined in FAS Statement No. 144 – Accounting for
Impairment or Disposal of Long-Lived Assets (as amended). On October
31, 2007, the Company closed the Edgewood location. The carrying
value of the property, fixtures and equipment of approximately $467,000 and
$470,000 have been reclassified as assets held for sale in the April 30, 2008
and January 31, 2008 balance sheets, respectively. The results of
operations of approximately ($1,000) and ($27,000) for the three months ended
April 30, 2008 and 2007, respectively, have been reclassified to loss from
discontinued operations of a component, net of the related income tax
benefit.
The
results of operations for the three months ended April 30, 2007, include
approximately ($8,000) which was reclassified to loss of discontinued operations
of a component, net of the related income tax benefit. This component
was sold May 24, 2007.
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3.
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New
Accounting Pronouncements.
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In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities”. This pronouncement amends SFAS No. 133 and
requires enhanced disclosures abut an entity’s derivative and hedging activities
thereby improving the transparency of financial reporting. SFAS No.
161 is effective for financial statements issued for fiscal years beginning
after November 15, 2008. The Company is currently assessing the
effect of SFAS No. 161 on its financial statements, but it is not expected to be
material.
BOWLIN TRAVEL CENTERS,
INC.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51.” This
statement provides new accounting guidance and disclosure and presentation
requirements for noncontrolling interest in a subsidiary. SFAS No.
160 is effective for the first fiscal year beginning on or after December 15,
2008. The Company is currently assessing the effect of SFAS No. 160
on its financial statements, but it is not expected to be material.
In
December 2007, the FASB issued SFAC No. 141(R), “Business
Combinations.” This statement provides new accounting guidance and
disclosure requirements for business combinations. SFAS No. 141(R) is
effective for business combinations which occur in the first fiscal year
beginning on or after December 15, 2008.
In
December 2007, the FASB finalized the provisions of the Emerging Issues Task
Force (EITF) Issue No. 07-1, “Accounting for Collaborative
Arrangements.” This EITF Issue provides guidance and requires
financial statement disclosures for collaborative arrangements. EITF
Issue No. 07-1 is effect for financial statements issued for fiscal years
beginning after December 15, 2008. The Company is currently assessing
the effect of EITF Issue No. 07-1 on its financial statements but it is not
expected to be material.
BOWLIN TRAVEL CENTERS,
INC.
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Item
2
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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Certain
statements contained herein with respect to factors which may affect future
earnings, including management’s beliefs and assumptions based on information
currently available, are forward-looking statements made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements that are not historical facts
involve risks and uncertainties, and results could vary materially from the
descriptions contained herein.
Overview
The
following is a discussion of the financial condition as of April 30, 2008 and
January 31, 2008 and results of operations of the Company as of and for the
periods ended April 30, 2008 and 2007. This discussion should be read
in conjunction with the Financial Statements of the Company and the related
notes included in the Company’s annual report on Form 10-K for fiscal year ended
January 31, 2008.
The
Company’s principal business activities include the operation of full-service
travel centers and restaurants that offer brand name food and gasoline, and a
unique variety of Southwestern merchandise to the traveling public in New Mexico
and Arizona.
The
Company’s gross retail sales include merchandise, retail gasoline sales,
restaurant sales and wholesale gasoline sales. Each of the Company’s
travel center locations retails a variety of unique Southwestern souvenirs and
gifts. The Company operates ten full-service travel centers along
interstate highways in Arizona and New Mexico. Two of the Company’s
travel centers are held for sale; one of which closed on October 31,
2007. Eight of the ten retail operations retail
gasoline. Four of the Company’s ten locations have full-service
restaurants that operate under the Dairy Queen/Brazier or Dairy Queen brand
names; one of the Company’s ten locations operates a DQ Treat restaurant that
sells only soft serve ice cream and drinks. The merchandise, gasoline
and restaurant retail sales are all a part of the Company’s ongoing retail
business and have been aggregated.
The
Company wholesales gasoline to three independent third party
locations. The wholesale gasoline does not meet the operating segment
definition criteria of paragraph 10(b) of FAS 131, Disclosures about Segments of
an Enterprise and Related Information, as the Company does not review wholesale
gasoline operating results for decision making about resource
allocation. Therefore, wholesale gasoline sales have been aggregated
with the Company’s business activities.
The
discussion of results of operations, which follows, compares such selected
operating data for the interim periods presented.
BOWLIN TRAVEL CENTERS,
INC.
Results
of Operations
Comparison
of the Three Months Ended April 30, 2008 and April 30, 2007
Gross
sales from continuing operations at the Company’s travel centers decreased by
1.5% to $6.627 million for the three months ended April 30, 2008, from $6.726
million for the three months ended April 30, 2007. Merchandise sales
from continuing operations decreased 14.2% to $1.877 million for the three
months ended April 30, 2008, from $2.187 million for the three months ended
April 30, 2007. The decrease is primarily due to decreases in general
merchandise, handmade and gold jewelry, t-shirts and fireworks partially offset
by an increase in moccasins, c-store and cigarettes. There is a
decrease in firework sales of approximately $65,000 at one of the Company’s
retail locations due to county ordinances that regulate the sales of fireworks.
In addition, increases in gasoline prices continue to have a negative impact on
travel and sales. Retail gasoline sales from continuing operations
increased 12.2% to $2.742 million for the three months ended April 30, 2008,
from $2.443 million for the same period in 2007. The increase is due
to an increase in the average retail price per gallon of approximately $0.72 per
gallon, partially offset by a decrease in gallons sold of approximately 95,000
gallons. The average gallon of gasoline retailed for approximately
$3.51 for the three months ended April 30, 2008 compared to $2.79 for the three
months ended April 30, 2007. Restaurant sales from continuing
operations decreased 10.0% to $546,000 for the three months ended April 30,
2008, from $607,000 for the three months ended April 30, 2007. The
decrease is due to a change during the quarter at one of the Company’s Dairy
Queen locations from a full-service restaurant to a DQ Treat restaurant that
sells only soft serve ice cream and drinks. In addition, convenience
store food sales at Picacho Peak Plaza negatively affect restaurant sales at the
Picacho Peak DQ and increases in gasoline prices that continue to have a
negative impact on travel and restaurant sales. Wholesale gasoline
sales to independent retailers decreased 1.8% to $1.462 million for the three
months ended April 30, 2008, from $1.489 million for the three months ended
April 30, 2007. The decrease is primarily due to a decrease of
approximately 157,000 in gasoline gallons purchased in the current period,
partially offset by market price increases.
Cost of
goods sold for continuing operations increased 4.4% to $4.790 million for the
three months ended April 30, 2008, from $4.586 million for the three months
ended April 30, 2007. Merchandise cost of goods from continuing
operations decreased 9.0% to $701,000 for the three months ended April 30, 2008,
from $770,000 for the three months ended April 30, 2007. The decrease
relates to the decrease in sales. Retail gasoline cost of goods from
continuing operations increased 14.1% to $2.470 million for the three months
ended April 30, 2008, from $2.164 million for the three months ended April 30,
2007. The increase corresponds to increases in overall market prices
during the period and is partially offset by a decrease in gallons
sold. Restaurant cost of goods from continuing operations decreased
4.7% to $162,000 for the three months ended April 30, 2008, from $170,000 for
the three months ended April 30, 2007. The decrease is due to one of
the Company’s Dairy Queen locations changing from a full-service restaurant to a
soft serve ice cream and drinks only restaurant, partially offset by increases
in gasoline delivery surcharges. Wholesale gasoline cost of goods
decreased 1.7% to $1.457 million for the three months ended April 30, 2008, from
$1.482 million for the three months ended April 30, 2007. The
decrease is primarily due to a decrease in gasoline gallons purchased in the
current period, partially offset by market price increases. Cost of
goods sold as a percentage of net revenues increased to 72.8% for the three
months ended April 30, 2008, as compared to 68.7% for the three months ended
April 30, 2007. The increase is primarily due to the increase in
gasoline cost of goods as a result of overall market prices increases during the
period.
Gross
profit from continuing operations decreased 14.4% to $1.789 million for the
three months ended April 30, 2008, from $2.091 million for the three months
ended April 30, 2007. The decrease is primarily due to the increase
in market prices related to retail and wholesale gasoline as well as a decrease
in sales.
BOWLIN TRAVEL CENTERS,
INC.
General
and administrative expenses for continuing operations consist primarily of
salaries, bonuses and commissions for travel center personnel, property costs
and repairs and maintenance. General and administrative expenses for
continuing operations also include executive and administrative compensation and
benefits, accounting, legal and investor relations fees. General and
administrative expenses for continuing operations decreased 5.1% to $1.722
million for the three months ended April 30, 2008, from $1.815 million for the
three months ended April 30, 2007. The decrease is due to decreases
in personnel related costs, costs associated with the Company’s inventory
bar-coding project, general repair and maintenance that included repair and
maintenance related to overall weather conditions such as snow removal and wind
damage in the prior period, supplies, freight as a result of volume purchasing,
bank card fees as a result of the decrease in sales partially offset by
increases in sign repair and maintenance due to prior period weather conditions
that limited the Company’s ability to travel to billboard locations, and a
decrease in overall insurance costs.
Depreciation
and amortization expense for continuing operations increased 8.2% to $210,000
for the three months ended April 30, 2008, from $194,000 for the three months
ended April 30, 2007. The increase is associated with certain asset
additions for the three months ended April 30, 2008 offset by some assets
becoming fully depreciated or disposed of.
The above
factors contributed to an overall decrease in operating income from continuing
operations of 274.4% to a loss of $143,000 for the three months ended April 30,
2008, compared to operating income from continuing operations of $82,000 for the
three months ended April 30, 2007.
Non-operating
income (expense) for continuing operations includes interest income, gains and
losses from the sale of assets, rental income and interest
expense. Interest income for continuing operations increased 44.4% to
$39,000 for the three months ended April 30, 2008, compared to interest income
of $27,000 for the three months ended April 30, 2007. The increase is
due to additional certificates of deposit purchased by the Company from the
proceeds of the sale of the Rio North facility in May 2007. There was
a gain from the sale of assets of $5,000 for the three months ended April 30,
2008 from $28,000 for the three months ended April 30, 2007. The gain
of $5,000 for the three months ended April 30, 2008 is due primarily to
installment payments received related to notes receivable that include deferred
gains. The gain of $28,000 for the three months ended April 30, 2007
is due to installment payments received related to notes receivable that include
deferred gains of approximately $5,000, an earnest deposit of $25,000 that was
forfeited due to a purchase agreement closing date expiring, partially offset by
a loss of approximately $2,000 on the sale of equipment. Rental
income was $38,000 for the three months ended April 30, 2008 compared to $47,000
for the three months ended April 30, 2007. Interest expense decreased
10.5% to $68,000 for the three months ended April 30, 2008, from $76,000 for the
three months ended April 30, 2007. The decrease is primarily due to
the Company’s exchange of debt with its primary lender in November 2007 that
resulted in a lower interest rate.
Income
(loss) from continuing operations before income taxes decreased 217.3% to a loss
of $129,000 for the three months ended April 30, 2008, compared to income before
income taxes from continuing operations of $110,000 for the three months ended
April 30, 2007, due to an increase in cost of goods sold primarily resulting
from an increase in the market price of gasoline, and a decrease in gross
sales. As a percentage of net revenues, the loss from continuing
operations before income taxes was 2.0% for the three months ended April 30,
2008, compared to income from continuing operations before income taxes of 1.6%
for the three months ended April 30, 2007.
BOWLIN TRAVEL CENTERS,
INC.
Income
tax benefit (expense) for continuing operations increased 182.5% with an income
tax benefit of $47,000 for the three months ended April 30, 2008, compared to
income tax expense for continuing operations of $57,000 for the three months
ended April 30, 2007. The decrease is a result of the loss from
continuing operations before income taxes of $129,000 for the three months ended
April 30, 2008 compared to income from continuing operations before income taxes
of $110,000 for the three months ended April 30,
2007.
The
foregoing factors contributed to a net loss from continuing operations of
$82,000 for the three months ended April 30, 2008, compared to net income from
continuing operations of $53,000 for the three months ended April 30,
2007.
Discontinued
operations include the property, fixtures and equipment for the two retail
locations that the Company has listed for sale (see Note 2 to the Condensed
Financial Statements). There is a loss of $22,000 for discontinued
operations for the three months ended April 30, 2008 compared to a loss of
$93,000 for the three months ended April 30, 2007. There is an income
tax benefit of $8,000 for the three months ended April 30, 2008, compared to an
income tax benefit of $48,000 for the three months ended April 30,
2007. The net loss from discontinued operations for the three months
ended April 30, 2008 is $14,000 compared to a net loss from discontinued
operations for the three months ended April 30, 2007 of $45,000.
The
foregoing factors contributed to a net loss for the three months ended April 30,
2008 of $96,000 compared to net income of $8,000 for the three months ended
April 30, 2007.
Liquidity
and Capital Resources
At April
30, 2008, the Company had working capital of $6.696 million compared to working
capital of $6.705 million at January 31, 2008 (“working capital” is the excess
of total current assets over total current liabilities). At April 30,
2008, the Company had a current ratio of 5.8:1; compared to a current ratio of
5.4:1 as of January 31, 2008 (“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 $426,000, a decrease in prepaid expenses of
$64,000, an increase in accounts payable of $182,000 offset by an increase in
marketable securities of $200,000, an increase in inventory of $113,000, an
increase in income taxes of $32,000, a decrease in accrued liabilities of
$306,000 and a decrease in deferred revenue of $10,000. The decrease
in cash is due to lower cash balances at April 30, 2008 as a result of
purchasing merchandise in preparation for the Company’s summer peak season that
typically begins in the second quarter as well as a decrease in net income due
to a decrease in sales and an increase in cost of goods sold as a result of an
increase in the market price of gasoline. The decrease in prepaid
expenses is primarily due to a decrease in prepaid insurance as the Company
nears its June 1, 2008 renewal date and prepaid rent. The increase in
accounts payable is primarily due to purchasing merchandise as the Company
prepares for summertime sales as well as timing of electronic fund transfers
related to the Company’s wholesale gasoline sales. The increase in
marketable securities, which consist of twelve-month certificates of deposit, is
due to more certificates with maturity dates greater than three months in the
current period. The increase in inventory is primarily due to
merchandise increases at the Company’s central warehouse and retail locations as
the Company prepares for summertime sales that typically occur in the second
quarter and an increase in gasoline inventory as a result of higher market
prices partially offset by a decrease in gasoline gallon
inventory.
The increase in income tax
assets is a
result of deferred tax assets
and liabilities recognized for future tax consequences attributable to
differences between financial statement carrying amounts of existing current
assets and liabilities and their respective tax bases. The decrease
in accr
u
ed liabilities is primarily due to decreases in accrued
salaries and wages plus the related payroll taxes, as discretionary bonuses were
accrued through January 31, 2008 to be paid the following fiscal year partially
offset by an increase in property taxe
s
that were paid in
December 2007 and have been accruing since that time. The decrease in
deferred revenue is a result of outdoor advertising billboard revenue as the
Company had several annual contracts that did not begin until August 1,
2007.
BOWLIN TRAVEL CENTERS,
INC.
The
Company’s travel center operations are subject to seasonal
fluctuations. The first quarter of the fiscal year is
typically the weakest
. Throughout the
Company’s fiscal year, revenues and earnings may experience substantial
fluctuations from quarter to quarter. These fluctuations could result
in periods of increased or decreased cash flow as well as increased or decreased
net income.
Net cash
used in operating activities from continuing operations was $124,000 for the
three months ended April 30, 2008, compared to net cash provided by operating
activities from continuing operations of $80,000 for the three months ended
April 30, 2007. Net cash used in operating activities for the three
months ended April 30, 2008 is primarily attributable to a net loss of $96,000,
adjusted for depreciation and amortization expense of $214,000, offset by cash
used by net operating assets and liabilities of $215,000, a decrease in net
deferred income taxes of $23,000 and the gain on sale of assets of
$5,000. Net cash provided by operating activities for the three
months ended April 30, 2007 was primarily attributable to net income of $8,000
adjusted for depreciation and amortization expense of $206,000, offset by
changes in net operating assets and liabilities of $44,000, a decrease in net
deferred income taxes of $69,000 and the gain on sales of assets of
$28,000.
Net cash
used in investing activities for the three months ended April 30, 2008 was
$271,000 primarily consisting of an increase in marketable securities of
$200,000, $85,000 used for purchases of property and equipment partially offset
by payments from notes receivable, net, of $19,000. Net cash used in
investing activities for the three months ended April 30, 2007 was $435,000,
primarily consisting of an increase in marketable securities of 328,000,
$157,000 used for purchases of property and equipment partially offset by the
proceeds from the sale of property and equipment of $28,000 and payments from
notes receivable, net, of $17,000.
Net cash
used by financing activities for the three months ended April 30, 2008 was
$31,000, which consisted of payments on long-term debt. For the three
months ended April 30, 2007, net cash used in financing activities was $52,000,
which consisted of payments on long-term debt.
The
Company’s business and cash flow from operations rely on revenues generated from
the sale of gasoline. During the quarter ended April 30, 2008, retail
gasoline sales from continuing operations accounted for approximately 41.7% of
the Company’s net sales.