<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
--------------------------
TRAVELCENTERS OF AMERICA, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 36-3856519
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
24601 Center Ridge Road, Suite 300
Westlake, OH 44145-5634
(Address of principal executive offices, including zip code)
(216) 808-9100
(Telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No / X /
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS HISTORICAL INFORMATION AND
FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN
THIS FORM 10-Q PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. THEY INVOLVE KNOWN AND UNKNOWN RISKS
AND UNCERTAINTIES THAT MAY CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER FROM
FUTURE PERFORMANCE SUGGESTED HEREIN. IN THE CONTEXT OF FORWARD-LOOKING
INFORMATION PROVIDED IN THIS FORM 10-Q AND IN OTHER REPORTS, PLEASE REFER TO
THE DISCUSSION OF RISK FACTORS DETAILED IN, AS WELL AS THE OTHER INFORMATION
CONTAINED IN, THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
INDEX PAGE NO.
----- --------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheet as of March 31, 1997
and December 31, 1996 3
Consolidated Statement of Income
and Retained Earnings for the three months
ended March 31, 1997 and 1996 4
Consolidated Statement of Cash Flows
for the three months ended March 31, 1997
and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 4. Submission of Matters to a Vote of
Securityholders 33
Item 6. Exhibits and Reports on Form 8-K 34
SIGNATURE
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31,
1997 DECEMBER 31,
(UNAUDITED) 1996
----------- ------------
(IN THOUSANDS OF DOLLARS)
ASSETS
CURRENT ASSETS:
Cash $ 74,910 $ 23,779
Accounts receivable (less allowance for doubtful
accounts of $3,851 for 1997 and $3,502 for 1996) 56,291 54,371
Inventories 29,821 29,082
Deferred income taxes 3,877 3,877
Other current assets 10,895 10,530
----------- ------------
Total current assets 175,794 121,639
Notes receivable, net 1,920 1,835
Property and equipment, net 267,618 269,366
Intangible assets 19,449 19,657
Deferred financing costs 11,624 8,379
Other assets 3,426 5,013
----------- ------------
TOTAL ASSETS $479,831 $425,889
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving loans $ --- $ 14,000
Current maturities of long-term debt 500 17,250
Accounts payable 35,564 37,201
Other accrued liabilities 26,416 29,422
----------- ------------
Total current liabilities 62,480 97,873
COMMITMENTS AND CONTINGENCIES (NOTE 8)
Long-term debt (net of unamortized discount) 290,000 193,185
Deferred income taxes 9,452 9,452
Other long-term liabilities 5,338 5,914
----------- ------------
TOTAL LIABILITIES 367,270 306,424
Mandatorily redeemable senior convertible
participating preferred stock 52,295 51,075
Other preferred stock, common stock and
other shareholders' equity 49,499 50,743
Retained earnings 10,767 17,647
----------- ------------
Total shareholders' equity 60,266 68,390
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $479,831 $425,889
----------- ------------
----------- ------------
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
UNAUDITED
THREE MONTHS ENDED
MARCH 31,
1997 1996
---- ----
(IN THOUSANDS OF DOLLARS)
REVENUES:
Fuel $194,151 $108,907
Rent 9,720 10,950
Nonfuel revenues 61,242 11,552
-------- --------
TOTAL REVENUES 265,113 131,409
Cost of revenues (excluding depreciation) 205,878 110,896
-------- --------
GROSS PROFIT (EXCLUDING DEPRECIATION) 59,235 20,513
Operating expenses 34,083 3,683
Selling, general and administrative expenses 11,733 9,055
Refinancing, transition and development costs 1,618 25
Depreciation and amortization 6,944 3,214
Other (income) expense, net (74) (27)
Income of subsidiary held for disposition --- (143)
-------- --------
INCOME FROM OPERATIONS 4,931 4,706
Interest (expense), net (5,105) (3,208)
-------- --------
(LOSS) INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (174) 1,498
(Benefit) provision for income taxes (68) 582
-------- --------
(Loss) income before extraordinary item (106) 916
Extraordinary item
(less applicable income taxes of $3,608) (5,554) ---
-------- --------
NET (LOSS) INCOME (5,660) 916
Less: preferred dividends (1,220) (1,220)
Retained earnings - beginning of the period 17,647 16,994
-------- --------
-------- --------
Retained earnings - end of the period $ 10,767 $ 16,690
-------- --------
-------- --------
Loss before extraordinary item per common share
and common share equivalent $ (0.15) $ (0.03)
Extraordinary item (0.63) ---
-------- --------
Net loss per common share and common share
equivalent (Note 2) $ (0.78) $ (0.03)
-------- --------
-------- --------
Weighted average number of shares and common
share equivalents (in thousands) 8,873 8,947
-------- --------
-------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
THREE MONTHS ENDED
MARCH 31,
1997 1996
---- ----
(IN THOUSANDS OF DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (5,660) $ 916
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Net income of subsidiary held for disposition --- 86
Extraordinary item 5,554 ---
Depreciation and amortization 6,944 3,214
Provision for doubtful accounts 376 467
Gain on sale of property andequipment (40) ---
Changes in assets and liabilities, adjusted for
the effects of acquisitions of network assets
Accounts receivable (3,185) (6,139)
Inventories 1,361 (124)
Other current assets 1,248 852
Accounts payable (1,782) 8,745
Other current liabilities (264) 3,286
Other, net 312 ---
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,864 11,303
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of network assets (4,254) (3,063)
Proceeds from sales of property and equipment 77 ---
Capital expenditures (1,388) (3,433)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (5,565) (6,496)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings 3,750 10,000
Revolving loan repayments (17,750) ---
Long-term debt borrowings 290,500 ---
Long-term debt repayments (211,800) (2,000)
Repurchase of common stock (1,244) ---
Debt issuance costs (11,624) ---
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 51,832 8,000
-------- --------
Net increase in cash 51,131 12,807
Cash at the beginning of the period 23,779 3,191
-------- --------
Cash at the end of the period $ 74,910 $ 15,998
-------- --------
-------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
1. BUSINESS DESCRIPTION AND SUMMARY OF OPERATING STRUCTURE
TravelCenters of America, Inc., formerly National Auto/Truckstops
Holdings Corporation (collectively with its subsidiaries, as the context
may require, the "Company"), was incorporated on December 2, 1992, to
raise equity and to function as the holding company of its wholly-owned
operating subsidiary, National Auto/Truckstops, Inc. ("National").
National was incorporated to acquire the travel center network ("the
National Network") of Unocal Corporation ("Unocal") ("the National
Acquisition"). On December 10, 1993, the Company capitalized a second
wholly-owned subsidiary, TA Holdings Corporation ("TAHC"), which in turn
capitalized a wholly-owned subsidiary, TA Operating Corporation ("TA").
TA was incorporated to acquire the travel center network ("the TA
Network") of BP Exploration and Oil Company ("BP") (the "TA Acquisition"),
and had a wholly-owned subsidiary, TA Franchise Systems Inc. ("TAFSI"),
which holds all of the TA franchise agreements. The National Acquisition
was consummated on April 13, 1993 and the TA Acquisition was consummated
on December 10, 1993.
The TA Acquisition required the consent of the operators and independent
franchisees who were holders of the Company's former Class A Common Stock
(the "Operator Shareholders"). The Operator Shareholders consented to the
TA Acquisition and, in connection therewith, the Company was granted an
option to repurchase, for cash and its stock in TAHC, all of its equity
securities, including its mandatorily redeemable preferred stock, and
warrants not held by the Operator Shareholders and senior management of
National. Accordingly, the financial statements presented the net assets
of TAHC as held for disposition. The results of operations of TAHC were
reported as a single amount through September 30, 1996. Effective
September 30, 1996, a decision was made to retain TAHC and, subsequently,
the Company chose to pursue the combination of the operations of the TA and
National Networks. Accordingly, at that date, the carrying value of the
Company's investment in TAHC of $44,637,000 was allocated to the
identifiable assets and liabilities based on the current fair values as of
that date. In addition, the results of operations and cash flows of TAHC
are included in the consolidated results of operations and cash flows of
the Company from October 1, 1996. TAHC had net income of $86,000 for the
three months ended March 31, 1996.
On January 21, 1997, the Company's Board of Directors approved a plan to
combine the operations of its National and TA Networks under the existing
TA Network management. This plan provides for the divesting of certain
National Network locations, terminating of certain franchise relationships,
transfer of operations of all National Network company-operated locations
to the TA Network and rebranding of certain National Network locations to
TA.
As of March 6, 1997, the Company's certificate of incorporation and by-laws
were amended: (i) to eliminate the supermajority voting requirements that
were applicable to certain actions, (ii) to eliminate all designations of
classes of common stock, the convertibility of one class of common stock
into another and all class votes of holders of common stock, (iii) to
change the names of the Class A
-6-
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
Common Stock and the Class B Common Stock to Common Stock, (iv) to provide
that all of the outstanding shares of preferred stock of the Company be
convertible into shares of common stock on the same basis as they
previously had been convertible into Class B Common Stock, (v) to
eliminate class votes for directors and to provide that directors shall
be elected by holders of common stock and voting preferred stock voting
together as a class and (vi) to change the Company's name to
"TravelCenters of America, Inc." These actions did not change the numbers
of shares of various classes of stock that are authorized or outstanding,
nor did they alter the par value or dividend or other rights of the
various classes of stock.
On March 27, 1997, the Company was recapitalized and restructured pursuant
to a series of transactions in which (i) the Company's indebtedness under
the old National and TA Credit Facilities and Subordinated Notes were
refinanced (see Note 6), (ii) TA and National guaranteed the Company's
obligations under the new Credit Facilities, the Senior Notes and the
Subordinated Notes and (iii) the Company's subsidiaries were restructured
such that the Company directly owns its three subsidiaries, National, TA
and TAFSI (the Company's former subsidiary, TAHC, was liquidated as of
such date).
The Company, through its operating subsidiaries, is a nationwide marketer
of truck and auto fuel and related products and services through a network
of 169 full-service travel centers (121 operated under the "Unocal 76"
trademark and 48 operated under the "TA" and "Truckstops of America"
trademark as of March 31, 1997) in 36 states. Of the 169 network
locations at March 31, 1997, the Company owns or leases 135 locations, 68
of which are leased to independent operators, and 67 of which are
operated by the Company. During 1997, the Company took over the
operations of 9 locations from independent operators. The remaining 34
locations are owned and operated by independent franchisees with whom the
Company has contractual arrangements to supply motor fuels to a majority
of the franchisees, as well as related products and services. The Company
purchases and resells diesel fuel, gasoline and other truckstop products
and services to consumers, commercial fleets, operators and independent
franchisees; provides fleet credit card and customer information services
through its proprietary ACCESS 76 system and STAR Billing system; conducts
centralized purchasing programs; creates promotional programs; and, as a
franchisor, assists the operators and independent franchisees in providing
service to commercial fleets and the motoring public.
The accompanying unaudited, consolidated financial statements as of and for
the quarters ended March 31, 1997 and 1996 have been prepared in accordance
with generally accepted accounting principles for interim financial
information. Accordingly, these statements should be read in conjunction
with the audited financial statements as of and for the year ended
December 31, 1996. In the opinion of management, the accompanying
unaudited, consolidated financial statements contain all adjustments, all
of which were of a normal recurring nature, necessary to present fairly,
in all material respects, the consolidated results of operations and of
cash flows for the three-month period ended March 31, 1997 and 1996, and
are not necessarily indicative of the results to be expected for the full
year.
-7-
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
2. EARNINGS PER SHARE
Earnings per common share and common share equivalent were computed by
subtracting preferred dividends from net income and dividing the resulting
amount by the weighted average number of share of common stock and common
stock equivalents outstanding during the period. The Mandatorily
Redeemable Senior Participating Preferred Stock Series I and II and
Convertible Preferred Stock Series I and II are considered to be
equivalents of common stock. The number of shares issuable on conversion
of the preferred stock was added to the number of common shares. The
number of shares was also increased by the number of shares issuable on
the exercise of vested stock options when the formula price of the common
stock exceeds the exercise price of the options and by the number of
outstanding common stock warrants. The increase in the number of common
shares was reduced by the number of common shares which are assumed to
have been purchased with the proceeds from the exercise of the options.
The weighted average number of shares of common stock and common share
equivalents outstanding during the periods ended March 31, 1997 and 1996
were 8,873,449 and 8,947,006, respectively.
3. INVENTORIES
Inventories consist of the following:
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(IN THOUSANDS)
Nonfuel merchandise $ 23,186 $ 26,090
Petroleum products 6,635 2,992
--------- ---------
Total inventories $ 29,821 $ 29,082
--------- ---------
--------- ---------
4. DEFERRED FINANCING COSTS AND INTANGIBLE ASSETS
Deferred financing costs were recorded in conjunction with the National
and TA Acquisitions and were amortized on a basis approximating the
interest method over the lives of the related debt instruments, ranging
from five to ten years. As a result of the recapitalization of the
Company on March 27, 1997, the deferred financing costs associated with
the prior credit facilitates were written off as an extraordinary item
(see Note 7). The financing costs incurred in conjunction with the
recapitalization of the Company have been deferred and will be amortized
on a basis approximating the interest method over the lives of the related
new debt instruments. The intangible assets are being amortized
-8-
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
on a straight-line basis over their estimated lives, principally the terms
of the related contractual agreements giving rise to them.
5. REVOLVING LOAN
As a result of the recapitalization, the Company has available a revolving
loan facility of $40,000,000 (see Note 6). The interest rate for
borrowings under this revolving loan facility is based on either an
alternate base rate (ABR) plus 1.50 percent or an adjusted London
Interbank Offered Rate (LIBOR) plus 2.50%. After March 27, 1998, if
certain conditions are satisfied, the spread added to the baseline rates
will be reduced by 0.25 percent. There were no borrowings under the new
revolving loan facility at March 31, 1997 (although $1,529,000 was
utilized for letters of credit). There were $14,000,000 of outstanding
borrowings at December 31, 1996 under the prior revolving loan facilities.
The interest rate for borrowings under the prior revolving loan facilities
were based on the bank's prime lending rate and LIBOR rates.
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
INTEREST MARCH 31, DECEMBER 31,
RATE MATURITY 1997 1996
--------- -------- --------- ------------
(IN THOUSANDS)
Senior secured term loans (a) (b) 1999 $ --- $ 39,800
Senior secured term loans (c) (d) 2000 --- 42,000
Senior secured term loans (e) (f) 2005 80,000 ---
Senior secured notes (g) 8.76% 2002 --- 65,000
Senior secured notes (h) 8.63% 2002 --- 25,000
Senior secured notes-Series I (i) 8.94% 2002 35,500 ---
Senior secured notes-Series II (j) (k) 2005 50,000 ---
Subordinated notes (l) 12.50% 2003 --- 25,000
Subordinated notes (m) 12.00% 2003 --- 15,000
Subordinated notes (n) 10.25% 2007 125,000 ---
-------- ----------
Total 290,500 211,800
Less: amounts due within one year 500 17,250
Less: unamortized discount --- 1,365
-------- ----------
Total $290,000 $ 193,185
-------- ----------
-------- ----------
</TABLE>
-9-
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
(a) On April 13, 1993, the Company entered into a $100,000,000 Credit
Agreement with a group of banks. This Credit Agreement consisted of
three components: term loans of a maximum $70,000,000, swingline
loans not to exceed $3,000,000, and revolving loans not to exceed
$30,000,000 (including any swingline loans outstanding). On November
5, 1993, the Company reduced the revolving portion of the Credit
Agreement to $25,000,000. No borrowings under the swingline loan
were outstanding at December 31, 1996. This borrowing was retired as
a result of the recapitalization.
(b) Interest accrued at variable rates based on either an alternate base
rate (ABR) or an adjusted London Interbank Offered Rate (LIBOR). The
rate at which interest accrued was calculated as either the ABR rate
(8.25% at December 31, 1996) plus 1 3/4 percent or the LIBOR rate
(5.625% at December 31, 1996) plus 2 3/4 percent. The average
effective interest rates for the year ended December 1996 was 9.5
percent.
(c) On December 9, 1993, the Company entered into a $73,000,000 Credit
Agreement with a group of banks. This Credit Agreement consisted of
three components: term loans of a maximum $53,000,000, swingline
loans not to exceed $3,000,000, and revolving loans not to exceed
$20,000,000 (including any swingline loans outstanding and letters of
credit issued). No borrowings under the swingline loan were
outstanding at December 31, 1996. There were $1,529,000 of
outstanding letters of credit under the Credit Agreement at December
31, 1996. This borrowing was retired as a result of the
recapitalization.
(d) Interest accrued at variable rates based on either an alternate base
rate (ABR) or an adjusted London Interbank Offered Rate (LIBOR). The
rate at which interest accrued was calculated as either the ABR rate
plus 1 3/4 percent or the LIBOR rate plus 2 3/4 percent. The average
effective interest rate for the year ended December 31, 1996 was 8.9
percent.
(e) On March 21, 1997, in connection with the recapitalization, the
Company entered into a $120,000,000 Credit Agreement with a group of
banks. This Credit Agreement consists of three components: term
loans of a maximum $80,000,000, swingline loans not to exceed
$5,000,000, and revolving loans (see Note 5) not to exceed
$40,000,000 (including any swingline loans outstanding and letters of
credit issued). There have been no borrowings under the swingline
loan or revolving loan commitments to date. Payments of principal,
interest and commitment fees related to the Credit Agreement are
scheduled at each quarter end in installments of principal ranging
from $125,000 to $11,750,000, with the first payment due on June 30,
1997, and the last quarterly payment due on March 27, 2005. Optional
prepayments are allowed under the credit agreement and, in addition,
annual prepayments of principal may be required based, among other
things, on excess cash flows generated by the Company. Commitment
fees are calculated as 1/2 of 1 percent on the average daily
-10-
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
unused amount of the revolving loan commitment. There were
$1,529,000 of outstanding letters of credit under the Credit
Agreement at March 31, 1997.
(f) Interest accrues at variable rates based on either an alternate base
rate (ABR) or an adjusted London Interbank Offered Rate (LIBOR). The
rate at which interest accrues is calculated as either the ABR rate
plus 2.0 percent or the LIBOR rate plus 3.0 percent. Management has
the option to select which rate is to be applied at the beginning of
each loan period, the term of which varies from 1 month to 6 months.
The Company has met certain conditions, and accordingly the spread
added to the baseline rates has been reduced to 1 3/4 percent and 2
3/4 percent, respectively. The interest rate was set on March 27,
1997 at 8.75 percent for 3 months.
(g) On April 13, 1993, the Company issued $65,000,000 of Senior Secured
Notes. This borrowing was retired as a result of the
recapitalization.
(h) On December 9, 1993, the Company issued $25,000,000 of Senior Secured
Notes. This borrowing was retired as a result of the
recapitalization.
(i) On March 21, 1997, in connection with the recapitalization, the
Company issued $35,500,000 of Series I Senior Secured Notes. Interest
payments on these notes are due semiannually on June 30 and December
31. Optional prepayments are allowed under the note purchase
agreement and required payments are due on June 30, 2001, December 31,
2001, June 30, 2002 and December 31, 2002 in the amount of $8,875,000
each, such amounts to be reduced by certain other prepayments. In
the event of certain prepayments, the Company may be subject to the
make-whole provision of the note agreement, which requires payment
of a prepayment premium to the holders of the Series I Senior Secured
Notes. In addition, annual prepayments of principal may be required
based, among other things, on excess cash flows generated by the
Company.
(j) On March 21, 1997, in connection with the recapitalization, the
Company issued $50,000,000 of Series II Senior Secured Notes.
Interest payments on these notes are due semiannually on March 31 and
September 30. Optional prepayments are allowed under the note
purchase agreement and required principal payments are scheduled at
each quarter end in installments of principal ranging from $5,000,000
to $7,500,000, with the first payment made on June 30, 2003 and the
last quarterly payment due on March 31, 2005, such amounts to be
reduced by certain other prepayments. In the event of prepayments,
the Company may be subject to the break funding cost provision of the
note agreement. In addition, annual prepayments of principal may be
required based, among other things, on excess cash flows generated by
the Company.
-11-
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
(k) Interest accrues at a rate based on an adjusted London Interbank
Offered Rate (LIBOR). The rate at which interest accrues is
calculated as the LIBOR rate plus 3.0 percent, which rate can be
reduced after March 27, 1998 by 0.25 percent, if certain conditions
are met. The interest rate is reset at the beginning of each loan
period, the term of which is 6 months. The interest rate was set on
March 27, 1997 at 8.875 percent for 6 months.
(l) On April 13, 1993, the Company issued $25,000,000 of Subordinated
Notes. The holders of the Subordinated Notes also received warrants
to purchase 128,206 shares of the Company's common stock, resulting
in a discount of $1,282,000 to the principal balance of these
Subordinated Notes. The warrants remain outstanding while this
borrowing was retired as a result of the recapitalization.
(m) On December 10, 1993, the Company issued $15,000,000 of Subordinated
Notes. The holders of the Subordinated Notes also received 80,520
shares of the Company's common stock, resulting in a discount of
$805,000 to the principal balance of these Subordinated Notes. This
borrowing was retired as a result of the recapitalization.
(n) On March 27, 1997, in connection with the recapitalization, the
Company issued $125,000,000 of Subordinated Notes. Interest payments
on these notes are due semiannually on April 1 and October 1.
Optional prepayments are allowed under certain circumstances under
the note purchase agreement, any such payments reducing the required
payment of $125,000,000 due April 1, 2007.
The obligations of the Company under the Credit Agreement and the Note
Purchase Agreement are jointly and severally unconditionally guaranteed by
TA and National, which guarantees are secured, and the obligations of the
Company under the Indenture relating to the Subordinated Notes are also
jointly and severally unconditionally guaranteed by TA and National, which
guarantees are unsecured. (See Note 9 for Condensed Consolidating
Financial Statement schedules.)
The borrowings under the Credit Agreements and Senior Secured Notes are
secured by mortgages on all of the property and equipment acquired by the
Company as a result of the National and TA Acquisitions in the manner
described in the various collateral agreements entered into among the
Company, TA, National, TAFSI, the lending banks under the Credit
Agreements and the Senior Secured Note Purchasers. In the event of a
change in control of the Company, the total amount outstanding under the
debt agreements described above may be declared immediately due and
payable.
Under the terms of the Credit Agreement and the Senior Note Purchase
Agreements, the Company is required to maintain certain financial
covenants, including minimum interest coverage, minimum debt
-12-
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
service coverage, minimum consolidated net worth, minimum current ratio,
maximum leverage ratio and maximum amounts of capital expenditures. The
Company was in compliance with all covenants under such agreements at
March 31, 1997.
Under the terms of the Indenture relating to the Subordinated Notes, the
Company is required to maintain, among others, financial covenants that
provide for minimum net worth and maximum amounts of capital expenditures.
The Company was in compliance with all covenants under the Indenture at
March 31, 1997.
7. EXTRAORDINARY ITEM
The refinancing of the Company on March 27, 1997, resulted in the early
extinguishment of the Company's prior credit facilities. The remaining
unamortized balance, at the time of the refinancing, of the deferred
financing costs and unamortized debt discount of $7,846,703 and
$1,315,012, respectively, were written off.
8. COMMITMENTS AND CONTINGENCIES
CAPITAL COMMITMENTS
At March 31, 1997, commitments for capital expenditures for property and
equipment totaled approximately $2,636,000.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to extensive federal,
state and local laws, regulations and ordinances relating to environmental
matters that (i) govern activities and operations that may have adverse
environmental effects, such as discharges to air, soil and water, as well
as handling, storage and disposal practices for petroleum products and
solid and hazardous substances or (ii) impose liability and damages for
the cost of remediating sites affected by, and damage resulting from, past
spills and disposal of other releases of petroleum products and hazardous
substances.
The Company owns and uses underground storage tanks (USTs) and
above-ground storage tanks (ASTs) at company-operated and operator
locations to store petroleum products and waste oils. These tanks must
comply with statutory and regulatory requirements regarding tank
construction, integrity testing, leak detection and monitoring,
overfilling and spill control, release reporting, financial assurance and
corrective action in case of a release from a UST or AST into the
environment. To meet minimum federal requirements, all existing USTs
owned by the Company must conform to certain construction requirements,
have installed tank leak detection systems, and have installed
-13-
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
corrosion protection and spill-overfill prevention equipment by December
22, 1998. The Company has established a program of tank replacement and
equipment installation to meet the requirements by that time.
While the costs of compliance for these matters have not had a material
adverse impact on the Company, it is impossible to predict accurately the
ultimate effect these changing laws and regulations may have on the
Company in the future. The Company estimates environmental related
expenditures, including capital items, remediation and compliance costs,
will total approximately $15 million to $20 million during 1997 and 1998.
As part of each of the National and TA Acquisitions, the Company
negotiated environmental agreements with the sellers, pursuant to which
Unocal and BP each indemnified the Company for a period of eleven years
from the acquisition dates for the remediation of any environmental
contamination present at any of the acquired locations as of the
acquisition dates and which required Unocal and BP to directly pay any
required remediation costs. The environmental agreements with Unocal and
BP expire on April 14, 2004 and December 11, 2004, respectively.
In connection with the acquisitions, Phase I investigations were conducted
at all of the acquired travel centers. Pursuant to the environmental
agreements, Phase II investigations on all sites are required to be
completed by the year 2000. As of March 31, 1997, 31 Phase II
investigations were in progress and 84 had been completed. The Company is
now evaluating the results of these investigations to establish what, if
any, remedial actions will be required and are notifying federal, state
and local authorities regarding any contamination that is discovered. The
Company expects that the remaining 18 investigations will be completed by
1998. Unocal and the Company agreed to share the costs of the Phase II
environmental investigations to be conducted at the National Network
locations, with the Company's share of such costs limited to $500,000,
which has been fully paid, for all of such investigations. The
environmental agreements further provide that Unocal and BP are directly
responsible for all such costs and expenses incurred for remediation of
environmental contamination (based on the standards in effect on the date
the remedial action is completed), for bringing the facilities into
compliance with environmental laws (based on requirements in effect as of
the respective acquisition dates) and for any other environmental
liabilities that arise out of conditions at, or ownership or operations
of, the Network prior to the respective acquisition dates. In addition,
Unocal and BP are continuing remedial actions regarding conditions
identified at certain travel centers prior to the acquisitions by the
Company. Unocal and BP do not have any responsibility for any
environmental liabilities arising out of the ownership and operations of
the Network after April 14, 1993 and December 9, 1993 respectively, unless
such liabilities are a result of conditions existing at the time of the
National and TA Acquisitions. There can be no assurance that, if
additional environmental claims or liabilities arise under the
environmental agreements, Unocal or BP would not dispute the Company's
claims for indemnification thereunder.
-14-
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
The Company is in the process of resolving alleged violations of
wastewater discharge permits in several states relating to travel center
operations and is conducting investigatory and/or remedial actions with
respect to petroleum product releases that have occurred subsequent to the
acquisition at 21 travel centers. Remediation activities have been
completed at other travel centers and the Company anticipates no further
actions to be required by the respective state agencies in regard to
those matters at those locations. Most of the wastewater discharge
notices have been resolved by the Company without penalty. However, given
the status of the proceedings with respect to matters still pending,
ultimate investigative and remediation costs cannot accurately be
predicted. The Company expects that some or all of any fines paid or
costs incurred in connection with the wastewater discharge violations
noted above will be paid by Unocal and BP pursuant to the environmental
agreements.
The Company has estimated the current ranges of remediation costs at
currently active sites and what it believes will be its ultimate share for
such costs after required indemnification and remediation is performed by
Unocal and BP under the environmental agreements and has a reserve at
March 31, 1997, of $798,000 for such matters. While it is not possible to
quantify with certainty the environmental exposure, in the opinion of
management, the potential liability, beyond that considered in the
reserve, for all environmental proceedings, based on information known to
date, will not have a material adverse effect on the financial condition,
results of operations or liquidity of the Company.
PENDING LITIGATION
In connection with the acquisition of the Network, the Company acquired
six travel centers located in California that are currently members of the
Network. In January 1993, the operators of four of these travel centers
(the "California Plaintiffs") commenced litigation against Unocal, the
Clipper Group, L.P. ("Clipper") and the Company in California state court
seeking, among other things, specific performance by Unocal of their
alleged rights, either under the California Business and Professions Code
(the "California Statute") or, in the alternative, pursuant to alleged
statements made by Unocal, to purchase their travel centers at a fair
market price and seeking compensatory and punitive damages against the
Company and others for both tortious interference with the California
Plaintiffs' alleged rights and civil conspiracy. The operator of a fifth
California travel center also asserted a purchase right, but never filed
suit. This property, together with the four properties operated by the
California Plaintiffs, are referred to herein as the "California
Properties".
Under the asset purchase agreements pursuant to which the Company acquired
the California Properties from Unocal, and related agreements, (i) the
Company purchased the California Properties for $39 million and
(ii) Unocal agreed to indemnify the Company for, among other things,
claims arising under the California Statute arising out of or resulting
from the sale of the California Properties, including any amounts ("Excess
Amounts") by which the original purchase price paid by the Company for the
California Properties exceeds the price at which the Company might be
ordered by a court to
-15-
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
resell such properties. Pursuant to such agreements, Unocal is not
required to indemnify the Company for awards of punitive damages. The
Company cannot predict whether it ultimately will be required to resell
any or all of the California Properties to the California operators.
However, in such event, the Company would seek indemnification from Unocal
for any Excess Amounts. The Company believes that the claims asserted by
the operators of the California Properties against the Company are without
merit and has engaged in a vigorous defense.
During 1995, the trial commenced and two of the California Plaintiffs
elected to settle their portion of the litigation with Unocal and the
Company. In resolution, the Company entered into an agreement whereby the
Company acquired the assets and operations of one of the related travel
centers and paid approximately $900,000 for the operations and certain
assets used in the operations. The other operator's issues were resolved
at no cost to the Company and that operator continues to operate the
travel center under the existing lease agreement.
On May 1, 1995, the jury rendered a verdict in favor of the two remaining
California Plaintiffs and against Unocal and the Company. The jury
determined that the two remaining California Plaintiffs were entitled to
total compensatory damages of $4,012,000. On May 3, 1995, the jury
rendered a verdict assessing punitive damages against Unocal, Clipper and
the Company in the amounts of $7,000,000, $1,600,000 and $1,500,000,
respectively. On May 30, 1995, the California State Court rendered a
decision in favor of Unocal and the Company on the equitable claims
asserted by the California Plaintiffs and denying Plaintiffs' request for
rescission of the asset purchase agreements for the related California
Properties. The Company filed motions with the trial court to enter
judgement in its favor on plaintiff's damages claims notwithstanding the
verdict, or in the alternative, to order a new trial. On August 1, 1995,
the California court denied the motion for judgement notwithstanding the
verdict, but granted the Company's motion for a new trial on all issues.
Unocal and the Company have appealed the court's denial of their motions
for judgement notwithstanding the verdict, and the California Plaintiffs
have appealed the court's granting of a new trial and its ruling on the
equitable claims. Decisions on the pending appeals are expected by late
1997. The Company's ultimate liability in the disposition of this matter
is difficult to estimate. However, it is management's belief that the
outcome, while potentially material to the Company's results of
operations, is not likely to have a material adverse effect on the
Company's financial position.
The Company believes all compensatory damages ultimately awarded and legal
fees incurred on this matter are covered under the indemnification
agreement with Unocal. Legal costs incurred by the Company through
December 31, 1996 total $5,189,000, of which Unocal has paid $1,000,000 to
the Company to date. Unocal has stated, however, that it may contest
portions of the Company's claims for such indemnification. However, the
Company believes that the effect on the financial statements of any
amounts not ultimately collected from Unocal will not be material.
-16-
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
In April 1996, a group of 11 operators filed a complaint which was styled
as a class action lawsuit alleging that the Company or its representatives
had engaged in certain inappropriate practices or activities including
breach of contract and fraud in connection with acquiring and operating
the Network. No specific dollar damages are claimed in the complaint, but
the plaintiffs generally seek compensatory and punitive damages. In
January 1997, plaintiffs moved for leave to amend the complaint to include
an additional six operators as plaintiffs and to assert the additional
claims of tortious interference with contractual relations and of civil
conspiracy, and to withdraw the plaintiffs' claims to represent a class.
In 1997, settlement agreements were reached with three of the plaintiffs
at an immaterial cost to the Company. The Company believes that the
claims made in the complaint and the proposed amended complaint are
baseless and intends to defend this litigation vigorously. It is
management's belief that the outcome is not likely to have a material
adverse effect on the Company's results of operations, financial position
or liquidity.
In addition to the above matters, the Company is the subject of, or party
to, a number of pending or threatened legal actions, contingencies and
commitments involving a variety of matters, including laws and regulations
relating to the environment. The ultimate resolution of these
contingencies could, individually or in the aggregate, be material to the
Company's results of operations, but is not expected to be material to the
Company's financial position or liquidity.
9. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES
The following schedules set forth the consolidating balance sheets of the
Company as of March 31, 1997 and December 31, 1996 and the consolidating
statements of income and retained earnings and of cash flows of the
Company for the three months ended March 31, 1997 and 1996. In the
following schedules, "Parent Company" refers to the unconsolidated
balances of TravelCenters of America, Inc., "Guarantor Subsidiaries"
refers to the combined unconsolidated balances of TA and National, and
"Nonguarantor Subsidiary" refers to the balances of TAFSI. "Eliminations"
represent the adjustments necessary to (a) eliminate intercompany
transactions, (b) eliminate the Company's investments in its subsidiaries
and (c) present TAHC as a subsidiary held for disposition until September
30, 1996 (see Note 1). The Guarantor Subsidiaries, TA and National, are
wholly-owned subsidiaries of the Company and have fully and
unconditionally guaranteed the exchange notes. In the 10-Q filing, the
Company has not presented separate financial statements and other
disclosures concerning the Guarantor Subsidiaries because management has
determined such information is not material to investors.
-17-
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 56,227 $ 18,683 $ --- $ --- $ 74,910
Accounts receivable, net --- 55,238 1,053 --- 56,291
Inventories --- 29,821 --- --- 29,821
Deferred income taxes --- 3,877 --- --- 3,877
Other current assets --- 10,981 2 (88) 10,895
--------- --------- ------ --------- ---------
Total current assets 56,227 118,600 1,055 (88) 175,794
Notes receivable, net --- 1,920 --- --- 1,920
Property and equipment, net --- 271,471 --- (3,853) 267,618
Intangible assets --- 19,449 --- --- 19,449
Deferred financing costs 11,624 --- --- --- 11,624
Other assets --- 6,787 --- (3,361) 3,426
Advances to subsidiaries 225,904 --- --- (225,904) ---
Investments in subsidiaries 82,434 --- --- (82,434) ---
--------- --------- ------ --------- ---------
Total assets $ 376,189 $ 418,227 $1,055 ($ 315,640) $ 479,831
--------- --------- ------ --------- ---------
--------- --------- ------ --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 500 $ --- $ --- $ --- $ 500
Accounts payable 1,624 35,564 --- (1,624) 35,564
Other accrued liabilities 2,261 26,931 52 (2,828) 26,416
--------- --------- ------ --------- ---------
Total current liabilities 4,385 62,495 52 (4,452) 62,480
Long-term debt (net of unamortized
discount) 290,000 --- --- --- 290,000
Deferred income taxes --- 9,452 --- --- 9,452
Advances from parent --- 225,904 --- (225,904) ---
Other liabilities --- 5,338 --- --- 5,338
--------- --------- ------ --------- ---------
Total liabilities 294,385 303,189 52 (230,356) 367,270
Manditorily redeemable senior
convertible participating preferred
stock 52,295 --- --- --- 52,295
Other preferred stock, common stock
and other shareholders' equity 50,753 84,030 --- (85,284) 49,499
Retained earnings (21,244) 31,008 1,003 --- 10,767
--------- --------- ------ --------- ---------
Total shareholders' equity 29,509 115,038 1,003 (85,284) 60,266
--------- --------- ------ --------- ---------
Total liabilities and
shareholders' equity $ 376,189 $ 418,227 $1,055 ($ 315,640) $ 479,831
--------- --------- ------ --------- ---------
--------- --------- ------ --------- ---------
-18-
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
-------------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(IN THOUSANDS OF DOLLARS)
ASSETS
Current assets:
Cash $ --- $ 23,779 $ --- $ --- $ 23,779
Accounts receivable, net --- 54,294 1,051 (974) 54,371
Inventories --- 29,082 --- --- 29,082
Deferred income taxes --- 3,877 --- --- 3,877
Other current assets 499 10,236 2 (207) 10,530
--------- --------- ------ --------- ---------
Total current assets 499 121,268 1,053 (1,181) 121,639
Notes receivable, net --- 1,835 --- --- 1,835
Property and equipment, net --- 273,216 --- (3,853) 269,366
Intangible assets --- 19,657 --- --- 19,657
Deferred financing costs --- 8,379 --- --- 8,379
Other assets 2,500 7,348 --- (4,835) 5,013
Investment in subsidiaries 82,434 --- --- (82,434) ---
--------- --------- ------ --------- ---------
Total assets $ 85,433 $ 431,706 $1,053 $ (92,303) $ 425,889
--------- --------- ------ --------- ---------
--------- --------- ------ --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving loans $ --- $ 14,000 $ --- $ --- $ 14,000
Current maturities of
long-term debt --- 17,250 --- --- 17,250
Accounts payable 1,555 37,945 --- (2,299) 37,201
Other accrued liabilities 450 29,553 105 (686) 29,422
--------- --------- ------ --------- ---------
Total current liabilities 2,005 98,748 105 (2,985) 97,873
Long-term debt (net of
unamortized discount) --- 193,185 --- --- 193,185
Deferred income taxes 92 9,891 --- (531) 9,452
Other liabilities 1 8,413 --- (2,500) 5,914
--------- --------- ------ --------- ---------
Total liabilities 2,098 310,237 105 (6,016) 306,424
Mandatorily redeemable senior
convertible participating
preferred stock 51,075 --- --- --- 51,075
Other preferred stock, common
common stock and other
shareholders' equity 51,997 85,033 --- (86,287) 50,743
Retained earnings (19,737) 36,436 948 --- 17,647
--------- --------- ------ --------- ---------
Total shareholders' equity 32,260 121,469 948 (86,287) 68,390
--------- --------- ------ --------- ---------
Total liabilities and
shareholders' equity $ 85,433 $ 431,706 $1,053 $ (92,303) $ 425,889
--------- --------- ------ --------- ---------
--------- --------- ------ --------- ---------
-19-
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
-------------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(IN THOUSANDS OF DOLLARS)
INCOME STATEMENT (YTD):
Revenues:
Fuel $ --- $ 194,151 $ --- $ --- $ 194,151
Rent --- 9,720 --- --- 9,720
Nonfuel revenues --- 60,895 347 --- 61,242
--------- --------- ------ --------- ---------
Total revenues --- 264,766 347 --- 265,113
Cost of revenues (excluding depreciation) --- 205,878 --- --- 205,878
--------- --------- ------ --------- ---------
Gross profit (excluding depreciation) --- 58,888 347 --- 59,235
Operating expenses --- 34,083 --- --- 34,083
Selling, general and administrative expenses 194 11,267 272 --- 11,733
Refinancing, transition and development costs --- 1,618 --- --- 1,618
Depreciation and amortization --- 6,944 --- --- 6,944
Other (income) expense --- ( 74) --- --- (74)
--------- --------- ------ --------- ---------
Income from operations (194) 5,050 75 --- 4,931
Interest (expense), net (278) (4,827) --- --- (5,105)
--------- --------- ------ --------- ---------
(Loss) income before income taxes
and extraordinary item (472) 223 75 --- (174)
(Benefit) provision for income taxes (184) 97 19 --- (68)
--------- --------- ------ --------- ---------
(Loss) income before extraordinary
items (288) 126 56 --- (106)
Extraordinary items --- 5,554 --- --- 5,554
--------- --------- ------ --------- ---------
(Less applicable income taxes
of $3,608)
Net (loss) income (288) (5,428) 56 --- (5,660)
Less: preferred dividends (1,220) --- --- --- (1,220)
Retained earnings - beginning of period (19,737) 36,436 948 --- 17,647
--------- --------- ------ --------- ---------
Retained earnings - end of the period ($ 21,245) $ 31,008 $1,004 $ --- $ 10,767
--------- --------- ------ --------- ---------
--------- --------- ------ --------- ---------
-20-
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
-------------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(IN THOUSANDS OF DOLLARS)
INCOME STATEMENT (YTD):
Revenues:
Fuel $ --- $ 167,850 $ --- ($ 58,943) $ 108,907
Rent --- 10,950 --- --- 10,950
Nonfuel revenues --- 53,386 398 (42,232) 11,552
--------- --------- ------ --------- ---------
Total revenues --- 232,186 398 (101,175) 131,409
Cost of revenues (excluding depreciation) --- 179,215 --- (68,319) 110,896
--------- --------- ------ --------- ---------
Gross profit (excluding depreciation) --- 52,971 398 (32,856) 20,513
Operating expenses --- 27,598 --- (23,915) 3,683
Selling, general and administrative expenses 30 12,612 247 (3,834) 9,055
Refinancing, transition and development costs --- 155 --- (130) 25
Depreciation and amortization --- 6,161 --- (2,947) 3,214
Other (income) expense, net --- (27) --- --- (27)
Income from subsidiary held for disposition --- --- --- (143) (143)
--------- --------- ------ --------- ---------
Income from operations (30) 6,472 151 (1,887) 4,706
Interest (expense), net --- (5,095) --- 1,887 (3,208)
--------- --------- ------ --------- ---------
(Loss) income before income taxes (30) 1,377 151 --- 1,498
(Benefit) provision for income taxes (12) 541 53 --- 582
--------- --------- ------ --------- ---------
Net (loss) income (18) 836 98 --- 916
Less: preferred dividends (1,220) --- --- --- (1,220)
Retained earnings - beginning of the period (14,320) 30,610 704 --- 16,994
--------- --------- ------ --------- ---------
Retained earnings - end of the period ($ 15,558) $ 31,446 $ 802 $ --- $ 16,690
--------- --------- ------ --------- ---------
--------- --------- ------ --------- ---------
-21-
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
-------------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(IN THOUSANDS OF DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES: $ 1,999 $ 2,865 $ --- $ --- $ 4,864
--------- --------- ------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of network assets --- (4,254) --- --- (4,254)
Proceeds from sales of property
and equipment --- 77 --- --- 77
Capital expenditures --- (1,388) --- --- (1,388)
--------- --------- ------ --------- ---------
Net cash used in investing activities --- (5,565) --- --- (5,565)
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings --- 3,750 --- --- 3,750
Revolving loan repayments --- (17,750) --- --- (17,750)
Long-term debt borrowings 290,500 --- --- --- 290,500
Long-term debt repayments --- (211,800) --- --- (211,800)
Advance from parent (223,404) 223,404 --- --- ---
Debt issuance costs (11,624) --- --- --- (11,624)
Repurchase of common stock (1,244) --- --- --- (1,244)
--------- --------- ------ --------- ---------
Net cash (used in) provided by
financing activities 54,228 (2,396) --- --- 51,832
--------- --------- ------ --------- ---------
Net increase in cash 56,227 (5,096) --- --- 51,131
Cash at the beginning of the period --- 23,779 --- --- 23,779
--------- --------- ------ --------- ---------
Cash at the end of the period $ 56,227 $ 18,683 $ --- $ --- $ 74,910
--------- --------- ------ --------- ---------
--------- --------- ------ --------- ---------
-22-
<PAGE>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
-------------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(IN THOUSANDS OF DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES: $ 11 $ 16,195 $ --- ($ 4,903) $ 11,303
--------- --------- ------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of network assets --- (3,063) --- --- (3,063)
Capital expenditures --- (5,148) --- 1,715 (3,433)
--------- --------- ------ --------- ---------
Net cash used in investing activities --- (8,211) --- 1,715 (6,496)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings --- 10,000 --- --- 10,000
Long-term debt repayments --- (3,250) --- 1,250 (2,000)
--------- --------- ------ --------- ---------
Net cash (used in) provided by
financing activities --- 6,750 --- 1,250 8,000
--------- --------- ------ --------- ---------
Net increase in cash 11 14,734 --- (1,938) 12,807
Cash at the beginning of the period --- 15,617 --- (12,426) 3,191
--------- --------- ------ --------- ---------
Cash at the end of the period $ 11 $ 30,351 $ --- ($ 14,364) $ 15,998
--------- --------- ------ --------- ---------
--------- --------- ------ --------- ---------
</TABLE>
-23-
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
financial statements and with Management's Discussion and Analysis included in
the Company's Registration Statement on Form S-4 filed under the Securities Act
of 1933 (File No. 333-26497) on May 5, 1997.
OVERVIEW
The Company is a holding company which, through its wholly-owned
subsidiaries, TA and National, owns, operates and franchises more travel
centers in the United States than any of its competitors with 169 network
sites nationwide, including 135 Company-owned locations. TA currently
operates a network of 48 TravelCenters in 27 states under the "Truckstops of
America" or "TA" brand name and National currently operates a network of 121
TravelCenters in 36 states under the licensed "Unocal 76" and related brand
names.
The Company was formed in December 1992 to facilitate the National
Acquisition in April 1993. In December 1993, the Company acquired the TA
Network. In connection with the TA Acquisition, a group of institutional
investor shareholders (the "Investor Group") and certain members of TA's
management granted an option to the Company whereby the Company could
repurchase its equity held by such Investor Group and management members in
exchange for consideration consisting of cash and all of the equity of TA
(the "Repurchase"). If the Repurchase had been consummated, the Company and
the National Network would have been owned by the operator and
franchisee-owner stockholders of the Company and certain members of
National's management, and TA would have been owned by the Investor Group and
certain members of TA's management. During the three months ended March 31,
1996, TA and National were separately managed and financed. Effective
September 30, 1996, the decision was made to retain TA, and, subsequently,
the Company chose to pursue the combination of the two subsidiaries in order
to improve its operating results by combining the TA and National networks.
After September 30, 1996, TA was no longer carried as net assets of
subsidiary held for disposition, but rather consolidated with National. The
Company's consolidated financial statements for the three months ended March
31, 1996 reflected TA as net assets of subsidiary held for disposition.
Historically, under the Company's ownership, National operated
principally as a franchisor. As a result, its revenues consisted primarily
of wholesale diesel fuel sales to franchisees, rent from operators of leased
sites and nonfuel franchise royalty payments. Since early 1995, National has
increased its number of Company-operated sites as certain operators
terminated their franchise and lease agreements. In contrast, TA operated
principally as an owner-operator of TravelCenters. Consequently, while TA
derived the majority of its revenues from retail diesel fuel sales, its
principal strategic focus has been on the sale of higher margin nonfuel
products and services.
The following table sets forth for each of TA and National the number and
type of ownership and management of the TravelCenters in each of the
respective networks.
-24-
<PAGE>
TA National
---------------------------------
As of March 31, As of March 31,
----------------------------------
1996 1997 1996 1997
---- ---- ---- ----
Company-Owned and Operated Sites 39 40 13 27
Company-Owned and Leased Sites - - 83 68
-- -- --- ---
Company-Owned Sites 39 40 96 95
Franchisee-Owner Sites 8 8 30 26
-- -- --- ---
Total 47 48 126 121
-- -- --- ---
-- -- --- ---
-25-
<PAGE>
RESULTS OF OPERATIONS
TRAVELCENTERS OF AMERICA
STATEMENTS OF INCOME
QUARTERS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
TA NATIONAL THE COMPANY(1)
----------------------- ----------------------- ------------------------
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Fuel $ 80,082 $ 58,943 $114,069 $ 108,907 $ 194,151 $ 167,850
Nonfuel revenues 44,320 42,232 16,922 11,552 61,242 53,784
Rent --- --- 9,720 10,950 9,720 10,950
-------- -------- -------- -------- -------- --------
Total revenues 124,402 101,175 140,711 131,409 265,113 232,584
Cost of revenues 88,988 68,319 116,890 110,896 205,878 179,215
-------- -------- -------- -------- -------- --------
Gross profit 35,414 32,856 23,821 20,513 59,235 53,369
Operating expenses 24,854 23,894 9,229 3,683 34,083 27,598
Selling, general &
administrative expenses 5,132 3,834 6,407 9,025 11,733 12,889
Refinancing, transition and
development costs 844 130 774 25 1,618 155
Depreciation and amortization 3,236 2,947 3,708 3,214 6,944 6,161
Other (income) expense - net (40) 21 (34) (27) (74) (6)
-------- -------- -------- -------- -------- --------
Income from operations 1,388 2,030 3,737 4,593 4,931 6,593
Interest (expense) - net (2,128) (1,887) (2,699) (3,208) (5,105) (5,095)
-------- -------- -------- -------- -------- --------
(Loss)/income before
income taxes and
extraordinary item (740) 143 1,038 1,385 (174) 1,498
Provision for income tax
(benefit)/expense (296) 57 412 537 (68) 582
-------- -------- -------- -------- -------- --------
Income before
extraordinary item (444) 86 626 848 (106) 916
Extraordinary item (net
of taxes) (2,086) --- (3,468) --- (5,554) ---
-------- -------- -------- -------- -------- --------
Net income ($2,530) $ 86 ($2,842) $ 848 ($ 5,660) $ 916
-------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------
EBITDA(2) $ 5,428 $ 5,128 $ 8,185 $ 7,805 $ 13,419 $12,903
</TABLE>
(1) Income from operations include expenses of $194 and $30, for the quarters
ended March 31, 1997 and 1996, respectively, not incurred at the TA or the
National level. The results for the three months ended March 31, 1996 have
been consolidated as if TA had not been held for sale for comparative
purposes.
(2) EBITDA is defined herein as income from operations plus the sum of
depreciation; amortization; refinancing, transition and development costs;
and other (income) expense, net.
-26-
<PAGE>
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations presents detail on the Company's combined
results as well as the operating results of TA and National.
FIRST QUARTER 1997 COMPARED TO FIRST QUARTER 1996
REVENUES
Revenues were derived from the sale of fuel and nonfuel products and
services and the collection of rent and royalties. The Company's revenues
for the period ended March 31, 1997 were $265.1 million compared to $232.6
for the same period in 1996, an increase of $32.5 million or 14.0%. TA
accounted for $23.2 million of this increase, while National accounted for
$9.3 million.
In the first quarter of 1997, TA had revenues of $124.4 million compared
to $101.2 million in 1996, an increase of $23.2 million or 23.0%. This
increase in revenues consisted of a $21.1 million increase in fuel revenues
from $59.0 million to $80.1 million, and a $2.1 million increase in nonfuel
revenues, from $42.2 million to $44.3 million. The increase in fuel revenues
was primarily due to an 18.4 million gallon increase in diesel fuel volume,
or 23.3%, and an increase in diesel fuel prices. Diesel fuel volume
increased principally due to increases in sales to fleets, including
increased sales though a trucking fleet fuel sales program with another
company whereby TA receives a fixed margin per gallon and the addition of one
TravelCenter in September of 1996. The increase in TA's nonfuel revenues is
principally attributable to a $1.4 million increase in truck maintenance and
repair shop revenues partially related to the addition of three repair
facilities after the first quarter of 1996 and a $0.6 million increase in
fast food revenues primarily due to the installation of 13 new fast food
kiosks.
During the first quarter of 1997, National had revenues of $140.7
million compared to $131.4 million in 1996, an increase of $9.3 million or
7.1%. This increase in revenues consisted of a $5.2 million increase in fuel
revenues from $108.9 million to $114.1 million and a $5.3 million increase in
nonfuel revenues, from $11.6 million to $16.9 million, partially offset by a
$1.2 million decrease in rent from $10.9 million to $9.7 million. The
increase in fuel revenues was primarily due to an increase in diesel fuel
prices partially offset by a decrease in diesel fuel volume of 10.0 million
gallons, or 6.1%. The decrease in diesel fuel volume was primarily
attributable to National's difficulty in maintaining a coordinated fleet
marketing program among its franchisees. The increase in nonfuel revenues
and the decrease in rent revenues were primarily due to the conversion of 14
formerly leased sites to Company-operated sites.
GROSS PROFIT
The Company's gross profit for the first quarter of 1997 was $59.2
million, compared to $53.4 million for 1996, an increase of $5.8 million, or
11.0%. In 1997, TA had gross profit of $35.4 million, compared to $32.9
million in 1996, an increase of $2.5 million, or 7.8%. The increase in TA's
gross profit was primarily due to an increase in nonfuel revenues and an
increase in diesel fuel volume as described above. In 1997, National had
gross profit of $23.8 million, compared to $20.5 million in 1996, an increase
of $3.3 million, or 16.1%. The increase in National's gross profit was
primarily due to an increase in nonfuel revenues associated with the site
conversions described above, which was partially offset by a decline in rent
revenues.
-27-
<PAGE>
OPERATING AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating expenses include the direct expenses of Company-operated
TravelCenters and selling, general and administrative expenses ("SG&A")
include corporate overhead and administrative costs. The Company's operating
expenses increased from $27.6 million in the first quarter of 1996 to $34.1
million in 1997. The increase in operating expenses was derived from a $1.0
million increase at TA and a $5.5 million increase at National. The
Company's SG&A decreased from $12.9 million in 1996 to $11.7 million in 1997
due to a $2.6 million decrease at National, partially offset by a $1.3
million increase at TA. TA's operating expense increase was associated with
an increase in nonfuel revenues at existing TA TravelCenters and the addition
of one new TA TravelCenter and two stand-alone truck maintenance and repair
shops. The increase in TA's SG&A was primarily due to expanded field support
and training as well as planning and development costs. National's operating
expense increase was related primarily to the site conversions described
above. The decrease in National's SG&A was primarily due to a reduction in
bad debt expense, payroll and contract labor and reduced levels of financial
assistance to franchisees.
REFINANCING, TRANSITION AND DEVELOPMENT COSTS
Refinancing, transition and development costs for the first three months
of 1997 increased from $0.2 million in 1996 to $1.6 million. The
refinancing, transition and development costs for 1997 at TA were $0.8
million compared to $0.1 million for 1996. The 1997 costs were incurred in
effecting the combination of National and TA. The 1997 National refinancing,
transition and development costs of $0.8 million is also primarily
attributable to the combination of the TravelCenters network and principally
represents severance pay.
The Company is continuing to evaluate the staffing requirements and
conversion obligations in relation to the combination of TA and National.
The Company believes additional transition costs will be incurred to effect
the combination as the plan is completed.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the first quarter of 1997 and 1996
were $6.9 and $6.2 million, respectively, an increase of $0.7 million. The
increased level of depreciation is related to the capital expenditures
discussed below.
INCOME FROM OPERATIONS
Income from operations for the Company for the first quarter of 1997 was
$4.9 million as compared to $6.6 million in 1996, a decrease of $1.7 million.
Income from operations for 1997 and 1996 was $3.7 million and $4.6 million,
respectively, for National, while TA's income from operations was $1.4 for
1997 and $2.0 for 1996. The decrease for both companies is primarily
attributable to the additional transition costs incurred to effect the
combination of TravelCenters of America. EBITDA for the Company in 1997 was
$13.4 million as compared to $12.9 million for 1996.
-28-
<PAGE>
INTEREST (INCOME) EXPENSE - NET
Interest expense for the first three months of both 1997 and 1996 was $5.1
million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements consist principally of working capital
needs, payments of principal and interest on outstanding indebtedness and
capital expenditures, including expenditures for acquisitions, expansion and
environmental upgrades.
Net cash provided by operating activities totaled $4.9 million in the
first quarter 1997 and $11.3 million in 1996. The change in net cash flows
provided by operating activities in 1997 compared to 1996 was primarily due
to TA the reconsolidation of TA effective October 1, 1996 as a result of the
decision to retain TA.
Net cash used in investing activities for the three months ended 1997
was $5.6 million versus $6.5 million in 1996. The change in cash used in
investing activities in 1997 compared to 1996 was due to reduced capital
expenditures.
Net cash flows provided by financing activities were $51.8 million in
1997 and $8.0 million in 1996 for the first three months. The change in the
amount of cash flows provided by financing activities in 1997 from 1996 was
due to the Company's refinancing for the combination of the TA and National
networks.
On March 27, 1997, the Company was refinanced and currently has
outstanding $290.5 million of indebtedness, consisting of $125.0 million
principal amount of Subordinated Notes, $85.5 million principal amount of
Senior Notes and an $80.0 million Term Facility. The Company also has a
$40.0 million Revolving Facility, which, except for $1.5 million used for
letters of credit, was not drawn upon at March 31, 1997. The Senior Notes
have no amortization requirements until 2001, the Subordinated Notes are due
2007 and the Term Facility has annual amortization requirements of $500,000
until 2004 (see Note 6 of the unaudited financial statements for a more
detailed explanation of the debt facilities).
The Company expects to invest up to approximately $200 million in the
Network between 1997 and the end of 2001 (with up to approximately $110
million of this amount to be spent by the end of 1998) in connection with a
capital program to upgrade, rebrand, reimage and increase the number of the
TravelCenters. Approximately $50 million of the $200 million intended to be
spent represents normal ongoing maintenance and related capital expenditures.
The Company has budgeted expenditures in order to rebrand and reimage sites,
purchase, install and upgrade information systems at certain sites, to make
required environmental improvements and convert certain leased sites to
Company-operated sites.
-29-
<PAGE>
The Company anticipates that it will be able to fund its 1997 working
capital requirements and capital expenditures primarily from funds generated
from the refinancing, funds generated from operations, and, to the extent
necessary, from borrowings under the Revolving Facility. The Company's
long-term liquidity requirements, including capital expenditures, are
expected to be financed by a combination of internally generated funds,
borrowings and other sources of external financing as needed.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to various
Environmental Laws.
The Company owns and uses USTs ("Underground Storage Tanks") and ASTs
("Aboveground Storage Tanks") at Company-operated locations and Leased Sites
which must comply with certain statutory and regulatory requirements by
December 22, 1998. The Company is making necessary upgrades to comply with
those requirements. The Company expects to spend a total of approximately
$15 million to $20 million in 1997 and 1998 to complete the upgrade of USTs
and other environmental related costs. The Company also has estimated the
current ranges of remediation costs at currently active sites and what it
believes will be its ultimate share for such costs after required
indemnification and remediation is performed by Unocal and BP under the
respective Environmental Agreements and has a reserve of $798,000 as of March
31, 1997, for such matters.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share",
which establishes standards for computing and presenting earnings per share
information for periods ending after December 15, 1997. The Company believes
that the basic earnings per share calculated amount under this standard will
exceed the amount of primary earnings per share presented herein while the
diluted earnings per share amount calculated under this standard will
approximate the amount of primary earnings per share presented herein.
The statements contained in this report that are not statements of
historical fact may include forward-looking statements that involve a number of
risks and uncertainties. Moreover, from time to time the Company may issue
other forward-looking statements. The following factors are among those that
could cause actual results to differ materially from the forward-looking
statements: competition from other travel center and truckstop operators,
including additional or improved services or facilities of competitors, the
economic condition of the trucking industry (which in turn is dependent on
general economic factors), diesel and gasoline fuel pricing, availability of
fuel supply and difficulties that may be encountered by the Company or its
franchisees in implementing the Company's plan to combine its existing
TravelCenter networks into a single network. The forward looking statements
should be considered in light of these factors.
-30-
<PAGE>
PART II--OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is party to several litigation matters, described below,
involving certain of its franchisees. The Company does not expect any of
these matters to have a material adverse effect on the Company. From time to
time the Company is a party to litigation in the ordinary course of its
business involving negligence and other similar claims which are covered by
the Company's third party insurance policies. While claims for damages in
such litigation may in certain instances be in excess of the Company's
insurance coverage, the Company does not expect its existing litigation to
have a material adverse effect on the Company.
FORTY-NINER TRUCK PLAZA LITIGATION. This action was commenced in
California Superior Court, Sacramento County, on January 28, 1993 by four
lessee-franchisees ("Operators") of National TravelCenters in California. The
complaint asserts claims on behalf of each of the plaintiffs against the
Company, The Clipper Group, L.P. ("Clipper") and Unocal Corporation and its
subsidiaries ("Unocal") based upon alleged violations by Union Oil Company of
California and Unocal Corporation (together the "Unocal Entities") of the
California Business and Professions Code and of an alleged contract by
failing to provide them with a bona fide offer or right of first refusal to
purchase their truckstops in connection with the sale of the plaintiffs'
truckstops by Unocal to the Company. Two of the plaintiffs settled their
claims prior to commencement of the trial. The claims of two plaintiffs, who
are franchisees of National in Sacramento and Santa Nella, California, were
tried and the jury rendered a verdict awarding $4.0 million in compensatory
damages jointly and severally against the Company, the Unocal Entities and
Clipper, and assessing punitive damages against them in the amount of $1.5
million, $7.0 million and $1.6 million, respectively. On August 1, 1995, the
court granted the defendants' motions for a new trial on all issues, although
it denied defendants' motions for judgment notwithstanding the verdict. These
orders are currently on appeal. The appeal has been fully briefed but not
argued. Pursuant to the asset purchase and related agreements between the
Company and the Unocal Entities, the Company believes that the Unocal
Entities are required to indemnify it for attorneys' fees and compensatory
damages. The Unocal Entities may, however, contest the Company's claim for
indemnification. The indemnification agreement between the Unocal Entities
and the Company does not by its terms cover punitive damages. The Company
entered into an agreement indemnifying Clipper in connection with the
Company's purchase of the properties in the National Network, and Clipper has
asserted and the Company has concurred that this agreement obligates the
Company to pay any compensatory and punitive damages assessed against Clipper.
PANHANDLE LITIGATION. This action was commenced on April 17, 1996 in the
Circuit Court of Berkeley County, West Virginia. By the original complaint, the
eleven named plaintiffs, all of whom were National Operators purported to
represent two alleged nationwide classes of National Operators. The complaint
alleges that the Company's fuel pricing policies and practices violate the
Uniform Commercial Code and constitute a breach of the contractual duty of good
faith and fair dealing and unjust enrichment. The complaint also asserts claims
of fraud and fraud in the inducement, apparently based on alleged
representations made by the Company concerning fuel pricing. Plaintiffs have
moved to amend the complaint to add seven additional plaintiffs, to withdraw
their class action allegations, to assert claims, including claims of fraud and
fraudulent inducement, against Clipper and certain present and former directors
and officers of the Company and to add additional claims, including claims for
alleged violation of the Petroleum Marketing Practices Act (the "PMPA"),
-31-
<PAGE>
15 U.S.C. Sections 2801 et seq. The complaint and proposed amended complaint
seek actual and punitive damages in an unspecified sum. National has removed
the action to federal court and has moved to dismiss or transfer the action
to Nashville, Tennessee. No substantive rulings have been made in the case to
date.
On September 6, 1996, one of the plaintiffs, Panhandle Motor Service
Corp. ("Panhandle"), the Operator of a National TravelCenter in Martinsburg,
West Virginia, filed a voluntary petition for relief under Chapter 11 of the
Bankruptcy Code. The bankruptcy court converted the case to Chapter 7. The
Company has entered into a settlement agreement with the Chapter 7 trustee
pursuant to which, among other things, National released certain liens. The
Trustee has agreed to release all claims against the Company and its
affiliates, and has agreed to dismissal of all claims asserted by Panhandle
in the Panhandle litigation. National has also entered into a settlement
agreement with two of the remaining plaintiffs pursuant to which the claims
of those plaintiffs will be dismissed with prejudice.
On March 31, April 1 and April 7, 1997, three of the plaintiffs filed
motions for a preliminary injunction. The motions seek an order requiring,
among other things, that the Company sell to the movants all of the movants'
requirements of diesel fuel at a price per gallon of not more than two cents
above the Oil Price Information Service average price under the terms of the
Company's existing lease and franchise agreements. In addition, on April 22,
1997, two of the movants filed a motion seeking a temporary restraining order
for substantially the same relief. The Company has opposed the foregoing
motions. The motions have been argued and are awaiting decision.
FOOD SYSTEMS LITIGATION. The Company filed this action on May 7, 1996,
in the U.S. District Court for the Middle District of Tennessee seeking,
among other things, a declaratory judgment that it was entitled to terminate
the franchise of the defendant, one of the Company's TravelCenter Operators,
for failure to pay rent and on other grounds. On June 11, 1996, the defendant
filed counterclaims for violation of the PMPA, for breach of contract and for
breach of implied contract, seeking actual and punitive damages in an
unspecified amount. On November 12, 1996, the defendant filed for relief
under Chapter 7 of the Bankruptcy Code, thereby staying all proceedings in
this action. The Company has recovered possession of the Salt Lake City site
through bankruptcy court proceedings.
AIS LITIGATION. The Company filed this action against nine of its National
franchisees (seven Operators and two franchisees who own and operate their
sites) on January 13, 1997, in the U.S. District Court for the Middle District
of Tennessee seeking, among other relief, a declaratory judgment that the
Company was entitled to terminate their franchises on the ground that defendants
breached their franchise agreements by purchasing fuel from unauthorized
suppliers and commingling such fuel with purchases from authorized suppliers,
and (with respect to eight of the defendants) on the ground that they sold
misbranded or adulterated fuel. On February 3, 1997, the court denied the
defendants' motion to maintain the status quo pending a resolution of the case,
and the Company has moved to regain possession of the leased TravelCenters and
to terminate the defendants' franchises. The Company has already converted all
seven of the sites leased by the Operators ("Leased Sites") into
Company-operated sites. These seven Leased Sites will be rebranded, reimaged and
upgraded as part of the Combination Plan and Capital Program. Seven of the
defendants have asserted counterclaims against National based on alleged
violations of the PMPA, alleged antitrust violations and on other grounds and
are seeking actual, treble and exemplary damages for an unspecified amount. The
-32-
<PAGE>
Company has reached an agreement in principle with all of the defendants in
this action. Pursuant to that agreement, the parties will mutually terminate
their National franchise agreements and (where applicable) their National
lease agreements. The Company will purchase inventory and usable equipment at
the Leased Sites at cost or fair value and the parties will dismiss all
claims and counterclaims with prejudice and will exchange general releases.
The settlement with eight defendants has been fully documented. The
settlement as to the remaining defendant is subject to written documentation.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 13, 1997, the Company commenced a consent solicitation (the
"Consent Solicitation") addressed to its stockholders (the "Stockholders")
and beneficial owners of the Company's common stock who hold voting trust
certificates (the "Certificate Holders") pursuant to a voting trust
agreement, dated as of April 14, 1993, among the United States Trust Company
of New York, as voting trustee (the "Voting Trustee"), and the Certificate
Holders named therein, as amended (the "Voting Trust Agreement"). The
Consent Solicitation proposed certain amendments to the certificate of
incorporation and by-laws of the Company and the by-laws of National (the
"Governance Amendments"). The foregoing Governance Amendments presented by
the Consent Solicitation were unanimously approved by the Stockholders voting
thereon.
The Governance Amendments consisted of the amendment of the Amended and
Restated Certificate of Incorporation and By-laws of the Company and the By-laws
of National, as the case may be, (i) to eliminate the supermajority voting
requirements with respect to the Stockholders and the Company's and National's
Board of Directors which were applicable to certain actions taken with respect
to the Company, National or any subsidiary of National, (ii) to eliminate all
designations of classes of common stock, the convertibility of one class of
common stock into another and all class votes of holders of common stock,
(iii) to change the names of the Class A Common Stock and the Class B Common
Stock to Common Stock, (iv) to provide that all of the outstanding shares of
preferred stock of the Company shall be convertible into shares of Common Stock
on the same basis as shares of preferred stock are currently convertible into
Class B Common Stock, (v) to eliminate certain committees of the Board of
Directors of the Company, (vi) to eliminate class votes for Directors of the
Company and to provide that Directors shall be elected by holders of Common
Stock and Series I Preferred Stock voting together as a single class, (vii) to
change the name of the Company to "TravelCenters of America, Inc.," (viii) to
provide that the number of Directors of the Company and each of its subsidiaries
shall be as determined by the Board of Directors of the respective corporations,
(ix) to provide that special meetings of the Stockholders may be called at any
time by the Board of Directors, the Chairman of the Board, the Chief Executive
Officer or the Secretary of the Company and that notices of stockholders'
meetings shall be given not less than 10 nor more than 60 days before the date
of the meetings, (x) to provide that vacancies that arise on the Board of
Directors for any reason (including an increase in the size of the board) may be
filled by the affirmative vote of a majority of the entire Board of Directors,
and (xi) to provide that the Board of Directors may adopt, amend or repeal the
by-laws, subject to the right of stockholders holding at least a majority of
voting power of the capital stock of the Company to amend or repeal the same.
-33-
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER EXHIBIT
- ------------------------------------------------------------------------------
3.1* Restated Certificate of Incorporation of the Company
3.2* Amended and Restated By-laws of the Company
4.1* Indenture, dated March 27, 1997, among the Company, TA Operating
Corporation ("the TA Subsidiary"), National Auto/Truckstops, Inc.
("the National Subsidiary") and Fleet National Bank as Trustee
4.2* Exchange and Registration Rights Agreement, dated March 27, 1997,
among the Company, the TA Subsidiary, the National Subsidiary and
Chase Securities, Inc.
4.3* Form of Face of Initial Security (included in Exhibit 4.1 as Exhibit A)
10.1* Termination, Consulting and Release Agreement, dated as of January 17,
1997, among the Company, the National Subsidiary and C. William
Osborne
10.2* Schedule of Termination, Consulting and Release Agreements omitted
pursuant to Instruction 2 to Item 601 of Regulation S-K
10.3* Credit Agreement, dated as of March 21, 1997, among the Company, the
Chase Manhattan Bank as agent, fronting bank and swingline lender
and the Lenders party thereto.
10.4* Senior Note Exchange Agreement as of March 21, 1997, among the
Company, the TA Subsidiary, the National Subsidiary and
Noteholders listed on Schedule 1 thereto
10.5* Limited Liability Company Agreement of TABB, adopted as of November 15,
1995, between the TA Subsidiary and Burns Bros., Inc.
10.6* Stockholders' Agreement, dated as of March 6, 1996, among the Company,
the voting trust certificate holders named therein, the Voting
Trustee, the management stockholders of the Company named
therein, the additional stockholders named therein, Clipper,
National Partners, L.P., National Partners II, L.P., National
Partners III, L.P. and Clipper/Merchant I, L.P.
27+ Financial Data Schedule
- -----------
* Incorporated by reference from the registrant's Registration Statement on
Form S-4 (No. 333-26497)
+ Filed herewith
(b) Reports on Form 8-K
During the first quarter of fiscal 1997, the Company filed no reports on
Form 8-K.
-34-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRAVELCENTERS OF AMERICA, INC.
(Registrant)
Date: May 15, 1997 By: /s/ JAMES W. GEORGE
--------------------------------------------
Name: James W. George
Title: Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
-35-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 74,910
<SECURITIES> 0
<RECEIVABLES> 60,142
<ALLOWANCES> 3,851
<INVENTORY> 29,821
<CURRENT-ASSETS> 175,794
<PP&E> 330,153
<DEPRECIATION> 62,535
<TOTAL-ASSETS> 479,831
<CURRENT-LIABILITIES> 62,480
<BONDS> 290,000
52,295
38
<COMMON> 14
<OTHER-SE> 60,214
<TOTAL-LIABILITY-AND-EQUITY> 479,831
<SALES> 255,393
<TOTAL-REVENUES> 265,113
<CGS> 205,878
<TOTAL-COSTS> 205,878
<OTHER-EXPENSES> 34,083
<LOSS-PROVISION> 376
<INTEREST-EXPENSE> 5,105
<INCOME-PRETAX> (174)
<INCOME-TAX> (68)
<INCOME-CONTINUING> (106)
<DISCONTINUED> 0
<EXTRAORDINARY> (5,554)
<CHANGES> 0
<NET-INCOME> (5,660)
<EPS-PRIMARY> (0.78)
<EPS-DILUTED> 0
</TABLE>
