<PAGE> 1
FORM 10-Q/A
AMENDMENT NO. 1 TO
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
OF
TRAVELCENTERS OF AMERICA, INC.
Pursuant to Rule 12b-15, promulgated under the Securities Exchange Act
of 1934, TravelCenters of America, Inc. hereby amends the following Items of its
Quarterly Report, so that, as amended, such Items read as set forth herein.
Item 1
Item 6, Exhibit 27
<PAGE> 2
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------------------------------
FORM 10-Q/A
[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> 3
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.
<TABLE>
<CAPTION>
INDEX PAGE NO.
----- --------
<S> <C> <C>
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 30
Item 4. Submission of Matters to a Vote of
Securityholders 32
Item 6. Exhibits and Reports on Form 8-K 33
SIGNATURE
</TABLE>
- 3 -
<PAGE> 4
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED BALANCE SHEET
--------------------------
<TABLE>
<CAPTION>
MARCH 31,
1997 DECEMBER 31,
(UNAUDITED) 1996
----------- -----------
(IN THOUSANDS OF DOLLARS)
ASSETS
<S> <C> <C>
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 55,704 53,885
Other preferred stock, common stock and
other shareholders' equity 49,499 50,743
Retained earnings 7,358 14,837
----------- -----------
Total shareholders' equity 56,857 65,580
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 479,831 $ 425,889
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
- 4 -
<PAGE> 5
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
------------------------------------------------------
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
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 (1,819) (1,596)
Retained earnings - beginning of the period:
As previously reported 17,647 16,994
Adjustments (Note 9) (2,810) (1,091)
----------- -----------
As adjusted 14,837 15,903
----------- -----------
Retained earnings - end of the period $ 7,358 $ 15,223
=========== ===========
Loss before extraordinary item per common share
and common share equivalent $ (1.51) $ (0.50)
Extraordinary item (4.37) ---
----------- -----------
Net loss per common share and common share equivalent (Note 2) $ (5.88) $ (0.50)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
- 5 -
<PAGE> 6
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
------------------------------------------------------
UNAUDITED
<TABLE>
<S> <C> <C>
Weighted average number of shares and common
share equivalents (in thousands) 1,272 1,360
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
- 6 -
<PAGE> 7
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
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 and equipment (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
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
- 7 -
<PAGE> 8
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
- 8 -
<PAGE> 9
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1997
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 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.
- 9 -
<PAGE> 10
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1997
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.
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 shares of common
stock and common stock equivalents outstanding during the period,
provided the common stock equivalents are not antidilutive. 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, as are the outstanding common stock
warrants and 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. When common stock equivalents are
included in the calculation, the increase in the number of common
shares is reduced by the number of common shares which are assumed to
have been purchased with the proceeds from the exercise of the options.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Nonfuel merchandise $ 23,186 $ 26,090
Petroleum products 6,635 2,992
----------- -----------
Total inventories $ 29,821 $ 29,082
=========== ===========
</TABLE>
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
- 10 -
<PAGE> 11
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1997
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 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 percent. 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>
INTEREST MARCH 31, DECEMBER 31,
RATE MATURITY 1997 1996
--------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
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>
- 11 -
<PAGE> 12
-12-
<PAGE> 13
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
-13-
<PAGE> 14
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1997
generated by the Company. Commitment fees are calculated
as 1/2 of 1 percent on the average daily 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.
-14-
<PAGE> 15
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1997
In addition, annual prepayments of principal may be required
based, among other things, on excess cash flows generated by
the Company.
(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
-15-
<PAGE> 16
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1997
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 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
-16-
<PAGE> 17
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1997
(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 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
-17-
<PAGE> 18
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1997
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.
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
-18-
<PAGE> 19
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1997
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 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
-19-
<PAGE> 20
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1997
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.
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. PRIOR PERIOD ADJUSTMENTS
The balance of retained earnings at December 31, 1996 has been restated
from amounts previously reported to reflect the correction of errors
that had been made in the calculations of accrued dividends related to
the mandatorily redeemable senior convertible participating preferred
stock during the period from June 1994 through June 1997. These
dividend accruals do not enter into
-20-
<PAGE> 21
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1997
the determination of net income or loss. The total adjustment amount at
December 31, 1996, is $2,810,000, of which $1,719,000 is applicable to
1996 and has been reflected as an increase in preferred dividends on
the statement of income and retained earnings for that year, with the
balance of the adjustment amount of $1,091,000 applicable to earlier
periods reflected as a reduction in retained earnings at January 1,
1996. The preferred dividend amount for the three month period ended
March 31, 1997, has also been restated through an increase in the
preferred dividends amount previously reported as $1,220,000 to
$1,819,000.
10. 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.
-21-
<PAGE> 22
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 114,445 --- --- (114,445) ---
-------- -------- -------- -------- --------
Total assets $408,200 $418,227 $ 1,055 ($347,651) $479,831
======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C>
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
Advance 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 55,704 --- --- --- 55,704
Other preferred stock, common stock
and other shareholders' equity 50,753 84,030 --- (85,284) 49,499
Retained earnings 7,358 31,008 1,003 (32,011) 7,358
-------- -------- -------- -------- --------
Total shareholders' equity 58,111 115,038 1,003 (117,295) 56,857
-------- -------- -------- -------- --------
</TABLE>
-22-
<PAGE> 23
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
Total liabilities and --------------------------------------------------------------
shareholders' equity $408,200 $418,227 $ 1,055 ($347,651) $479,831
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------- ------------ ---------- ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
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
Investments in subsidiaries 121,818 --- --- (121,818) ---
-------- -------- -------- --------- --------
Total assets $122,817 $431,706 $ 1,053 $(129,687) $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 53,885 --- --- --- 53,885
Other preferred stock, common
common stock and other
shareholders' equity 51,997 85,033 --- (86,287) 50,743
Retained earnings 14,837 36,436 948 (37,384) 14,837
-------- -------- -------- -------- --------
Total shareholders' equity 66,834 121,469 948 (123,671) 65,580
-------- -------- -------- -------- --------
</TABLE>
-23-
<PAGE> 24
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
Total liabilities and -------------------------------------------------------------
shareholders' equity $122,817 $431,706 $ 1,053 $(129,687) $425,889
======== ======== ======== ======== ========
</TABLE>
-24-
<PAGE> 25
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>
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)
Equity income (loss) (5,372) --- --- 5,372 ---
-------- -------- -------- -------- --------
(Loss) income before income
taxes and extraordinary item (5,844) 223 75 5,372 (174)
(Benefit) provision for income taxes (184) 97 19 --- (68)
-------- -------- -------- -------- --------
(Loss) income before
extraordinary items (5,660) 126 56 5,372 (106)
Extraordinary items --- 5,554 --- --- 5,554
-------- -------- -------- -------- --------
(Less applicable income
taxes of $3,608)
Net (loss) income (5,660) (5,428) 56 5,372 (5,660)
Less: preferred dividends (1,819) --- --- --- (1,819)
Retained earnings -
beginning of period 14,837 36,436 947 (37,383) 14,837
------- ------ --- ------- ------
</TABLE>
-25-
<PAGE> 26
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
Retained earnings -
end of the period $7,358 $ 31,008 $ 1,003 $(32,011) $ 7,358
======== ======== ======== ======== ========
</TABLE>
-26-
<PAGE> 27
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------- ------------ ---------- ------------ ------------
(IN THOUSANDS OF DOLLARS)
INCOME STATEMENT (YTD)
Revenues:
<S> <C> <C> <C> <C> <C>
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)
Equity income (loss) 934 --- --- (934) ---
-------- -------- -------- -------- --------
(Loss) income before
income taxes 904 1,377 151 (934) 1,498
(Benefit) provision for income taxes (12) 541 53 --- 582
-------- -------- -------- -------- --------
Net (loss) income 916 836 98 (934) 916
Less: preferred dividends (1,596) --- --- --- (1,596)
Retained earnings -
beginning of the period 15,903 30,610 704 (31,314) 15,903
-------- -------- -------- -------- --------
Retained earnings -
end of the period $15,223 $ 31,446 $ 802 $(32,248) $ 15,223
======== ======== ======== ======== ========
</TABLE>
-27-
<PAGE> 28
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>
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
======== ======== ======== ======== ========
</TABLE>
-28-
<PAGE> 29
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>
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>
-29-
<PAGE> 30
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.
<TABLE>
<CAPTION>
TA NATIONAL
AS OF MARCH 31, AS OF MARCH 31,
--------------- ---------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Company-owned and operated sites 39 40 13 27
Company-owned and leased sites --- --- 83 68
---- ---- ---- ----
Company-owned sites 39 40 96 95
</TABLE>
-30-
<PAGE> 31
<TABLE>
<S> <C> <C> <C> <C>
Franchisee-owner sites 8 8 30 26
---- ---- ---- ----
Total 47 48 126 121
==== ==== ==== ====
</TABLE>
-31-
<PAGE> 32
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
TRAVELCENTERS OF AMERICA
STATEMENTS OF INCOME
QUARTERS ENDED MARCH 31, 1997 AND 1996
TA NATIONAL
------------------------- -------------------------
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1996 1997 1996
--------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Revenues:
Fuel $ 80,082 $ 58,943 $ 114,069 $ 108,907
Nonfuel revenues 44,320 42,232 16,922 11,552
Rent --- --- 9,720 10,950
--------- --------- --------- ---------
Total revenues 124,402 101,175 140,711 131,409
Cost of revenues 88,988 68,319 116,890 110,896
--------- --------- --------- ---------
Gross profit 35,414 32,856 23,821 20,513
Operating expenses 24,854 23,894 9,229 3,683
Selling, general & administrative expenses 5,132 3,834 6,407 9,025
Refinancing, transition and development costs 844 130 774 25
Depreciation and amortization 3,236 2,947 3,708 3,214
Other (income) expense - net (40) 21 (34) (27)
--------- --------- --------- ---------
Income from operations 1,388 2,030 3,737 4,593
Interest (expense) - net (2,128) (1,887) (2,699) (3,208)
--------- --------- --------- ---------
(Loss)/income before income taxes and
extraordinary item (740) 143 1,038 1,385
Provision for income tax (benefit)/expense (296) 57 412 537
--------- --------- --------- ---------
Income before extraordinary item (444) 86 626 848
Extraordinary item (net of taxes) (2,086) --- (3,468) ---
--------- --------- --------- ---------
Net income ($ 2,530) $ 86 ($ 2,842) $ 848
========= ========= ========= =========
EBITDA(2) $ 5,428 $ 5,128 $ 8,185 $ 7,805
</TABLE>
<TABLE>
<CAPTION>
THE COMPANY(1)
-------------------------
MARCH 31, MARCH 31,
1997 1996
--------- ---------
<S> <C> <C>
Revenues:
Fuel $ 194,151 $ 167,850
Nonfuel revenues 61,242 53,784
Rent 9,720 10,950
--------- ---------
Total revenues 265,113 232,584
Cost of revenues 205,878 179,215
--------- ---------
Gross profit 59,235 53,369
Operating expenses 34,083 27,598
Selling, general & administrative expenses 11,733 12,889
Refinancing, transition and development costs 1,618 155
Depreciation and amortization 6,944 6,161
Other (income) expense - net (74) (6)
--------- ---------
Income from operations 4,931 6,593
Interest (expense) - net (5,105) (5,095)
--------- ---------
(Loss)/income before income taxes and
extraordinary item (174) 1,498
Provision for income tax (benefit)/expense (68) 582
--------- ---------
Income before extraordinary item (106) 916
Extraordinary item (net of taxes) (5,554) ---
--------- ---------
Net income ($ 5,660) $ 916
========= =========
EBITDA(2) $ 13,419 $ 12,903
(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.
</TABLE>
-32-
<PAGE> 33
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
-33-
<PAGE> 34
revenues.
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
-34-
<PAGE> 35
as compared to $12.9 million for 1996.
-35-
<PAGE> 36
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.
-36-
<PAGE> 37
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.
-37-
<PAGE> 38
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"),
-32-
<PAGE> 39
15 U.S.C. Sections 2801 et seq. The complaint and proposed amended complaint
seek actual and punitivedamages 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
-33-
<PAGE> 40
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.
-34-
<PAGE> 41
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------------------------------------------------------------------
<S> <C>
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
- ------------------
<FN>
* Incorporated by reference from the registrant's Registration Statement on
Form S-4 (No. 333-26497)
</FN>
</TABLE>
(b) Reports on Form 8-K
During the first quarter of fiscal 1997, the Company filed no reports
on Form 8-K.
-35-
<PAGE> 42
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: January 12, 1998 By: /s/ James W. George
-------------------------------------------
Name: James W. George
Title: Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
Revised: 1/20/98
/dh
-36-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<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> 267,618
<DEPRECIATION> 0
<TOTAL-ASSETS> 479,831
<CURRENT-LIABILITIES> 62,480
<BONDS> 290,000
55,704
38
<COMMON> 14
<OTHER-SE> 56,805
<TOTAL-LIABILITY-AND-EQUITY> 479,831
<SALES> 255,393
<TOTAL-REVENUES> 265,113
<CGS> 205,878
<TOTAL-COSTS> 205,878
<OTHER-EXPENSES> 54,304
<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> (5.88)
<EPS-DILUTED> 0
</TABLE>
