<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
Commission file number 333-26497
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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 200
Westlake, OH 44145-5634
(Address of principal executive offices, including zip code)
(440) 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 / X / No / /
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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>
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INDEX PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheet as of September 30, 1998 and 3
December 31, 1997
Consolidated Statement of Income and Retained Earnings for 4
the three months ended September 30, 1998 and 1997 and for
the nine months ended September 30, 1998 and 1997
Consolidated Statement of Cash Flows for the nine months 5
ended September 30, 1998 and 1997
Selected Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 20
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 6. Exhibits and Reports on Form 8-K 27
SIGNATURE 28
</TABLE>
2
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TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 DECEMBER 31,
(UNAUDITED) 1997
-------------- --------------
ASSETS (IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Current assets:
Cash.............................................................................. $ 51,008 $ 71,756
Accounts receivable (less allowance for doubtful accounts of $3,295 for 1998 and
$2,707 for 1997)............................................................... 65,814 68,433
Inventories....................................................................... 38,499 33,718
Deferred income taxes............................................................. 4,714 3,740
Other current assets.............................................................. 7,204 10,256
---------- ----------
Total current assets......................................................... 167,239 187,903
Notes receivable, net................................................................ 1,582 1,692
Property and equipment, net.......................................................... 305,286 286,472
Intangible assets.................................................................... 22,121 15,651
Deferred financing costs............................................................. 10,686 11,786
Deferred income taxes................................................................ 1,021 -
Other assets......................................................................... 4,412 4,288
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Total assets................................................................. $ 512,347 $ 507,792
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.............................................. $ 610 $ 500
Accounts payable.................................................................. 27,961 29,035
Other accrued liabilities......................................................... 80,332 72,265
---------- ----------
Total current liabilities.................................................... 108,903 101,800
Commitments and contingencies (Note 8)
Long-term debt....................................................................... 292,184 289,625
Deferred income taxes................................................................ 1,041 4,985
Other long-term liabilities.......................................................... 7,908 4,479
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410,036 400,889
Mandatorily redeemable senior convertible participating preferred stock.............. 67,767 61,404
Other preferred stock, common stock and other stockholders' equity................... 43,570 43,945
Retained earnings (deficit).......................................................... (9,026) 1,554
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34,544 45,499
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Total liabilities and stockholders' equity................................... $ 512,347 $ 507,792
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
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TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues:
Fuel.............................................................. $ 137,591 $ 166,296 $ 408,114 $ 539,780
Nonfuel........................................................... 95,422 76,193 256,646 211,418
Rent and royalties................................................ 5,322 7,823 16,436 29,104
---------- ---------- ---------- ----------
Total revenues.................................................... 238,335 250,312 681,196 780,302
Cost of revenues (excluding depreciation)............................ 159,360 180,537 463,943 585,226
---------- ---------- ---------- ----------
Gross profit (excluding depreciation)................................ 78,975 69,775 217,253 195,076
Operating expenses................................................... 51,637 43,136 142,416 118,681
Selling, general and administrative expenses......................... 8,759 9,390 27,127 30,070
Transition expense................................................... 884 3,867 2,758 10,958
Depreciation and amortization........................................ 8,464 5,777 33,034 20,073
(Gain) on sales of property and equipment............................ (971) (7,409) (826) (5,945)
Other operating expense, net......................................... 89 1,100 1,061 1,100
---------- ---------- ---------- ----------
Income from operations............................................... 10,113 13,914 11,683 20,139
Interest (expense), net.............................................. (6,128) (5,987) (18,263) (16,954)
---------- ----------- ---------- -----------
Income (loss) before income taxes and extraordinary item............. 3,985 7,927 (6,580) 3,185
Provision (benefit) for income taxes................................. 1,598 3,069 (2,362) 1,231
---------- ---------- ---------- ----------
Income (loss) before extraordinary item.............................. 2,387 4,858 (4,218) 1,954
Extraordinary loss (less applicable income tax benefit of $3,608).... - - - (5,554)
---------- ---------- ---------- ----------
Net income (loss).................................................... 2,387 4,858 (4,218) (3,600)
Less: preferred dividends......................................... (2,217) (1,941) (6,362) (5,579)
Retained earnings (deficit) ?beginning of the period................. (9,196) 2,742 1,554 14,838
---------- ---------- ---------- ----------
Retained earnings (deficit) ?end of the period....................... $ (9,026) $ 5,659 $ (9,026) $ 5,659
========== ========== ========== ==========
Earnings (loss) per common share (basic):
Income (loss) before extraordinary item............................ $ 0.29 $ 2.93 $ (17.46) $ (3.25)
Extraordinary loss................................................. - - - (4.98)
--------- --------- --------- ---------
Net income (loss).................................................. $ 0.29 $ 2.93 $ (17.46) $ (8.23)
========= ========= ========= =========
Earnings (loss) per common share (diluted):
Income (loss) before extraordinary item............................ $ 0.05 $ 0.64 $ (17.46) $ (3.25)
Extraordinary loss................................................. - - - (4.98)
--------- --------- --------- ---------
Net income (loss).................................................. $ 0.05 $ 0.64 $ (17.46) $ (8.23)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
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TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1998 1997
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(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................... $ (4,218) $ (3,600)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Extraordinary loss....................................................... - 5,554
Depreciation and amortization............................................ 33,034 20,073
Deferred income taxes.................................................... (5,939) -
Provision for doubtful accounts.......................................... 1,036 1,404
Provision for stock compensation......................................... 2,625 1,100
(Gain) on sales of property and equipment................................ (826) (5,945)
Changes in assets and liabilities, adjusted for the effects of
acquisitions of network assets:
Accounts receivable.................................................... 765 (16,208)
Inventories............................................................ (3,863) 1,558
Other current assets................................................... 3,432 1,756
Accounts payable....................................................... (1,887) (16,083)
Other current liabilities.............................................. 7,935 25,509
Other, net............................................................... (69) 420
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Net cash provided by operating activities................................ 32,025 15,538
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................................ (49,090) (19,372)
Acquisitions of network assets.............................................. (6,270) (11,069)
Proceeds from sales of property and equipment............................... 3,337 20,099
---------- ----------
Net cash used in investing activities.................................... (52,023) (10,342)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings................................................... - 3,750
Revolving loan repayments................................................... - (17,750)
Long-term debt borrowings................................................... - 205,000
Long-term debt repayments................................................... (375) (126,550)
Repurchases of common stock................................................. (375) (3,706)
Debt issuance costs......................................................... - (12,903)
---------- ----------
Net cash provided by (used in) financing activities...................... (750) 47,841
---------- ----------
Net increase (decrease) in cash........................................ (20,748) 53,037
Cash at the beginning of the period............................................ 71,756 23,779
---------- ----------
Cash at the end of the period.................................................. $ 51,008 $ 76,816
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
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TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
1. BUSINESS DESCRIPTION AND SUMMARY OF OPERATING STRUCTURE
TravelCenters of America, Inc., (collectively with its subsidiaries,
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 14, 1993 and the TA Acquisition was consummated on December 10, 1993. On
March 27, 1997 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 merged into the Company as of such date).
The Company is a holding company which, through its wholly-owned
subsidiaries, owns, operates and franchises more full-service travel centers in
the United States than any of its competitors, with 126 network sites
nationwide, including 124 travel centers in 36 states operating under the
"TravelCenters of America" or "TA" brand names and two travel centers in two
states operating under the licensed "Unocal 76" and related brand names.
The accompanying unaudited, consolidated financial statements as of and
for the three- and the nine-month periods ended September 30, 1998 and 1997 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, 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 cash flows for the three-
and nine-month periods ended September 30, 1998 and 1997, and are not
necessarily indicative of the results to be expected for the full year.
2. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
3. EARNINGS PER SHARE
A reconciliation of the income and shares used in the computation of
earnings per share follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
--------------- --------------- ---------------- --------------
(DOLLARS AND SHARES IN (DOLLARS AND SHARES IN
THOUSANDS) THOUSANDS)
<S> <C> <C> <C> <C>
Income (loss) before extraordinary loss $ 2,387 $ 4,858 $ (4,218) $ 1,954
Less: Preferred stock dividends (2,217) (1,941) (6,362) (5,579)
--------- --------- --------- ---------
Net income (loss) available to common
Stockholders 170 2,917 (10,580) (3,625)
Weighted average shares outstanding 596 994 606 1,115
--------- --------- --------- ---------
Net income (loss) per share $ 0.29 $ 2.93 $ (17.46) $ (3.25)
========= ========= ========= =========
</TABLE>
The assumed conversion of stock options, warrants and convertible
series of preferred stock would have an antidilutive effect on the loss per
share for the nine-month periods ended September 30, 1998 and 1997. An
additional 3,003,000 and 6,757,000 incremental common shares were included in
the calculation of diluted earnings per share for the three-month periods ended
September 30, 1998 and 1997, respectively, to reflect the dilutive effect of
warrants, options and convertible preferred stock.
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TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
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(DOLLARS IN THOUSANDS)
<S> <C> <C>
Nonfuel merchandise............................................ $ 36,142 $ 30,883
Petroleum products............................................. 2,357 2,835
---------- ----------
Total inventories........................................ $ 38,499 $ 33,718
========== ==========
</TABLE>
5. PROPERTY AND EQUIPMENT
During the first quarter of 1998, the estimated useful lives of certain
machinery, equipment, furniture and fixtures were revised from 10 years to five
years in order to conform National's estimated useful lives to those of TA. The
effect of this change in estimate resulted in reductions in income before
extraordinary items and net income of $9.5 million and $5.7 million,
respectively. Additionally, earnings per share for the first quarter and for the
first nine months of 1998 were reduced by $9.08 and $9.37, respectively. This
change resulted in these assets becoming fully depreciated at March 31, 1998.
During 1997, a reserve of $559,000 was recorded to recognize the
impairment of certain sites held for sale. This impairment was based on the
estimated sales proceeds at that time. Based on current information available to
the Company, the estimated sales proceeds less costs to sell now exceed the
current carrying values of the related assets. Accordingly, the impairment
charge was reversed in June 1998. This amount is included in depreciation and
amortization in the statement of income and retained earnings.
6. COMBINATION PLAN AND REFINANCING
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 (the "Combination Plan") provides for the
divesting of certain National Network locations, terminating of certain
franchise relationships, transfer of operation of all National Network
company-operated locations to the TA Network and rebranding of the remaining
National Network locations to the TA brand. This plan is substantially complete
at September 30, 1998. Transition expenses of $2,758,000 have been incurred in
1998 to execute the Combination Plan, bringing the total of such expenses to
$17,970,000.
On March 27, 1997, the Company was recapitalized and restructured
pursuant to a series of transactions (the "Refinancing") in which (i) the
Company's indebtedness under the old National and TA Credit Facilities and
Subordinated Notes were refinanced, (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 merged into the Company as of such
date).
The Refinancing 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
$7,847,000 and $1,315,000, respectively, were written off and an extraordinary
loss of $5,554,000, net of the related tax benefit of $3,608,000, was recognized
in the first quarter of 1997.
7
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TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
7. SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------ -----------------------------------
1998 1997 1998 1997
---------------- ----------------- ----------------- ---------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash paid during the period for:
Interest $ 3,982 $ 4,633 $ 17,838 $ 11,941
Income taxes $ 46 $ 157 $ 160 $ 3,481
Inventory and property and equipment
received in liquidation of trade accounts
and note receivable $ 435 $ 1,689 $ 928 $ 4,495
Acquisition of network assets in exchange
for notes payable $ 3,044 $ - $ 3,044 $ -
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
ACQUISITION
On October 17, 1998 the Company entered into an asset purchase
agreement to acquire substantially all of the assets and assume certain
liabilities of the Burns Bros. Travel Stops Division ("Burns") of Burns Bros.
Inc (the "Burns Acquisition") for an aggregate cash purchase price of
approximately $55,000,000. Pursuant to the asset purchase agreement, the Company
will acquire all of the assets of Burns relating to 17 of the 19 sites owned by
Burns, as well as those assets used in the wholesale fuel supply and
transportation business operated by Burns. The Company will also purchase the
inventory and outstanding receivables of Burns, and assume certain of its
current liabilities. The closing of the acquisition is conditioned on, among
other things, satisfactory completion of the Phase I environmental assessments
for each of the 17 sites, Phase II environmental assessments at certain of the
17 sites and the Company's due diligence investigation of Burns. The expected
closing date, subject to satisfactory completion of the above items, is November
30, 1998. The Company intends to finance this acquisition through an increase in
the term loan facility of its Credit Agreement dated March 21, 1997.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to extensive
regulation pursuant to federal, state and local laws, regulations and ordinances
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 other hazardous and toxic
substances ("Hazardous Substances") or (ii) impose liability and damages for the
costs of cleaning up sites affected by, and for damages resulting from, past
spills and disposal or other releases of Hazardous Substances ("Environmental
Laws").
The Company owns and uses underground storage tanks ("USTs") and
aboveground storage tanks ("ASTs") at Company-operated and Leased Sites to store
petroleum products and waste. These tanks must comply with requirements of
Environmental Laws regarding tank construction, integrity testing, leak
detection and monitoring, overfill and spill control, release reporting,
financial assurance and corrective action in case of a release from a UST or AST
into the environment. At certain locations, the Company also is subject to
Environmental Laws relating to vapor recovery and discharges to water. The
Company believes that all of its travel centers are in material
8
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TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
compliance with applicable requirements of Environmental Laws. The Company is
making necessary upgrades to USTs to comply with federal regulations which will
take effect in December 1998. These upgrades are expected to be completed in
1998 at an estimated cost to the Company of approximately $6 to $8 million. The
Company does not believe that such costs will have a material adverse effect on
the Company and the Capital Program incorporates funds to complete such
upgrades.
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 has received notices of alleged violations of Environmental
Laws, or is aware of the need to undertake corrective actions to comply with
Environmental Laws, at Company-owned travel centers in a number of
jurisdictions. The Company does not expect that any financial penalties
associated with these alleged violations, instances of noncompliance, or
compliance costs incurred in connection therewith, will be material to the
Company's results of operation or financial condition. The Company is conducting
investigatory and/or remedial actions with respect to releases and/or spills of
Hazardous Substances that have occurred subsequent to the National Acquisition
and the TA Acquisition, respectively, at approximately 25 Network properties.
While the Company cannot precisely estimate the ultimate costs it will incur in
connection with the investigation and remediation of these properties, based on
its current knowledge, the Company does not expect that the costs to be incurred
at these properties, individually or in the aggregate, will be material to the
Company's results of operation or financial condition. While the aforementioned
matters are, to the best knowledge of the Company, the only proceedings for
which the Company is currently exposed to potential liability (particularly
given the Unocal and BP indemnities discussed below), there can be no assurance
that additional contamination does not exist at these or additional Network
properties, or that material liability will not be imposed in the future. If
additional environmental problems arise or are discovered, or if additional
environmental requirements are imposed by government agencies, increased
environmental compliance or remediation expenditures may be required, which
could have a material adverse effect on the Company.
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 of $1,373,000 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
Forty-Niner Truck Plaza Litigation. In connection with the acquisition
of the Network, the Company acquired six travel centers located in California.
In January 1993, the Operators of four of these travel centers (the "California
Plaintiffs") commenced litigation against Unocal, The Clipper Group, L.P.
("Clipper," organizer of the institutional investor group which formed the
Company) 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 an alleged contract with Unocal, to purchase their
travel centers at what they alleged was 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 four properties operated by the California Plaintiffs are
referred to herein as the "California Properties". Two of the California
Plaintiffs settled their claims prior to commencement of the trial.
9
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TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
Under the asset purchase agreements pursuant to which the Company
acquired the California Properties from Unocal, and related agreements, 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 believes that
the claims asserted by the California Plaintiffs against the Company are without
merit and has engaged in a vigorous defense.
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, for which all defendants are jointly and
severably liable. 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. The California State Court rendered a
decision in favor of the defendants 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
then filed motions with the trial court to enter judgment in its favor on
plaintiffs' 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 judgment notwithstanding the verdict, but granted the defendants' motion for
a new trial on all issues. On October 22, 1997, the California Court of Appeal
filed a decision affirming the trial court's orders granting a new trial and
denying defendants' motions for judgment notwithstanding the verdict. The Court
of Appeal also reversed an order of the trial court granting a nonsuit on
plaintiff's claim against the Company and Clipper for civil conspiracy. The
California Supreme Court has denied review. On September 1, 1998, one of the two
remaining plaintiffs entered into a settlement agreement with Unocal and the
Company, and dismissed its claims in the case. In connection with the
settlement, the Company also entered into an agreement whereby the Company
acquired the assets and the operations of that plaintiff's travel center. The
case with the one remaining plaintiff had been scheduled for retrial on October
5, 1998, which date has been postponed until February 16, 1999, and the
discovery phase of the proceedings is ongoing. 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 in this matter are covered under the indemnification
agreement with Unocal. Legal costs incurred by the Company through September 30,
1998 total $5,727,000, of which Unocal has paid $1,117,000 to the Company to
date. Unocal has contested certain of the amounts comprising 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 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.
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TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
9. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES
The following schedules set forth the consolidating balance sheets of
the Company as of September 30, 1998 and December 31, 1997, the consolidating
statements of income and retained earnings of the Company for the three months
and nine months ended September 30, 1998 and 1997, and the consolidating
statements of cash flows of the Company for the nine months ended September 30,
1998 and 1997. 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
and, (b) eliminate the Company's investments in its subsidiaries. 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.
11
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TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
BALANCE SHEET SCHEDULES:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------ ---------------- ------------- -------------- ---------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.................................. $ 31,376 $ 19,632 $ - $ - $ 51,008
Accounts receivable, net.............. - 64,913 901 - 65,814
Inventories........................... - 38,499 - - 38,499
Deferred income taxes................. - 4,714 - - 4,714
Other current assets.................. 31,035 38,316 6,034 (68,181) 7,204
---------- ---------- ---------- ----------- ----------
Total current assets............. 62,411 166,074 6,935 (68,181) 167,239
Notes receivable, net.................... 917 665 - - 1,582
Property and equipment, net.............. - 305,286 - - 305,286
Intangible assets........................ - 22,121 - - 22,121
Deferred financing costs................. 10,686 - - - 10,686
Deferred income taxes.................... 4,131 (3,110) - - 1,021
Other assets............................. 730 3,682 - - 4,412
Investments in subsidiaries.............. 341,673 - - (341,673) -
---------- ---------- ---------- ----------- ----------
Total assets..................... $ 420,548 $ 494,718 $ 6,935 $ (409,854) $ 512,347
========== ========== ========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.. $ 500 $ 110 $ - $ - $ 610
Accounts payable...................... - 27,961 - - 27,961
Other accrued liabilities............. 27,233 119,183 2,084 (68,168) 80,332
---------- ---------- ---------- ----------- ----------
Total current liabilities........ 27,733 147,254 2,084 (68,168) 108,903
Long-term debt........................... 289,250 2,934 - - 292,184
Deferred income taxes.................... - 1,041 - - 1,041
Other liabilities........................ - 233,811 - (225,903) 7,908
---------- ---------- ---------- ----------- ----------
Total liabilities................ 316,983 385,040 2,084 (294,071) 410,036
Mandatorily redeemable senior convertible
participating preferred stock......... 67,767 - - - 67,767
Other preferred stock, common stock and
other stockholders' equity............ 44,824 81,180 - (82,434) 43,570
Retained earnings (deficit).............. (9,026) 28,498 4,851 (33,349) (9,026)
---------- ---------- ---------- ----------- ----------
35,798 109,678 4,851 (115,783) 34,544
---------- ---------- ---------- ----------- ----------
Total liabilities and
stockholders' equity.......... $ 420,548 $ 494,718 $ 6,935 $ (409,854) $ 512,347
========== ========== ========== =========== ==========
</TABLE>
12
<PAGE> 13
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------ ---------------- ------------- --------------- ---------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.................................. $ 59,592 $ 12,164 $ - $ - $ 71,756
Accounts receivable, net.............. - 67,927 506 - 68,433
Inventories........................... - 33,718 - - 33,718
Deferred income taxes................. - 3,740 - - 3,740
Other current assets.................. 14,176 38,971 2,591 (45,482) 10,256
---------- ---------- ---------- ----------- ----------
Total current assets............. 73,768 156,520 3,097 (45,482) 187,903
Notes receivable, net.................... 887 805 - - 1,692
Property and equipment, net.............. - 286,472 - - 286,472
Intangible assets........................ - 15,651 - - 15,651
Deferred financing costs................. 11,786 - - - 11,786
Other assets............................. 730 3,558 - - 4,288
Investments in subsidiaries.............. 342,860 - - (342,860) -
---------- ---------- ---------- ----------- ----------
Total assets..................... $ 430,031 $ 463,006 $ 3,097 $ (388,342) $ 507,792
========== ========== ========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.. $ 500 $ - $ - $ - $ 500
Accounts payable...................... - 29,387 - (352) 29,035
Other accrued liabilities............. 32,601 83,905 889 (45,130) 72,265
---------- ---------- ---------- ----------- ----------
Total current liabilities........ 33,101 113,292 889 (45,482) 101,800
Long-term debt........................... 289,625 - - - 289,625
Deferred income taxes.................... (852) 5,837 - - 4,985
Other liabilities........................ - 230,371 - (225,892) 4,479
---------- ---------- ---------- ----------- ----------
Total liabilities................ 321,874 349,500 889 (271,374) 400,889
Mandatorily redeemable senior convertible
participating preferred stock......... 61,404 - - - 61,404
Other preferred stock, common stock and
other stockholders' equity............ 45,199 81,179 - (82,433) 43,945
Retained earnings........................ 1,554 32,327 2,208 (34,535) 1,554
---------- ---------- ---------- ----------- ----------
46,753 113,506 2,208 (116,968) 45,499
---------- ---------- ---------- ----------- ----------
Total liabilities and
stockholders' equity.......... $ 430,031 $ 463,006 $ 3,097 $ (388,342) $ 507,792
========== ========== ========== =========== ==========
</TABLE>
13
<PAGE> 14
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
STATEMENT OF INCOME AND RETAINED EARNINGS SCHEDULES:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1998
-------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR ELIMINATIONS CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARY
-------------- -------------- -------------- ----------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues:
Fuel................................... $ - $ 137,591 $ - $ - $ 137,591
Nonfuel................................ - 94,743 679 - 95,422
Rent and royalties..................... - 8,195 1,832 (4,705) 5,322
---------- ---------- ---------- ---------- ----------
Total revenues......................... - 240,529 2,511 (4,705) 238,335
Cost of revenues (excluding depreciation). - 159,360 - - 159,360
---------- ---------- ---------- ---------- ----------
Gross profit (excluding depreciation)..... - 81,169 2,511 (4,705) 78,975
Operating expenses........................ 53 55,536 753 (4,705) 51,637
Selling, general and
administrative........................ 192 8,349 218 - 8,759
Transition expense........................ - 884 - - 884
Depreciation and amortization............. 375 8,089 - - 8,464
Gain on sales of property and
equipment.............................. - (971) - - (971)
Other operating (income) expense, net..... - 89 - - 89
---------- ---------- ---------- ---------- ----------
Income (loss) from operations............. (620) 9,193 1,540 - 10,113
Interest (expense), net................... (846) (5,282) - - (6,128)
Equity income (loss)...................... 3,355 - - (3,355) -
---------- ---------- ---------- ---------- ------------
Income (loss) before income taxes ........ 1,889 3,911 1,540 (3,355) 3,985
Provision (benefit) for income taxes...... (498) 1,522 574 - 1,598
---------- ---------- ---------- ---------- ----------
Net income (loss)......................... 2,387 2,389 966 (3,355) 2,387
Less: preferred dividends................. (2,217) - - - (2,217)
Retained (deficit) earnings - beginning
of the period.......................... (9,196) 26,109 3,885 (29,994) (9,196)
---------- ---------- ---------- ---------- ----------
Retained (deficit) earnings - end of the
period................................. $ (9,026) $ 28,498 $ 4,851 $ (33,349) $ (9,026)
========== ========== ========== ========== ==========
</TABLE>
14
<PAGE> 15
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------------- -------------- -------------- ------------ --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues:
Fuel................................... $ - $ 171,434 $ - $ (5,138) $ 166,296
Nonfuel................................ - 76,193 - - 76,193
Rent and royalties..................... - 11,506 398 (4,081) 7,823
---------- ---------- ---------- ----------- ----------
Total revenues......................... - 259,133 398 (9,219) 250,312
Cost of revenues (excluding depreciation). - 185,675 - (5,138) 180,537
---------- ---------- ---------- ----------- ----------
Gross profit (excluding depreciation)..... - 73,458 398 (4,081) 69,775
Operating expenses........................ - 47,217 - (4,081) 43,136
Selling, general and
administrative........................ 385 8,979 26 - 9,390
Transition expense........................ - 3,630 237 - 3,867
Depreciation and amortization............. (69) 5,846 - - 5,777
Gain on sales of property and
equipment.............................. - (7,409) - - (7,409)
Other operating (income) expense, net..... - 1,100 - - 1,100
---------- ---------- ---------- ---------- ----------
Income (loss) from operations............. (316) 14,095 135 - 13,914
Interest (expense), net................... (6,362) 375 - - (5,987)
Equity income (loss)...................... 12,157 - - (12,157) -
---------- ---------- ---------- ----------- ----------
Income (loss) before income taxes......... 5,479 14,470 135 (12,157) 7,927
Provision (benefit) for income taxes...... 621 5,627 59 (3,238) 3,069
---------- ---------- ---------- ----------- ----------
Net income (loss)......................... 4,858 8,843 76 (8,919) 4,858
Less: preferred dividends................. (1,941) - - - (1,941)
Retained earnings (deficit) - beginning of
the period............................. 2,742 32,550 958 (33,508) 2,742
---------- ---------- ---------- ---------- ----------
Retained earnings (deficit) - end of the
period................................. $ 5,659 $ 41,393 $ 1,034 $ (42,427) $ 5,659
========== ========== ========== ========== ==========
</TABLE>
15
<PAGE> 16
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
-------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------------- -------------- -------------- ------------ ---------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues:
Fuel................................... $ - $ 408,114 $ - $ - $ 408,114
Nonfuel................................ - 255,816 830 - 256,646
Rent and royalties..................... - 24,774 5,171 (13,509) 16,436
---------- ---------- ---------- ---------- ----------
Total revenues......................... - 688,704 6,001 (13,509) 681,196
Cost of revenues (excluding depreciation). - 463,943 - - 463,943
---------- ---------- ---------- ---------- ----------
Gross profit (excluding depreciation)..... - 224,761 6,001 (13,509) 217,253
Operating expenses........................ 159 154,633 1,133 (13,509) 142,416
Selling, general and
Administrative........................ 638 25,836 653 - 27,127
Refinancing, transition and development
costs.................................. - 2,758 - - 2,758
Depreciation and amortization............. 1,122 31,912 - - 33,034
Gain on sale of property and
equipment.............................. - (826) - - (826)
Other operating (income) expense, net..... - 1,061 - - 1,061
---------- ---------- ---------- ---------- ----------
Income (loss) from operations............. (1,919) 9,387 4,215 - 11,683
Interest (expense), net................... (2,674) (15,589) - - (18,263)
Equity income (loss)...................... (1,186) - - 1,186 -
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes ........ (5,779) (6,202) 4,215 1,186 (6,580)
Provision (benefit) for income taxes...... (1,561) (2,373) 1,572 - (2,362)
---------- ---------- ------------ ---------- ----------
Net income (loss)......................... (4,218) (3,829) 2,643 1,186 (4,218)
Less: preferred dividends................. (6,362) - - - (6,362)
Retained earnings - beginning of the
period................................. 1,554 32,327 2,208 (34,535) 1,554
---------- ---------- ---------- ---------- ----------
Retained earnings (deficit) - end of the
period................................. $ (9,026) $ 28,498 $ 4,851 $ (33,349) $ (9,026)
========== ========== ========== ========== ==========
</TABLE>
16
<PAGE> 17
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------------- -------------- -------------- ------------- --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues:
Fuel................................... $ - $ 544,918 $ - $ (5,138) $ 539,780
Nonfuel................................ - 211,418 - - 211,418
Rent and royalties..................... - 32,093 1,092 (4,081) 29,104
---------- ---------- ---------- ---------- ----------
Total revenues......................... - 788,429 1,092 (9,219) 780,302
Cost of revenues (excluding depreciation). - 590,364 - (5,138) 585,226
---------- ---------- ---------- ---------- ----------
Gross profit (excluding depreciation)..... - 198,065 1,092 (4,081) 195,076
Operating expenses........................ - 122,762 - (4,081) 118,681
Selling, general and
Administrative........................ 639 28,705 726 - 30,070
Transition expense........................ - 10,721 237 - 10,958
Depreciation and amortization............. 741 19,332 - - 20,073
Gain on sales of property and
equipment.............................. - (5,945) - - (5,945)
Other operating (income) expense, net..... - 1,100 - - 1,100
---------- ---------- ---------- ---------- ----------
Income (loss) from operations............. (1,380) 21,390 129 - 20,139
Interest (expense), net................... (12,721) (4,233) - - (16,954)
Equity income (loss)...................... 8,199 75 - 8,274 -
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item..................... (5,902) 17,232 129 - 3,185
Provision (benefit) for income taxes...... (2,302) 6,721 50 (3,238) 1,231
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary item (3,600) 10,511 79 (5,036) 1,954
Extraordinary loss (less applicable income
tax benefit)........................... - (5,554) - - (5,554)
---------- ---------- ---------- ---------- ----------
Net income (loss)......................... (3,600) 4,957 79 (5,036) (3,600)
Less: preferred dividends................. (5,579) - - - (5,579)
Retained earnings - beginning of the
period................................. 14,838 36,436 955 (37,391) 14,838
---------- ---------- ---------- ---------- ----------
Retained earnings - end of the period..... $ 5,659 $ 41,393 $ 1,034 $ (42,427) $ 5,659
========== ========== ========== ========== ==========
</TABLE>
17
<PAGE> 18
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
CONDENSED STATEMENT OF CASH FLOW SCHEDULES:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
-------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------------- -------------- ------------- -------------- --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES.................. $ (27,466) $ 59,491 $ - $ - $ 32,025
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................. - (49,090) - - (49,090)
Acquisitions of network assets........ - (6,270) - - (6,270)
Proceeds from sales of
property and equipment.............. - 3,337 - - 3,337
---------- ---------- ---------- ---------- ----------
Net cash used in investing
activities....................... - (52,023) - - (52,023)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt repayments............. (375) - - - (375)
Repurchase of common stock.......... (375) - - - (375)
---------- ---------- ---------- ---------- ----------
Net cash used in financing
activities....................... (750) - - - (750)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash.... (28,216) 7,468 (20,748)
Cash at the beginning of the period...... 59,592 12,164 - - 71,756
---------- ---------- ---------- ---------- ----------
Cash at the end of the period............ $ 31,376 $ 19,632 $ - $ - $ 51,008
========== ========== ========== ========== ==========
</TABLE>
18
<PAGE> 19
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------------- -------------- ------------- -------------- --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES............................ $ (590) $ 18,858 $ - $ - $ 15,538
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................. - (19,372) - - (19,372)
Acquisitions of network assets........ - (11,069) - - (11,069)
Proceeds from sales of property and
equipment.......................... - 20,099 - - 20,099
---------- ---------- ---------- ---------- ----------
Net cash used in investing
activities....................... - (10,342) - - (10,342)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings............. - 3,750 - - 3,750
Revolving loan repayments............. - (17,750) - - (17,750)
Long-term debt borrowings............. 205,000 - - - 205,000
Long-term debt repayments............. (250) (126,300) - - (126,550)
Advance from parent................. (138,900) 138,900 - - -
Repurchase of common stock.......... (3,706) - - - (3,706)
Debt issuance costs................. (12,903) - - - (12,903)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities............. 49,366 (1,400) - - 47,841
---------- ---------- ---------- ---------- ----------
Net increase in cash............. 45,526 7,511 - - 53,037
Cash at the beginning of the period...... - 23,779 - - 23,779
---------- ---------- ---------- ---------- ----------
Cash at the end of the period............ $ 45,526 $ 31,290 $ - $ - $ 76,816
========== ========== ========== ========== ==========
</TABLE>
19
<PAGE> 20
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes to consolidated financial statements
included herein, and the audited financial statements and Management's
Discussion and Analysis included with the Company's Form 10-K for the year ended
December 31, 1997.
OVERVIEW
The Company is a holding company which, through its wholly-owned
subsidiaries, owns, operates and franchises more travel centers in the United
States than any of its competitors with 126 network sites nationwide, consisting
of 124 travel centers in 36 states operating under the "TravelCenters of
America" or "TA" brand names and two travel centers in two states operating
under the licensed "Unocal 76" and related brand names. Of the 126 total sites,
the Company owns 116 and 10 are owned by franchisees.
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 Operators and Franchisee-Owners, 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 travel centers. Consequently, while
TA derived the majority of its revenues from retail diesel fuel sales, the
majority of its gross profit has been derived from, and its principal strategic
focus has been, the sale of higher margin nonfuel products and services.
COMBINATION PLAN
During the three months and nine months ended September 30, 1998, the
Company incurred approximately $0.9 million and $2.8 million, respectively, of
expenses related to the Combination Plan. These costs, identified as transition
expenses in the Company's consolidated financial statements, are expected to
total approximately $20.0 million, of which approximately $3.0 million to $4.0
million is expected to be incurred in 1998. These expenses relate to, among
other things, (i) employee separations, (ii) the costs to convert National
Network travel centers to Network travel centers, (iii) the costs to dispose of
travel centers or terminate lease or franchise agreements, and (iv) the costs of
integrating the management and operations of the Existing Networks into the
Network, including relocation, travel, training, and legal expenses.
Employee Terminations
As a result of the Combination Plan, which was approved by the Board of
Directors in January 1997, most of National's corporate-level employees have
been terminated. In January 1997, certain of National's executive officers
resigned and related severance costs of $0.8 million were recognized. In May
1997, management finalized its plans regarding employee terminations and,
accordingly, the related costs were recognized. This expense totaled
approximately $1.8 million. Pursuant to the Company's plans, 111 employees were
terminated, with payments of termination benefits of $2.0 million and $0.6
million made in 1997 and in the first quarter of 1998, respectively.
Network Rationalization
Throughout 1997, the Company continued to refine and execute its plans
for improving the profitability of the Network through rebranding of its sites
under the TA brand name and rationalizing the number and locations of its travel
centers. For the year ended December 31, 1997, 15 National Leased Sites were
sold to the Operators of those sites for a net gain on sale of $11.9 million.
The Company anticipates additional site sales during 1998 as it continues
rationalizing the Network. No sales were finalized during the first quarter of
1998, and one sale was finalized during each of the second and third quarters of
1998. During the year ended December 31, 1997, the franchise agreements with the
Franchisee-Owners of 27 Franchisee-Owner Sites were terminated. Beginning in
July 1997, those National Network franchisees whose sites were selected for
inclusion in the Network began to convert their franchises to TAFSI from
National, a process that includes rebranding the travel centers to the TA brand,
installation of TA's store and shop programs, training of the franchisees in
TA's operating procedures and revisions to the franchise agreements and lease
agreements, such that there is an increase in the royalty the Company receives
as a percentage of the franchisees' nonfuel revenues and a decrease in fixed
rent revenue. The Company expects these new agreements will result in reduced
revenue in the short term, but that in the long term
20
<PAGE> 21
increased franchisee nonfuel revenues will result in a net increase in the
Company's revenue. Through September 30, 1998, 29 former National franchisees
had signed TAFSI franchise agreements.
Site Conversions
During 1997, the Company converted 27 National Leased Sites to
Company-operated Sites by acquiring the travel center operations from the
related Operators. Such conversions result in decreased rent revenue and
increased operating expenses, offset to varying degrees for each individual site
by increased fuel and nonfuel revenues. Three such conversions were completed in
the second quarter of 1998, and two such conversions were completed during the
third quarter of 1998. Management expects that, over time, the increases in
revenues will exceed the decreases in rent revenue and increases in operating
expenses, especially as TA management, marketing, operations, safety and
training programs are fully implemented.
The following table sets forth the number and type of ownership and
management of the Company's travel centers at September 30, 1998 and 1997:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1998(1) 1997
------------ -------------
<S> <C> <C>
Company-owned and operated sites 86 82
Company-owned and leased sites 30 43
-------- --------
Company-owned sites 116 125
Franchisee-owner sites 10 20
-------- --------
Total 126 145
======== ========
Stand-alone shops 2 2
======== ========
</TABLE>
(1) Excludes two closed sites as of September 30, 1998.
RESULTS OF OPERATIONS FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30,
1998 AND 1997
Revenues
The Company's consolidated revenues for the three- and nine-month
periods ended September 30, 1998 were $238.3 million and $681.2 million,
respectively, which represent decreases from the prior periods of $12.0 million,
or 4.8%, for the three-month period and $99.1 million, or 12.7%, for the
nine-month period.
Fuel revenue for the nine months ended September 30, 1998 reflects a
decrease of $131.7 million, or 24.4%. For the third quarter, the 1998 amount
reflects a decrease from the same period in 1997 of $28.7 million, or 17.3%. The
decrease in fuel revenue for the three- and nine-month periods is a result of
decreased diesel volumes combined with a decrease in diesel pump prices. For the
three months and nine months ended September 30, 1998, diesel volumes decreased
0.3% and 6.0% between years, respectively, which is the result of a decrease in
the total number of sites between years, partially offset by increased volumes
at continuing sites. Average diesel sale prices decreased 18.7% and 20.0%, for
the same periods, respectively, as a result of declines in the cost of crude
oil.
Nonfuel revenues for the quarter ended September 30, 1998 increased
25.2% to $95.4 million from $76.2 million for the same period in 1997. For the
nine-month period ended September 30, 1998 nonfuel revenues increased 21.4% to
$256.6 million from $211.4 million for the same period in 1997. These increases
are due to the increase in the number of Company-operated sites between years,
coupled with the increased revenues at former National locations that have been
rebranded as TA travel centers.
21
<PAGE> 22
Rent and royalty revenues for both 1998 periods have decreased from the
same periods in 1997 as a result of (a) conversions of Leased Sites to
Company-operated Sites, (b) sales of Leased Sites and (c) the rent reductions
that are effective when former National franchisees sign new franchise and lease
agreements with TAFSI. The new franchise and lease agreements provide for
reduced fixed rents, but increased franchise royalty rates to be applied to
nonfuel revenues generated by the franchisees' operations. Rent revenues for
Leased Sites that were leased in all of the first three quarters of 1998 and
1997 decreased 15.9% between years. Royalty revenues for franchisee locations in
the Network in all of the first three quarters of both 1998 and 1997 increased
74.9% between years. The decline in rent revenue is expected to cease, as the
network rationalization is substantially complete with regards to
franchisee-lessees.
Gross Profit
The Company's gross profit for the third quarter of 1998 was $79.0
million, compared to $69.8 million for 1997, an increase of $9.2 million, or
13.2%. Year-to-date gross profit through September 30, 1998 was $217.3 million
compared to $195.1 million for 1997, an increase of $22.2 million, or 11.4%. The
increases in the Company's gross profit were primarily due to increases in
nonfuel revenues and diesel fuel margins, partially offset by decreased rent
revenue resulting from the conversion of travel centers from Leased Sites to
Company-operated Sites.
Operating and Selling, General and Administrative Expenses
Operating expenses include the direct expenses of Company-operated
Sites, and selling, general and administrative expenses (SG&A) include corporate
overhead and administrative costs.
The Company's operating expenses increased by $8.5 million, or 19.7%,
to $51.6 million for the three-month period ended September 30, 1998. Operating
expenses for the nine-month period ending September 30, 1998 increased by $23.7
million, or 20.0%, to $142.4 million. These increases reflect the increased
number of Company-operated Sites from the conversion of Leased Sites that
occurred throughout 1997.
The Company's SG&A for the third quarter decreased from $9.4 million in
1997 to $8.8 million in 1998. Year-to-date SG&A expense decreased from $30.1
million in 1997 to $27.1 million in 1998. The reductions in SG&A are primarily a
result of synergies resulting from personnel reductions at National pursuant to
the Combination Plan, partially offset by increased staffing in the operational
support and business development areas at TA.
Transition Expense
Transition expenses for the nine months ended September 30, 1998 were
$2.8 million, compared to $11.0 million for the same period in 1997. For the
three months ended September 30, 1998, these expenses were $0.9 million,
compared to $3.9 million for the same period in 1997. These costs were incurred
in effecting the Combination Plan. The Company anticipates approximately $3.0
million to $4.0 million of such costs to be incurred in 1998.
Depreciation and Amortization
Depreciation and amortization for the third quarter of 1998 was $8.5
million, compared to $5.8 million for the same period in the prior year.
Depreciation for the nine-month period ending September 30, 1998 was $33.0
million, compared to $20.1 million for the same period in 1997.
During the first quarter of 1998, the estimated useful lives of certain
machinery, equipment, furniture and fixtures were revised downward from 10 years
to five years in order to conform National's estimated useful lives to those of
TA. The effect of this change in estimate resulted in reductions in income
before extraordinary items, net income and earnings per share of $9.5 million,
$5.7 million and $9.08, respectively. This change resulted in these assets
becoming fully depreciated at March 31, 1998. In addition, an impairment reserve
of $0.6 million recorded in the 1997 fourth quarter with respect to certain
sites being held for sale was completely reversed in the 1998 second quarter.
This reversal was based on increases in the estimated sales prices of the
respective sites.
22
<PAGE> 23
Income from Operations
Income from operations was $10.1 million for the third quarter of 1998,
compared to $13.9 million for the third quarter of 1997. This is a result of an
increase in gross profit of $9.2 million, a decrease in SG&A of $0.6 million, a
decrease in transition expenses of $3.0 million and a decrease in other expenses
of $1.0 million, offset by increases in operating expenses of $8.5 million,
increases in depreciation and amortization of $2.7 million and decreases in
gains on sales of property and equipment of $6.4 million.
Income from operations was $11.7 million for the nine months ended
September 30, 1998, compared with $20.1 million for the nine months ended
September 30, 1997. This is a result of an increase in gross profit of $22.2
million, a decrease in SG&A of $3.0 million and decreases in transition expenses
of $8.2 million, offset by increases in operating expenses of $23.7 million,
increases in depreciation and amortization of $12.9 million and reductions in
gains on sales of property and equipment of $5.1 million.
EBITDA (defined as income from operations plus the sum of (a)
depreciation, amortization and other non-cash charges, (b) transition expense
and (c) gains or losses from sales of property and equipment) for the Company
for the three- and nine-month periods ending September 30, 1998 was $19.4
million and $49.3 million, respectively, compared to $17.2 million and $46.3
million for the respective 1997 periods.
Interest Expense - Net
Interest expense for the third quarter and first nine months of 1998
was $0.1 million and $1.3 million higher than the same periods in the prior year
as a result of the increased debt balance after the consummation of the
Refinancing (discussed in Liquidity and Capital Resources below).
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 acquisition, expansion and
environmental upgrades.
Net cash provided by operating activities totaled $32.0 million for the
first nine months of 1998, compared to $15.5 million for the same period in the
prior year. The increase between years is primarily the result of increases in
income before depreciation and amortization combined with net reductions in
working capital needs between years.
Net cash used in investing activities increased to $52.0 million for
the first nine months of 1998 from $10.3 million for the first nine months of
1997. The increase is primarily the result of increases in capital expenditures
and decreases in proceeds from sales of property and equipment offset by the
decrease in the acquisitions of network assets. Acquisitions of network assets
represent amounts spent acquiring the leasehold interests of Operators when
converting Leased Sites to Company-operated Sites. These activities were
substantially complete at September 30, 1998, however additional conversions
remain possible. The increase in capital expenditures between years is primarily
the result of the timing, as capital expenditures for the full year are expected
to be at the same level as for the year ended December 31, 1997.
Net cash used in financing activities was $0.8 million during the first
half of 1998, compared to $47.8 million generated during the first half of the
prior year. The change in the amount of financing activity cash flows between
1997 and 1998 was due to the refinancing completed in the first quarter of 1997.
On March 27, 1997 the Company was refinanced and currently has
outstanding $292.8 million of indebtedness, consisting of $125.0 million
principal amount of Senior Subordinated Notes, $85.5 million principal amount of
Senior Notes, a $79.3 million term loan facility and a $3.0 million note payable
(net of unamortized discount of $1.9 million). The Company also has a $40.0
million revolving credit facility, which, except for $1.5 million used for
letters of credit, was not drawn upon at September 30, 1998. The Senior Notes
have no amortization requirements until 2001, the Senior Subordinated Notes are
due in 2007 and the term facility has annual amortization requirements of $0.5
million until 2004.
23
<PAGE> 24
The Company expects to invest approximately $240 million in the Network
between 1997 and the end of 2001 (with approximately $75 million of this amount
to be spent in each of 1997 and 1998) in connection with the Capital Program to
upgrade, rebrand, reimage and increase the number of travel centers.
Approximately $50 million of the capital expenditures intended to be made
represent normal ongoing maintenance and related capital expenditures (with
approximately $10 million of this amount to be spent in 1998). The Company has
budgeted expenditures in order to add additional sites, rebrand and reimage
sites, add additional non-fuel offerings (such as quick-serve restaurant
offerings) at existing sites, make required environmental improvements, and
purchase, install and upgrade its information systems.
The Company anticipates that it will be able to fund its 1998 working
capital requirements and capital expenditures primarily from funds generated
from the refinancing, funds generated from operations and asset sales, 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.
ACQUISITION
On October 17, 1998 the Company entered into an asset purchase
agreement to acquire substantially all of the assets and assume certain
liabilities of the Burns Bros. Travel Stops Division ("Burns") of Burns Bros.
Inc (the "Burns Acquisition") for an aggregate cash purchase price of
approximately $55,000,000. Pursuant to the asset purchase agreement, the Company
will acquire all of the assets of Burns relating to 17 of the 19 sites owned by
Burns, as well as those assets used in the wholesale fuel supply and
transportation business operated by Burns. The Company will also purchase the
inventory and outstanding receivables of Burns, and assume certain of its
current liabilities. The closing of the acquisition is conditioned on, among
other things, satisfactory completion of the Phase I and Phase II environmental
assessments for each of the 17 sites and the Company's due diligence
investigation of Burns. The expected closing date, subject to satisfactory
completion of the above items is, November 30, 1998. The Company intends to
finance this acquisition through an increase in the term loan facility of its
Credit Agreement dated March 21, 1997.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to various
Environmental Laws.
The Company owns and operates USTs and ASTs at Company-operated Sites
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 $6 million to $8 million in 1998 to complete the upgrade of USTs
and other environmental related costs. In addition, 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
respective Environmental Agreements and has a reserve for such matters of $1.4
million as of September 30, 1998. 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.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue results from date sensitive computer programs that
improperly handle dates beyond 1999. This issue will impact virtually every
business that relies on a computer, including the Company, its customers and
suppliers and other third party service providers such as credit and trucking
fleet billing card providers, utilities and other basic service providers. The
Company's management is working to ensure that its Year 2000 issues are
addressed on a company-wide basis, which includes (1) internal information
technology (IT) systems such as any hardware and software used to process daily
operational data and information; (2) non-IT systems or embedded technology such
as micro-controllers contained in various equipment; and (3) Year 2000
compliance of key third parties, including suppliers, customers and third party
credit and trucking fleet billing card providers, especially those with which
the Company conducts business electronically.
24
<PAGE> 25
The Company is currently in the process of making its IT systems Year
2000 compliant. As a result of the Combination, management determined a new IT
system would be required to handle the combined operations of TA and National,
as neither TA's nor National's current IT systems have the capability of
handling the combined operations as effectively as desired. To this end, the
Company has begun implementing a new IT system that will replace substantially
all of the IT systems currently in use, some of which are not Year 2000
compliant. The new IT system is Year 2000 compliant, and management expects to
begin using the new system during the second quarter of 1999. This
implementation has not been accelerated due to Year 2000 issues. Only minor
modifications are necessary to current systems that will continue to be used,
such as the Access 76 fleet billing system and certain retail point of sale
systems, and management anticipates these modifications will be completed and
tested prior to December 31, 1999. The costs of these modifications are not
expected to be material to the Company's financial position or results of
operations.
The Company is currently in the process of surveying and testing its
significant non-IT systems, such as in fuel pumps, cash registers and truck
repair equipment, to determine whether such systems are Year 2000 compliant. As
a result of the significant capital improvements made at the Company's sites,
including under the Capital Program, over the past few years, substantially all
of the Company's mission critical non-IT systems recently have been upgraded or
are in the process of being upgraded and are believed to be Year 2000 compliant,
although the Company is still in the process of formally testing and evaluating
its non-IT systems. The Company expects to complete this process by March 31,
1999.
The Company's management believes that its efforts and plans to ensure
its internal IT and non-IT systems are Year 2000 compliant are adequate and,
therefore, the greatest risk to the Company's operations lies with third
parties. The Company is still in the early stages of contacting key third
parties and, accordingly, has not yet determined what its most reasonably likely
worst case scenario is with respect to Year 2000 issues. Consequently, the
Company has not yet prepared a contingency plan for dealing with that scenario.
The Company expects that it will complete its third party surveys and
assessments by March 31, 1999. When that process is complete, management will
complete an analysis of its most reasonably likely worst case scenario and a
contingency plan to deal with that scenario will be developed.
While management believes the Company is adequately addressing the Year
2000 issue and will not suffer a material adverse effect from such issues, there
is no guarantee that the estimated completion dates and costs will be achieved.
In addition, there is no guarantee that key third parties will be successful in
completing their Year 2000 efforts. If needed modifications are not made on a
timely basis, including to third parties' systems, and/or contingency plans are
not implemented, the Year 2000 issue could have a material adverse effect on the
Company's operations and, potentially, its financial condition.
FORWARD-LOOKING STATEMENTS
The Company is making this statement in order to satisfy the "safe
harbor" provision contained in the Private Securities Litigation Reform Act of
1995. 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. Such forward-looking statements are made based on
management's expectations and beliefs concerning future events impacting the
Company and are subject to uncertainties and factors relating to the Company's
operations and business environment, all of which are difficult to predict and
many of which are beyond the control of the Company, that could cause actual
results of the Company to differ materially from those matters expressed in or
implied by 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; the potential future impact of Year 2000 related issues; and
difficulties that may be encountered by the Company or its franchisees in
implementing the Combination Plan. The forward-looking statements should be
considered in light of these factors.
25
<PAGE> 26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time the Company is a party to litigation in the ordinary
course of its business involving, by way of example, matters such as breach of
contract, actions under PMPA or other franchise regulations, actions under
Environmental Laws, bankruptcy claims, condemnation matters, employment claims,
negligence and other similar claims. Certain of such claims are covered by the
Company's third party insurance policies or indemnification agreements with BP
or Unocal. While claims for damages in such litigation in certain instances may
not be covered by an insurance policy or an indemnification agreement or may 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. The
following describes the more significant pending matters in which the Company is
involved as of September 30, 1998.
Forty-Niner Truck Plaza Litigation. This action was commenced in
California Superior Court, Sacramento County, on January 28, 1993 by four
Operators of National Leased Sites in California. The complaint asserts claims
on behalf of each of the plaintiffs against the Company, Clipper and Unocal
based upon alleged violations by Unocal of the California Business and
Professions Code and of an alleged contract by failing to provide the plaintiffs
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 were 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,
Unocal 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.
On October 22, 1997, the California Court of Appeal filed a decision affirming
the trial court's orders granting a new trial and denying defendants' motions
for judgment notwithstanding the verdict. The Court of Appeal also reversed an
order of the trial court granting a nonsuit on plaintiffs' claim against the
Company and Clipper for civil conspiracy. The California Supreme Court has
denied review. On September 1, 1998, one of the two remaining plaintiffs entered
into a settlement agreement with Unocal and the Company, and dismissed its
claims in the case. In connection with the settlement, the Company also entered
into an agreement whereby the company acquired the assets and the operations of
the plaintiff's travel center. The case with the one remaining plaintiff had
been scheduled for retrial on October 5, 1998, which date has now been postponed
to February 16, 1999, and the discovery phase of the proceedings is ongoing.
Pursuant to the asset purchase and related agreements between the Company and
Unocal, the Company believes that Unocal is required to indemnify it for
attorneys' fees and compensatory damages. Unocal has contested certain of the
amounts comprising the Company's claim for indemnification. The indemnification
agreement between Unocal 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.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the third
quarter of 1998.
26
<PAGE> 27
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Exhibit
- ----------------- -------------------------------------------------------------
27 Financial Data Schedule
(b) Reports on Form 8-K
During the third quarter of 1998, the Company filed no reports on
Form 8-K.
27
<PAGE> 28
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: November 16, 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)
28
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 51,008
<SECURITIES> 0
<RECEIVABLES> 69,109
<ALLOWANCES> 3,295
<INVENTORY> 38,499
<CURRENT-ASSETS> 167,239
<PP&E> 305,286
<DEPRECIATION> 0
<TOTAL-ASSETS> 512,347
<CURRENT-LIABILITIES> 108,903
<BONDS> 292,794
67,767
38
<COMMON> 14
<OTHER-SE> 34,492
<TOTAL-LIABILITY-AND-EQUITY> 512,347
<SALES> 664,760
<TOTAL-REVENUES> 681,196
<CGS> 463,943
<TOTAL-COSTS> 463,943
<OTHER-EXPENSES> 204,534
<LOSS-PROVISION> 1,036
<INTEREST-EXPENSE> 18,263
<INCOME-PRETAX> (6,580)
<INCOME-TAX> (2,362)
<INCOME-CONTINUING> (4,218)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,218)
<EPS-PRIMARY> (17.46)
<EPS-DILUTED> (17.46)
</TABLE>
