<PAGE> 1
FORM 10-Q/A
AMENDMENT NO. 1 TO
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 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 June 30, 1997
Commission file number 333-26497
--------------------------------------------
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)
(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 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.
INDEX PAGE NO.
----- --------
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Introduction to the Consolidated 3
Financial Statements
Consolidated Balance Sheet 4
Consolidated Statement of Income
and Retained Earnings 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 21
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings 29
Item 6. Exhibits and Reports on Form 8-K 29
SIGNATURE
---------
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<PAGE> 4
Part I - Financial Information
- ------------------------------
Item 1. Financial Statements
TRAVELCENTERS OF AMERICA, INC.
INTRODUCTION TO THE CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------
The consolidated financial statements included herein have been prepared by
TravelCenters of America, Inc. (the "Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The Company
believes that the disclosures are adequate to make the information presented not
misleading when read in conjunction with the Company's consolidated financial
statements and notes included therein for the year ended December 31, 1996.
The financial information presented reflects all adjustments, consisting only of
normal recurring adjustments, which are, in the opinion of management, necessary
for a fair statement of the results for the interim periods presented. The
results for interim periods are not necessarily indicative of results to be
expected for the year.
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<TABLE>
<CAPTION>
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED BALANCE SHEET
--------------------------
JUNE 30,
1997 DECEMBER 31,
(UNAUDITED) 1996
--------------------------
(IN THOUSANDS OF DOLLARS)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 79,492 $ 23,779
Accounts receivable (less allowance for doubtful
accounts of $4,310 for 1997 and $3,502 for 1996) 56,614 54,371
Inventories 33,710 29,082
Deferred income taxes 3,877 3,877
Other current assets 6,537 10,530
----------- -----------
Total current assets 180,230 121,639
Notes receivable, net 1,312 1,835
Property and equipment, net 265,698 269,366
Intangible assets 19,338 19,657
Deferred financing costs 11,547 8,379
Other assets 5,549 5,013
----------- -----------
TOTAL ASSETS $ 483,674 $ 425,889
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Revolving loans $ --- $ 14,000
Current maturities of long-term debt 500 17,250
Accounts payable 41,698 37,201
Other accrued liabilities 29,199 29,422
----------- -----------
Total current liabilities 71,397 97,873
Commitments and contingencies (Note 6)
Long-term debt (net of unamortized discount) 289,875 193,185
Deferred income taxes 9,452 9,452
Other long-term liabilities 5,014 5,914
----------- -----------
TOTAL LIABILITIES 375,738 306,424
Mandatorily redeemable senior convertible
participating preferred stock 57,522 53,885
Other preferred stock, common stock and
other shareholders' equity 47,672 50,743
Retained earnings 2,742 14,837
----------- -----------
50,414 65,580
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 483,674 $ 425,889
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
------------------------------------------------------
UNAUDITED
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
REVENUES:
<S> <C> <C> <C> <C>
Fuel $ 180,265 $ 119,835 $ 374,416 $ 228,742
Nonfuel 76,384 15,298 137,626 26,850
Rent 8,228 10,370 17,948 21,320
------------ ------------ ------------ ------------
TOTAL REVENUES 264,877 145,503 529,990 276,912
Cost of revenues (excluding depreciation) 198,811 123,386 404,689 234,282
------------ ------------ ------------ ------------
GROSS PROFIT (EXCLUDING DEPRECIATION) 66,066 22,117 125,301 42,630
Operating expenses 41,460 7,002 75,544 12,636
Selling, general and administrative expenses 8,949 5,127 20,681 12,231
Refinancing, transition and development costs 5,473 91 7,091 116
Depreciation and amortization 7,352 3,521 14,296 6,735
(Gain) loss on sales of property and equipment 1,538 (14) 1,464 (41)
Income of subsidiary held for disposition --- (2,042) --- (2,185)
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 1,294 8,432 6,225 13,138
Interest (expense), net (5,862) (3,299) (10,967) (6,507)
------------ ------------ ------------ ------------
(LOSS) INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (4,568) 5,133 (4,742) 6,631
(Benefit) provision for income taxes (1,770) 2,021 (1,838) 2,603
------------ ------------ ------------ ------------
(Loss) income before extraordinary item (2,798) 3,112 (2,904) 4,028
Extraordinary item (less applicable
income tax benefit of $3,608) --- --- (5,554) ---
------------ ------------ ------------ ------------
NET (LOSS) INCOME (2,798) 3,112 (8,458) 4,028
Less: preferred dividends (1,818) (1,595) (3,637) (3,191)
Retained earnings - beginning of the period:
As previously reported 10,767 16,690 17,647 16,994
Adjustments (Note 7) (3,409) (1,467) (2,810) (1,091)
------------ ------------ ------------ ------------
As restated 7,358 15,223 14,837 15,903
------------ ------------ ------------ ------------
Retained earnings - end of the period $ 2,742 $ 16,740 $ 2,742 $ 16,740
============ ============ ============ ============
(Loss) income before extraordinary item per
common share and common share equivalent $ (4.29) $ 0.17 $ (5.67) $ 0.09
Extraordinary item --- --- (4.82) ---
------------ ------------ ------------ ------------
Net loss per common share and common
share equivalent (Note 2) $ (4.29) $ 0.17 $ (10.49) $ 0.09
============ ============ ============ ============
Weighted average number of shares and
common share equivalents (in thousands) 1,076 8,963 1,153 8,963
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
UNAUDITED
SIX MONTHS ENDED
JUNE 30,
1997 1996
------------ -----------
(IN THOUSANDS OF DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) income $ (8,458) $ 4,028
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Net income of subsidiary held for disposition --- 1,311
Extraordinary item 5,554 ---
Depreciation and amortization 14,295 6,732
Provision for doubtful accounts 808 573
Loss on sales of property and equipment 1,506 ---
Changes in assets and liabilities, adjusted for the effects of
acquisitions of network assets
Accounts receivable 5,383 (5,547)
Inventories (1,569) 35
Other current assets 1,344 (6,133)
Accounts payable 5,644 12,398
Other current liabilities 4,441 733
Other, net 86 ---
------------ -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,268 14,130
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of network assets (7,901) (2,750)
Proceeds from sales of property and equipment 2,886 ---
Capital expenditures (7,553) (6,194)
------------ -----------
NET CASH USED IN INVESTING ACTIVITIES (12,568) (8,944)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings 3,750 10,000
Revolving loan repayments (17,750) ---
Long-term debt borrowings 205,000 ---
Long-term debt repayments (126,425) (4,000)
Repurchase of common stock (2,205) (126)
Debt issuance costs (12,357) ---
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 50,013 5,874
------------ -----------
Net increase in cash 55,713 11,060
Cash at the beginning of the period 23,779 3,191
------------ -----------
Cash at the end of the period $ 79,492 $ 14,251
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
1. BASIS OF PRESENTATION
The Company is a holding company which, through its wholly-owned
subsidiaries, TA Operating Corporation ("TA") and National
Auto/Truckstops, Inc. ("National"), owns, operates and franchises more
travel centers in the United States than any of its competitors with
162 network sites nationwide, including 133 Company-owned locations. TA
currently operates a network (the "TA Network") of 48 travel centers in
27 states under the "TravelCenters of America" or "TA" brand name and
National currently operates a network (the "National Network") of 114
travel centers in 36 states under the licensed "Unocal 76" and related
brand names.
The Company was formed in December 1992 to facilitate the acquisition
by the Company of the National Network (the "National Acquisition") in
April 1993 from a subsidiary of Unocal Corporation ("Unocal"). In
December 1993, the Company acquired the TA Network (the "TA
Acquisition") from subsidiaries of the British Petroleum Company Plc
("BP"). 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 six months ended June 30, 1996, TA and National were separately
managed and financed and in the Company's consolidated financial
statements TA was presented as net assets of subsidiary held for
disposition and TA's results of operations were included in the
Company's consolidated financial statements as a single amount.
Effective September 30, 1996, the decision was made to retain TA, and,
subsequently, the Company chose to pursue the combination of the TA and
National networks (the "Combination Plan"). After September 30, 1996,
TA was no longer carried as net assets of subsidiary held for
disposition and TA's results of operations were consolidated with the
Company's.
2. RECAPITALIZATION AND RESTRUCTURING
On March 27, 1997, the Company was recapitalized and restructured
pursuant to a series of transactions in which (i) the Company's
subsidiaries were restructured such that the Company directly owns its
three subsidiaries, TA, TA Franchise Systems, Inc. ("TAFSI") and
National (the Company's former subsidiary, TA Holdings Corporation
("TAHC"), was liquidated as of such date), (ii) the Company's
indebtedness under the old National and TA debt agreements was
refinanced, and (iii) TA and National guaranteed the Company's
indebtedness under its new credit facilities.
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<PAGE> 9
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
Consequent to the early extinguishment of the Company's prior
indebtedness, the Company recognized extraordinary losses, net of
applicable income taxes, of $5,554,000 as a result of writing off the
then remaining unamortized balances of deferred financing costs and
debt discount related to those prior borrowings of approximately
$7,847,000 and $1,315,000, respectively. The approximately $12,357,000
of financing costs associated with the Company's new borrowings have
been capitalized and will be amortized over the lives of the related
new debt instruments.
As a result of the combination of the Company's two networks under the
existing TA management, most of National's corporate-level employees
have been or will be terminated. In January 1997, certain of National's
executive officers resigned and related severance costs of
approximately $774,000 were recognized. In May 1997 management
finalized its plans regarding employee terminations and, accordingly,
the related expense of approximately $1,833,000 was recognized. The
severance expense, which totalled approximately $2,607,000 for the six
month period ended June 30, 1997, is included in the income statement
within refinancing, transition and development costs. Pursuant to the
Company's plans, 111 employees have been or will be terminated. Through
June 30, 1997, approximately $647,000 of termination benefits had been
paid to the 28 employees actually terminated. At June 30, 1997, the
remaining accrual for termination benefits, which will be substantially
paid by year-end with the final payments made by March 1998, was
approximately $1,960,000.
3. 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.
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<PAGE> 10
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
4. INVENTORIES
Inventories consist of the following:
JUNE 30, DECEMBER 31,
1997 1996
---------- ----------
(IN THOUSANDS)
Nonfuel merchandise $ 31,082 $ 26,090
Petroleum products 2,628 2,992
---------- ----------
Total inventories $ 33,710 $ 29,082
========== ==========
5. SUPPLEMENTAL CASH FLOW INFORMATION
During the six months ended June 30, 1997, the Company extinguished
$85,500,000 of senior secured notes through the issuance of new senior
secured notes of an equal face amount. For the six months ended June
30, 1997 and 1996, the Company received $2,263,000 and $1,400,000,
respectively, of inventory and property and equipment in liquidation of
trade accounts receivable.
6. MATERIAL CONTINGENCIES
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to extensive
federal, state and local laws, regulations and ordinances relating to
environmental matters that (i) govern activities and operations that
may have adverse environmental effects, such as discharges to air, soil
and water, as well as handling, storage and disposal practices for
petroleum products and solid and hazardous substances or (ii) impose
liability and damages for the cost of remediating sites affected by,
and damage resulting from, past spills and disposal of other releases
of petroleum products and hazardous substances.
The Company owns and uses underground storage tanks (USTs) and
above-ground storage tanks (ASTs) at company-operated and operator
locations to store petroleum products and waste oils. These tanks must
comply with statutory and regulatory requirements regarding tank
construction, integrity testing, leak detection and monitoring,
overfilling and spill control, release reporting, financial assurance
and corrective action in case of a release from a UST or AST into the
environment. To meet minimum federal requirements, all existing USTs
owned by the Company must conform to certain construction requirements,
have installed tank leak detection systems, and have installed
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.
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<PAGE> 11
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
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 incurred capital expenditures,
maintenance, remediation and other environmental related costs of
approximately $1,439,000 and $3,185,000 for the six months ended June
30, 1997 and 1996, respectively.
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
at approximately 25 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 for such matters at June 30, 1997, of $975,000. While it is not
possible to quantify with certainty the environmental exposure, in the
opinion of management, the potential liability, beyond that considered
in the reserve, for all environmental proceedings, based on information
known to date, will not have a material adverse effect on the financial
condition, results of operations or liquidity of the Company.
PENDING LITIGATION
In connection with the acquisition of the Network, the Company acquired
six travel centers located in California that are currently members of
the Network. In January 1993, the operators of four of these travel
centers (the "California Plaintiffs") commenced litigation against
Unocal, The Clipper Group, L.P. ("Clipper") and the Company in
California state court seeking, among other things, specific
performance by Unocal of their alleged rights, either under the
California Business and Professions Code (the "California Statute") or,
in the alternative, pursuant to alleged statements made by Unocal, to
purchase their travel centers at a fair market price and seeking
compensatory and punitive damages against the Company and others for
both tortious interference with the California Plaintiffs' alleged
rights and civil conspiracy. The operator of a fifth California travel
center also asserted a purchase right, but never filed suit. This
property, together with the four properties operated by the California
Plaintiffs, are referred to herein as the "California Properties".
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<PAGE> 12
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,
(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 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.
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<PAGE> 13
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
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 June 30, 1997 total $5,023,000, of which Unocal has
paid $1,000,000 to the Company to date. Unocal has stated 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 1997, plaintiffs amended the
complaint to include an additional seven 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. Also in 1997, settlement agreements were
reached with four of the plaintiffs at an immaterial cost to the
Company and a fifth plaintiff withdrew its claims in the action. 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.
7. 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 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 six month period ended June 30, 1997, has also been restated
through an increase in the preferred dividends amount previously
reported as $2,440,000 to $3,637,000.
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TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
8. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES
The following schedules set forth the consolidating balance sheets as
of June 30, 1997 and December 31, 1996, the consolidating statements of
income and retained earnings for the three months ended June 30, 1997
and 1996 and for the six months ended June 30, 1997 and 1996, and
consolidating statements of cash flows for the six months ended June
30, 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. The Guarantor
Subsidiaries, TA and National, are wholly-owned subsidiaries of the
Company and have fully and unconditionally, jointly and severally,
guaranteed the Company's indebtedness. 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.
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TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
<TABLE>
<CAPTION>
BALANCE SHEET SCHEDULES:
JUNE 30, 1997
----------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------ -----------
(IN THOUSANDS OF DOLLARS)
Assets
Current assets:
<S> <C> <C> <C> <C> <C>
Cash $ 50,948 $ 28,544 $ --- $ --- $ 79,492
Accounts receivable, net --- 56,462 1,098 (948) 56,614
Inventories --- 33,710 --- --- 33,710
Deferred income taxes --- 3,877 --- --- 3,877
Other current assets --- 11,156 2 (4,621) 6,537
----------- ----------- ----------- ------------ -----------
Total current assets 50,948 133,749 1,100 (5,567) 180,230
Notes receivable, net --- 1,312 --- --- 1,312
Property and equipment, net --- 269,551 --- (3,853) 265,698
Intangible assets --- 19,338 --- --- 19,338
Deferred financing costs 11,547 --- --- --- 11,547
Other assets 2,500 5,549 --- (2,500) 5,549
Advances to subsidiaries 225,141 --- --- (225,141) ---
Investments in subsidiaries 115,935 --- --- (115,935) ---
----------- ----------- ----------- ------------ -----------
Total assets $ 406,071 $ 429,499 $ 1,100 ($ 352,996) $ 483,674
=========== =========== ============ ============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
<S> <C> <C> <C> <C> <C>
Current maturities of
long-term debt $ 500 $ --- $ --- $ --- $ 500
Accounts payable 1,684 42,591 --- (2,630) 41,698
Other accrued liabilities 3,956 28,084 149 (2,937) 29,199
----------- ----------- ----------- ------------ -----------
Total current liabilities 6,140 70,675 149 (5,567) 71,397
Long-term debt (net of
unamortized discount) 289,875 --- --- --- 289,875
Deferred income taxes --- 9,452 --- --- 9,452
Advance from parent --- 226,775 --- (226,775) ---
Other liabilities --- 5,014 --- --- 5,014
----------- ----------- ----------- ------------ -----------
Total liabilities 296,015 311,916 149 (232,342) 375,738
Mandatorily redeemable senior
convertible participating
preferred stock 57,522 --- --- --- 57,522
Other preferred stock, common stock
and other shareholders' equity 49,792 85,033 --- (87,153) 47,672
Retained earnings 2,742 32,550 951 (33,501) 2,742
----------- ----------- ----------- ------------ -----------
52,534 117,583 951 (120,654) 50,414
----------- ----------- ----------- ------------ -----------
Total liabilities and
shareholders' equity $ 406,071 $ 429,499 $ 1,100 ($ 352,996) $ 483,674
=========== =========== =========== ============= ===========
</TABLE>
- 15 -
<PAGE> 16
<TABLE>
<CAPTION>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
DECEMBER 31, 1996
----------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------ -----------
(IN THOUSANDS OF DOLLARS)
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C>
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:
<S> <C> <C> <C> <C> <C>
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 --- --- --- 55,885
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
----------- ----------- ----------- ------------ -----------
66,834 121,469 948 (123,671) 65,580
----------- ----------- ----------- ------------ -----------
Total liabilities and
shareholders' equity $ 122,817 $ 431,706 $ 1,053 ($ 129,687) $ 425,889
=========== =========== =========== ============= ===========
</TABLE>
- 16 -
<PAGE> 17
<TABLE>
<CAPTION>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
STATEMENT OF INCOME AND RETAINED EARNINGS SCHEDULES:
THREE MONTHS ENDED JUNE 30, 1997
----------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- -------------- -------------
(IN THOUSANDS OF DOLLARS)
Revenues:
<S> <C> <C> <C> <C> <C>
Fuel $ --- $ 180,265 $ --- $ --- $ 180,265
Nonfuel --- 76,037 347 --- 76,384
Rent --- 8,228 --- --- 8,228
----------- ----------- ----------- ------------ -----------
Total revenues --- 264,530 347 --- 264,877
Cost of revenues
(excluding depreciation) --- 198,811 --- --- 198,811
----------- ----------- ----------- ------------ -----------
Gross profit
(excluding depreciation) --- 65,719 347 --- 66,066
Operating expenses --- 41,460 --- --- 41,460
Selling, general and administrative
expenses 62 8,460 427 --- 8,949
Refinancing, transition and
development costs --- 5,473 --- --- 5,473
Depreciation and amortization 809 6,543 --- --- 7,352
(Gain) loss on sales of property
and equipment --- 1,538 --- --- 1,538
----------- ----------- ----------- ------------ -----------
Income from operations (871) 2,245 (80) --- 1,294
Interest income (expense), net (6,156) 294 --- --- (5,862)
Equity income (loss) 1,490 --- --- (1,490) ---
----------- ----------- ----------- ------------ -----------
(Loss) income before income
taxes (5,537) 2,539 (80) (1,490) (4,568)
(Benefit) provision for income taxes (2,739) 997 (28) --- (1,770)
----------- ----------- ----------- ------------ -----------
Net (loss) income (2,798) 1,542 (52) (1,490) (2,798)
Less: preferred dividends (1,818) --- --- --- (1,818)
Retained earnings -
beginning of period 7,358 31,008 1,003 ( 32,011) 7,358
----------- ----------- ----------- ------------ -----------
Retained earnings -
end of the period $ 2,742 $ 32,550 $ 951 ($ 33,501) $ 2,742
=========== =========== =========== ============= ===========
</TABLE>
- 17 -
<PAGE> 18
<TABLE>
<CAPTION>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
THREE MONTHS ENDED JUNE 30, 1996
----------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------ -----------
(IN THOUSANDS OF DOLLARS)
Revenues:
<S> <C> <C> <C> <C> <C>
Fuel $ --- $ 189,579 $ --- ($ 69,744) $ 119,835
Nonfuel --- 61,598 328 (46,628) 15,298
Rent --- 10,370 --- --- 10,370
----------- ----------- ----------- ------------ -----------
Total revenues --- 261,547 328 (116,372) 145,503
Cost of revenues
(excluding depreciation) --- 204,325 --- (80,939) 123,386
----------- ----------- ----------- ------------ -----------
Gross profit
(excluding depreciation) --- 57,222 328 (35,433) 22,117
Operating expenses --- 31,381 --- (24,379) 7,002
Selling, general and administrative
expenses 113 8,943 248 (4,177) 5,127
Refinancing, transition and
development costs --- 91 --- --- 91
Depreciation and amortization --- 6,481 --- (2,960) 3,521
(Gain) loss on sales of property
and equipment --- (14) --- --- (14)
Income from subsidiary held for
disposition --- --- --- (2,042) (2,042)
----------- ----------- ----------- ------------ -----------
Income (loss) from operations (113) 10,340 80 (1,875) 8,432
Interest (expense), net --- (5,174) --- 1,875 ( 3,299)
Equity income (loss) 3,181 --- --- (3,181) ---
----------- ----------- ----------- ------------ -----------
(Loss) income before
income taxes 3,068 5,166 80 (3,181) 5,133
(Benefit) provision for income taxes (44) 2,037 28 --- 2,021
----------- ----------- ----------- ------------ -----------
Net (loss) income 3,112 3,129 52 (3,181) 3,112
Less: preferred dividends (1,596) --- --- --- (1,596)
Retained earnings -
beginning of the period 15,223 31,489 759 (32,248) 15,223
----------- ----------- ----------- ------------ -----------
Retained earnings -
end of the period $ 16,739 $ 34,618 $ 811 ($ 35,429) $ 16,739
=========== =========== =========== ============ ===========
</TABLE>
- 18 -
<PAGE> 19
<TABLE>
<CAPTION>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1997
----------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------ -----------
(IN THOUSANDS OF DOLLARS)
Revenues:
<S> <C> <C> <C> <C> <C>
Fuel $ --- $ 374,416 $ --- $ --- $ 374,416
Nonfuel --- 136,932 694 --- 137,626
Rent --- 17,948 --- --- 17,948
----------- ----------- ----------- ------------ -----------
Total revenues --- 529,296 694 --- 529,990
Cost of revenues
(excluding depreciation) --- 404,689 --- --- 404,689
----------- ----------- ----------- ------------ -----------
Gross profit
(excluding depreciation) --- 124,607 694 --- 125,301
Operating expenses --- 75,544 --- --- 75,544
Selling, general and administrative
expenses 255 19,726 700 --- 20,681
Refinancing, transition and
development costs --- 7,091 --- --- 7,091
Depreciation and amortization 809 13,487 --- --- 14,296
(Gain) loss on sales of property
and equipment --- 1,464 --- --- 1,464
----------- ----------- ----------- ------------ -----------
Income from operations (1,064) 7,295 (6) --- 6,225
Interest (expense), net (6,434) (4,533) --- --- ( 10,967)
Equity income (loss) (3,883) --- --- 3,883 ---
----------- ----------- ----------- ------------ -----------
(Loss) income before income
taxes and extraordinary items (11,381) 2,762 (6) 3,883 (4,742)
(Benefit) provision for income taxes (2,923) 1,094 (9) --- (1,838)
----------- ----------- ----------- ------------ -----------
(Loss) income before
extraordinary items (8,458) 1,668 3 3,883 (2,904)
Extraordinary items
(Less applicable income
tax benefit of $3,608) --- (5,554) --- --- (5,554)
----------- ----------- ----------- ------------ -----------
Net (loss) income (8,458) (3,886) 3 3,883 (8,458)
Less: preferred dividends (3,637) --- --- --- (3,637)
Retained earnings -
beginning of the period 14,837 36,436 948 (37,384) 14,837
----------- ----------- ----------- ------------ -----------
Retained earnings -
end of the period $ 2,742 $ 32,550 $ 951 ($ 33,501) $ 2,742
=========== =========== =========== ============ ===========
</TABLE>
- 19 -
<PAGE> 20
<TABLE>
<CAPTION>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1996
----------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------ -----------
(IN THOUSANDS OF DOLLARS)
Revenues:
<S> <C> <C> <C> <C> <C>
Fuel $ --- $ 357,429 $ --- ($ 128,687) $ 228,742
Nonfuel --- 115,049 661 (88,860) 26,850
Rent --- 21,320 --- --- 21,320
----------- ----------- ----------- ------------ -----------
Total revenues --- 493,798 661 (217,547) 276,912
Cost of revenues
(excluding depreciation) --- 383,540 --- (149,258) 234,282
----------- ----------- ----------- ------------ -----------
Gross profit
(excluding depreciation) --- 110,258 661 (68,289) 42,630
Operating expenses --- 60,930 --- (48,294) 12,636
Selling, general and administrative
expenses 143 19,733 496 (8,141) 12,231
Refinancing, transition and
development costs --- 116 --- --- 116
Depreciation and amortization --- 12,642 --- (5,907) 6,735
(Gain) loss on sales of property
and equipment --- (41) --- --- (41)
Income from subsidiary held for
disposition --- --- --- (2,185) (2,185)
----------- ----------- ----------- ------------ -----------
Income from operations (143) 16,878 165 (3,762) 13,138
Interest (expense), net --- (10,269) --- 3,762 (6,507)
Equity income (loss) 4,115 --- --- (4,115) ---
----------- ----------- ----------- ------------ -----------
(Loss) income before
income taxes 3,972 6,609 165 (4,115) 6,631
(Benefit) provision for income taxes (56) 2,601 58 --- 2,603
----------- ----------- ----------- ------------ -----------
Net (loss) income 4,028 4,008 107 (4,115) 4,028
Less: preferred dividends (3,191) --- --- --- (3,191)
Retained earnings -
beginning of the period 15,903 30,610 704 (31,314) 15,903
----------- ----------- ----------- ------------ -----------
Retained earnings -
end of the period $ 16,740 $ 34,618 $ 811 ($ 35,429) $ 16,740
=========== =========== =========== ============ ===========
</TABLE>
- 20 -
<PAGE> 21
<TABLE>
<CAPTION>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
STATEMENT OF CASH FLOWS SCHEDULES:
SIX MONTHS ENDED JUNE 30, 1997
----------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------ -----------
(IN THOUSANDS OF DOLLARS)
CASH FLOWS FROM
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES: $ (590) $ 18,858 $ --- $ --- $ 18,268
----------- ----------- ----------- ------------ -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisitions of network assets --- (7,901) --- --- (7,901)
Proceeds from sales of property
and equipment --- 2,886 --- --- 2,886
Capital expenditures --- (7,553) --- --- (7,553)
----------- ----------- ----------- ------------ -----------
Net cash used in investing
activities --- (12,568) --- --- (12,568)
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 --- (126,425) --- --- (126,425)
Advance from parent (138,775) 138,775 --- --- ---
Debt issuance costs (12,357) --- --- --- (12,357)
Repurchase of common stock (2,205) --- --- --- (2,205)
----------- ----------- ----------- ------------ -----------
Net cash (used in) provided
by financing activities 51,538 (1,525) --- --- 50,013
----------- ----------- ----------- ------------ -----------
Net increase in cash 50,948 4,765 --- --- 55,713
Cash at beginning of the period --- 23,779 --- --- 23,779
----------- ----------- ----------- ------------ -----------
Cash at the end of the period $ 50,948 $ 28,544 $ --- $ --- $ 79,492
=========== =========== =========== ============ ===========
</TABLE>
- 21 -
<PAGE> 22
<TABLE>
<CAPTION>
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1996
----------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------ -----------
(IN THOUSANDS OF DOLLARS)
CASH FLOWS FROM
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES: $ 126 $ 23,407 $ --- ($ 9,403) $ 14,130
----------- ----------- ----------- ------------ -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisitions of network assets --- (2,750) --- --- (2,750)
Capital expenditures --- (9,729) --- 3,535 (6,194)
----------- ----------- ----------- ------------ -----------
Net cash used in investing
activities --- (12,479) --- 3,535 (8,944)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings --- 10,000 --- --- 10,000
Long-term debt repayments --- (6,500) --- 2,500 (4,000)
Repurchase of common stock (126) --- --- --- (126)
----------- ----------- ----------- ------------ -----------
Net cash (used in) provided
by financing activities (126) 3,500 --- 2,500 5,874
----------- ----------- ----------- ------------ -----------
Net increase in cash --- 14,428 --- (3,368) 11,060
Cash at the beginning of the period --- 15,617 --- (12,426) 3,191
----------- ----------- ----------- ------------ -----------
Cash at the end of the period $ --- $ 30,045 $ --- ($ 15,794) $ 14,251
=========== =========== =========== ============ ===========
</TABLE>
- 22 -
<PAGE> 23
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the audited
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 July 23, 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 162 network sites
nationwide, including 133 Company-owned locations. TA currently operates a
network of 48 travel centers in 27 states under the "Truckstops of America" or
"TA" brand name and National currently operates a network of 114 travel centers
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, 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. 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 six months
ended June 30, 1996, TA and National were separately managed and financed and in
the Company's consolidated financial statements TA was presented as net assets
of subsidiary held for disposition and TA's results of operations were included
in the Company's consolidated financial statements as a single amount. Effective
September 30, 1996, the decision was made to retain TA, and, subsequently, the
Company chose to pursue the combination of the TA and National networks. After
September 30, 1996, TA was no longer carried as net assets of subsidiary held
for disposition and TA's results of operations were consolidated with the
Company's.
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
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 and six month periods ended June 30, 1997, the Company has
incurred approximately $4.7 million and $6.4 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
- 23 -
<PAGE> 24
approximately $11 million, of which approximately $8 million to $9 million is
expected to be incurred in 1997, with the remainder to be incurred in 1998.
These expenses relate, among other things, to employee separations, costs to
convert National Network travel centers to TA Network travel centers, costs to
dispose of travel centers or terminate lease or franchise agreements, and the
costs of integrating the management and operations of the two networks into a
single 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 or will be 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 in the three month period ended June 30, 1997.
Pursuant to the Company's plans, 111 employees are to be terminated, 28 of which
had been severed through June 30, 1997. Through June 30, 1997, approximately
$0.6 million of termination benefits had been paid to such terminated employees.
The remaining accrual for termination benefits of approximately $2.0 million at
June 30, 1997 will be substantially paid by year-end with the final payments
scheduled by March of 1998.
NETWORK RATIONALIZATION
During the second quarter of 1997, the Company continued to refine and execute
its plans for improving the profitability of its combined network (the
"Network") through rebranding of its sites under the TA brand name and
rationalizing the number and locations of its travel centers. In the six months
ended June 30, 1997, two Company-owned National travel centers were sold to the
operators of those sites for gross proceeds of $3.3 million, resulting in a loss
on sale of $1.5 million. An additional 21 such sales are expected to close by
the second quarter of 1998, providing expected sales proceeds of an additional
approximately $56 million. The Company expects that it will recognize a gain
from these sales. During the second quarter of 1997, relationships with the
owner/operators of four franchised travel centers ("Franchisee-Owner Sites")
were terminated and agreements have been reached with, or appropriate notices
provided to, owner/operators of an additional 17 such sites, such that the
Company expects that all such Franchisee-Owner Sites not selected to continue in
the network will be terminated by the end of 1997. Beginning in July 1997, those
National Network franchisees whose sites have been selected for inclusion in the
Company's continuing network will begin to convert their franchises to TA from
National, a process that includes rebranding of the travel centers, installation
of TA's store and shop programs, training of the franchisees in TA's operating
procedures and revisions to the franchise agreements and, where applicable,
lease agreements, such that there will be 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 increased franchise
nonfuel revenues will result in a net increase in the Company's revenue.
- 24 -
<PAGE> 25
SITE CONVERSIONS
During the three months ended June 30, 1997, the Company converted eight
National Network travel centers from Company-owned and leased locations
("Leased Sites") to Company-owned and operated locations by acquiring the
travel center operations from the related operators, bringing the total of such
conversions during 1997 to 17. One additional such conversion was completed in
early July 1997 and the Company is currently in discussions with operators
regarding the possible conversion of additional Leased Sites to Company-operated
sites. A total of 20 travel centers have been converted to Company-operated
sites since June 30, 1996. Such conversions typically result in decreased rent
revenue and increased operating expenses, offset to varying degrees for each
individual site by increased fuel and nonfuel revenues.
Management expects that, over time, the increased revenues will exceed the
decreases in rent revenue and increases in operating expenses, especially as
National sites are converted to TA travel centers and TA management, marketing,
operations, safety and training programs are fully implemented. In June 1997, 14
of the National Company-operated travel centers were converted to TA
Company-operated sites, with the remaining 21 National Company-operated
locations converting in July 1997. During the first few months of operation
after both the conversion from a leased site and the conversion to a TA branded
site (with respect to all former National travel centers), the operating results
of each converted travel center are adversely affected by the costs (such as for
maintenance and supplies) of bringing the travel centers into compliance with
TA's standards. In addition, the Company has chosen to increase the number of
employees at the converted sites in order to improve customer service and, as a
consequence, employees were hired in anticipation of expected revenue increases.
For these reasons, the Company anticipates that the operating results of these
converted travel centers will improve in the second half of 1997.
The following table sets forth the number and type of ownership and management
of the travel centers operating in each of the Company's networks.
TA NATIONAL
AS OF JUNE 30, AS OF JUNE 30,
-------------- --------------
1997 1996 1997 1996
Company-owned and operated sites 40 39 35 16
Company-owned and leased sites --- --- 58 79
----- ----- ----- -----
Company-owned sites 40 39 93 95
Franchisee-owner sites 8 8 21 30
----- ----- ----- -----
Total 48 47 114 125
===== ===== ===== =====
At the conclusion of the Combination Plan, assuming the Combination Plan is
completed as expected by management, the Network will consist of 123 travel
centers, 69 of which will be Company-owned and operated, 42 of which will be
Leased Sites and 12 of which will be Franchisee-Owner Sites, although the
achievement of the Combination Plan as currently envisioned is not ensured.
- 25 -
<PAGE> 26
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations presents detail on the Company's combined results, which
differ from the Company's consolidated results reflected in the unaudited
financial statement for the three and six month periods ended June 30, 1996, as
a result of the presentation of TA as assets of subsidiary held for disposition
during those periods. The following table presents the Company's consolidated
results of operations for the 1996 periods as though TA had not been held for
disposition and had instead been fully consolidated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
(IN THOUSANDS OF DOLLARS)
REVENUES:
<S> <C> <C> <C> <C>
Fuel $ 180,265 $ 189,579 $ 374,416 $ 357,429
Nonfuel 76,384 61,926 137,626 115,710
Rent 8,228 10,370 17,948 21,320
----------- ----------- ----------- -----------
TOTAL REVENUES 264,877 261,875 529,990 494,459
Cost of revenues (excluding depreciation) 198,811 204,325 404,689 383,540
----------- ----------- ----------- -----------
GROSS PROFIT (EXCLUDING DEPRECIATION) 66,066 57,550 125,301 110,919
Operating expenses 41,460 31,381 75,544 60,930
Selling, general and administrative expenses 8,949 9,304 20,681 20,372
Refinancing, transition and development costs 5,473 91 7,091 116
Depreciation and amortization 7,352 6,481 14,296 12,642
(Gain) loss on sales of property and equipment 1,538 (14) 1,464 (41)
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 1,294 10,307 6,225 16,900
Interest (expense), net (5,862) (5,174) (10,967) (10,269)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS (4,568) 5,133 (4,742) 6,631
Provision (benefit) for income taxes (1,770) 2,021 (1,838) 2,603
----------- ----------- ----------- -----------
Income (loss) before extraordinary items (2,798) 3,112 (2,904) 4,028
Extraordinary items (net of taxes) --- --- (5,554) ---
----------- ----------- ----------- -----------
Net (loss) income $ (2,798) $ 3,112 $ (8,458) $ 4,028
=========== =========== =========== ===========
</TABLE>
- 26 -
<PAGE> 27
RESULTS OF OPERATIONS FOR THE SIX AND THREE MONTH PERIODS ENDED JUNE 30, 1997
AND 1996
REVENUES
The Company's consolidated revenues for the three and six month periods
ended June 30, 1997 were $264.9 million and $530.0 million, respectively, which
represent increases over the prior year periods of $3.0 million, or 1.1%, for
the three month period and $35.5 million, or 7.2%, for the six month period.
Fuel revenue for the six months ended June 30, 1997 reflects an increase
over the 1996 period of $17.0 million, or 4.8%. For the second quarter, the 1997
amount reflects a decrease from the same period in 1996 of $9.3 million, or
4.9%. The increase in fuel revenue for the six month period primarily results
from an increase in diesel gallons sold of 20.8 million gallons, or 4.3%, and an
increase in average retail diesel prices of 4.6%. For the second quarter, the
decrease from 1996 is primarily attributable to a 5.7% decrease in average
retail diesel fuel prices, somewhat offset by increased sales volume of 12.3
million gallons, or 5.1%.
Nonfuel revenue in both 1997 periods has increased over the same periods in
the prior year, primarily due to the increased number of Company-operated sites
offering nonfuel products and services: from June 30, 1996 there are 20
additional converted National sites and one new TA site as well as two
additional stand-alone shops.
Rent revenue for both 1997 periods has decreased from the same periods in
1996 as a direct result of the conversions of leased sites to Company-operated
sites. Rent revenue is expected to continue to decline as additional sites are
converted to Company-operations or sold and as current franchisee-lessees sign
new franchise and lease agreements with the Company. The new franchise and lease
agreements provide for reduced fixed rents but increased franchise royalty rates
to be applied to nonfuel revenues generated by franchisee operations.
GROSS PROFIT
The Company's gross profit for the second quarter of 1997 was $66.1
million, compared to $57.6 million for 1996, an increase of $8.5 million, or
14.8%. For the first half of 1997, the Company's gross profit was $125.2
million, an increase of $14.4 million, or 12.9%, from 1996. The increase in the
Company's gross profit was primarily due to increases in nonfuel revenues and
diesel fuel margins, partially offset by decreased rent revenue, resulting from
the conversions of travel centers from Leased Sites to Company-operated sites.
- 27 -
<PAGE> 28
OPERATING AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating expenses include the direct expenses of Company-operated travel
centers and selling, general and administrative expenses ("SG&A") include
corporate overhead and administrative costs.
The Company's operating expenses increased by $10.1 million, or 32.2%, and
$14.6 million, or 24.0%, respectively, to $41.5 million and $75.5 million for
the three and six month periods ended June 30, 1997, as compared to the
corresponding prior year periods. These increases reflect the increased number
of Company-operated locations during 1997 as a result of the addition of three
new-build TA sites (including the two stand-alone shops) and the conversion of
20 Leased Sites to Company-operated sites since June 30, 1996.
The Company's SG&A for the second quarter decreased from $9.3 million in
1996 to $8.9 million in 1997, primarily as a result of personnel reduction at
National pursuant to the Combination Plan, partially offset by increased
staffing in the operational support and business development areas at TA. For
the six month period, SG&A increased by $0.3 million to $20.7 million primarily
due to the TA staffing increases previously described.
REFINANCING, TRANSITION AND DEVELOPMENT COSTS
Refinancing, transition and development costs for the second quarter of
1997 increased from $0.1 million for 1996 to $5.5 million, while for the first
half of 1997 such costs increased to $7.1 million from $0.1 million in 1996. The
1997 costs were incurred in effecting the combination of National and TA,
including recognition of employee termination benefits of $2.6 million.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the second quarter and first half of 1997
increased by $0.9 million and $1.7 million, respectively, from the corresponding
1996 periods as a result of the capital expenditures made during 1996 and 1997,
as well as from increased amortization of deferred financing costs stemming from
the refinancing.
INCOME FROM OPERATIONS
Income from operations for the Company for the second quarter of 1997 was
$1.3 million as compared to $10.3 million in 1996, a decrease of $9.0 million.
For the six months ended June 30, 1997, income from operations reflects a
decrease from 1996 of $10.7 million to $6.2 million. The decreases in both
periods are primarily attributable to the transition costs being incurred to
effect the Combination Plan. EBITDA (defined as income from operations plus the
sum of (a) depreciation and amortization, (b) refinancing, transition and
development costs and (c) gains or losses from sales of property and equipment)
for the Company for the three and six month periods ended June 30, 1997 was
$15.7 million and $29.1 million, respectively, as compared to $16.9 million and
$29.6 million for the respective 1996 periods.
- 28 -
<PAGE> 29
INTEREST (INCOME) EXPENSE - NET
Interest expense for the second quarter and first half of 1997 was in both cases
$0.7 million higher than for the same 1996 periods as a result of the increased
debt balance after consummation of the refinancing (discussed in Liquidity and
Capital Resources below) on March 27, 1997.
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 $18.3 million in the
first half of 1997 and $23.5 million in 1996. The decrease in net cash flows
provided by operating activities in 1997 compared to 1996 was primarily due to
decreased operating income in 1997, as discussed previously, and growth in
working capital requirements as a result of the increased number of
Company-operated sites.
Net cash used in investing activities for the six months ended June 30,
1997 was $12.6 million versus $12.5 million in 1996. The amount for 1997, while
relatively flat versus the 1996 amount, reflects increased expenditures related
to conversions of Leased Sites to Company-operated sites, partially offset by
increased proceeds from sales of property and equipment resulting from the sales
of two Leased Sites to the respective operators.
Net cash flows provided by financing activities were $50.0 million in the
first six months of 1997 and $3.4 million for the first six months of 1996. The
change in the amount of cash flows provided by financing activities in 1997 from
1996 was due to the Company's refinancing and recapitalization completed in
March 1997.
On March 27, 1997, the Company was refinanced and currently has outstanding
$290.4 million of indebtedness, consisting of $125.0 million principal amount of
Subordinated Notes, $85.5 million principal amount of Senior Notes and a $79.9
million term credit facility. 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 June 30, 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.
The Company expects to invest up to approximately $200 million in the
Network between 1997 and the end of 2001 (with 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 travel centers.
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, add additional
nonfuel offerings (such as fast food offerings) at existing sites, to make
required environmental improvements, convert certain Leased Sites to
Company-operated sites and purchase, install and upgrade information systems at
certain sites.
- 29 -
<PAGE> 30
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 operates USTs and ASTs 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 expects
to spend a total of approximately $6 million in 1997 and 1998 for certain
one-time projects relating to control of wastewater and storm water discharges
and other matters. 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 million as of June 30, 1997. 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.
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.
FORWARD-LOOKING STATEMENTS
The statements contained in this report that are not statements of
historical fact may include forwardlooking 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.
Part II--Other Information
- --------------------------
- 30 -
<PAGE> 31
Item 1. Legal Proceedings
The information included in the Company's Prospectus, dated July 23,
1997, under the caption "Business--Litigation" is incorporated herein by
reference. This portion of the Prospectus is included as Exhibit 99.1 to this
Report. No material developments have since occurred in respect of the matters
described therein.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
Exhibit 27 Financial Data Schedule
Exhibit 99.1 Section captioned "Business--Litigation" from the
Company's Prospectus, dated July 23, 1997
(b) Reports on Form 8-K
-------------------
During the three months ended June 30, 1997, the Company filed no
reports on Form 8-K.
- 31 -
<PAGE> 32
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.
TRAVEL CENTERS 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)
- 32 -
<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 JUNE 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 79,492
<SECURITIES> 0
<RECEIVABLES> 60,924
<ALLOWANCES> 4,310
<INVENTORY> 33,710
<CURRENT-ASSETS> 180,230
<PP&E> 265,698
<DEPRECIATION> 0
<TOTAL-ASSETS> 483,674
<CURRENT-LIABILITIES> 71,397
<BONDS> 289,875
57,522
38
<COMMON> 14
<OTHER-SE> 50,362
<TOTAL-LIABILITY-AND-EQUITY> 483,674
<SALES> 512,042
<TOTAL-REVENUES> 529,990
<CGS> 404,689
<TOTAL-COSTS> 404,689
<OTHER-EXPENSES> 119,076
<LOSS-PROVISION> 606
<INTEREST-EXPENSE> 10,967
<INCOME-PRETAX> (4,742)
<INCOME-TAX> (1,838)
<INCOME-CONTINUING> (2,904)
<DISCONTINUED> 0
<EXTRAORDINARY> (5,554)
<CHANGES> 0
<NET-INCOME> (8,458)
<EPS-PRIMARY> (10.49)
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
Litigation Exhibit 99.1
- ---------- ------------
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 Operators of
National TravelCenters in California. The complaint asserts claims on behalf of
each of the plaintiffs against the Company, Clipper and Unocal Corporation and
its subsidiaries 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.
Charleston West Virginia Litigation. This action was commenced on April 17,
1996 in the Circuit Court of Berkeley County, West Virginia. The amended
complaint, brought on behalf of eighteen National Operators, alleges that the
Company's fuel pricing policies and practices violate the PMPA and the Uniform
Commercial Code and constitute a breach of the contractual duty of good faith
and fair dealing and unjust enrichment. The amended complaint also asserts
claims of fraud and fraud in the inducement, apparently based on alleged
representations made by the Company concerning fuel pricing. The amended
complaint asserts claims against the Company, Clipper and certain present and
former directors and officers of the Company, and seeks actual and punitive
damages in an unspecified
<PAGE> 2
sum. The Company has removed the case to federal court, and the court has
granted the Company's motion to transfer the case to federal court in Nashville,
Tennessee. The Company has entered into settlement agreements with four of the
plaintiffs pursuant to which the claims of those plaintiffs have been or will be
dismissed with prejudice. One additional plaintiff has withdrawn its claims in
the action without prejudice.
On March 31, April 1 and April 7, 1997, three of the plaintiffs filed
motions for a preliminary injunction. The motions sought 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. On May 21, 1997, the court denied the
plaintiffs' motions.
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 travel center 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.
