<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
Commission file number 333-26497
TRAVELCENTERS OF AMERICA, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 36-3856519
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
</TABLE>
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.
X_____ Yes _____ No
<PAGE> 2
TRAVELCENTERS OF AMERICA, INC.
This Quarterly Report on Form 10-Q contains historical information and
forward-looking statements. Statements looking forward in time are included in
this Form 10-Q pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. They involve known and unknown risks
and uncertainties that may cause the Company's actual results to differ from
future performance suggested herein. In the context of forward-looking
information provided in this Form 10-Q and in other reports, please refer to
the discussion of risk factors detailed in, as well as the other information
contained in, the Company's filings with the Securities and Exchange
Commission.
<TABLE>
<CAPTION>
INDEX PAGE NO.
----- --------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheet as of March 31, 1999 and
December 31, 1998 3
Consolidated Statement of Income and Retained Earnings
(Deficit) for the three months ended March 31, 1999 and
1998 4
Consolidated Statement of Cash Flows for the three months
ended March 31, 1999 and 1998 5
Selected Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURE 23
</TABLE>
2
<PAGE> 3
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED)
------------- ------------
<S> <C> <C>
ASSETS (IN THOUSANDS OF DOLLARS)
Current assets:
Cash (Note 5).......................................................... $ 69,454 $ 89,200
Accounts receivable (less allowance for doubtful accounts of $3,914
for 1999 and $3,907 for 1998).......................................... 71,664 61,012
Inventories............................................................ 45,779 42,952
Deferred income taxes.................................................. 4,459 4,459
Other current assets................................................... 17,227 12,619
------------ ------------
Total current assets................................................... 208,583 210,242
Notes receivable, net.................................................. 1,192 1,239
Property and equipment, net............................................ 371,823 361,803
Intangible assets...................................................... 20,161 21,141
Deferred financing costs............................................... 8,950 9,284
Deferred income taxes.................................................. 3,545 2,924
Other assets........................................................... 2,947 3,428
------------ ------------
Total assets......................................................... $617,201 $610,061
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt................................... $ 1,594 $ 1,594
Accounts payable....................................................... 29,293 20,915
Other accrued liabilities.............................................. 88,387 88,165
------------ ------------
Total current liabilities.............................................. 119,274 110,674
Commitments and contingencies (Note 6)
Long-term debt......................................................... 390,493 390,865
Deferred income taxes.................................................. 714 937
Other long-term liabilities............................................ 9,974 9,162
------------ ------------
520,455 511,638
Mandatorily redeemable senior convertible participating preferred stock 72,336 69,974
Other preferred stock, common stock and other stockholders' equity..... 43,547 43,547
Retained (deficit)..................................................... (19,137) (15,098)
------------ ------------
24,410 28,449
------------ ------------
Total liabilities and stockholders' equity............................. $617,201 $610,061
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 4
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1999 1998
------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Revenues:
Fuel......................................... $163,458 $132,630
Nonfuel...................................... 99,705 75,060
Rent and royalties........................... 5,065 5,634
------------ ------------
Total revenues............................... 268,228 213,324
Cost of revenues (excluding depreciation).... 181,677 147,150
------------ ------------
Gross profit (excluding depreciation)........ 86,551 66,174
Operating expenses........................... 58,735 44,745
Selling, general and administrative expenses. 9,286 8,954
Transition expenses.......................... 455 992
Depreciation and amortization expense........ 11,209 16,544
Loss on sales of property and equipment...... 50 31
Stock compensation expense................... 900 875
Other operating (income) expense, net........ - (195)
------------ ------------
Income (loss) from operations................ 5,916 (5,772)
Interest expense, net........................ (8,367) (5,990)
------------ ------------
Loss before income taxes..................... (2,451) (11,762)
Benefit for income taxes..................... (774) (4,479)
------------ ------------
Net (loss)................................... (1,677) (7,283)
Less: preferred dividends.................... (2,362) (2,072)
Retained earnings - beginning of the period.. (15,098) 1,554
------------ ------------
Retained (deficit) - end of the period....... $(19,137) $ (7,801)
======== ========
Earnings per common share (basic and diluted) $ (6.73) $ (14.97)
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 5
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1999 1998
------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)........................................ $ (1,677) $ (7,283)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization expense............. 11,209 16,544
Deferred income tax provision..................... (844) (4,546)
Provision for doubtful accounts................... 330 276
Provision for stock compensation.................. 900 875
Loss on sales of property and equipment........... 50 31
Changes in assets and liabilities:
Accounts receivable............................... (10,982) 12,553
Inventories....................................... (2,827) (624)
Other current assets.............................. (4,646) (484)
Accounts payable.................................. 8,378 (3,811)
Other current liabilities......................... 222 875
Other, net........................................ 390 (1,028)
------------ ------------
Net cash provided by operating activities......... 503 13,378
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (19,915) (13,535)
------------ ------------
Net cash used in investing activities............. (19,915) (13,535)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt repayments......................... (372) (125)
Issuance of common stock.......................... 38 -
Repurchase of common stock........................ - (125)
------------ ------------
Net cash used in financing activities............. (334) (250)
------------ ------------
Net (decrease) in cash............................ (19,746) (407)
Cash at the beginning of the period............... 89,200 71,756
------------ ------------
Cash at the end of the period..................... $ 69,454 $ 71,349
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE> 6
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION AND SUMMARY OF OPERATING STRUCTURE
The Company, through its operating subsidiaries, is a nationwide marketer
of truck and auto fuel and related products and services through three networks
of full-service travel centers (124 operated under the "TA" and "TravelCenters
of America" trademarks (the "TA Network"), two operated under the "Unocal 76"
trademark (the "National Network") and 17 operated under the "Burns Bros. Travel
Stops" trademark (the "Burns Network")) in 39 states. Of the network locations
at March 31, 1999, the Company owns or leases 133 locations, 30 of which are
leased to independent lessee-franchisees ("Operators") of the Company ("Leased
Sites"), and 103 of which are operated by the Company ("Company-operated
Sites"). Ten locations are owned or leased and operated by independent
franchisees ("Franchisee-Owners") of the Company ("Franchisee-Owner Sites").
The Company purchases and resells diesel fuel, gasoline and other travel center
products and services to consumers, commercial fleets, operators and independent
franchisees; provides fleet credit card and customer information services
through its proprietary ACCESS 76 billing system; conducts centralized
purchasing programs; creates promotional programs; and, as a franchisor, assists
the Operators and Franchisee-Owners in providing service to commercial fleets
and the motoring public.
The Company was incorporated on December 2, 1992 as National/Auto
Truckstops Holdings Corporation. The Company's name was changed to
TravelCenters of America, Inc. in March 1997. In April 1993, the Company
acquired (the "National Acquisition") the National Network assets from a
subsidiary of Unocal Corporation (together with its subsidiaries "Unocal") and
in December 1993 acquired (the "TA Acquisition") the TA Network assets from
subsidiaries of The British Petroleum Company p.l.c. (together with its
subsidiaries "BP"). In December 1998 the Company acquired (the "Burns
Acquisition") the Burns Network from Burns Bros., Inc., and certain of its
affiliates (collectively "Burns").
The accompanying unaudited, consolidated financial statements as of and
for the quarters ended March 31, 1999 and 1998 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,
1998. In the opinion of management, the accompanying unaudited, consolidated
financial statements contain all adjustments, all of which were of a normal
recurring nature, necessary to present fairly, in all material respects, the
consolidated results of operations and of cash flows for the three-month period
ended March 31, 1999 and 1998, and are not necessarily indicative of the
results to be expected for the full year.
2. EARNINGS PER SHARE
A reconciliation of the income and shares used in the computation follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
(DOLLARS AND SHARES IN THOUSANDS)
Net loss $(1,677) $(7,283)
Less: Preferred stock dividends (2,362) (2,072)
------- -------
Net loss available to common stockholders (4,039) (9,355)
Weighted average shares outstanding 600 625
------- -------
Loss per share $ (6.73) $(14.97)
======= =======
</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 quarters ended March 31, 1999 and 1998. On January 1, 1999, 232,750
options to purchase common stock were granted to management and non-employee
directors.
6
<PAGE> 7
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------- -----------
<S> <C> <C>
Nonfuel merchandise... $41,296 $39,973
Petroleum products.... 4,483 2,979
------- -------
Total inventories..... $45,779 $42,952
</TABLE>
4. PROPERTY AND EQUIPMENT
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. 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.
5. TPOA ACQUISITION
On February 26, 1999, the Company entered into a merger agreement pursuant
to which the Company intends to acquire (the "TPOA Acquisition") 100% of the
voting stock of Travel Ports of America, Inc. ("TPOA") at a price of $4.30 per
share. Under the terms of the merger agreement and certain ancillary
agreements, the Company will pay cash of approximately $40,500,000 for all of
TPOA's common shares except approximately 653,000 common shares, held by TPOA's
chairman and chief executive officer, that will be exchanged for approximately
85,000 shares of the Company's common stock. In addition, the Company expects
to pay cash of approximately $15,000,000 to $20,000,000 to retire substantially
all of TPOA's indebtedness expected to be outstanding at the merger date and to
pay various costs of the transaction. TPOA operates a network (the "TPOA
Network") of 16 travel centers in seven states, primarily in the northeastern
U.S. This acquisition, if ultimately consummated, is expected to close in June
1999. A closing of the merger is subject to a variety of conditions, including
approval by TPOA's shareholders, which is expected at a special meeting of
TPOA's shareholders to be held on June 1, 1999. Provisions of the Company's
debt agreements require the Company to maintain in a cash collateral account
$30,000,000 of the $150,000,000 the Company borrowed in December 1998. This
$30,000,000 can only be used for a business acquisition that meets certain
criteria, including that a definitive agreement regarding such acquisition be
signed by March 31, 1999 and that the acquisition be consummated by December
31, 1999. The pending TPOA Acquisition meets all of the criteria.
Accordingly, the Company anticipates using the $30,000,000 of restricted cash
to partially fund the TPOA Acquisition.
6. COMMITMENTS AND CONTINGENCIES
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").
7
<PAGE> 8
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 compliance with
applicable requirements of Environmental Laws. 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 at various sites. 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
environmental indemnities obtained as part of the National Acquisition and the
TA Acquisition), 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 $4,100,000 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
The Company is involved from time to time in various legal and
administrative proceedings incidental to the ordinary course of its business.
The Company is not now involved in any litigation, individually, or in the
aggregate, which could have a material adverse affect on the Company's
business, financial condition, results of operations or cash flows.
7. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
--------- ---------
<S> <C> <C>
Cash paid during the period for:
Interest....................... $4,374 $3,161
Income taxes (net of refunds).. $ 806 $ 33
</TABLE>
8
<PAGE> 9
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 of the
Company as of March 31, 1999 and December 31, 1998 and the consolidating
statements of income and retained earnings (deficit) and of cash flows of the
Company for the three months ended March 31, 1999 and 1998. 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, 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.
9
<PAGE> 10
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET SCHEDULES:
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------- ------------ ------------ ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................................ $ 45,268 $ 24,186 $ - $ - $ 69,454
Accounts receivable, net............ - 70,798 866 - 71,664
Inventories......................... - 45,779 - - 45,779
Deferred income taxes............... - 4,459 - - 4,459
Other current assets................ 112,636 32,831 8,670 (136,910) 17,227
-------- ------------ ------------ ----------- -----------
Total current assets................ 157,904 178,053 9,536 (136,910) 208,583
Notes receivable, net............... 989 203 - - 1,192
Property and equipment, net......... - 371,823 - - 371,823
Intangible assets................... - 20,161 - - 20,161
Deferred financing costs............ 8,950 - - - 8,950
Deferred income taxes............... 620 2,925 - - 3,545
Other assets........................ - 6,647 - (3,700) 2,947
Investment in subsidiaries.......... 337,639 - - (337,639) -
-------- ------------ ------------ ----------- -----------
Total assets........................ $506,102 $579,812 $9,536 $(478,249) $617,201
======== ============ ============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,594 $ - $ - $ - $ 1,594
Accounts payable.................... - 29,283 10 - 29,293
Other accrued liabilities........... 18,928 204,217 2,867 (137,625) 88,387
-------- ------------ ------------ ----------- -----------
Total current liabilities........... 20,522 233,500 2,877 (137,625) 119,274
Long-term debt...................... 387,580 2,913 - - 390,493
Deferred income taxes............... - 714 - - 714
Other liabilities................... - 233,378 - (223,404) 9,974
-------- ------------ ------------ ----------- -----------
Total liabilities................... 408,102 470,505 2,877 (361,029) 520,455
Mandatorily redeemable senior
convertible participating preferred
stock............................... 72,336 - - - 72,336
Other preferred stock, common stock
and other stockholders' equity...... 44,801 84,880 - (86,134) 43,547
Retained earnings (deficit)......... (19,137) 24,427 6,659 (31,086) (19,137)
-------- ------------ ------------ ----------- -----------
25,664 109,307 6,659 (117,220) 24,410
-------- ------------ ------------ ----------- -----------
Total liabilities and stockholders'
equity.............................. $506,102 $579,812 $9,536 $(478,249) $617,201
======== ============ ============ =========== ===========
</TABLE>
10
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TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------- ------------ ------------ ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................................ $ 59,665 $ 29,535 $ - $ - $ 89,200
Accounts receivable, net............ - 60,176 836 - 61,012
Inventories......................... - 42,952 - - 42,952
Deferred income taxes............... - 4,459 - - 4,459
Other current assets................ 98,323 29,210 7,860 (122,774) 12,619
----------------- ------------ ------------ ----------- -----------
Total current assets................ 157,988 166,332 8,696 (122,774) 210,242
Notes receivable, net............... 967 272 - - 1,239
Property and equipment, net......... - 361,803 - - 361,803
Intangible assets................... - 21,141 - - 21,141
Deferred financing costs............ 9,284 - - - 9,284
Deferred income taxes............... 879 2,045 - - 2,924
Other assets........................ 730 6,398 - (3,700) 3,428
Investment in subsidiaries.......... 338,205 - - (338,205) -
----------------- ------------ ------------ ----------- -----------
Total assets........................ $508,053 $557,991 $8,696 $(464,679) $610,061
================= ============ ============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,446 $ 148 $ - $ - $ 1,594
Accounts payable.................... - 20,908 7 - 20,915
Other accrued liabilities........... 18,988 189,022 2,916 (122,761) 88,165
----------------- ------------ ------------ ----------- -----------
Total current liabilities........... 20,434 210,078 2,923 (122,761) 110,674
Long-term debt (net of unamortized
discount)........................... 387,942 2,923 - - 390,865
Deferred income taxes............... - 937 - - 937
Other liabilities................... - 232,566 - (223,404) 9,162
----------------- ------------ ------------ ----------- -----------
Total liabilities................... 408,376 446,504 2,923 (346,165) 511,638
Mandatorily redeemable senior
convertible participating preferred
stock............................... 69,974 - - - 69,974
Other preferred stock, common stock
and other stockholders' equity...... 44,801 84,880 - (86,134) 43,547
Retained earnings (deficit)......... (15,098) 26,607 5,773 (32,380) (15,098)
----------------- ------------ ------------ ----------- -----------
29,703 111,487 5,773 (118,514) 28,449
----------------- ------------ ------------ ----------- -----------
Total liabilities and stockholders'
equity.............................. $508,053 $557,991 $8,696 $(464,679) $610,061
================= ============ ============ =========== ===========
</TABLE>
11
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TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND RETAINED EARNINGS
(DEFICIT) SCHEDULES:
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ --------------- ---------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues:
Fuel................................... $ - $163,458 $ - $ - $163,458
Nonfuel................................ - 99,581 181 (57) 99,705
Rent and royalties..................... - 8,274 1,658 (4,867) 5,065
-------------- -------------- --------------- -------------- --------------
Total revenues......................... - 271,313 1,839 (4,924) 268,228
Cost of revenues (excluding
depreciation).......................... - 181,677 - - 181,677
-------------- -------------- --------------- -------------- --------------
Gross profit (excluding depreciation).. - 89,636 1,839 (4,924) 86,551
Operating expenses..................... 54 63,397 208 (4,924) 58,735
Selling, general and
administrative expenses................ 192 8,876 218 - 9,286
Transition expenses.................... - 455 - - 455
Depreciation and amortization expense.. 334 10,875 - - 11,209
Loss on sales of property and equipment - 50 - - 50
Sock compensation expense.............. - 900 - - 900
-------------- -------------- --------------- -------------- --------------
Income (loss) from operations.......... (580) 5,083 1,413 - 5,916
Interest expense, net.................. - (8,367) - - (8,367)
Equity income (loss)................... (1,294) - - 1,294 -
-------------- -------------- --------------- -------------- --------------
Income (loss) before income taxes...... (1,874) (3,284) 1,413 1,294 (2,451)
Provision (benefit) for income taxes... (197) (1,104) 527 - (774)
-------------- -------------- --------------- -------------- --------------
Net income (loss)...................... (1,677) (2,180) 886 1,294 (1,677)
Less: preferred dividends.............. (2,362) - - - (2,362)
Retained earnings (deficit) -
beginning of the period................ (15,098) 26,607 5,773 (32,380) (15,098)
-------------- -------------- --------------- -------------- --------------
Retained earnings (deficit) - end of
the period............................. $(19,137) $ 24,427 $6,659 $(31,086) $(19,137)
============== ============== =============== ============== ==============
</TABLE>
12
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TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Revenues:
Fuel................................... $ - $132,630 $ - $ - $132,630
Nonfuel................................ - 75,060 - - 75,060
Rent and royalties..................... - 8,306 1,683 (4,355) 5,634
------- ----------- ------------ ----------- -----------
Total revenues......................... - 215,996 1,683 (4,355) 213,324
Cost of revenues (excluding
depreciation).......................... - 147,150 - - 147,150
------- ----------- ------------ ----------- -----------
Gross profit (excluding depreciation).. - 68,846 1,683 (4,355) 66,174
Operating expenses..................... 52 48,912 136 (4,355) 44,745
Selling, general and
administrative expenses................ 257 8,479 218 - 8,954
Transition expenses.................... - 992 - - 992
Depreciation and amortization expense.. 374 16,170 - - 16,544
Loss on sales of property and equipment - 31 - - 31
Stock compensation expense............. - 875 - - 875
Other operating expense, net........... - (195) - - (195)
------- ----------- ------------ ----------- -----------
Income (loss) from operations.......... (683) (6,418) 1,329 - (5,772)
Interest expense, net.................. (879) (5,111) - - (5,990)
Equity income (loss)................... (6,252) - - 6,252 -
------- ----------- ------------ ----------- -----------
Income (loss) before income taxes...... (7,814) (11,529) 1,329 6,252 (11,762)
Provision (benefit) for income taxes... (531) (4,444) 496 - (4,479)
------- ----------- ------------ ----------- -----------
Net income (loss)...................... (7,283) (7,085) 833 6,252 (7,283)
Less: preferred dividends.............. (2,072) - - - (2,072)
Retained earnings (deficit) -
beginning of the period................ 1,554 32,327 2,208 (34,535) 1,554
------- ----------- ------------ ----------- -----------
Retained earnings (deficit) - end of
the period............................. $(7,801) $ 25,242 $3,041 $(28,283) $ (7,801)
======= =========== ============ =========== ===========
</TABLE>
13
<PAGE> 14
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES................. $ 3,341 $ (2,838) $- $- $ 503
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................. - (19,915) - - (19,915)
-------- ----------- ------------ ------------ -----------
Net cash used in investing
Activities.......................... - (19,915) - - (19,915)
-------- ----------- ------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt repayments............ (361) (11) - - (372)
Issuance of common stock............. 38 - - - 38
Intercompany advances................ (17,415) 17,415 - - -
-------- ----------- ------------ ------------ -----------
Net cash used in financing activities (17,738) 17,404 - - (334)
-------- ----------- ------------ ------------ -----------
Net (decrease) in cash.............. (14,397) (5,349) - - (19,746)
Cash at the beginning of the period.. 59,665 29,535 - - 89,200
-------- ----------- ------------ ------------ -----------
Cash at the end of the period........ $ 45,268 $ 24,186 $ - $ - $ 69,454
======== =========== ============ ============ ===========
</TABLE>
14
<PAGE> 15
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES................. $ (4,474) $ 17,852 $ - $ - $ 13,378
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................. - (13,535) - - (13,535)
-------- ----------- ------------ ------------ -----------
Net cash used in investing
activities.......................... - (13,535) - - (13,535)
-------- ----------- ------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt repayments............ (125) - - - (125)
Repurchase of common stock........... (125) - - - (125)
Intercompany advances................ (10,512) 10,512 - - -
-------- ----------- ------------ ------------ -----------
Net cash used in financing activities (10,762) 10,512 - - (250)
-------- ----------- ------------ ------------ -----------
Net increase (decrease) in cash..... (15,236) 14,829 - - (407)
Cash at the beginning of the period.. 59,592 12,164 - - 71,756
-------- ----------- ------------ ------------ -----------
Cash at the end of the period........ $ 44,356 $ 26,993 $ - $ - $ 71,349
======== =========== ============ ============ ===========
</TABLE>
15
<PAGE> 16
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
unaudited consolidated financial statements and notes to consolidated
financial statements included herein, and the audited financial
statements and the Management's Discussion and Analysis included with
the Company's Form 10-K for the year ended December 31, 1998.
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 143 network sites nationwide, including
133 Company-owned locations. The Company currently operates or franchises a
network of 124 travel centers in 36 states under the "TravelCenters of America"
or "TA" and related brand names, a network of 17 sites in 9 states under the
"Burns Bros. Travel Stops" and related brand names, and two travel centers in
two states under the licensed "Unocal 76" and related brand names.
COMBINATION PLAN
During the three months ended March 31, 1999, the Company incurred
approximately $0.5 million of expenses related to the Combination Plan,
bringing the total of such expenses incurred since inception of the Combination
Plan to $19.3 million. These costs, identified as transition expenses in the
Company's consolidated financial statements, are expected to total
approximately $21 million, of which approximately $2.0 million is expected to
be incurred in 1999. Generally, these expenses relate to, among other things,
(i) the costs to convert National Network travel centers to Network travel
centers, (ii) the costs to dispose of travel centers or terminate lease or
franchise agreements, and (iii) the costs of integrating the management and
operations of the National Network and Burns Network into the Network,
including relocation, travel, training, and legal expenses.
NETWORK COMPOSITION
The following table sets forth the number and type of ownership and
management of the travel centers operating in the Company's networks.
<TABLE>
<CAPTION>
AS OF MARCH 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
Company-owned and operated sites(1) 103 82
Company-owned and leased sites 30 35
-------- --------
Total Company-owned sites 133 117
Franchisee-owner sites 10 10
-------- --------
Total 143 127
======== ========
Stand-alone shops - 2
======== ========
</TABLE>
(1) Excludes two closed sites as of March 31, 1999 and three closed sites as of
March 31, 1998. The 1999 amount also excludes one newly constructed site that
opened for business in early May 1999.
RESULTS OF OPERATIONS
First Quarter 1999 Compared to First Quarter 1998
Revenues
The Company's consolidated revenues for the three months ended March 31,
1999 were $268.2 million, which represents an increase from the same period in
the prior year of $54.9 million, or 25.7%.
16
<PAGE> 17
Fuel revenue for the three months ended March 31, 1999 was $163.5 million
compared to $132.6 million for the same period in 1998, an increase of $30.9
million or 23.3%. The increase is a result of an increase in diesel volumes,
combined with a decrease in diesel pump prices. Diesel volumes increased 44.8%
between years, which is the result of the increase in the total number of sites
between years due to the Burns Acquisition, as well as increased volumes at
continuing sites. On a same-site basis, diesel fuel volume for the first
quarter of 1999 increased 19.6% over the prior year period. Average diesel
sales prices decreased approximately 15.5% between the first quarter of 1998
and the first quarter of 1999 as a result of the decreased cost of crude oil.
Nonfuel revenues for the three months ended March 31, 1999 increased $24.6
million over the prior year quarter to $99.7 million. This represents an
increase of 32.8%. This is due to the increase in the number of
Company-operated sites between years, due to the Burns Acquisition and
conversions of Leased Sites, coupled with the increased revenues at continuing
sites. On a same-site basis, nonfuel revenues increased 8.7%.
Rent and royalty revenues for the quarter have decreased from the same
period in 1998 as a result of the conversions of five Leased Sites to
Company-operated Sites during 1998 but after March 31, 1998. Rent revenues for
Leased Sites that were leased in both the first quarter of 1999 and the first
quarter of 1998 increased 0.9% between years. Royalty revenues for franchisee
locations in operation in the first quarters of both 1999 and 1998 increased
11.9%. The decline in rent revenue is expected to cease, as the network
rationalization is substantially complete with regards to Operators.
Gross Profit
The Company's gross profit for the first quarter of 1999 was $86.6
million, compared to $66.2 million for 1998, an increase of $20.4 million, or
30.8%. The increase in the Company's gross profit was primarily due to
increases in nonfuel revenues and diesel fuel margin, partially offset by
decreased rent revenue resulting from the conversions of Leased Sites to
Company-operated sites during 1998.
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 $14.0 million, or 31.3%, to
$58.7 million for the three-month period ended March 31, 1999. These increases
reflect the increased number of Company-operated Sites from the addition of the
17 Burns sites and the conversions of five Leased Sites to Company-operated
Sites that occurred during the second and third quarters of 1998, as well as
increased nonfuel revenues at continuing sites. On a same-site basis,
operating expenses for 1999 are 7.8% higher than for 1998, primarily
attributable to the increase in nonfuel revenues.
The Company's SG&A for the first quarter increased from $9.0 million in
1998 to $9.3 million in 1999, primarily due to the Burns Acquisition.
Transition Expenses
Refinancing, transition and development costs for the first quarter of
1999 decreased from $1.0 million in 1998 to $0.5 million in 1999. These costs
were incurred in effecting the Combination Plan and, in 1999, integrating the
Burns Network into the Company's Network. The Company anticipates
approximately $2.0 million of such costs in 1999.
Depreciation and Amortization Expense
Depreciation and amortization expense for the first quarter of 1999 was
$11.2 million, compared to $16.5 million for the same period last year. This
decrease reflects a one-time adjustment of $9.5 million in 1998, partially
offset by depreciation on the assets placed in service during 1997 and 1998
pursuant to the Capital Program.
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. 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.
17
<PAGE> 18
Income (Loss) from Operations
The Company generated income from operations of $5.9 million for the first
quarter of 1999, compared to a loss from operations of $5.8 million for the
same period in the prior year. This is the result of an increase in gross
profit of $20.4 million and a decrease in depreciation and amortization of $5.3
million, partially offset by an increase in operating expenses of $14.0
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 month period ended March 31, 1999 was $18.5 million, compared to
$12.7 million for the same period in the prior year. The increased EBITDA for
1999 is primarily the result of additional Company-operated Sites due to the
Burns Acquisition and conversions of five Leased Sites during 1998, and
incremental nonfuel revenues generated by capital projects.
Interest Expense - Net
Interest expense for the first quarter of 1999 was $2.4 million higher
than the same period in the prior year as a result of the increased debt
balance after consummation of the 1998 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 acquisitions and expansion.
Net cash provided by operating activities totaled $0.5 million for the
first quarter of 1999, compared to $13.4 million for the same period in the
prior year. The decrease is primarily the result of net additions to working
capital between years.
Net cash used in investing activities increased to $19.9 million for the
first quarter of 1999, up from $13.5 million for the first quarter of 1998.
The increase is the result of the increased level of construction activity in
1999 compared to 1998, primarily related to site reimage projects and
installation of quick service restaurants at several sites.
Net cash used in financing activities was $0.3 million during the first
quarter of both 1999, and 1998, reflecting an increase in scheduled debt
repayments that is offset by a reduction of cash used in stock transactions.
In order to provide for its growth, the Company, among other things, has
completed refinancings in each of 1998 and 1997. In the 1997 Refinancing,
completed on March 27, 1997, the Company repaid or exchanged all of its
previously existing indebtedness and issued $125 million principal amount of
Senior Subordinated Notes, $85.5 million principal amount of Senior Secured
Notes ($35.5 million of fixed-rate Series I and $50.0 million of floating-rate
Series II), and an $80 million term loan facility which was fully borrowed. The
Company also has a $40.0 million revolving credit facility, which, except for
$1.5 million used for letters of credit, had not been drawn upon through March
31, 1999. In the 1998 Refinancing, completed on December 3, 1998, the Company
increased the term loan facility, and its borrowings under the facility, by
$150.0 million. The proceeds of the borrowing were used to redeem the Series
II Senior Secured Notes ($50.0 million), fund the Burns Acquisition
(approximately $56.8 million), and prefund $42.0 million of planned capital
expenditures and business acquisitions, with the remainder used for costs of
the 1998 Refinancing and accrued interest. The $42.0 million for prefunded
capital expenditure and business acquisitions was required to be maintained in
a cash collateral account and to be used only for such expenditures.
Provisions of the debt agreements require the Company to use $30.0 million of
the cash collateral account balance for a business acquisition, or to repay the
$30.0 million in the event the Company did not enter a definitive purchase
agreement prior to March 31, 1999, and complete the acquisition by December 31,
1999. As the TPOA Acquisition is expected to close well before December 31,
1999, the Company anticipates using the $30.0 million to partially fund the
TPOA Acquisition. During the first quarter of 1999, $12.0 million was
withdrawn from the collateral account to fund capital expenditures.
The Company expects to invest approximately $260 million in the Network
between 1997 and the end of 2001 (with $150 million of this amount having been
spent by the end of 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 1999). The Company has budgeted
expenditures in
18
<PAGE> 19
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 capital expenditures budget for 1999,
excluding the TPOA Acquisition, is approximately $60 million. The TPOA
Acquisition is expected to require cash outlays of approximately $55 million to
$60 million to complete.
The Company anticipates that it will be able to fund its 1999 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,
borrowing and other sources of external financing as needed.
TPOA ACQUISITION
On February 26, 1999, the Company entered into a merger agreement pursuant
to which the Company intends to acquire (the "TPOA Acquisition") 100% of the
voting stock of Travel Ports of America, Inc. ("TPOA") at a price of $4.30 per
share. Under the terms of the merger agreement and certain ancillary
agreements, the Company will pay cash of approximately $40,500,000 for all of
TPOA's common shares except approximately 653,000 common shares, held by TPOA's
chairman and chief executive officer, that will be exchanged for approximately
85,000 shares of the Company's common stock. In addition, the Company expects
to pay cash of approximately $15,000,000 to $20,000,000 to retire substantially
all of TPOA's indebtedness expected to be outstanding at the merger date and to
pay various costs of the transaction. TPOA operates a network (the "TPOA
Network") of 16 travel centers in seven states, primarily in the northeastern
U.S. This acquisition, if ultimately consummated, is expected to close in June
1999. A closing of the merger is subject to a variety of conditions, including
approval by TPOA's shareholders, which is expected at a special meeting of
TPOA's shareholders to be held on June 1, 1999.
FREIGHTLINER RELATIONSHIP
The Company has signed a letter of intent with Freightliner Corporation
("Freightliner") to become an authorized provider of express service, minor
repair work and a specified menu of warranty repairs to Freightliner's
customers. Under the proposed agreement, the Company will be incorporated into
Freightliner's 24-hour customer assistance center database and be a major
referral point for emergency and roadside repairs and will also have access to
Freightliner's parts distribution, service and technical information systems.
Freightliner, a DaimlerChrysler Company, is the leading heavy truck
manufacturer in North America. The Company believes this relationship will
result in a considerable increase in nonfuel revenues generated by the
Company's truck maintenance and repair shops.
Freightliner has also agreed to acquire a minority ownership interest in
the Company. However, at this time a specific ownership percentage has not yet
been determined. Consummation of the related agreements to finalize the
various aspects of the Company's proposed relationship with Freightliner is
subject to a variety of conditions, including satisfactory completion of
customary due diligence review procedures and successful negotiation of
definitive agreements.
ENVIRONMENTAL MATTERS
The Company owns and operates USTs and ASTs at Company-operated Sites and
Leased Sites which must comply with certain statutory and regulatory
requirements. 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 $4.1 million as of March 31, 1999. 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.
19
<PAGE> 20
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.
The Company is currently in the process of making its IT systems Year 2000
compliant. As a result of the Combination Plan, 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 the SAP Enterprise Resource Planning system that
will replace substantially all of the legacy financial IT systems currently in
use, some of which are not Year 2000 compliant. The SAP system is Year 2000
compliant, and management expects to begin using the financial, asset
management and project system modules of the new system during the second
quarter of 1999. A second phase of the implementation of SAP, which will
replace the Company's fuel management and accounting systems, is targeted for
completion in December 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 is confident
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,
included 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
June 30, 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 June 30, 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 an
adverse effect on the Company's operations and, potentially, its financial
condition.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"), which requires entities to recognize all derivatives
as either assets or liabilities in the balance sheet and measure those
instruments at fair value. Changes in the fair values are required to be
recognized in income when they occur, except for derivatives that qualify as
hedges. For the Company, adoption of this standard is required for the first
quarter of 2000. At this time, the Company has not completed its analysis of
the effect on its financial statements of adopting FAS 133. However, as the
Company utilizes derivatives on a limited basis and only as hedges of either
commodity price risk or interest rate risk, the effect of FAS 133 on the
Company's statement of income is not expected to be material.
20
<PAGE> 21
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; and difficulties that may be encountered by the Company or its
franchisees in implementing the Combination Plan, integrating the Burns sites
into the Network, completing the TPOA Acquisition and finalizing the
Freightliner agreements. The forward-looking statements should be considered in
light of these factors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to commodity price risk and interest rate risk.
The Company's fuel purchase contracts provide for purchase prices based on
average market prices for diesel and gasoline, exposing the Company to
commodity price risk. The Company mitigates this risk exposure in a few ways,
but primarily by maintaining only a few days of inventory on hand and selling a
large portion of its fuel volume under "cost plus" pricing formulae, which
minimize the effect on the Company's margins of sudden sharp changes in
commodity market prices. The Company manages the price exposure related to
sales volumes not covered by cost plus arrangements through the use, on a
limited basis, of derivative instruments designated by management as hedges of
anticipated purchases. The total volume covered by open derivative contracts
at any point in time during 1998 was immaterial. There were no open derivative
contracts during the three months ended March 31, 1999 or at March 31, 1999.
The interest rate risk faced by the Company results from the highly-leveraged
position of the Company and its level of variable rate indebtedness, the rates
for which are based on short-term lending rates, primarily the London Interbank
Offered Rate. During the first quarter of 1999, in order to somewhat mitigate
its interest rate risk, the Company entered into two interest rate swap
agreements with a counterparty. The first swap agreement fixes the interest
rate on a notional amount of the Company's variable rate indebtedness of $35
million of three-month LIBOR, within a floor of 5.00% and a cap of 6.75%. The
second swap agreement is related to the Company's $125 million Senior
Subordinated Notes due 2007 and provides that the Company pay a variable
interest rate based on a six-month LIBOR, with a floor of 9.25% and a cap of
11.8%. Regarding the Company's debt obligations with interest rate risk, there
were no material changes from the information provided in the Company's Form
10-K for the year ended December 31, 1998.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved from time to time in various legal and
administrative proceedings incidental to the ordinary course of its business.
The Company is not now involved in any litigation, individually, or in the
aggregate, which could have a material adverse affect on the Company's
business, financial condition, results of operations or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
On March 31, 1999, an amendment to the Company's restated certificate of
incorporation was approved by (i) holders of all of the outstanding shares of
the Company's Series I Convertible Preferred Stock, Series I Senior Convertible
Participating Preferred Stock, Series II Convertible Preferred Stock and Series
II Senior Convertible Participating Preferred Stock, and (ii) holders of a
majority of the outstanding shares of the Company's Common Stock and voting
Preferred Stock, to allow the Company to purchase or redeem shares of Common
Stock, Subordinate Stock or Junior Preferred Stock, as defined in the restated
Certificate of Incorporation, without restriction and to ratify certain prior
purchases and redemptions by the Company of Common Stock.
21
<PAGE> 22
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<S> <C>
Exhibit
Number Exhibit
- ------- -------
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
On March 2, 1999, the Company filed a report on Form 8-K related to its
proposed acquisition of TPOA. This Form 8-K was amended on March 12, 1999.
22
<PAGE> 23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRAVELCENTERS OF AMERICA, INC.
(Registrant)
Date: May 14, 1999 By: /s/ James W. George
--------------------------------------------
Name: James W. George
Title: Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 69,454
<SECURITIES> 0
<RECEIVABLES> 75,578
<ALLOWANCES> 3,914
<INVENTORY> 45,779
<CURRENT-ASSETS> 208,583
<PP&E> 371,823
<DEPRECIATION> 0
<TOTAL-ASSETS> 617,201
<CURRENT-LIABILITIES> 119,274
<BONDS> 390,493
72,336
38
<COMMON> 14
<OTHER-SE> 24,358
<TOTAL-LIABILITY-AND-EQUITY> 617,201
<SALES> 263,163
<TOTAL-REVENUES> 268,228
<CGS> 181,677
<TOTAL-COSTS> 181,677
<OTHER-EXPENSES> 80,305
<LOSS-PROVISION> 330
<INTEREST-EXPENSE> 8,367
<INCOME-PRETAX> (2,451)
<INCOME-TAX> (774)
<INCOME-CONTINUING> (1,677)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,677)
<EPS-PRIMARY> (6.73)
<EPS-DILUTED> (6.73)
</TABLE>
