<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
FORM 8-K/A
AMENDMENT TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: June 3, 1999
------------
(Date of earliest event reported)
TRAVELCENTERS OF AMERICA, INC.
-----------------------------
(Exact name of Registrant as specified in its charter)
Delaware 333-26497 36-3856519
- ---------------------------- ----------- ------------------
(State or other jurisdiction (Commission (I.R.S. employer
of incorporation) file number) identification no.)
24601 Center Ridge Road, Suite 200, Westlake, Ohio 44145-5634
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (440) 808-9100
--------------
AMENDMENT NUMBER 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other positions of its Current Report dated June 3, 1999
on Form 8-K as set forth in the pages attached hereto:
Information provided under Item 7(a): Financial Statements of Business Acquired
Audited Consolidated Financial Statements of Travel Ports of America, Inc. for
the Year Ended April 30, 1999
Information provided under Item 7(b): Pro Forma Financial Information
Pro Forma Statements of Income for the Year Ended December 31, 1998 and the
Six Months Ended June 30, 1999
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
------------------------------------
On June 3, 1999, the registrant, TravelCenters of America, Inc., a
Delaware corporation ("TravelCenters"), acquired Travel Ports of America, Inc.,
a New York corporation ("Travel Ports"), pursuant to the merger (the "Merger")
of TP Acquisition, Inc. ("MergerCo"), a New York corporation and wholly owned
subsidiary of TravelCenters, with and into Travel Ports. The Merger was effected
pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated as
of February 26, 1999, among TravelCenters, MergerCo and Travel Ports. Upon
completion of the Merger, Travel Ports was merged into TA Operating Corporation,
a wholly owned subsidiary of TravelCenters.
Travel Ports, headquartered in Rochester, New York, operated 16 travel
plazas located in the states of New York, New Jersey, North Carolina, New
Hampshire, Indiana, Maryland and Pennsylvania and operated a single fuel
terminal in Pennsylvania.
In the Merger, each common share, par value $.01 per share, of Travel
Ports was converted into the right to receive $4.30. Pursuant to Merger
Agreement, TravelCenters also entered into a share exchange agreement providing
for the issuance of 85,000 shares of common stock of TravelCenters in exchange
for 653,025 Travel Ports common shares held by a certain shareholder of Travel
Ports, which exchange was completed immediately prior to the completion of the
Merger. In addition, certain holders of stock options and other convertible
securities of Travel Ports outstanding immediately prior to the completion of
the Merger, whether or not then exercisable, entered into agreements with Travel
Ports providing for the cancellation of such options or convertible securities
in exchange for a cash payment to the holders generally equal to the net amount
that such holders would have received had they converted their options or
convertible securities into Travel Ports common shares and received $4.30 for
each share so converted. Furthermore, TravelCenters was required pursuant to the
Merger Agreement to provide Travel Ports with cash necessary to repay certain of
Travel Ports' outstanding indebtedness in the amount of $23.5 million. As a
result, TravelCenters paid approximately $56 million in cash in connection with
the Merger. The consideration paid in connection with the Merger was arrived by
arm's-length negotiations with Travel Ports.
There were no prior material relationships between Travel Ports,
TravelCenters or any of TravelCenters' affiliates, any director or officer of
TravelCenters, or any associate of any such director or officer, on the one
hand, and Travel Ports, on the other hand.
TravelCenters utilized cash made available pursuant to previous
financing, including the most recent financing completed in December 1998 (with
a syndication led by The Chase Manhattan Bank) to effect the acquisition of the
travel centers business of Burns Bros., Inc.
Additional information concerning the Merger is also contained in (i)
the Merger Agreement, which is incorporated by reference as an exhibit to this
report from TravelCenters' Schedule 13D, dated March 8, 1999, and (ii)
TravelCenters' press release, dated June 3, 1999, announcing the completion of
the Merger, a copy of which is attached as Exhibit 99.1 to this report.
2
<PAGE> 3
Item 5. Other Events.
------------
The Company issued a news release on June 3, 1999, a copy of
which is filed as Exhibit 99.1.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
------------------------------------------------------------------
(a) Financial Statements of Business Acquired.
-----------------------------------------
Consolidated Financial Statements of Travel Ports of America, Inc.
Report of Independent Accountants
Consolidated Balance Sheets as of April 30, 1999 and 1998
Consolidated Statements of Income for the Years Ended
April 30, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended
April 30, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information.
-------------------------------
The following Unaudited Pro Forma Consolidated Statements of Income of
the Company for the year ended December 31, 1998, and the six months ended June
30, 1999 have been prepared to reflect the consummation of the Burns
Acquisition, the TPOA Acquisition and the refinancing the Company completed in
December 1998 (the "1998 Refinancing") as if such acquisitions and refinancing
occurred as of January 1, 1998. The pro forma financial information is unaudited
and not necessarily indicative of the results that would have actually occurred
if the acquisitions and refinancing had been consummated on such date, or
results which may be obtained in the future. The pro forma adjustments, as
described in the Notes to the Unaudited Pro Forma Consolidated Statements of
Income, are based on available information and upon certain assumptions that the
Company believes are reasonable. The Burns Acquisition occurred on December 3,
1998 and the TPOA Acquisition occurred effective June 1, 1999, and the related
results of operations of the acquired businesses were included in the Company's
results from each of those respective dates. Accordingly, the Unaudited Pro
Forma Consolidated Statement of Income for the year ended December 31, 1998
includes adjustments to reflect the operations of the businesses acquired in
both the Burns Acquisition and the TPOA Acquisition. The Unaudited Pro Forma
Consolidated Statement of Income for the six months ended June 30, 1999 includes
adjustments to reflect the operations of only the TPOA sites as the Burns sites
are included in the Company's results for the entire period. The 1998
Refinancing was completed on December 3, 1998 in order to fund the acquisitions.
A pro forma balance sheet has not been presented herein as the
transactions are already reflected in the consolidated balance sheet of the
Company as of June 30, 1999.
3
<PAGE> 4
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
AS REPORTED BURNS AND TPOA ADJUSTMENTS PRO FORMA (a)
------------------- ------------------ ------------------- -------------------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
Revenues:
<S> <C> <C> <C> <C>
Fuel.................................... $ 554,735 $ 177,622 $ - $ 732,357
Nonfuel................................. 347,531 104,403 - 451,934
Rent and royalties...................... 21,544 - - 21,544
---------- ---------- ---------- ----------
Total revenues............................... 923,810 282,025 - 1,205,835
Cost of revenues (excluding depreciation).... 627,149 189,617 - 816,766
---------- ---------- ---------- ----------
Gross profit (excluding depreciation)........ 296,661 92,408 - 389,069
Operating expenses........................... 193,697 65,156 - 258,853
Selling, general and administrative expenses. 34,256 9,265 (3,500) (b) 40,021
Transition expense........................... 3,648 - (500) (c) 3,148
Depreciation and amortization expense........ 44,662 6,428 4,234 (d) 55,324
(Gain) loss on sales of property and
equipment.................................... (1,195) 5 - (1,190)
Stock compensation expense................... 2,500 - - 2,500
---------- ---------- ---------- ----------
Income from operations....................... 19,093 11,554 234 30,413
Interest expense, net........................ (25,371) (3,825) (3,967) (e) (33,163)
---------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item....................... (6,278) 7,729 (4,201) (2,750)
Provision (benefit) for income taxes......... (2,101) 3,092 (1,680) (f) (690)
---------- ---------- ---------- ----------
Income (loss) before extraordinary item...... $ (4,177) $ 4,637 $ (2,520) $ (2,060)
========== ========== ========== ==========
Earnings per common share (basic and diluted) $ (21.79) $ (17.61)
========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Income.
4
<PAGE> 5
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
AS REPORTED TPOA ADJUSTMENTS PRO FORMA (a)
------------------- ------------------ ------------------- -------------------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
Revenues:
<S> <C> <C> <C> <C>
Fuel.................................... $ 381,286 $ 30,467 $ - $ 411,753
Nonfuel................................. 218,742 25,992 - 244,734
Rent and royalties...................... 10,572 - - 10,572
---------- ---------- ---------- ----------
Total revenues............................... 610,600 56,459 - 667,059
Cost of revenues (excluding depreciation).... 423,245 31,933 - 455,178
---------- ---------- ---------- ----------
Gross profit (excluding depreciation)........ 187,355 24,526 - 211,881
Operating expenses........................... 124,336 18,000 - 142,336
Selling, general and administrative expenses. 19,661 2,049 (417) (b) 21,293
Transition expense........................... 1,647 678 (2,075) (c) 250
Depreciation and amortization expense........ 21,767 1,518 803 (d) 24,088
(Gain) loss on sales of property and
equipment.................................... 260 - - 260
Stock compensation expense................... 1,800 - - 1,800
---------- ---------- ---------- ----------
Income from operations....................... 17,884 2,281 1,689 21,854
Interest expense, net........................ (17,503) (1,057) - (18,560)
---------- ---------- ---------- ----------
Income (loss) before income taxes............ 381 1,224 1,689 3,294
Provision (benefit) for income taxes......... 268 490 676 (f) 1,433
---------- ---------- ---------- ----------
Net income................................... $ 113 $ 734 $ 1,013 $ 1,861
========== ========== ========== ==========
Earnings per common share (basic and diluted) $ (6.19) $ (4.66)
========= ==========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Income.
5
<PAGE> 6
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(a) The Unaudited Pro Forma Statements of Income assume the following
transactions occurred at January 1, 1998:
(1) the 1998 Refinancing
(2) the Burns Acquisition
(3) the TPOA Acquisition
As a result of the 1998 Refinancing, the Company recognized an
extraordinary loss, net of applicable income taxes, of $3.9 million
from the write-off of unamortized deferred financing costs. The
extraordinary loss is not reflected in the pro forma presentation.
(b) Reflects a decrease in corporate overhead expenses as a result of
consolidating the formerly separate Burns and TPOA headquarters
functions with those of the Company. For the year ended December 31,
1998, approximately $2.5 million of savings are assumed with respect
to the Burns Acquisition and approximately $1.0 million of savings are
assumed with respect to the TPOA Acquisition. For the six months ended
June 30, 1999, the assumed cost savings relate solely to the TPOA
Acquisition and reflect five months of savings at an annual rate of
$1.0 million. The cost savings primarily result from personnel
reductions, reduced office rental expense, reduced professional
consulting fees and reduced office supplies and services expenses.
(c) Reflects the elimination of $0.5 million and $2.1 million of one-time
transition expenses incurred during the year ended December 31, 1998
and the six months ended June 30, 1999, respectively, in relation to
the conversion and integration of the travel center sites obtained in
the Burns Acquisition and the TPOA Acquisition.
(d) Reflects depreciation expense related to the $25.2 million increase in
the cost basis of the property and equipment obtained in the Burns
Acquisition and the $12.1 million increase in the cost basis of the
property and equipment obtained in the TPOA Acquisition, as well as the
amortization of the $10.3 million of goodwill and $0.4 million of other
intangible assets recognized as part of the purchase accounting for the
TPOA Acquisition. Estimated useful lives of 10 years for the property
and equipment and 15 years for intangibles were assumed for purposes of
the pro forma presentation.
(e) Reflects the increase in interest expense attributable to the $100.0
million increase in outstanding borrowings as a result of the 1998
Refinancing, at an assumed rate of 8.5%.
(f) Reflects the decrease in the income tax provisions (at an assumed rate
of 40%) required as a result of the decreased pro forma income before
taxes as a result of the above adjustments.
6
<PAGE> 7
(c) Exhibits.
--------
Exhibit No. Description
----------- -----------
2.1 Agreement and Plan of Merger, dated February 26,
1999, among TravelCenters of America, Inc., TP
Acquisition, Inc. and Travel Ports of America,
Inc.* (1)
99.1 News release, dated June 3, 1999, from the Company.
- ----------------------------
*The Registrant agrees by this filing to supplementally furnish a copy of the
Exhibits and Schedules to this Agreement and Plan of Merger to the Commission
upon request.
(1) Incorporated herein by reference to Exhibit C to the Company's Schedule
13D, dated March 8, 1999.
7
<PAGE> 8
SIGNATURES
----------
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.
By: /s/ James W. George
-----------------------------
James W. George,
Senior Vice President,
Chief Financial Officer and Secretary
Date: August 17, 1999
8
<PAGE> 9
EXHIBIT INDEX
- -------------
Exhibit No. Description
---------- -----------
2.1 Agreement and Plan of Merger, dated February 26,
1999, among TravelCenters of America, Inc.,
TP Acquisition, Inc. and Travel Ports of America,
Inc. (1)
99.1 News release, dated June 3, 1999, from the Company.
- ----------------------------
(1) Incorporated herein by reference to Exhibit C to the Company's
Schedule 13D, dated March 8, 1999.
9
<PAGE> 10
INDEX TO AUDITED FINANCIAL STATEMENTS
Travel Ports of America, Inc.
Report of Independent Accountants..........................................F-2
Consolidated Balance Sheets at April 30, 1999 and 1998.....................F-3
Consolidated Statements of Income for the years ended
April 30, 1999, 1998 and 1997...........................................F-4
Consolidated Statements of Cash Flows for the years ended
April 30, 1999, 1998 and 1997...........................................F-5
Notes to Consolidated Financial Statements.................................F-6
F-1
<PAGE> 11
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Travel Ports of America, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and of cash flows present fairly, in all
material respects, the financial position of Travel Ports of America, Inc. and
its subsidiaries at April 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended April 30,
1999, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Rochester, New York
June 25, 1999
F-2
<PAGE> 12
TRAVEL PORTS OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30,
1999 1998
----------- -----------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents, including interest-bearing accounts of
$2,462,700 and $3,162,400 in 1999 and 1998, respectively $ 2,914,353 $ 4,082,203
Accounts receivable, less allowance for doubtful accounts of
$79,000 and $158,000 in 1999 and 1998, respectively 4,983,557 4,167,966
Notes receivable 32,799 30,346
Inventories 6,397,428 5,726,512
Prepaid and other current assets 1,006,724 884,864
Income taxes receivable 16,567 214,676
Deferred taxes - current 599,200 532,000
----------- -----------
Total current assets 15,950,628 15,638,567
Notes receivable due after one year, less allowance of $65,000
in 1999 and 1998 543,097 575,548
Property, plant and equipment, net 45,731,054 44,597,242
Goodwill 1,775,926 1,840,116
Other assets 1,875,548 2,161,255
----------- -----------
Total assets $65,876,253 $64,812,728
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligation $ 3,476,360 $ 3,336,265
Accounts payable 7,810,834 6,669,874
Accounts payable - affiliate -- 236,263
Accrued compensation 2,032,645 1,900,184
Accrued sales and fuel tax 1,797,259 1,806,814
Accrued expenses and other current liabilities 1,484,560 938,720
----------- -----------
Total current liabilities 16,601,658 14,888,120
Long-term debt and capital lease obligation 18,643,159 22,322,369
Convertible senior subordinated debentures 5,168,167 6,054,167
Deferred income taxes 3,261,800 2,647,400
----------- -----------
Total liabilities 43,674,784 45,912,056
----------- -----------
Shareholders' equity:
Common stock, $.01 par value
Authorized - 10,000,000 shares
Issued and outstanding - 6,673,529 shares in 1999
and 6,302,596 shares in 1998 66,735 63,026
Additional paid-in capital 8,312,231 7,337,021
Retained earnings 13,822,503 11,500,625
----------- -----------
Total shareholders' equity 22,201,469 18,900,672
----------- -----------
Total liabilities and shareholders' equity $65,876,253 $64,812,728
=========== ===========
</TABLE>
F-3
<PAGE> 13
TRAVEL PORTS OF AMERICA, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED APRIL 30,
1999 1998 1997
------------- ------------- -------------
Net sales and operating revenues (including
consumer excise taxes of $59,225,812 in 1999,
<S> <C> <C> <C>
$54,097,500 in 1998, and $45,062,000 in 1997) $ 206,131,350 $ 211,297,079 $ 206,867,846
Cost of goods sold 155,894,203 162,774,569 160,666,992
------------- ------------- -------------
Gross profit 50,237,147 48,522,510 46,200,854
------------- ------------- -------------
Operating expenses 38,543,139 36,965,541 36,255,639
General and administrative expenses 5,814,168 5,087,839 4,560,796
Interest expense 2,791,641 3,155,072 3,103,045
Other income, net (598,079) (646,422) (621,831)
------------- ------------- -------------
Total expenses 46,550,869 44,562,030 43,297,649
------------- ------------- -------------
Income before income taxes 3,686,278 3,960,480 2,903,205
Provision for income taxes 1,364,400 1,622,800 1,203,000
------------- ------------- -------------
Net income $ 2,321,878 $ 2,337,680 $ 1,700,205
============= ============= =============
Earnings per share - basic $ .35 $ .38 $ .28
============= ============= =============
Earnings per share - diluted $ .30 $ .30 $ .24
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE> 14
TRAVEL PORTS OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED APRIL 30,
1999 1998 1997
------------ ------------ ------------
Operating activities:
<S> <C> <C> <C>
Net income $ 2,321,878 $ 2,337,680 $ 1,700,205
Depreciation and amortization 3,729,862 3,393,177 3,266,330
Provision for deferred income taxes 547,200 1,000,900 592,100
Loss (gain) on sale of assets 948 (150,457) (13,812)
Changes in operating assets and liabilities -
Accounts receivable (815,591) 189,699 (419)
Inventories (670,916) 36,511 (429,194)
Prepaid and other current assets (121,860) 346,645 (309,480)
Income taxes receivable 198,109 277,265 (361,344)
Accounts payable and accounts payable - affiliate 904,697 375,762 (212,304)
Accrued compensation 132,461 185,507 253,815
Accrued sales and fuel tax (9,555) (118,756) 677,984
Accrued expenses and other current liabilities 545,840 (219,887) 1,751
Changes in other non-current assets 146,667 3,606 (127,290)
------------ ------------ ------------
Net cash provided by operating activities 6,909,740 7,657,652 5,038,342
------------ ------------ ------------
Investing activities:
Expenditures for property, plant and equipment (4,655,692) (6,171,272) (8,723,016)
Proceeds from sale of property, plant and equipment 4,300 236,663 59,080
Net proceeds received from notes receivable 29,998 153,828 1,368,864
------------ ------------ ------------
Net cash used in investing activities (4,621,394) (5,780,781) (7,295,072)
------------ ------------ ------------
Financing activities:
Principal payments on long-term debt (3,532,084) (3,075,557) (8,961,395)
Proceeds from long-term borrowings 12,655,227
Proceeds from convertible senior subordinated debentures 2,000,000
Exercise of stock options 75,888 146,018 30,707
------------ ------------ ------------
Net cash (used in) provided by financing activities (3,456,196) (929,539) 3,724,539
------------ ------------ ------------
Net (decrease) increase in cash and equivalents (1,167,850) 947,332 1,467,809
Cash and equivalents - beginning of year 4,082,203 3,134,871 1,667,062
------------ ------------ ------------
Cash and equivalents - end of year $ 2,914,353 $ 4,082,203 $ 3,134,871
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year:
Interest paid $ 2,855,470 $ 3,077,082 $ 3,031,427
Income taxes paid, net $ 650,000 $ 1,194,000 $ 1,069,200
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 15
TRAVEL PORTS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999, 1998 AND 1997
1. THE COMPANY AND ITS ACCOUNTING POLICIES
The Company is primarily engaged in the operation of travel plazas and
has sixteen service plazas located in the states of New York,
Pennsylvania, New Jersey, Indiana, Maryland, North Carolina and New
Hampshire. A significant portion of the Company's sales and receivables
are with companies in the trucking and related industries. Effective
June 1, 1999, the Company was purchased by TravelCenter of America for
$40.5 million (Note 14).
During 1998, the Company organized wholly owned subsidiaries to
facilitate the franchising of the Travel Port operations. Travel Port
Systems, Inc. (TPS) is a Delaware company which owns the Travel Port
tradename. Travel Port Franchising, Inc. (TPF), also a Delaware
company, will enter into and administer franchising agreements with
third-party franchisees. Both subsidiaries are consolidated into the
Company's financial statements and all intercompany transactions are
eliminated.
The accompanying consolidated financial statements have been prepared
in accordance with generally accepted accounting principles. The
preparation of financial statements in conformity with such principles
requires the use of estimates by management during the reporting
period. Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
The Company's significant accounting policies follow.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is provided on the
straight-line basis over the estimated useful lives of the related
assets as follows: land improvements - 15 years; buildings and
improvements - 39 years; and equipment and fixtures - 3 to 15 years.
Leasehold improvements are amortized over the remaining term of the
applicable leases or their estimated useful lives, whichever is
shorter. Expenditures for maintenance and repairs are charged to
expense as incurred. Major improvements are capitalized.
F-6
<PAGE> 16
TRAVEL PORTS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999, 1998 AND 1997
GOODWILL
The Company amortizes cost in excess of underlying net asset value of
companies acquired over 40 years. The amount presented on the balance
sheet is net of accumulated amortization of $791,678 and $727,488 at
April 30, 1999 and 1998, respectively. Amortization expense for the
years ended April 30, 1999, 1998 and 1997 was $64,190. The
recoverability of these assets is periodically evaluated at the
operating unit level by an analysis of operating results and cash flows
and consideration of other significant events or changes in the
business environment.
CASH EQUIVALENTS
For purposes of this Statement, the Company considers all highly liquid
instruments with original maturities of three months or less to be cash
equivalents.
COMMODITY CONTRACTS
Prior to April 30, 1999, in order to reduce price risk caused by market
fluctuations, the Company entered into futures contracts and options
hedging the purchase price of bulk fuel products. The changes in the
market value of such contracts had a high correlation to the price
changes of the hedged commodity. Contract positions were designed to
ensure that the Company paid a defined maximum price for certain
quantities of its inventory purchases. Gains and losses and the related
costs paid or premium received for contracts which hedge the purchase
prices of commodities were deferred and subsequently included in income
as part of the hedged transaction when the underlying product was sold.
At April 30, 1998, the Company had entered into hedging commitments for
a maximum of 9,240,000 gallons for delivery during the period May 1998
through August 1998. The market value of these commitments was measured
based on daily commodity trading market prices. If these hedging
commitments had been terminated as of April 30, 1998, a loss of
approximately $55,000 would have been realized. Due to the constant
fluctuations within the commodity markets, these estimated results may
or may not be realized. The Company does not hold or issue derivative
instruments for trading or speculative purposes. In fiscal 1999, the
Company terminated its hedging transactions and no longer maintains
commodity contracts.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, accounts receivable and inventories are
valued at their carrying amounts, which are reasonable estimates of
fair value. The fair value of long-term debt and convertible debentures
is estimated using rates currently available to the Company for debt
with similar terms and maturities and is not materially different from
the carrying amount. The fair value of all other financial instruments
approximates cost as stated.
FEDERAL INCOME TAXES
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax basis of assets and liabilities
and are measured using the enacted tax rates and laws that will be in
effect when those differences are expected to reverse.
F-7
<PAGE> 17
TRAVEL PORTS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999, 1998 AND 1997
2. EARNINGS PER SHARE
The Company has adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share" (EPS). Basic
EPS excludes the effect of common stock equivalents and is computed by
dividing income available to common shareholders by the weighted
average of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could result if securities or
other contracts to issue common stock were exercised or converted into
common stock. Historical earnings per share have been restated to
conform with the provisions of SFAS No. 128.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED APRIL 30,
1999 1998 1997
---------- ---------- ----------
Basic earnings per share:
<S> <C> <C> <C>
Income applicable to common stock $2,321,878 $2,337,680 $1,700,205
Weighted average common stock outstanding 6,573,694 6,136,062 6,034,054
Basic earnings per common share $ .35 $ .38 $ .28
========== ========== ==========
Diluted earnings per share:
Income applicable to common stock $2,321,878 $2,337,680 $1,700,205
Interest expense on convertible debentures 272,482 269,776 237,150
---------- ---------- ----------
$2,594,360 $2,607,456 $1,937,355
========== ========== ==========
Weighted average common stock outstanding 6,573,694 6,136,062 6,034,054
Options and warrants 239,433 341,323 193,648
Convertible debentures 1,744,494 2,086,481 1,774,559
---------- ---------- ----------
8,557,621 8,563,866 8,002,261
========== ========== ==========
Diluted earnings per common share $ .30 $ .30 $ .24
========== ========== ==========
</TABLE>
3. INVENTORIES
<TABLE>
<CAPTION>
Major classifications of inventories are as follows:
1999 1998
---------------- ---------------
At FIFO cost:
<S> <C> <C>
Petroleum products $1,176,550 $ 837,080
Store merchandise 2,681,415 2,385,387
Parts for repairs and tires 1,910,879 1,823,610
Other 628,584 680,435
---------- ----------
$6,397,428 $5,726,512
========== ==========
</TABLE>
F-8
<PAGE> 18
TRAVEL PORTS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999, 1998 AND 1997
4. PROPERTY, PLANT AND EQUIPMENT
Major classifications of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Land $ 6,429,112 $ 6,418,083
Land improvements 14,060,801 13,079,873
Buildings and improvements 27,613,622 26,132,301
Equipment and fixtures 20,887,331 18,796,826
Leasehold improvements 5,987,460 5,915,106
Construction-in-progress 335,188 358,361
--------------- ---------------
75,313,514 70,700,550
Less - Allowance for depreciation and amortization 29,582,460 26,103,308
---- --------------- ---------------
$ 45,731,054 $ 44,597,242
=============== ===============
</TABLE>
No interest costs were capitalized in 1999 or 1998.
These amounts include property, plant and equipment under a capital lease
as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Building $706,031 $706,031
Land improvements 243,969 243,969
-------- --------
950,000 950,000
Less - Accumulated amortization 709,400 686,300
---- -------- --------
$240,600 $263,700
======== ========
</TABLE>
The leased assets relate to an agreement with the Livingston County
Industrial Development Agency under which the Agency's bond proceeds were
used to acquire, construct and equip an operating facility in Dansville,
New York. The Company has the option to buy the facility for $1 at the end
of the lease term, February 2000. Lease amortization amounted to $23,100
for each of the years 1999, 1998 and 1997, and is included in depreciation
and amortization expense. In May 1999, the Company exercised the option to
purchase the facility.
F-9
<PAGE> 19
TRAVEL PORTS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999, 1998 AND 1997
5. OTHER ASSETS
At April 30, 1999 and 1998, other assets include a leasehold interest
in a full-service travel plaza in Greenland, New Hampshire with a
carrying value of $1,631,400 and $1,700,300, respectively. The
leasehold interest represents the amount paid by the Company for the
rights to operate a full service plaza under the terms of a twenty-year
lease and is being amortized over the life of the lease (Note 6).
Deferred financing costs included within other assets are being
amortized on a straight-line basis over the term of the related debt
and have a carrying value of $169,100 and $330,000 at April 30, 1999
and 1998, respectively. Amortization expense for the leasehold interest
and deferred financing for the years ended 1999, 1998 and 1997 was
$229,800, $244,800 and $233,800, respectively.
6. LEASES
The Company leases six of its operating facilities and its home office
under various terms from 3 to 20 years. Certain of the operating leases
contain renewal options for periods beyond their original terms at
specified rates of payment and five of the leases include purchase
options exercisable at future dates. The Company has also entered into
various leases of equipment and property used in operations and related
office space with various lease periods and renewal options.
At April 30, 1999, future minimum payments required under
non-cancelable leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
------------ -----------
<S> <C> <C>
2000 $ 2,544,355 $ 47,500
2001 2,205,183 11,085
2002 2,033,997
2003 1,767,804
2004 1,460,043
Future 3,888,640
------------ -----------
$13,900,022 58,585
============
Less - Amount representing interest -
---- -----------
Present value of net minimum lease payments $ 58,585
===========
</TABLE>
Rental expense applicable to operating leases, net of sublease income
of $502,165, $428,100 and $356,900, amounted to $2,594,345, $2,269,200
and $2,501,100, for 1999, 1998 and 1997, respectively.
F-10
<PAGE> 20
TRAVEL PORTS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999, 1998 AND 1997
7. DEBT AND CAPITAL LEASE OBLIGATION
Debt and capital lease obligation consist of the following:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
Mortgage loans:
<S> <C> <C>
Due 2002, LIBOR plus 2.00% and 2.25% in 1999 and 1998, respectively $ 79,514 $ 108,680
Due 2003, LIBOR plus 2.00% and 2.25% in 1999 and 1998, respectively 555,570 722,235
Due 2004, LIBOR plus 2.00% and 2.50% in 1999 and 1998, respectively 1,524,710 1,932,975
Due 2005, LIBOR plus 2.00% and 2.50% in 1999 and 1998, respectively 2,077,208 2,535,698
Due 2006, fixed rate of 9.44% 5,000,010 5,400,006
Term loans:
Due 1999, fixed rate of 9.650% 1,291,686 1,541,682
Due 2002, fixed rate of 10.120% 5,764,373 7,099,727
Due 2002, fixed rate of 8.631% 5,767,863 6,211,546
Obligation under capital lease, 8.50% 58,585 106,085
------------ ------------
22,119,519 25,658,634
Less - Portion due within one year, including amounts
For capital lease of $47,500 in 1999 and 1998 (3,476,360) (3,336,265)
------------ ------------
$ 18,643,159 $ 22,322,369
============ ============
</TABLE>
The two-month LIBOR rate was 4.97% at April 30, 1999. The Company's
primary lender has extended its commitment for the Company's working
line of credit of $3,750,000 through September 28, 1999. In addition,
the Company also has a $4,500,000 capital line of credit. The working
line of credit is limited to the lesser of $3,750,000 or the sum of 80%
of the Company's accounts receivable under 90 days old, plus 45% of the
Company's inventory. At April 30, 1999, the Company had utilized
$200,000 of its available lines of credit as collateral for various
letters of credit.
None of the debt agreements outstanding during 1999 require material
compensating balances or commitment fees. Substantially all assets of
the Company have been pledged to secure the outstanding borrowings.
Certain loan agreements require that the Company maintain specified
minimums with regard to net worth, current maturity coverage and the
incurrence of additional indebtedness. In addition, the Company cannot
declare dividends without the consent of its primary lender. The
Company is in compliance with such requirements and restrictions.
F-11
<PAGE> 21
TRAVEL PORTS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999, 1998 AND 1997
Long-term debt requirements including in 1999 capital leases, over the
next five years are as follows: 2000 - $3,476,300; 2001 - $3,442,500;
2002 - $3,589,100; 2003 - $3,216,300 and 2004 - $1,701,000.
8. CONVERTIBLE SENIOR SUBORDINATED DEBENTURES
In December 1997, the Company issued $2,000,000 of 7.81% convertible
senior subordinated debentures due December 4, 2007, together with
warrants to purchase 40,000 additional shares of the Company's common
stock, 43,200 after the 1998 stock dividend. No principal repayments
are required until December 2002 at which time $200,000 will be due and
$400,000 a year thereafter until 2006 and $200,000 in 2007. Interest is
payable on a quarterly basis. The debentures may be converted at the
bondholders' option into 502,512 shares of the Company's common stock
at $3.98 per share. The warrants are exercisable at any time through
their expiration date of December 2007 at an exercise price of $4.78
per share. A value of $100,000 was assigned to the warrants at issuance
and has been credited to additional paid-in capital.
In January 1995, the Company issued $4,650,000 of 8.5% convertible
senior subordinated debentures due January 15, 2005 together with
warrants to purchase 93,000 additional shares of the Company's common
stock. Due to the 1998 and 1997 stock dividends (Note 12), the warrants
available at April 30, 1999 and 1998 are 106,467. There were no stock
dividends during fiscal year 1999. No principal repayments are required
until January 2001. Commencing in January 2001, the Company is required
to redeem, on an annual basis, 20% of the outstanding balance of
debentures at par. Interest is payable on a quarterly basis. The
debentures are subordinate to all other indebtedness and may be
converted at the bondholders' option into 1,241,982 shares of the
Company's common stock at $2.62 per share. The debentures were callable
at the discretion of the Company after January 15, 1998, at a
redemption price equal to 109% of the principal amount outstanding as
of January 15, 1998, and gradually decreasing to 100% of the principal
amount outstanding at maturity on January 15, 2005. The warrants are
exercisable at any time through their expiration date of January 2005
at an exercise price of $3.15 per share.
During fiscal year 1999 and 1998, $903,031 and $500,000 of the 8.5%
senior subordinated debentures and warrants were converted into 343,500
and 159,000 shares of common stock, respectively, adjusted for the 1998
8% stock dividend. The outstanding 8.5% convertible senior subordinated
debentures were $3,254,000 and $4,150,000 at April 30, 1999 and 1998,
respectively.
F-12
<PAGE> 22
TRAVEL PORTS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999, 1998 AND 1997
9. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
Current provision:
<S> <C> <C> <C>
Federal $ 745,600 $ 435,800 $ 482,500
State 71,600 186,100 128,400
---------- ---------- ----------
817,200 621,900 610,900
---------- ---------- ----------
Deferred provision:
Federal 485,500 842,200 467,900
State 61,700 158,700 124,200
---------- ---------- ----------
547,200 1,000,900 592,100
---------- ---------- ----------
$1,364,400 $1,622,800 $1,203,000
========== ========== ==========
</TABLE>
The reconciliation of the federal statutory income tax rate to the
effective income tax rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal rate $ 1,253,300 $ 1,346,600 $ 987,100
State income taxes, net
of federal benefit 110,600 227,600 166,700
Amortization of goodwill 21,800 21,800 21,800
Meals and entertainment 30,100 25,700 24,800
IRS environmental adjustment (52,600) -- --
Other 1,200 1,100 2,600
----------- ----------- -----------
Effective tax rate $ 1,364,400 $ 1,622,800 $ 1,203,000
========== =========== ===========
</TABLE>
F-13
<PAGE> 23
TRAVEL PORTS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999, 1998 AND 1997
A summary of the deferred income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
ASSETS
<S> <C> <C>
Bad debt reserve $ 54,800 $ 86,700
Vacation accrual 78,200 78,200
Inventory basis difference 98,200 106,000
Book accruals not currently deductible for tax 89,600 18,300
Environmental reserve 59,400 --
Alternative minimum tax credit carryforward 219,000 242,800
---------- ----------
Gross deferred tax assets 599,200 532,000
---------- ----------
LIABILITIES
Depreciation 3,261,800 2,647,400
---------- ----------
Gross deferred tax liabilities 3,261,800 2,647,400
---------- ----------
Net deferred tax liabilities $2,662,600 $2,115,400
========== ==========
</TABLE>
10. EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution employee benefit plan
covering substantially all employees who have completed one year of
service. Matching contributions are made at the discretion of the Board
of Directors at the rate of 50% of employee contributions up to 6% of
gross compensation. Total Company matching contributions were $204,700,
$145,000 and $119,200 for 1999, 1998 and 1997, respectively.
F-14
<PAGE> 24
TRAVEL PORTS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999, 1998 AND 1997
11. SHAREHOLDERS' EQUITY
Changes in shareholders' equity are as follows:
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at April 30, 1997 $ 55,749 $ 4,649,414 $ 11,111,811 $ 15,816,974
Net income -- -- 2,337,680 2,337,680
Exercise of options 846 146,689 -- 147,535
Stock dividend 4,650 1,942,699 (1,948,866) (1,517)
Issuance of warrants on 7.81%
convertible subordinate debentures -- 100,000 -- 100,000
Conversions of 8.5% convertible
subordinate debentures 1,781 498,219 -- 500,000
------------ ------------ ------------ ------------
Balance at April 30, 1998 63,026 7,337,021 11,500,625 18,900,672
Net income -- -- 2,321,878 2,321,878
Exercise of options 274 75,614 -- 75,888
Conversion of 8.5% convertible
subordinate debentures and warrants 3,435 899,596 -- 903,031
------------ ------------ ------------ ------------
Balance at April 30, 1999 $ 66,735 $ 8,312,231 $ 13,822,503 $ 22,201,469
============ ============ ============ ============
</TABLE>
On April 23, 1998, the Company declared an 8% stock dividend which was
paid to shareholders of record on April 10, 1998. The dividend was charged
to retained earnings in the amount of $1,947,349, which was based on the
closing price of $4.19 per share on the date of record. Average shares
outstanding and all per share amounts included in the accompanying
financial statements and notes are based on the increased number of shares
giving retroactive effect to the stock dividend.
F-15
<PAGE> 25
TRAVEL PORTS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999, 1998 AND 1997
12. STOCK OPTION PLANS
The Company has stock option plans for officers and other key
employees. Provisions of the plans are similar. Options may be granted
at prices not less than the fair market value at the date of grant and
expire no later than ten years after the date of grant. At April 30,
1999, a total of 173,560 options were available for future grant under
the existing plans. A summary of changes in outstanding stock options
is as follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
UNDER EXERCISE
OPTION PRICE
------- -------
<S> <C> <C>
Outstanding at April 30, 1996 559,290 $ 1.92
Granted 187,091 $ 2.35
Exercised (23,239) $ 1.33
Canceled (4,006) $ 1.60
-------
Outstanding at April 30, 1997 719,136 $ 2.05
Granted 313,740 $ 2.86
Exercised (91,334) $ 1.62
-------
Outstanding at April 30, 1998 941,542 $ 2.36
Exercised (27,432) $ 2.12
Canceled (6,545) $ 3.09
-------
Outstanding at April 30, 1999 907,565 $ 2.36
Exercisable at April 30, 1999 820,895 $ 2.62
======= ========
</TABLE>
During 1997, the Company adopted the disclosure requirements of SFAS
No. 123, "Accounting for Stock-Based Compensation." In accordance with
SFAS No. 123, the Company has elected not to recognize compensation
cost related to stock options with exercise prices equal to the market
price at the date of issuance. If the Company had elected to recognize
compensation cost based on the fair value of the options at grant date
as prescribed by SFAS No. 123, net income and earnings per share would
have been reduced by $72,274, $350,900 and $319,300, or $.01, $.06 and
$.06 per share, for the years ended April 30, 1999, 1998 and 1997.
There were no options granted by the Company for the year ended April
30, 1999. The weighted average fair value of options granted during
1998 was $2.04, determined by the Black-Scholes option valuation model.
The following assumptions were used in the model: expected volatility
of 63.3%, expected dividend yield of 0%, and risk-free interest rate of
6.3%. The expected lives of the options are 8 years. Forfeitures are
recognized as they occur.
F-16
<PAGE> 26
TRAVEL PORTS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE
EXERCISE OUTSTANDING LIFE PRICE
---------------- ---------------- -------------- -------------
<S> <C> <C> <C>
$1.31 - $2.02 321,184 4.07 $1.70
$2.18 - $3.35 586,381 7.65 $2.73
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE
EXERCISE OUTSTANDING LIFE PRICE
---------------- ---------------- -------------- -------------
<S> <C> <C> <C>
$1.31 - $2.02 321,184 4.07 $1.70
$2.18 - $3.35 499,711 7.50 $2.62
</TABLE>
13. RELATED PARTY TRANSACTIONS
The Maybrook, New York motor plaza is leased from a realty company
owned by two individuals, one of whom is a shareholder director of the
Company. The lease covers a period through March 2004 at which time the
Company has the option to purchase the facility for $3,500,000. Annual
rentals under the lease are $450,000.
The Company pays a shareholder director, fees and bonuses for
consulting, management and other services rendered to the Company.
These fees and bonuses amounted to approximately $216,700, $213,600 and
$203,600 for the years 1999, 1998 and 1997, respectively.
14. SUBSEQUENT EVENT
Effective June 1, 1999, the Company was acquired by TravelCenters of
America (TA), a travel center chain based in Westlake, Ohio. Under the
terms of the agreement, TA will pay $40.5 million in cash as
consideration for the sale of all outstanding shares of the Company. As
of June 3, 1999, TA redeemed all outstanding bonds, paid the
outstanding notes payable and accelerated the vesting of and paid
amounts owed under the stock option plans.
F-17
