<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: OCTOBER 20, 2000
(DATE OF EARLIEST EVENT REPORTED)
TRAVELCENTERS OF AMERICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 333-26497 36-3856519
(STATE OR OTHER (COMMISSION (I.R.S. EMPLOYER
JURISDICTION FILE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION)
</TABLE>
<TABLE>
<S> <C>
24601 CENTER RIDGE ROAD, SUITE 200, WESTLAKE, OHIO 44145-5634
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (440) 808-9100
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<PAGE> 2
ITEM 9. REGULATION FD DISCLOSURE
Set forth below is certain information related to the business description
and business risks of TravelCenters of America, Inc.
BUSINESS DESCRIPTION
STRATEGIC ALLIANCES
- Pathway Network. We have an alliance with Simons Petroleum Inc., which,
through its Pathway Network, allows trucking fleets to lock-in their
diesel fuel costs for up to two years. We have the exclusive right to
offer this service in the markets in which we operate. Simons contracts
with fleets to permit them to hedge diesel fuel prices, and we facilitate
the distribution of diesel fuel through our travel centers. We receive a
fixed margin per gallon on the sale of diesel fuel to fleets
participating in the Pathway Network, but we do not assume any of the
hedging risk associated with the underlying transactions.
- Bridgestone. The Bridgestone/Firestone Tire Sales Company is the leading
original equipment truck tire supplier in the United States, and its
tires are the leading replacement tire in the travel center and truck
stop market. Through our alliance with Bridgestone/Firestone, we have
negotiated and executed a favorable long-term supply agreement and have
become Bridgestone/Firestone's number one marketer of truck tires in our
distribution channel.
- Shell/Equilon. With its "Shell ROTELLA T" brand, Equilon Enterprises LLC
is the leading supplier in the United States of lubricants and oils to
over-the-road class 8 truck service providers. Through our alliance with
Equilon, we have been granted access to all of Equilon's supply terminals
and distributor network and favorable pricing, and we have become
Equilon's leading travel center and truck stop marketer of lubricants and
oils to trucking fleets and independent truck drivers.
FLEET RELATIONSHIPS
We supply diesel fuel to 49 of the 50 largest long-haul trucking fleets in
the United States and are the principal supplier of diesel fuel to the two
largest and four of the five largest long-haul trucking fleets. For the twelve
months ended June 30, 2000, our sites sold 68% of their total diesel fuel sales
volume to trucking fleets.
CUSTOMERS
The following include certain of our larger trucking fleet customers (based
on diesel fuel sales volume): Allied Holdings, Arnold Industries, Inc., Celadon
Group, Inc., Covenant Transport, Inc., Crete Carrier Corp., C.R. England, Inc.,
CRST International, J.B. Hunt Transport Services, Landstar Systems, Inc., Marten
Transport, Ltd., M.S. Carriers, Prime Inc., Schneider National, Swift
Transportation Co., Inc., USA Truck, Inc., U.S. Xpress Enterprises, Watkins
Associated Industries and Werner Enterprises.
APPRAISAL OF SITES
Deloitte & Touche LLP was retained to provide a real estate appraisal and
to perform business valuation procedures to estimate the value in use of our
company-owned network sites. Accordingly, Deloitte & Touche completed a limited
appraisal and business valuation procedures, dated as of June 15, 2000, in
accordance with the requirements of the Uniform Standards of Professional
Appraisal Practice as promulgated by The Appraisal Foundation and the Appraisal
Institute. As of that date, Deloitte & Touche estimated an aggregate value in
use of our 149 company-owned sites that are currently in operation of
approximately $1,049,023,000.
CAPITAL INVESTMENT PROGRAM
In 1997, we initiated a capital investment program to maintain, re-brand,
re-image, upgrade and expand our network of travel centers and to build new
sites. Under this program, we invested approximately $264.1 million through June
30, 2000, of which approximately $139.5 million represented one-time
investments.
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Maintenance Capital Expenditures. Maintenance capital expenditures are
aimed at preserving the base level of operations at our sites and corporate
headquarters. Included in this category are items such as new roofs, heating,
ventilation and air conditioning systems, parking lot paving, new service trucks
and kitchen equipment. We estimate that we will have annual on-going maintenance
capital expenditures of $30,000 to $50,000 for each company-owned travel center
location. In addition, we expect to spend a total of approximately $1.0 million
per year for environmental capital items and $8.0 million to $10.0 million per
year for various site discretionary projects (such as new satellite fueling
pumps and shower upgrades), information systems upgrades and enhancements and
other corporate headquarters projects.
One-time Environmental Costs. We spent approximately $8.7 million to
complete the installation of equipment necessary to comply with underground
storage tank regulations that went into effect in December 1998. The
environmental upgrades included installing, among other items, double-walled
fiberglass underground storage tanks, overfill and spill prevention and
detection equipment, automatic tank gauging systems and cathodic protection
systems for underground storage tanks. We do not know of any similar
environmental mandates and, as a result, expenditures for our on-going
environmental-related projects are included under maintenance capital
expenditures described above.
Information System Upgrades and Replacement. We invested approximately
$31.4 million in information system projects including: information systems
software and hardware, such as a new financial and fuel accounting system;
upgraded human resource and payroll systems; enhancements to our online credit
card authorization and information retrieval system; and updated point-of-sales
systems in our travel and convenience stores, full-service and fast food
restaurants and truck repair and maintenance shops. As a result, we have
upgraded or replaced substantially all of our information systems and believe
that we now have state-of-the-art information technology systems. Our on-going
system maintenance and upgrade costs are included under maintenance capital
expenditures above.
Re-branding and Transition Expenses. We expect to invest less than $1.5
million to complete any remaining re-branding projects by the end of 2001.
Site Re-Images and Conversions
Through June 30, 2000, we completed full re-image projects at 24 of our
sites at an average investment of $1.8 million per site. We believe that these
full re-image projects have been successful to date in increasing the volume of
both trucking and general motorist traffic at our travel centers. At the 20
sites at which we had completed a full re-image project by December 31, 1999,
aggregate diesel fuel sales volume, aggregate gasoline sales volume and
aggregate non-fuel revenues increased by an average of 48%, 41% and 38%,
respectively, during the six-month period immediately following the completion
of the re-image project as compared to the six-month period immediately
preceding the initiation of our site re-image program in 1998. For the six sites
that we acquired subsequent to the initiation of our site re-image program, the
comparison period used was the first six months in which we operated each site.
On an annualized basis, per site EBITDA (as defined below in the pro forma
financial data) increased by an average of $482,000, at these sites. At 10 of
our sites, we have completed smaller scale re-image projects, which include some
features of the full re-image projects, but do not include a material expansion
of the square footage of the building or as comprehensive an enhancement of our
product offering as full re-image projects. In addition, by the end of 2001, we
intend to invest an additional $33.5 million to complete full re-image projects
at 18 of our sites and to invest an additional $6.4 million to complete smaller
scale re-image projects at 42 of our sites.
In an effort to maximize control over the quality and consistency of our
network, we acquired the businesses at 34 sites that had been operated by
franchisees, including 33 sites that we had leased to their respective
operators. These sites, excluding the two sites acquired in 2000 and the two
sites we had sold or closed subsequent to their acquisition, contributed to us a
combined EBITDA of $28.9 million for 1999 as compared to $18.8 million in their
final full year as leased sites.
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The following sets forth the implied return on investment for certain
re-imaged and converted sites:
<TABLE>
<CAPTION>
NUMBER TOTAL EBITDA
PROJECT CATEGORY COMPLETED INVESTMENT IMPROVEMENT IMPLIED ROI
---------------- --------- --------------- --------------- -----------
($ IN MILLIONS) ($ IN MILLIONS)
<S> <C> <C> <C> <C>
Site Re-Images(1)................... 20 $36.3 $ 9.6 26.4%
Site Conversions(2)................. 30 23.9 10.1 42.3%
-- ----- ----- ----
Total............................... $60.2 $19.7 32.7%
</TABLE>
---------------
(1) Reflects results for the 20 sites at which we had completed a full re-image
project by December 31, 1999. For those sites, the data reflects the
six-month period following the re-image compared to the six-months preceding
the initiation of our site re-image program. For the six sites that we
acquired subsequent to the initiation of our site re-image program, the
comparison period used was the first six months in which we operated each
site.
(2) Reflects 1999 results compared to the converted sites final full year as
leased sites. Excludes the two sites that we acquired in 2000 and the two
sites that we sold or closed after their acquisition.
Site Upgrades
Through June 30, 2000, in addition to the site re-image projects, we
invested $40.8 million to upgrade and expand the product offerings of our sites.
An upgrade typically includes adding one or more of the following: branded fast
food restaurants, which we refer to as quick service restaurants, or QSRs,
additional diesel fuel and gasoline pumps and canopies and new truck repair and
maintenance shops.
New Site Constructions
Based on traffic count analysis, freight movement research and mapping and
census data, we have identified several new interstate areas available for our
network's expansion. We have designed a "prototype" facility and a smaller
"protolite" facility to standardize our travel centers and expand our brand name
into new geographic markets while also increasing our appeal to general
motorists. The prototype and protolite designs combine an improved and efficient
facility layout, nationally branded QSRs and expanded product and service
offerings with what we believe is the most advanced fueling, billing and repair
and maintenance technology in our industry. Since May 1999, we have completed
construction of one protolite and five prototype facilities. Most of our future
expansion will be with the protolite format, which requires significantly less
land and capital investment than the prototype design and enables us to quickly
and cost effectively gain a presence in smaller markets. We will also pursue
strategic acquisitions.
We have constructed five new prototype facilities, one each in Commerce
City, Colorado (near Denver); Cartersville, Georgia (near Atlanta); Amarillo,
Texas; Monroe, Michigan (near Detroit); and San Antonio, Texas. These sites
opened for business in May, October and December 1999 and April and August 2000,
respectively. We also constructed a new protolite facility in Florence,
Kentucky, which opened for business in December 1999. Because of our strong
relationships with large trucking fleets, we are able to quickly direct truck
traffic to new sites, hastening the payback of development costs. Each of these
newly constructed prototype and protolite facilities has had positive cash flow,
excluding financing costs, within three months of commencing operations. With
the exception of the Florence site, each of these sites was constructed under
build-to-suit operating leases with our only capital investment being for
signage and certain equipment. We estimate that on an on-going basis the average
cost of a prototype and protolite facility is $8.0 million and $5.0 million,
respectively, excluding the cost of land.
INCREASED OPERATING EFFICIENCY
We have implemented several initiatives aimed at reducing our operating
expenses by increasing the efficiency of our operations. Since 1997, we have
replaced or upgraded almost all of our information systems, and we believe that
we now have state-of-the-art information technology systems. Because labor costs
constitute about two-thirds of our operating expenses, we have established a
labor cost reduction program which involves
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implementing technology to automate manual processes, to upgrade existing
software and to reduce expenses through improved labor scheduling. We have also
implemented centralized purchasing and distribution arrangements and installed a
new, fully integrated enterprise resource planning system. Since these
initiatives were instituted, we have reduced same-site operating expenses as a
percentage of non-fuel revenues at our company-operated sites from 56.1% in 1997
to 54.1% in 1999, representing annual savings of $5.1 million, or 3.7% of 1999
operating expenses at those sites that we have operated throughout the
three-year period. Due to our recently implemented enterprise resource planning
system and upgraded point-of-sale, human resource and payroll systems, we have
reduced our site administrative personnel by 111 persons since January 2000,
resulting in annual savings of approximately $2.8 million.
MASTER LEASE PROGRAM
On September 9, 1999, we entered into a master lease program that is being
used to finance the construction of eight travel centers on land we own or
expect to purchase. Four of these travel centers are new sites in our network
and four are travel centers being razed and rebuilt. All eight sites will follow
the prototype or protolite design. The total committed amount of the facility is
$68.0 million, of which $39.5 million was used as of June 30, 2000. The
remaining amount available under the program will be used by March 2002, at
which time construction of the eighth site is expected to be completed.
Construction at three of the travel centers was completed by June 30, 2000 and a
fourth travel center was completed in August 2000. We expect one additional
travel center to be completed by the end of 2000 and two additional travel
centers to be completed during 2001. We currently own the land on which seven of
the travel centers are being constructed and expect to acquire the eighth site
within the next six months. The initial term of the lease expires on September
9, 2006, at which time, if the lease is not extended, we have the option to
purchase the improvements at a negotiated price. Under the related lease
agreement, our quarterly lease payments are based on the capitalization and
weighted-average cost of capital of the lessor. The lessor was initially
capitalized with $2.4 million of equity and has entered into a loan and security
agreement through which it has borrowed $37.1 million through June 30, 2000 and
can borrow an additional $28.5 million as the funds are needed to pay the
construction costs of our sites. We do not guarantee the indebtedness of the
lessor. The lessor's equity holders receive a return on their contributed
capital equal to LIBOR plus 10.75%, while the interest rate for the indebtedness
is equal to LIBOR plus a spread that will decrease from 4.0% to 3.0% if our
ratio of total debt to EBITDA improves. Our quarterly rent payments are
calculated to equal the quarterly interest expense, return on equity and debt
amortization requirements of the lessor, based on a 40 year straight-line
amortization schedule.
FUEL AND NON-FUEL SALES
Our fuel and non-fuel gross profits on a pro forma basis for the twelve
months ended June 30, 2000 were 9% and 59%, respectively.
BUSINESS RISKS
DIESEL FUEL MARKET VOLATILITY
We purchase diesel fuel from various suppliers at rates that fluctuate with
market prices and reset daily, and resell diesel fuel on a wholesale and retail
basis at rates that we reset daily. Price increases have historically and during
2000 tended to lead to temporary declines in retail diesel fuel sales volumes,
which has or could have a negative impact on our revenues. Numerous factors
outside of our control may increase diesel fuel costs. Fuel costs have continued
to rise during 2000 due to low inventories of oil resulting from reduced output
by OPEC nations. During periods of rapid increases in diesel fuel prices, such
as those that occurred during this year, competitive pressures often limit our
ability to increase our diesel fuel sales price at the same rate as the increase
in our supply prices, resulting in a reduction in our margins.
In addition, the Environmental Protection Agency has proposed regulations
to decrease the sulfur content of diesel fuel by 2006. The enactment of these
regulations could reduce the supply and/or increase the cost of diesel
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fuel. A material decrease in the volume of diesel fuel or gasoline sold for an
extended period of time or instability in the prices of diesel fuel or gasoline
would have a material adverse effect on us.
LOSS OF THIRD-PARTY SUPPLIER COULD NEGATIVELY IMPACT US
We buy our non-fuel products from third-party suppliers and resell them to
our customers. If our suppliers are unable to meet their obligations under
present supply agreements, we may be forced to pay higher prices to obtain the
same products. In August 2000, Bridgestone/Firestone announced a recall of
certain Firestone automobile and light truck tires. The tire recall could,
potentially, have a material adverse effect on the financial condition of
Bridgestone/Firestone. Our agreement with Bridgestone/Firestone allows us to
terminate the agreement on 30 days' notice upon the occurrence of certain
events. Although there are alternate tire suppliers and we already distribute
truck tires manufactured by Kelly-Springfield Tire, a wholly-owned operation of
Goodyear Tire & Rubber Co., we cannot assure you that we will be able to enter
into agreements with those suppliers, or that any agreements will be on terms as
favorable as our current arrangement with Bridgestone/Firestone.
PRO FORMA FINANCIAL DATA
The following unaudited consolidated pro forma financial data have been
prepared by applying pro forma adjustments to our historical consolidated
financial statements. The pro forma adjustments give effect to a series of
transactions in which:
- We entered into a recapitalization agreement and plan of merger, as
amended, with TCA Acquisition Corporation, a newly created corporation
formed by Oak Hill Capital Partners, L.P. and its affiliates ("Oak
Hill"), under which TCA Acquisition Corporation will merge with and into
us.
- Oak Hill will invest $133.0 million to purchase approximately 60.5% of
our equity.
- Olympus Growth Fund III, L.P., Olympus Executive Fund, L.P., Monitor
Clipper Equity Partners, L.P., Monitor Clipper Equity Partners (Foreign),
L.P., UBS Capital Americas II, LLC and Credit Suisse First Boston LFG
Holdings 2000, LLC (collectively, the "Other Investors"), who are all
affiliates of certain of our current stockholders, will invest $72.0
million, in the aggregate, to purchase approximately 32.7% of our equity.
- Freightliner LLC will retain its current equity investment and, in
connection with the Transactions, will exercise an option to invest $3.3
million to purchase an additional 1.4% of our equity, such that after the
Transactions (as defined below) it will own 4.3% of our equity.
- Members of our management team will retain approximately 2.0% of our
equity and will exercise options to purchase an additional 0.5% of our
equity, such that after the Transactions they will own in the aggregate,
before the impact of new options, approximately 2.5% of our equity.
- All other shares of our outstanding capital stock, including preferred
stock, and all unexercised common stock options and warrants will be
canceled in exchange for cash payments totaling approximately $264.0
million. This amount is net of $15.4 million of expenses of the selling
stockholders that we will pay at the closing of the Transactions. These
expenses will be charged to expense in our statement of operations and
retained earnings (deficit) in the period in which the Transactions are
consummated.
- We will repay all amounts outstanding under our existing Amended and
Restated Credit Agreement dated as of November 24, 1998 (the "Existing
Credit Agreement"), redeem in full all of our existing senior secured
notes and consummate a tender offer and consent solicitation for our
10 1/4% Senior Subordinated Notes due 2007. Consequently, we will a pay
tender offer and consent solicitation premium and fees and will pay a
prepayment penalty associated with our senior secured notes that together
total approximately $12.5 million.
- We will amend and restate the Existing Credit Agreement in an amount up
to $408.0 million (the "Senior Credit Facility") under which we will
borrow $308.3 million at the closing of the Transactions.
- We will enter into other debt financing.
We refer to these events collectively as the "Transactions."
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The pro forma adjustments also give effect to the following events related
to travel center acquisitions and dispositions and the actual results through
June 30, 2000 of an administrative labor reduction program initiated in
contemplation of the Transactions:
- the acquisition of 16 travel centers from Travel Ports of America, Inc.
on June 3, 1999,
- the acquisition of four travel center businesses in three separate
transactions during the first quarter of 2000 (one of the businesses was
a leased site at the time of acquisition and one of the businesses was a
franchisee-owned site at the time of acquisition),
- the dispositions, by sale or closure, of five of our company-operated
sites during 1999, and
- the reduction of site administrative headcount by 111 from January 2000
through June 30, 2000, under a program to reduce site administrative
labor expense. This program was initiated in January 2000 in
contemplation of the Transactions and was substantially complete by June
30, 2000, with the actual reduction of 111 people through June 30, 2000.
The unaudited consolidated pro forma statements of operations for the year
ended December 31, 1999, the six-month period ended June 30, 1999 and the
six-month period ended June 30, 2000 give effect to (a) the Transactions, (b)
the Travel Ports acquisition, (c) the other travel center business acquisitions,
(d) the travel center dispositions and (e) the administrative labor reduction
program as if all of these transactions had occurred on January 1, 1999. The
unaudited consolidated pro forma balance sheet as of June 30, 2000 gives effect
to the Transactions as if the Transactions occurred on that date. The unaudited
consolidated pro forma statement of operations for the twelve months ended June
30, 2000 have been derived by adding the pro forma financial data for the year
ended December 31, 1999 and the pro forma financial data for the six months
ended June 30, 2000 and subtracting the pro forma financial data for the six
months ended June 30, 1999. The unaudited consolidated pro forma financial data
do not give effect to any other transactions except those discussed in the
accompanying notes.
The historical financial data for Travel Ports and each of the other four
travel center businesses we acquired were derived from their unaudited financial
records. These acquisitions were accounted for using the purchase method of
accounting. The total purchase costs of the acquisitions were allocated to the
assets acquired and the liabilities assumed, based on their respective estimated
fair values. The results of operations from the businesses acquired were
included in our historical results of operations from the consummation dates of
the acquisitions, which were June 3, 1999 for Travel Ports; January 6, 2000 for
one site; February 15, 2000 for two sites; and March 6, 2000 for one site. One
of the travel center businesses acquired on February 15, 2000 was a leased site
and the travel center business acquired on March 6, 2000 was a franchisee-owned
site.
The unaudited consolidated pro forma condensed financial data are for
informational purposes only. They do not purport to represent what our financial
position or the results of our operations as of or for the periods presented
would have actually been had the Transactions, the Travel Ports acquisition, the
other travel center business acquisitions, the travel center dispositions and
the labor reductions in fact occurred as of the assumed dates, nor are they
intended to be indicative of, or projections for, our results of operations or
financial position for any future period or date. The pro forma adjustments, as
described in the accompanying notes, are based on available information and upon
certain assumptions that we believe are reasonable.
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UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER
COMPANY ACQUISITIONS SITE COMBINED
HISTORICAL HISTORICAL(2) ADJUSTMENTS(3) DISPOSITIONS(4) HISTORICAL
---------- ------------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Fuel...................................... $1,240,586 $23,239 $(2,741) $(3,323) $1,257,761
Non-fuel.................................. 528,362 11,685 -- (2,358) 537,689
Rent and royalties........................ 19,281 -- (794) -- 18,487
---------- ------- ------- ------- ----------
Total revenues........................ 1,788,229 34,924 (3,535) (5,681) 1,813,937
Cost of revenues (excluding
depreciation)........................... 1,350,803 25,194 (2,741) (4,044) 1,369,212
---------- ------- ------- ------- ----------
Gross profit (excluding depreciation)..... 437,426 9,730 (794) (1,637) 444,725
Operating expenses........................ 294,481 7,929 (95) (1,917) 300,398
Selling, general and administrative
expenses................................ 38,519 -- -- -- 38,519
Transition expense(6)..................... 2,672 -- -- -- 2,672
Depreciation and amortization expense..... 63,187 393 -- (271) 63,309
(Gain) loss on sales of property and
equipment............................... (2,789) -- -- 249 (2,540)
Stock compensation expense................ 4,162 -- -- -- 4,162
---------- ------- ------- ------- ----------
Income from operations.................... 37,194 1,408 (699) 302 38,205
Interest (expense), net................... (40,864) (341) 341 -- (40,864)
---------- ------- ------- ------- ----------
Income (loss) before income taxes......... (3,670) 1,067 (358) 302 (2,659)
Provision (benefit) for income taxes...... (743) 427 (143) 121 (339)
---------- ------- ------- ------- ----------
Net income (loss)..................... $ (2,927) $ 640 $ (215) $ 181 $ (2,320)
========== ======= ======= ======= ==========
OTHER FINANCIAL AND OPERATING DATA:
EBITDA(7)................................. $ 104,426 $ 1,801 $ (699) $ 280 $ 105,808
Adjusted EBITDA(8)........................
Total diesel fuel sold (thousands of
gallons)................................ 1,395,898 21,517 (3,985) (4,551) 1,408,879
Ratio of Adjusted EBITDA to interest
expense, net(9).........................
Ratio of net debt to Adjusted
EBITDA(10)..............................
<CAPTION>
ADJUSTMENTS
FOR THE
TRANSACTIONS PRO FORMA(5)
------------ ------------
<S> <C> <C>
REVENUES:
Fuel...................................... $ -- $1,257,761
Non-fuel.................................. -- 537,689
Rent and royalties........................ -- 18,487
-------- ----------
Total revenues........................ -- 1,813,937
Cost of revenues (excluding
depreciation)........................... -- 1,369,212
-------- ----------
Gross profit (excluding depreciation)..... -- 444,725
Operating expenses........................ (2,174)(11) 298,224
Selling, general and administrative
expenses................................ -- 38,519
Transition expense(6)..................... -- 2,672
Depreciation and amortization expense..... 754(12) 64,063
(Gain) loss on sales of property and
equipment............................... -- (2,540)
Stock compensation expense................ -- 4,162
-------- ----------
Income from operations.................... 1,420 39,625
Interest (expense), net................... (14,593)(13) (55,457)
-------- ----------
Income (loss) before income taxes......... (13,173) (15,832)
Provision (benefit) for income taxes...... (5,269)(14) (5,608)
-------- ----------
Net income (loss)..................... $ (7,904) $ (10,224)
======== ==========
OTHER FINANCIAL AND OPERATING DATA:
EBITDA(7)................................. $ 2,174 $ 107,982
Adjusted EBITDA(8)........................ $ 109,148
Total diesel fuel sold (thousands of
gallons)................................ -- 1,408,879
Ratio of Adjusted EBITDA to interest
expense, net(9)......................... 2.0x
Ratio of net debt to Adjusted
EBITDA(10).............................. 4.7x
</TABLE>
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UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER
COMPANY TRAVEL PORTS ACQUISITIONS SITE COMBINED
HISTORICAL HISTORICAL(1) HISTORICAL(2) ADJUSTMENTS(3) DISPOSITIONS(4) HISTORICAL
---------- ------------- ------------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Fuel......................... $ 955,105 $30,467 $36,921 $(3,565) $ (7,387) $1,011,541
Non-fuel..................... 479,059 25,992 18,041 -- (5,089) 518,003
Rent and royalties........... 20,460 -- -- (1,114) -- 19,346
---------- ------- ------- ------- -------- ----------
Total revenues........... 1,454,624 56,459 54,962 (4,679) (12,476) 1,548,890
Cost of revenues (excluding
depreciation).............. 1,051,080 31,933 39,792 (3,565) (8,748) 1,110,492
---------- ------- ------- ------- -------- ----------
Gross profit (excluding
depreciation).............. 403,544 24,526 15,170 (1,114) (3,728) 438,398
Operating expenses........... 267,107 18,000 12,386 34 (3,928) 293,599
Selling, general and
administrative expenses.... 38,461 2,049 -- (417) -- 40,093
Transition expense(6)........ 3,952 678 -- (678) -- 3,952
Depreciation and amortization
expense.................... 53,202 1,518 555 803 (529) 55,549
(Gain) loss on sales of
property and equipment..... (2,615) -- -- -- 135 (2,480)
Stock compensation expense... 5,062 -- -- -- -- 5,062
---------- ------- ------- ------- -------- ----------
Income from operations....... 38,375 2,281 2,229 (856) 594 42,623
Interest (expense), net...... (37,194) (1,057) (449) 1,506 -- (37,194)
---------- ------- ------- ------- -------- ----------
Income (loss) before income
taxes...................... 1,181 1,224 1,780 650 594 5,429
Provision (benefit) for
income taxes............... 1,082 490 712 260 238 2,781
---------- ------- ------- ------- -------- ----------
Net income (loss)........ $ 99 $ 734 $ 1,068 $ 390 $ 356 $ 2,648
========== ======= ======= ======= ======== ==========
OTHER FINANCIAL AND OPERATING
DATA:
EBITDA(7).................... $ 97,976 $ 4,477 $ 2,784 $ (731) $ 200 $ 104,706
Adjusted EBITDA(8)...........
Total diesel fuel sold
(thousands of gallons)..... 1,370,017 58,946 36,125 (6,848) (10,115) 1,448,125
<CAPTION>
ADJUSTMENTS
FOR THE
TRANSACTIONS PRO FORMA(5)
------------ ------------
<S> <C> <C>
REVENUES:
Fuel......................... $ -- $1,011,541
Non-fuel..................... -- 518,003
Rent and royalties........... -- 19,346
-------- ----------
Total revenues........... -- 1,548,890
Cost of revenues (excluding
depreciation).............. -- 1,110,492
-------- ----------
Gross profit (excluding
depreciation).............. -- 438,398
Operating expenses........... (2,774)(11) 290,825
Selling, general and
administrative expenses.... -- 40,093
Transition expense(6)........ -- 3,952
Depreciation and amortization
expense.................... 688(12) 56,237
(Gain) loss on sales of
property and equipment..... -- (2,480)
Stock compensation expense... -- 5,062
-------- ----------
Income from operations....... 2,086 44,709
Interest (expense), net...... (17,483)(13) (54,677)
-------- ----------
Income (loss) before income
taxes...................... (15,397) (9,968)
Provision (benefit) for
income taxes............... (6,159)(14) (3,378)
-------- ----------
Net income (loss)........ $ (9,238) $ (6,590)
======== ==========
OTHER FINANCIAL AND OPERATING
DATA:
EBITDA(7).................... $ 2,774 $ 107,480
Adjusted EBITDA(8)........... $ 108,517
Total diesel fuel sold
(thousands of gallons)..... -- 1,448,125
</TABLE>
9
<PAGE> 10
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER
COMPANY TRAVEL PORTS ACQUISITIONS SITE COMBINED
HISTORICAL HISTORICAL(1) HISTORICAL(2) ADJUSTMENTS(3) DISPOSITIONS(4) HISTORICAL
---------- ------------- ------------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Fuel............................ $380,701 $30,467 $17,940 $(1,487) $(4,064) $423,557
Non-fuel........................ 218,742 25,992 8,741 -- (2,731) 250,744
Rent and royalties.............. 10,572 -- -- (512) -- 10,060
-------- ------- ------- ------- ------- --------
Total revenues.............. 610,015 56,459 26,681 (1,999) (6,795) 684,361
Cost of revenues (excluding
depreciation)................. 423,245 31,933 19,246 (1,487) (4,704) 468,233
-------- ------- ------- ------- ------- --------
Gross profit (excluding
depreciation)................. 186,770 24,526 7,435 (512) (2,091) 216,128
Operating expenses.............. 123,751 18,000 6,082 62 (2,116) 145,779
Selling, general and
administrative expenses....... 19,661 2,049 -- (417) -- 21,293
Transition expense(6)........... 1,647 678 -- (678) -- 1,647
Depreciation and amortization
expense....................... 21,767 1,518 223 803 (258) 24,053
(Gain) loss on sales of property
and equipment................. 260 -- -- -- (114) 146
Stock compensation expense...... 1,800 -- -- -- -- 1,800
-------- ------- ------- ------- ------- --------
Income from operations.......... 17,884 2,281 1,130 (282) 397 21,410
Interest (expense), net......... (17,503) (1,057) (164) 1,221 -- (17,503)
-------- ------- ------- ------- ------- --------
Income (loss) before income
taxes......................... 381 1,224 966 939 397 3,907
Provision (benefit) for income
taxes......................... 268 490 386 376 159 1,678
-------- ------- ------- ------- ------- --------
Net income (loss)........... $ 113 $ 734 $ 580 $ 563 $ 238 $ 2,229
======== ======= ======= ======= ======= ========
OTHER FINANCIAL AND OPERATING
DATA:
EBITDA(7)....................... $ 43,358 $ 4,477 $ 1,353 $ (157) $ 25 $ 49,056
Adjusted EBITDA(8)..............
Total diesel fuel sold
(thousands of gallons)........ 646,061 58,946 18,064 (3,518) (5,564) 713,989
<CAPTION>
ADJUSTMENTS
FOR THE
TRANSACTIONS PRO FORMA(5)
------------ ------------
<S> <C> <C>
REVENUES:
Fuel............................ $ -- $423,557
Non-fuel........................ -- 250,744
Rent and royalties.............. -- 10,060
------- --------
Total revenues.............. -- 684,361
Cost of revenues (excluding
depreciation)................. -- 468,233
------- --------
Gross profit (excluding
depreciation)................. -- 216,128
Operating expenses.............. (1,387)(11) 144,392
Selling, general and
administrative expenses....... -- 21,293
Transition expense(6)........... -- 1,647
Depreciation and amortization
expense....................... 323(12) 24,376
(Gain) loss on sales of property
and equipment................. -- 146
Stock compensation expense...... -- 1,800
------- --------
Income from operations.......... 1,064 22,474
Interest (expense), net......... (9,337)(13) (26,854)
------- --------
Income (loss) before income
taxes......................... (8,273) (4,380)
Provision (benefit) for income
taxes......................... (3,309)(14) (1,636)
------- --------
Net income (loss)........... $(4,964) $ (2,744)
======= ========
OTHER FINANCIAL AND OPERATING
DATA:
EBITDA(7)....................... $ 1,387 $ 50,443
Adjusted EBITDA(8).............. $ 50,715
Total diesel fuel sold
(thousands of gallons)........ -- 713,989
</TABLE>
10
<PAGE> 11
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER
COMPANY ACQUISITIONS SITE COMBINED
HISTORICAL HISTORICAL(2) ADJUSTMENTS(3) DISPOSITIONS(4) HISTORICAL
---------- ------------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Fuel...................................... $666,182 $4,258 $(663) $ -- $669,777
Non-fuel.................................. 268,045 2,385 -- -- 270,430
Rent and royalties........................ 9,393 -- (192) -- 9,201
-------- ------ ----- ----- --------
Total revenues........................ 943,620 6,643 (855) -- 949,408
Cost of revenues (excluding
depreciation)........................... 722,968 4,648 (663) -- 726,953
-------- ------ ----- ----- --------
Gross profit (excluding depreciation)..... 220,652 1,995 (192) -- 222,455
Operating expenses........................ 151,125 1,593 (67) (105) 152,578
Selling, general and administrative
expenses................................ 19,719 -- -- -- 19,719
Transition expense(6)..................... 367 -- -- -- 367
Depreciation and amortization expense..... 31,752 61 -- -- 31,813
(Gain) loss on sales of property and
equipment............................... 86 -- -- -- 86
Stock compensation expense................ 900 -- -- -- 900
-------- ------ ----- ----- --------
Income from operations.................... 16,703 341 (125) (105) 16,992
Interest (expense), net................... (21,173) (56) 56 -- (21,173)
-------- ------ ----- ----- --------
Income (loss) before income taxes......... (4,470) 253 (69) (105) (4,181)
Provision (benefit) for income taxes...... (1,557) 101 (28) 42 (1,441)
-------- ------ ----- ----- --------
Net income (loss)..................... $ (2,913) $ 152 $ (41) $ 63 $ (2,740)
======== ====== ===== ===== ========
OTHER FINANCIAL AND OPERATING DATA:
EBITDA(7)................................. $ 49,808 $ 370 $(125) $ 105 $ 50,158
Adjusted EBITDA(8)........................
Total diesel fuel sold (thousands of
gallons)................................ 671,942 3,456 (655) -- 674,743
<CAPTION>
ADJUSTMENTS
FOR THE
TRANSACTIONS PRO FORMA(5)
------------ ------------
<S> <C> <C>
REVENUES:
Fuel...................................... $ -- $669,777
Non-fuel.................................. -- 270,430
Rent and royalties........................ -- 9,201
------- --------
Total revenues........................ -- 949,408
Cost of revenues (excluding
depreciation)........................... -- 726,953
------- --------
Gross profit (excluding depreciation)..... -- 222,455
Operating expenses........................ (787)(11) 151,791
Selling, general and administrative
expenses................................ -- 19,719
Transition expense(6)..................... -- 367
Depreciation and amortization expense..... 389(12) 32,202
(Gain) loss on sales of property and
equipment............................... -- 86
Stock compensation expense................ -- 900
------- --------
Income from operations.................... 398 17,390
Interest (expense), net................... (6,461)(13) (27,634)
------- --------
Income (loss) before income taxes......... (6,063) (10,244)
Provision (benefit) for income taxes...... (2,425)(14) (3,867)
------- --------
Net income (loss)..................... $(3,638) $ (6,377)
======= ========
OTHER FINANCIAL AND OPERATING DATA:
EBITDA(7)................................. $ 787 $ 50,945
Adjusted EBITDA(8)........................ $ 51,346
Total diesel fuel sold (thousands of
gallons)................................ -- 674,743
</TABLE>
11
<PAGE> 12
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999, THE SIX MONTHS ENDED JUNE 30, 1999
AND JUNE 30, 2000 AND THE TWELVE MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS)
(1) Amounts represent the historical results of Travel Ports for the five-month
period ended May 31, 1999. The results of operations of the Travel Ports
network sites were included in our historical consolidated statement of
operations from June 3, 1999, the closing date of the Travel Ports
acquisition.
(2) Amounts represent the combined historical results of the four travel center
businesses that we acquired as company-operated sites during 2000 for the
period from January 1, 1999 through the respective dates we acquired each
of the businesses. One of these sites had been a leased site within our
network, one had been a franchisee-owned site within our network and the
remaining two sites were not previously part of our network. We acquired
the business at the leased site and the franchisee-owned site on February
15, 2000 and March 6, 2000, respectively, and acquired the businesses at
the other two sites on January 6, 2000 and February 15, 2000, respectively.
The results of operations of these acquired businesses were included in our
historical consolidated statement of operations from those dates.
(3) Amounts represent the adjustments necessary to (a) eliminate certain
elements of our historical revenues, (b) eliminate certain elements of the
historical expenses of the acquired businesses and (c) increase certain
elements of our historical expenses to give effect to the transactions
referred to in notes (1) and (2) as if they had occurred on January 1,
1999. The acquired businesses included the Travel Ports network, one travel
center that was a leased site, one travel center that was a
franchisee-owned site and two travel centers that were not previously part
of our network. Prior to these acquisitions, we received rent and fuel
revenue from the leased site and royalty revenue from each of the leased
site and the franchisee-owned site. The amount of adjustment to the
provision (benefit) for income taxes reflects the incremental income tax
expense or benefit resulting from the following adjustments at an effective
statutory tax rate of 40%.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED TWELVE MONTHS
DECEMBER 31, ----------------------------- ENDED
1999 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 2000
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Fuel revenue:
Eliminate our fuel sales to the
leased site..................... $(3,565) $(1,487) $ (663) $(2,741)
======= ======= ======= =======
Rent and royalties revenue:
Eliminate rent and royalties from
franchised sites................ $(1,114) $ (512) $ (192) $ (794)
======= ======= ======= =======
Cost of revenues:
Eliminate cost of fuel sales of the
leased site..................... $(3,565) $(1,487) $ (663) $(2,741)
======= ======= ======= =======
Operating expenses:
Eliminate rent and royalty expense
of the former franchised
sites........................... $(1,114) $ (512) $ (192) $ (794)
Eliminate executive salaries of the
other acquired businesses....... (320) (160) (48) (208)
Eliminate mortgage expense of the
franchisee-owned site........... (552) (276) (92) (368)
Increase rent expense for new or
revised leases at certain of the
acquired sites.................. 2,020 1,010 265 1,275
------- ------- ------- -------
Total operating expense
adjustments.............. $ 34 $ 62 $ (67) (95)
======= ======= ======= =======
Selling, general and administrative
expenses:
Eliminate Travel Ports executive
compensation.................... $ (417) $ (417) $ -- $ --
======= ======= ======= =======
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED TWELVE MONTHS
DECEMBER 31, ----------------------------- ENDED
1999 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 2000
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Transition expense(6):
Eliminate expenses incurred by
Travel Ports in connection with
its acquisition by us........... $ (678) $ (678) $ -- $ --
======= ======= ======= =======
Depreciation and amortization:
Depreciation related to step-up in
basis of Travel Ports property
and equipment................... $ 504 $ 504 $ -- $ --
Amortization related to intangible
assets recognized in Travel
Ports acquisition............... 299 299 -- --
------- ------- ------- -------
Total depreciation and
amortization
adjustments.............. $ 803 $ 803 $ -- $ --
======= ======= ======= =======
Interest expense, net:
Eliminate historical interest
expense of acquired
businesses...................... $ 1,506 $ 1,221 $ 56 $ 341
======= ======= ======= =======
</TABLE>
(4) Amounts represent the combined historical results of five travel center
sites we closed or sold during 1999 in order to present results for the
period as though these sites had been closed or sold as of January 1, 1999.
One site was sold on each of June 17, 1999; November 18, 1999; and November
30, 1999, and one site was closed on each of October 31, 1999 and December
21, 1999.
(5) The unaudited consolidated pro forma statements of operations exclude the
following non-recurring items that are directly attributable to the
Transactions. All of the following items will be recorded as expenses in
our statement of operations and retained earnings (deficit) in the period
in which the Transactions are consummated.
<TABLE>
<S> <C>
(a) Pay tender offer and consent solicitation premium and
fees and senior secured note prepayment penalty......... $12,500
(b) Pay expenses of selling stockholders.................... 15,433
(c) Write-off of deferred financing costs related to repaid
indebtedness.............................................. 7,708
-------
Total pre-tax amount of expenses.................. $35,641
=======
</TABLE>
(6) "Transition expense" represents non-recurring costs and certain development
costs associated with, among other things, (a) the integration of the BP,
Unocal, Burns Bros. and Travel Ports networks into our current network, (b)
the disposal of travel centers or termination of lease or franchise
agreements and (c) the integration of the management and operations of our
networks into a single network, including relocation, travel, training and
legal expenses. For purposes of this pro forma presentation, the expenses
incurred by Travel Ports during the five months ended May 31, 1999 in
connection with the merger of Travel Ports into us have been classified as
transition expense. These expenses primarily consisted of legal and other
consulting and advisory fees and are eliminated in determining our pro
forma statement of operations amounts as these amounts would not have been
incurred in the periods presented had we consummated the Travel Ports
acquisition on January 1, 1999.
(7) "EBITDA", as used here, consists of net income plus the sum of (a) income
taxes, (b) interest expense, net, (c) depreciation, amortization and other
noncash charges, (d) transition expense and (e) gains and losses on sales
of property and equipment. We have included certain information concerning
EBITDA because management believes that EBITDA is generally accepted as
providing useful information regarding a company's ability to service and
incur debt. EBITDA should not be considered in isolation or as a substitute
for net income, cash flows or other consolidated income or cash flow data
prepared in accordance with generally accepted accounting principles or as
a measure of a company's profitability or liquidity. While
13
<PAGE> 14
EBITDA is frequently used as a measure of operations and ability to meet
debt service requirements, it is not necessarily comparable to similarly
titled captions of other companies due to differences in methods of
calculation.
(8) Our management believes that the following additional adjustment is
relevant to evaluating our future operating performance. The following
additional adjustment eliminates the impact of non-recurring costs
associated with the opening for business of newly constructed travel
centers. "Adjusted EBITDA" represents EBITDA, adjusted as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED TWELVE MONTHS
YEAR ENDED ------------------------------ ENDED
DECEMBER 31, 1999 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 2000
----------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
EBITDA........................ $107,480 $50,443 $50,945 $107,982
Adjustment:
New site start-up costs..... 1,037 272 401 1,166
-------- ------- ------- --------
Adjusted EBITDA............... $108,517 $50,715 $51,346 $109,148
======== ======= ======= ========
</TABLE>
The adjustment for new site start-up costs reflects elimination of actual
expenses we incurred before and upon starting operations at six
newly-constructed travel centers. These expenses primarily consist of (1)
labor costs incurred in the weeks prior to the site opening for business
during which the site work force is being hired and trained and (2) costs of
training the new site employees, which includes labor costs of hourly
employees on loan from established sites for training purposes and travel
costs of these hourly employees and salaried employees from established
sites and our headquarters staff that are involved in training and other
start-up activities. All of the expenses classified as new site start-up
costs are considered to be non-recurring costs. One of the new travel
centers was opened in each of May 1999, October 1999, and April 2000, and
two of the new travel centers were opened in December 1999. The sixth new
travel center, for which costs were incurred during the six months ended
June 30, 2000, opened in August 2000.
(9) Pro forma "Interest (expense), net" is net of interest income of $1.7
million, $1.5 million, $0.2 million and $0.5 million for the year ended
December 31, 1999, the six months ended June 30, 1999, the six months ended
June 30, 2000 and the twelve months ended June 30, 2000, respectively. The
pro forma ratio of Adjusted EBITDA to "Interest expense, net" set forth
above is different than such ratio as calculated pursuant to the terms of
the instruments governing the additional debt incurred to finance the
Transactions, such additional debt having an assumed interest rate of
12.25%. Such ratio, giving effect to the pro forma adjustments, is 2.0x.
(10) "Net debt" is calculated by deducting $0.5 million of cash from total debt
as of June 30, 2000.
(11) Adjustments reflect the reduction in operating expense related to site
administrative personnel reductions achieved during the six months ended
June 30, 2000 as a result of implementing a headcount reduction program in
connection with the Transactions. From January 1, 2000 through June 30,
2000, we eliminated 111 site bookkeeping positions and employees. The
adjustment amounts represent the labor expense we incurred in each period
that would have been avoided had the actual headcount reductions we had
achieved through June 30, 2000 been achieved as of January 1, 1999. These
labor reductions, which were made possible by efficiencies derived from new
computer systems that we have installed, are related to site bookkeepers
and not customer service personnel or other revenue-generating positions.
14
<PAGE> 15
(12) Adjustments reflect (1) amortization of the estimated deferred financing
costs associated with the Senior Credit Facility and the debt financing and
(2) the elimination of our historical amortization expense related to the
deferred financing costs associated with our Amended and Restated Credit
Agreement dated November 24, 1998, our 10 1/4% Senior Subordinated Notes
due 2007 and our existing senior secured notes, each of which is being
repaid as part of the Transactions.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED TWELVE MONTHS
DECEMBER 31, ------------------------------ ENDED
1999 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 2000
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Amortization of new deferred
financing costs(a).............. $$2,037 $ 991 $1,102 $2,148
Elimination of historical deferred
financing cost amortization..... (1,349) (668) (713) (1,394)
------ ------ ------ ------
Net adjustments to amortization
expense......................... $ 688 $ 323 $ 389 $ 754
====== ====== ====== ======
</TABLE>
(a) Adjustment reflects the amortization of deferred financing costs using
the effective interest method over the terms of each of the notes and
the Senior Credit Facility.
(13) Adjustments reflect (1) interest expense associated with borrowings under
the Senior Credit Facility and the additional debt incurred to finance the
Transactions, assuming such additional debt bears interest at 12.25% and
(2) the elimination of our historical interest expense related to our
Amended and Restated Credit Agreement dated as of November 24, 1998, our
10 1/4% Senior Subordinated Notes due 2007 and our existing senior secured
notes.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED TWELVE MONTHS
DECEMBER 31, ------------------------------ ENDED
1999 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 2000
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Senior Credit Facility(a)......... $(30,714) $(15,395) $(15,241) $(30,560)
Additional Debt Incurred(a)....... (24,500) (12,250) (12,250) (24,500)
-------- -------- -------- --------
(55,214) (27,645) (27,491) (55,060)
Elimination of historical interest
expense......................... 37,731 18,294 21,030 40,467
-------- -------- -------- --------
Net adjustments to interest
expense, net.................... $(17,483) $ (9,351) $ (6,461) $(14,593)
======== ======== ======== ========
</TABLE>
(a) At assumed rates of 10.0% (three-month London Interbank Offered Rate
("LIBOR"), as of June 30, 2000, of 6.75% plus a 3.25% spread for term
loan B borrowings and a 2.75% spread for revolving credit facility
borrowings) for the Senior Credit Facility and 12.25% for additional
debt incurred to finance the Transactions. Assumes borrowings under the
Senior Credit Facility of $308,304, of which $304 represents borrowings
under the revolving credit facility. The effect of a 1/8% increase or
decrease in interest rates would increase or decrease total interest
expense by approximately $633, $318, $316 and $631 for the year ended
December 31, 1999, the six months ended June 30, 1999, the six months
ended June 30, 2000 and the twelve months ended June 30, 2000,
respectively.
(14) The adjustments represent the income tax benefit at an effective statutory
tax rate of 40.0% for the effects of the adjustments described in notes
(11) through (13) above.
15
<PAGE> 16
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................... $ 18,988 $508,304(1) $ 459
205,054(2)
3,749(3)
(413,708)(4)
(263,995)(5)
(30,000)(6)
(27,933)(7)
Accounts receivable.................................... 79,114 79,114
Inventories............................................ 58,223 -- 58,223
Deferred income taxes.................................. 3,980 -- 3,980
Other current assets................................... 14,617 14,256(7) 28,873
-------- -------- --------
Total current assets................................ 174,922 (4,273) 170,649
Notes receivable......................................... 1,400 -- 1,400
Property and equipment, net.............................. 452,631 -- 452,631
Intangible assets........................................ 26,430 -- 26,430
Deferred financing costs................................. 7,708 27,500(6) 27,500
(7,708)(7)
Deferred income taxes.................................... 4,250 -- 4,250
Other non-current assets................................. 6,224 -- 6,224
-------- -------- --------
Total assets........................................ $673,565 $ 15,519 $689,084
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt................................ $ 1,601 $ 3,080(1) $ 3,235
(1,446)(4)
Accounts payable....................................... 78,935 -- 78,935
Other accrued expenses................................. 60,256 (5,489)(4) 54,767
-------- -------- --------
Total current liabilities........................... 140,792 (3,855) 136,937
Long-term debt (net of unamortized discount)............. 409,624 505,224(1) 508,075
(406,773)(4)
Deferred income taxes.................................... 1,598 -- 1,598
Other non-current liabilities............................ 17,447 (10,178)(5) 7,269
-------- -------- --------
Total liabilities................................... 569,461 84,418 653,879
Mandatorily redeemable preferred stock................... 85,121 (85,121)(5) --
Nonredeemable stockholders' equity:
Other preferred stock, common stock and other
stockholders' equity................................ 52,042 205,054(2) 212,959
3,749(3)
(45,386)(5)
(2,500)(6)
Retained earnings (deficit)............................ (33,059) (123,310)(5) (177,754)
(21,385)(7)
-------- -------- --------
Total nonredeemable stockholders' equity............ 18,983 16,222 35,205
-------- -------- --------
Total liabilities, redeemable equity and
nonredeemable stockholders' equity................ $673,565 $ 15,519 $689,084
======== ======== ========
</TABLE>
16
<PAGE> 17
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
JUNE 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
(1) Adjustment reflects the increase in our indebtedness from borrowings under
the Senior Credit Facility of $308,304, of which $304 represents borrowings
under the revolving credit facility, and gross proceeds from the additional
debt incurred to finance the Transactions. The total scheduled principal
repayments under the Senior Credit Facility for each of the first six years
is equal to 1% of the total amount of $308,000 borrowed, or $3,080.
(2) Adjustment reflects the proceeds received from the issuance of common stock
to Oak Hill and the Other Investors.
(3) Adjustment reflects the proceeds received from the exercise by our
management of options to purchase 37,562 shares of our common stock ($418),
the exercise by Freightliner LLC of its option to purchase 100,000 shares of
our common stock ($3,330) and the exercise of warrants to purchase our
common stock ($1).
(4) Adjustment reflects the decrease in our indebtedness from repaying all
amounts outstanding under our Amended and Restated Credit Agreement dated as
of November 24, 1998, including accrued interest; redeeming in full all of
our existing senior secured notes, including accrued interest; and
consummating a tender offer and consent solicitation for our 10 1/4% Senior
Subordinated Notes due 2007, including accrued interest, as follows:
<TABLE>
<S> <C>
Repay borrowings outstanding under Amended and Restated
Credit Agreement:
- Current portion......................................... $ (1,446)
- Long-term portion....................................... (246,273)
Redeem senior secured notes................................. (35,500)
Redeem 10 1/4% Senior Subordinated Notes due 2007........... (125,000)
Pay accrued interest........................................ (5,489)
---------
Total cash disbursement........................... $(413,708)
=========
</TABLE>
(5) Adjustment reflects the amounts paid to (1) redeem the shares of our capital
stock pursuant to the terms of the recapitalization agreement and plan of
merger, as amended, we entered into with TCA Acquisition Corporation, (2)
cancel all stock options that are not being exercised and (3) cancel all
outstanding warrants to purchase our common stock. With the exception of
470,733 shares of our common stock held by members of our management and
Freightliner LLC, including those shares obtained through exercising options
and converting convertible preferred stock into common stock, all
outstanding shares of all classes of our capital stock are being redeemed,
including our common stock, Series I and Series II of our mandatorily
redeemable senior convertible participating preferred stock and Series I and
Series II of our convertible preferred stock. The amount of the merger
consideration per share is currently estimated to be $31.75. This amount per
share is subject to change as a result of the differences between the
current estimates used in calculation of the merger consideration per share
and the actual amounts we pay or incur at the closing of the Transactions.
Unexercised stock options and warrants will be canceled for a net payment of
the merger consideration per share of $31.75 less the respective exercise
price per warrant or option, which is $0.01 per share for the warrants and
which ranges from $10.00 per share to $25.00 per share for the stock
options. The total cash disbursement amount is composed as follows:
<TABLE>
<S> <C>
Redeem outstanding shares of capital stock.................. $(252,655)
Cancel unexercised stock options and warrants............... (11,340)
---------
Total cash disbursement........................... $(263,995)
=========
</TABLE>
17
<PAGE> 18
(6) Adjustment reflects the amounts paid for various transaction fees and
expenses related to the Transactions, including fees incurred in connection
with the incurrence of the additional debt for the financing of the
Transactions commitment fees payable with respect to the Senior Credit
Facility and the legal, accounting and other fees and expenses expected to
be incurred in connection with the Transactions. The total amount of fees
and expenses has been allocated to deferred financing costs and stock
issuance costs as follows:
<TABLE>
<S> <C>
Deferred financing costs.................................... $(27,500)
Stock issuance costs........................................ (2,500)
--------
Total transaction fees and expenses............... $(30,000)
========
</TABLE>
(7) Adjustment reflects the effect of the Transactions on stockholders' equity
for (1) payment of the premium and fees associated with the tender offer and
consent solicitation for our 10 1/4% Senior Subordinated Notes due 2007 and
the senior secured note prepayment penalty, (2) payment of certain fees and
expenses of the selling stockholders, which amounts will be charged to
expense in our historical statement of operations in the period in which the
Transactions are consummated and in the pro forma balance sheet are treated
as a reduction of the net merger consideration paid to the selling
stockholders and are not capitalized as deferred financing costs or stock
issuance costs and (3) the write-off of deferred financing costs related to
our Amended and Restated Credit Agreement dated as of November 24, 1998, our
existing senior secured notes and our 10 1/4% Senior Subordinated Notes due
2007. The income tax benefit related to items (1) through (3) was computed
using an effective statutory income tax rate of 40%.
<TABLE>
<S> <C>
Pay tender offer and consent solicitation premium and fees
and senior secured note prepayment penalty................ $(12,500)
Pay expenses of selling stockholders........................ (15,433)
--------
Total cash disbursement..................................... (27,933)
Write-off of deferred financing costs related to repaid
indebtedness.............................................. (7,708)
--------
Adjustment before benefit for income taxes.................. (35,641)
Less benefit for income taxes recorded in other current
assets.................................................... 14,256
--------
Net adjustment to retained earnings (deficit)............... $(21,385)
========
</TABLE>
18
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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: October 20, 2000
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