<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
Commission file number 333-26497
----------
TRAVELCENTERS OF AMERICA, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 36-3856519
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
24601 Center Ridge Road, Suite 200
Westlake, OH 44145-5634
(Address of principal executive offices, including zip code)
(440) 808-9100
(Telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
<PAGE> 2
TRAVELCENTERS OF AMERICA, INC.
This Quarterly Report on Form 10-Q contains historical information and
forward-looking statements. Statements looking forward in time are included in
this Form 10-Q pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. They involve known and unknown risks
and uncertainties that may cause our actual results to differ from future
performance suggested herein. In the context of forward-looking information
provided in this Form 10-Q and in other reports, please refer to the discussion
of risk factors detailed in, as well as the other information contained in, our
filings with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
INDEX PAGE NO.
----- --------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets as of December 31, 1999 and
September 30, 2000 2
Unaudited Consolidated Statements of Operations and Retained
Earnings (Deficit) for the three months ended September 30,
1999 and 2000 and for the nine months ended September 30,
1999 and 2000 3
Unaudited Consolidated Statements of Cash Flows for the nine
months ended September 30, 1999 and 2000 4
Selected Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURE 24
</TABLE>
1
<PAGE> 3
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, 2000
1999 (UNAUDITED)
------------------------------
ASSETS (IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Current assets:
Cash.............................................................................. $ 18,040 $ 28,382
Accounts receivable (less allowance for doubtful accounts of $2,894 for 1999 and
$3,518 for 2000)............................................................... 66,439 92,012
Inventories....................................................................... 59,043 58,439
Deferred income taxes............................................................. 4,533 3,581
Other current assets.............................................................. 16,441 18,751
---------- ----------
Total current assets......................................................... 164,496 201,165
Notes receivable, net................................................................ 1,383 1,398
Property and equipment, net.......................................................... 454,093 454,313
Intangible assets.................................................................... 28,792 25,248
Deferred financing costs............................................................. 8,411 7,351
Deferred income taxes................................................................ 1,879 5,990
Other assets......................................................................... 808 6,512
---------- ----------
Total assets................................................................. $ 659,862 $ 701,977
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.............................................. $ 1,601 $ 1,601
Accounts payable.................................................................. 60,920 106,285
Other accrued liabilities......................................................... 66,743 56,021
---------- ----------
Total current liabilities.................................................... 129,264 163,907
Commitments and contingencies (Note 5)
Long-term debt....................................................................... 404,369 415,012
Deferred income taxes................................................................ 1,639 1,492
Other long-term liabilities.......................................................... 16,615 17,796
---------- ----------
551,887 598,207
Mandatorily redeemable senior convertible participating preferred stock.............. 79,739 87,994
Nonredeemable stockholders' equity:
Other preferred stock, common stock and other stockholders' equity................... 53,000 52,042
Retained (deficit)................................................................... (24,764) (36,266)
---------- ----------
Total nonredeemable stockholders' equity........................................ 28,236 15,776
---------- ----------
Total liabilities, redeemable equity and nonredeemable stockholders' equity.. $ 659,862 $ 701,977
========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 4
TRAVELCENTERS OF AMERICA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------------
1999 2000 1999 2000
--------------------------------------------------------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues:
Fuel.................................................. $ 280,139 $ 386,666 $ 660,841 $ 1,052,849
Non-fuel.............................................. 136,686 150,647 355,428 418,692
Rent and royalties.................................... 5,049 4,805 15,620 14,197
----------- ----------- ----------- -----------
Total revenues........................................ 421,874 542,118 1,031,889 1,485,738
Cost of revenues (excluding depreciation)................ 309,722 424,174 732,966 1,147,142
----------- ----------- ----------- -----------
Gross profit (excluding depreciation).................... 112,152 117,944 298,923 338,596
Operating expenses....................................... 75,062 81,175 198,814 232,301
Selling, general and administrative expenses............. 9,639 9,148 29,300 28,867
Transition expenses...................................... 1,379 605 3,025 972
Depreciation and amortization expense.................... 15,134 16,361 36,902 48,113
Gain on sales of property and equipment.................. (827) (279) (567) (194)
Stock compensation expense............................... 900 450 2,700 1,350
----------- ----------- ----------- -----------
Income from operations................................... 10,865 10,484 28,749 27,187
Interest (expense), net.................................. (9,901) (10,989) (27,404) (32,162)
----------- ----------- ----------- -----------
Income (loss) before income taxes........................ 964 (505) 1,345 (4,975)
Provision (benefit) for income taxes..................... 858 (171) 1,126 (1,728)
----------- ----------- ----------- -----------
Net income (loss)........................................ 106 (334) 219 (3,247)
Less: preferred dividends................................ (2,521) (2,873) (7,244) (8,255)
----------- ----------- ----------- -----------
Income (loss) available to common stockholders........... (2,415) (3,207) (7,025) (11,502)
Retained (deficit) - beginning of the period............. (19,708) (33,059) (15,098) (24,764)
----------- ----------- ----------- -----------
Retained (deficit) - end of the period................... $ (22,123) $ (36,266) $ (22,123) $ (36,266)
=========== =========== =========== ===========
Earnings per common share (basic and diluted)............ $ (2.75) $ (3.80) $ (10.01) $ (13.37)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 5
TRAVELCENTERS OF AMERICA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1999 2000
-------------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................................. $ 219 $ (3,247)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization expense........................................... 36,901 48,113
Deferred income tax provision................................................... 830 (3,306)
Provision for doubtful accounts................................................. 1,130 945
Provision for stock compensation................................................ 2,700 1,350
Gain on sales of property and equipment......................................... (567) (194)
Changes in assets and liabilities, adjusted for the effects of business
acquisitions:
Accounts receivable........................................................... 6,253 (26,643)
Inventories................................................................... (4,662) 1,613
Other current assets.......................................................... 3,839 (2,310)
Accounts payable.............................................................. (1,126) 45,365
Other current liabilities..................................................... (18,479) (10,722)
Other, net...................................................................... 2,942 (1,289)
---------- ----------
Net cash provided by operating activities....................................... 29,980 49,675
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions ............................................................. (57,044) (8,959)
Proceeds from sales of property and equipment...................................... 5,883 449
Capital expenditures............................................................... (66,826) (40,003)
---------- ----------
Net cash used in investing activities........................................... (117,987) (48,513)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings.......................................................... 61,500 200,400
Revolving loan repayments.......................................................... (36,500) (189,000)
Long-term debt repayments.......................................................... (1,116) (1,387)
Proceeds from issuance of stock.................................................... 6,660 -
Repurchase of common stock......................................................... - (833)
---------- ----------
Net cash provided by financing activities....................................... 30,544 9,180
---------- ----------
Net increase (decrease) in cash............................................... (57,463) 10,342
Cash at the beginning of the period................................................... 89,200 18,040
---------- ----------
Cash at the end of the period......................................................... $ 31,737 $ 28,382
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 6
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION AND SUMMARY OF OPERATING STRUCTURE
We are a nationwide, full-service travel center network providing
diesel fuel, gasoline and non-fuel products and services to long-haul trucking
fleets and their drivers, independent truck drivers and general motorists
through our 159 full-service travel centers located in 40 states, primarily
operating under the "TravelCenters of America" or "TA" brand names. Of our 159
network locations at September 30, 2000, we owned 150 locations, 122 of which we
operated and 28 of which we leased to independent lessee-franchisees or
operators, which sites we refer to as "leased sites." Nine locations were owned
and operated by independent franchisees, which sites we refer to as
"franchisee-owned sites." We purchase and resell diesel fuel, gasoline and other
travel center products and services to consumers, commercial fleets, operators
and independent franchisees; provide fleet credit card and customer information
services through our proprietary ACCESS billing system; conduct centralized
purchasing programs; create promotional programs; and, as a franchisor, assist
the operators and independent franchisees in providing service to trucking
fleets, independent truck drivers and general motorists.
We were incorporated on December 1, 1992 as National Auto/Truckstops
Holdings Corporation. Our name was changed to TravelCenters of America, Inc. in
March 1997. In April 1993, we acquired the truck stop network assets of a
subsidiary of Unocal Corporation, and in December 1993, we acquired the truck
stop network assets of certain subsidiaries of The British Petroleum Company
p.l.c. ("BP"). In December 1998, we acquired substantially all of the travel
center and truck stop network assets of Burns Bros., Inc., and certain of its
affiliates. In June 1999, we acquired the travel center and truck stop network
assets of Travel Ports of America, Inc. See Note 4 for disclosure regarding the
Travel Ports acquisition.
On May 31, 2000, we and shareholders owning a majority of our voting
capital stock 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, under which TCA Acquisition
Corporation will merge with and into us. This merger is part of a series of
proposed transactions that includes a refinancing of our outstanding
indebtedness with an increased amount of indebtedness; equity contributions from
Oak Hill, members of our management and certain other investors; and the
redemption of all shares of our outstanding capital stock with the exception of
certain shares owned by our management and Freightliner LLC. The merger and the
related transactions are expected to be completed in November 2000.
The consolidated financial statements include the accounts of
TravelCenters of America, Inc. and its wholly owned subsidiaries, TA Operating
Corporation, TA Franchise Systems Inc., and National Auto/Truckstops, Inc., and
TA Licensing, Inc. (formerly known as Travel Port Systems, Inc.), and TA Travel,
L.L.C., wholly owned subsidiaries of TA Operating Corporation. Intercompany
accounts and transactions have been eliminated.
The accompanying unaudited, consolidated financial statements as of and
for the three- and nine-month periods ended September 30, 1999 and 2000 have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, these statements should be read in
conjunction with the audited financial statements as of and for the year ended
December 31, 1999. In the opinion of management, the accompanying unaudited,
consolidated financial statements contain all adjustments, all of which were of
a normal recurring nature, necessary to present fairly, in all material
respects, the consolidated results of operations and of cash flows for the
three- and nine-month periods ended September 30, 1999 and 2000, and are not
necessarily indicative of the results to be expected for the full year.
5
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TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. EARNINGS PER SHARE
A reconciliation of the income and shares used in the computation
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------------- -----------------------------
1999 2000 1999 2000
--------------- --------------- --------------- -------------
(DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net income (loss)...................................... $ 106 $ (334) $ 219 $ (3,247)
Less: Preferred stock dividends....................... (2,521) (2,873) (7,244) (8,255)
-------- -------- -------- --------
Net loss available to common stockholders.............. (2,415) (3,207) (7,025) (11,502)
Weighted average shares outstanding.................... 878 844 702 860
-------- -------- -------- --------
Loss per share......................................... $ (2.75) $ (3.80) $ (10.01) $ (13.37)
======== ======== ======== ========
</TABLE>
The assumed conversion of stock options, warrants and convertible
series of preferred stock would have an antidilutive effect on the loss per
share for the three- and nine-month periods ended September 30, 1999 and 2000.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Non-fuel merchandise................................................................... $ 51,043 $ 48,093
Petroleum products..................................................................... 8,000 10,346
---------- ----------
Total inventories................................................................ $ 59,043 $ 58,439
========== ==========
</TABLE>
4. TRAVEL PORTS ACQUISITION
On June 3, 1999, we consummated the acquisition of the network assets
of Travel Ports by acquiring 100 percent of the common stock of Travel Ports at
a price of $4.30 per share. Under the terms of the related merger agreement and
certain ancillary agreements, we paid cash of approximately $27,760,000 for all
of Travel Ports's outstanding common shares and common stock equivalents except
approximately 653,000 common shares that were exchanged for 85,000 shares of our
common stock. In addition, we paid cash of approximately $31,007,000 to retire
all of Travel Ports's indebtedness outstanding as of the merger date. Travel
Ports operated a network of 16 travel centers in seven states, primarily in the
northeastern United States, and a single fuel terminal in Pennsylvania. Upon
consummation of the acquisition, Travel Ports was merged into TA Operating
Corporation.
The total cost of the acquisition was $86,003,000. This was comprised
of cash paid to purchase the Travel Ports stock and repay the Travel Ports debt
of $58,767,000, the value of the 85,000 shares of our common stock issued in
exchange for Travel Ports shares of $2,808,000, liabilities assumed of
$22,124,000 and direct costs of the acquisition of $2,304,000. The cost was
allocated to the assets and liabilities acquired on the basis of their estimated
fair values at the acquisition date, including $27,585,000 of assets other than
the property and equipment acquired. The excess of purchase price over the
estimated fair values of the net assets acquired, in the amount of $11,679,000,
has been recorded as goodwill and is being amortized on a straight-line basis
over 15 years.
6
<PAGE> 8
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma information presents our results of
operations as if the Travel Ports acquisition had taken place on January 1,
1999.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
-------------------
(IN THOUSANDS OF
DOLLARS EXCEPT
PER SHARE AMOUNTS)
<S> <C>
Total revenue..................................................................................... $ 1,088,348
Gross profit...................................................................................... $ 323,449
Income from operations............................................................................ $ 32,719
Net income........................................................................................ $ 1,967
Loss per common share (basic and diluted)......................................................... $ (7.52)
</TABLE>
These pro forma results of operations have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations that actually would have resulted had the acquisition occurred on
January 1, 1999, or that may result in the future.
5. COMMITMENTS AND CONTINGENCIES
Environmental Matters
Our operations and properties are extensively regulated through
environmental laws and regulations ("Environmental Laws") that (i) govern
operations that may have adverse environmental effects, such as discharges to
air, soil and water, as well as the management of petroleum products and other
hazardous substances ("Hazardous Substances"), or (ii) impose liability for the
costs of cleaning up sites affected by, and for damages resulting from, disposal
or other releases of Hazardous Substances.
We own and use underground storage tanks and aboveground storage tanks
to store petroleum products and waste at our facilities. We must comply with
requirements of Environmental Laws regarding tank construction, integrity
testing, leak detection and monitoring, overfill and spill control, release
reporting, financial assurance and corrective action in case of a release from a
storage tank into the environment. At some locations, we must also comply with
Environmental Laws relating to vapor recovery and discharges to water. We
believe that all of our travel centers are in material compliance with
applicable requirements of Environmental Laws.
We have received notices of alleged violations of Environmental Laws,
or are aware of the need to undertake corrective actions to comply with
Environmental Laws, at company-owned travel centers in a number of
jurisdictions. We do not expect that any financial penalties associated with
these alleged violations, or compliance costs incurred in connection with these
violations or corrective actions, will be material to our results of operations
or financial condition. We are conducting investigatory and/or remedial actions
with respect to releases of Hazardous Substances that have occurred subsequent
to the acquisitions of the Unocal and BP networks and also regarding historical
contamination at certain of the former Burns Bros. and Travel Ports facilities.
While we cannot precisely estimate the ultimate costs we will incur in
connection with the investigation and remediation of these properties, based on
our current knowledge, we do not expect that the costs to be incurred at these
properties, individually or in the aggregate, will be material to our results of
operations or financial condition. While the matters discussed above are, to the
best of our knowledge, the only proceedings for which we are currently exposed
to potential liability, particularly given the environmental indemnities
obtained as part of the Unocal and BP acquisitions, we cannot assure you that
additional contamination does not exist at these or additional network
properties, or that material liability will not be imposed in the future. If
additional environmental problems arise or are discovered, or if additional
environmental requirements are imposed by government agencies, increased
environmental compliance or remediation expenditures may be required, which
could have a material adverse effect on us. As of September 30, 2000, we had a
reserve for these matters of $5,981,000. While it is not possible to quantify
with certainty the
7
<PAGE> 9
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
environmental exposure, in our opinion, the potential liability, beyond that
considered in the reserve, for all environmental proceedings, based on
information known to date, will not have a material adverse effect on our
financial condition, results of operations or liquidity.
Pending Litigation
We are involved from time to time in various legal and administrative
proceedings and threatened legal and administrative proceedings incidental to
the ordinary course of our business. We believe that we are not now involved in
any litigation, individually, or in the aggregate, which could have a material
adverse affect on our business, financial condition, results of operations or
cash flows.
6. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ---------------------------------
1999 2000 1999 2000
--------------- --------------- --------------- ---------------
(DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Cash paid during the period for:
Interest $ 6,109 $ 6,821 $ 23,597 $ 27,542
Income taxes (net of refunds) $ 1,118 $ 1,646 $ 4,507 $ 3,278
</TABLE>
During the first quarter of 2000, we assumed a note payable for
$540,000 as part of the consideration paid in acquiring a full-service travel
center and acquired $125,000 of treasury stock in payment of accounts receivable
from a former operator.
7. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES
The following schedules set forth our consolidating balance sheets as
of December 31, 1999 and September 30, 2000, our consolidating statements of
operations and retained earnings (deficit) for the three- and nine-month periods
ended September 30, 1999 and 2000 and the consolidating statements of cash flows
for the nine months ended September 30, 1999 and 2000. In the following
schedules, "Parent Company" refers to the unconsolidated balances of
TravelCenters of America, Inc., "Guarantor Subsidiaries" refers to the combined
balances of TA Operating Corporation, National Auto/Truckstops, Inc. and TA
Licensing, Inc., including related intercompany eliminations, and "Nonguarantor
Subsidiary" refers to the balances of TA Franchise Systems. "Eliminations"
represent the adjustments necessary to (a) eliminate intercompany transactions
between the Parent Company, the Guarantor Subsidiaries on a combined basis and
the Nonguarantor Subsidiary and, (b) eliminate our investments in our
subsidiaries. The Guarantor Subsidiaries (TA Operating Corporation, National
Auto/Truckstops, Inc. and TA Licensing, Inc.), are wholly-owned subsidiaries of
ours and have fully and unconditionally, jointly and severally, guaranteed our
indebtedness. In this 10-Q filing, we have not presented separate financial
statements and other disclosures concerning the Guarantor Subsidiaries because
we have determined such information is not material to investors.
8
<PAGE> 10
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET SCHEDULES:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------- ------------ ---------- ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash ................................. $ -- $ 18,040 $ -- $ -- $ 18,040
Accounts receivable, net ............. -- 65,344 1,095 -- 66,439
Inventories .......................... -- 59,043 -- -- 59,043
Deferred income taxes ................ -- 4,533 -- -- 4,533
Other current assets ................. 278 16,163 -- -- 16,441
--------- --------- --------- --------- ---------
Total current assets ............ 278 163,123 1,095 -- 164,496
Notes receivable, net ................... 1,062 321 -- -- 1,383
Property and equipment, net ............. -- 454,093 -- 454,093
Intangible assets ....................... -- 28,792 -- 28,792
Deferred financing costs ................ 8,411 -- -- -- 8,411
Deferred income taxes ................... 880 999 -- -- 1,879
Other assets ............................... -- 808 -- -- 808
Investment in subsidiaries .............. 118,417 -- -- (118,417) --
--------- --------- --------- --------- ---------
Total assets .................... $129,048 $ 648,136 $ 1,095 $(118,417) $ 659,862
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt . $ 1,446 $ 155 $ -- $ -- $ 1,601
Accounts payable ..................... -- 60,660 260 -- 60,920
Other accrued liabilities ............ 6,592 60,043 108 -- 66,743
--------- --------- --------- --------- ---------
Total current liabilities ....... 8,038 120,858 368 -- 129,264
Long-term debt (net of unamortized
discount) ............................ 401,495 2,874 -- -- 404,369
Deferred income taxes ................... -- 1,639 -- -- 1,639
Intercompany payable (receivable) ....... (389,715) 396,370 (6,655) -- --
Other liabilities ....................... -- 16,615 -- -- 16,615
--------- --------- --------- --------- ---------
Total liabilities ............... 19,818 538,356 (6,287) -- 551,887
Mandatorily redeemable senior convertible
participating preferred stock ........ 79,739 -- -- -- 79,739
Nonredeemable stockholders' equity:
Other preferred stock, common stock and
other stockholders' equity ........... 54,255 84,839 -- (86,094) 53,000
Retained earnings (deficit) ............. (24,764) 24,941 7,382 (32,323) (24,764)
--------- --------- --------- --------- ---------
Total nonredeemable stockholders'
equity ............................. 29,491 109,780 7,382 (118,417) 28,236
--------- --------- --------- --------- ---------
Total liabilities, redeemable equity
and nonredeemable stockholders'
equity ............................. $129,048 $ 648,136 $ 1,095 $(118,417) $ 659,862
========= ========= ========= ========= =========
</TABLE>
9
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TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
---------------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
--------- --------- --------- --------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash ..................................... $ -- $ 28,382 $ -- $ -- $ 28,382
Accounts receivable, net ................. -- 92,175 1,117 (1,280) 92,012
Inventories .............................. -- 58,439 -- -- 58,439
Deferred income taxes .................... -- 3,581 -- -- 3,581
Other current assets ..................... 1,121 17,630 -- -- 18,751
--------- --------- --------- --------- ---------
Total current assets ................... 1,121 200,207 1,117 (1,280) 201,165
Notes receivable, net ....................... 1,097 301 -- -- 1,398
Property and equipment, net ................. -- 454,313 -- -- 454,313
Intangible assets ........................... -- 25,248 -- -- 25,248
Deferred financing costs .................... 7,351 -- -- -- 7,351
Deferred income taxes ....................... 880 5,110 -- -- 5,990
Other assets ................................ -- 6,512 -- -- 6,512
Investment in subsidiaries .................. 116,244 -- -- (116,244) --
--------- --------- --------- --------- ---------
Total assets ........................... $ 126,693 $ 691,691 $ 1,117 $(117,524) $ 701,977
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ..... $ 1,446 $ 155 $ -- $ -- $ 1,601
Accounts payable ......................... -- 106,045 240 -- 106,285
Other accrued liabilities ................ 9,824 47,129 348 (1,280) 56,021
--------- --------- --------- --------- ---------
Total current liabilities .............. 11,270 153,329 588 (1,280) 163,907
Long-term debt .............................. 412,173 2,839 -- -- 415,012
Deferred income taxes ....................... -- 1,492 -- -- 1,492
Intercompany payable (receivable) ........... (401,775) 407,428 (5,653) -- --
Other liabilities ........................... -- 17,796 -- -- 17,796
--------- --------- --------- --------- ---------
Total liabilities ...................... 21,668 582,884 (5,065) (1,280) 598,207
Mandatorily redeemable senior convertible
participating preferred stock ............ 87,994 -- -- -- 87,994
Nonredeemable stockholders' equity:
Other preferred stock, common stock and other
stockholders' equity ..................... 53,297 84,838 -- (86,093) 52,042
Retained earnings (deficit) ................. (36,266) 23,969 6,182 (30,151) (36,266)
--------- --------- --------- --------- ---------
Total nonredeemable stockholders'
equity ................................. 17,031 108,807 6,182 (116,244) 15,776
--------- --------- --------- --------- ---------
Total liabilities, redeemable equity
and nonredeemable stockholders' equity . $ 126,693 $ 691,691 $ 1,117 $(117,524) $ 701,977
========= ========= ========= ========= =========
</TABLE>
10
<PAGE> 12
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND RETAINED EARNINGS (DEFICIT)
SCHEDULES:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
-----------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
--------- --------- --------- --------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues:
Fuel .................................. $ -- $ 280,139 $ -- $ -- $ 280,139
Non-fuel .............................. -- 136,105 639 (58) 136,686
Rent and royalties .................... -- 8,674 1,991 (5,616) 5,049
--------- --------- --------- --------- ---------
Total revenues ........................ -- 424,918 2,630 (5,674) 421,874
Cost of revenues (excluding depreciation) -- 309,722 -- -- 309,722
--------- --------- --------- --------- ---------
Gross profit (excluding depreciation) .... -- 115,196 2,630 (5,674) 112,152
Operating expenses ....................... -- 80,677 1 (5,616) 75,062
Selling, general and
administrative expenses .............. 227 7,248 2,222 (58) 9,639
Transition expense ....................... -- 1,379 -- -- 1,379
Depreciation and amortization expense .... 337 14,797 -- -- 15,134
Gain on sales of property and equipment .. -- (827) -- -- (827)
Stock compensation expense ............... -- 900 -- -- 900
--------- --------- --------- --------- ---------
Income (loss) from operations ............ (564) 11,022 407 -- 10,865
Interest (expense), net .................. -- (9,897) (4) -- (9,901)
Equity income (loss) ..................... 477 -- -- (477) --
--------- --------- --------- --------- ---------
Income (loss) before income taxes ........ (87) 1,125 403 (477) 964
Provision (benefit) for income taxes ..... (193) 900 151 -- 858
--------- --------- --------- --------- ---------
Net income (loss) ........................ 106 225 252 (477) 106
Less: preferred dividends ................ (2,521) -- -- -- (2,521)
--------- --------- --------- --------- ---------
Income (loss) available to common
stockholders .......................... (2,415) 225 252 (477) (2,415)
Retained earnings (deficit) - beginning of
the period ............................ (19,708) 25,933 7,322 (33,255) (19,708)
--------- --------- --------- --------- ---------
Retained earnings (deficit) - end of the
period ................................ $ (22,123) $ 26,158 $ 7,574 $ (33,732) $ (22,123)
========= ========= ========= ========= =========
</TABLE>
11
<PAGE> 13
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------- ------------ ---------- ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues:
Fuel ......................................... $ -- $ 386,666 $ -- $ -- $ 386,666
Non-fuel ..................................... -- 150,647 -- -- 150,647
Rent and royalties ........................... -- 4,231 1,855 (1,281) 4,805
--------- --------- --------- --------- ---------
Total revenues ............................... -- 541,544 1,855 (1,281) 542,118
Cost of revenues (excluding depreciation) ....... -- 424,174 -- -- 424,174
--------- --------- --------- --------- ---------
Gross profit (excluding depreciation) ........... -- 117,370 1,855 (1,281) 117,944
Operating expenses .............................. -- 81,129 1,327 (1,281) 81,175
Selling, general and
administrative expenses ..................... 159 7,814 1,175 -- 9,148
Transition expenses ............................. -- 605 -- -- 605
Depreciation and amortization expense ........... 356 16,005 -- -- 16,361
Gain on sales of property and equipment ......... -- (279) -- -- (279)
Stock compensation expense ...................... -- 450 -- -- 450
--------- --------- --------- --------- ---------
Income (loss) from operations ................... (515) 11,646 (647) -- 10,484
Interest (expense), net ......................... -- (10,989) -- -- (10,989)
Equity income (loss) ............................ 6 -- -- (6) --
--------- --------- --------- --------- ---------
Income (loss) before income taxes ............... (509) 657 (647) (6) (505)
Provision (benefit) for income taxes ............ (175) 201 (197) -- (171)
--------- --------- --------- --------- ---------
Net income (loss) ............................... (334) 456 (450) (6) (334)
Less: preferred dividends ....................... (2,873) -- -- -- (2,873)
--------- --------- --------- --------- ---------
Income (loss) available to common stockholders .. (3,207) 456 (450) (6) (3,207)
Retained earnings (deficit) - beginning of the
period ....................................... (33,059) 23,513 6,632 (30,145) (33,059)
--------- --------- --------- --------- ---------
Retained earnings (deficit) - end of the period . $ (36,266) $ 23,969 $ 6,182 $ (30,151) $ (36,266)
========= ========= ========= ========= =========
</TABLE>
12
<PAGE> 14
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
----------------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARY SUBSIDIARY ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues:
Fuel .................................. $ -- $ 660,841 $ -- $ -- $ 660,841
Non-fuel .............................. -- 354,356 1,245 (173) 355,428
Rent and royalties .................... -- 25,434 5,534 (15,348) 15,620
----------- ----------- ----------- ----------- -----------
Total revenues ........................ -- 1,040,631 6,779 (15,521) 1,031,889
Cost of revenues (excluding depreciation) -- 732,966 -- -- 732,966
----------- ----------- ----------- ----------- -----------
Gross profit (excluding depreciation) .... -- 307,665 6,779 (15,521) 298,923
Operating expenses ....................... -- 213,687 475 (15,348) 198,814
Selling, general and
administrative expenses .............. 713 25,332 3,428 (173) 29,300
Transition expense ....................... -- 3,025 -- -- 3,025
Depreciation and amortization expense .... 1,005 35,897 -- -- 36,902
Gain on sales of property and equipment .. -- (567) -- -- (567)
Stock compensation expense ............... -- 2,700 -- -- 2,700
----------- ----------- ----------- ----------- -----------
Income (loss) from operations ............ (1,718) 27,591 2,876 -- 28,749
Interest (expense), net .................. -- (27,401) (3) -- (27,404)
Equity income (loss) ..................... 1,352 -- -- (1,352) --
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes ........ (366) 190 2,873 (1,352) 1,345
Provision (benefit) for income taxes ..... (585) 639 1,072 -- 1,126
----------- ----------- ----------- ----------- -----------
Net income (loss) ........................ 219 (449) 1,801 (1,352) 219
Less: preferred dividends ................ (7,244) -- -- -- (7,244)
----------- ----------- ----------- ----------- -----------
Income (loss) available to common
stockholders .......................... (7,025) (449) 1,801 (1,352) (7,025)
Retained earnings (deficit) - beginning of
the period ............................ (15,098) 26,607 5,773 (32,380) (15,098)
----------- ----------- ----------- ----------- -----------
Retained earnings (deficit) - end of the
period ................................ $ (22,123) $ 26,158 $ 7,574 $ (33,732) $ (22,123)
=========== =========== =========== =========== ===========
</TABLE>
13
<PAGE> 15
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
[CAPTION]
<TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 2000
----------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------- ------------ ---------- ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues:
Fuel ....................................... $ -- $ 1,052,849 $ -- $ -- $ 1,052,849
Non-fuel ................................... -- 418,692 -- -- 418,692
Rent and royalties ......................... -- 12,487 5,356 (3,646) 14,197
----------- ----------- ----------- ----------- -----------
Total revenues ............................. -- 1,484,028 5,356 (3,646) 1,485,738
Cost of revenues (excluding depreciation) ..... -- 1,147,142 -- -- 1,147,142
----------- ----------- ----------- ----------- -----------
Gross profit (excluding depreciation) ......... -- 336,886 5,356 (3,646) 338,596
Operating expenses ............................ -- 232,223 3,724 (3,646) 232,301
Selling, general and
administrative expenses ................... 559 24,792 3,516 -- 28,867
Transition expenses ........................... -- 972 -- -- 972
Depreciation and amortization expense ......... 1,069 47,044 -- -- 48,113
Gain on sales of property and equipment ....... -- (194) -- -- (194)
Stock compensation expense .................... -- 1,350 -- -- 1,350
----------- ----------- ----------- ----------- -----------
Income (loss) from operations ................. (1,628) 30,699 (1,884) -- 27,187
Interest (expense), net ....................... -- (32,159) (3) -- (32,162)
Equity income (loss) .......................... (2,172) -- -- 2,172 --
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes ............. (3,800) (1,460) (1,887) 2,172 (4,975)
Provision (benefit) for income taxes .......... (553) (488) (687) -- (1,728)
----------- ----------- ----------- ----------- -----------
Net income (loss) ............................. (3,247) (972) (1,200) 2,172 (3,247)
Less: preferred dividends ..................... (8,255) -- -- -- (8,255)
----------- ----------- ----------- ----------- -----------
Income (loss) available to common stockholders (11,502) (972) (1,200) 2,172 (11,502)
Retained earnings (deficit) - beginning of the
period ..................................... (24,764) 24,941 7,382 (32,323) (24,764)
----------- ----------- ----------- ----------- -----------
Retained earnings (deficit) - end of the period $ (36,266) $ 23,969 $ 6,182 $ (30,151) $ (36,266)
=========== =========== =========== =========== ===========
</TABLE>
14
<PAGE> 16
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS SCHEDULES:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------- ------------ ---------- ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES ............. $ 7,034 $ 22,946 $ -- $ -- $ 29,980
--------- --------- ----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions ............ -- (57,044) -- -- (57,044)
Proceeds from sales of
property and equipment ......... -- 5,883 -- -- 5,883
Capital expenditures ............. -- (66,826) -- -- (66,826)
--------- --------- ----------- ----------- ---------
Net cash used in investing
activities .................. -- (117,987) -- -- (117,987)
--------- --------- ----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings ........ 61,500 -- -- -- 61,500
Revolving loan repayments ........ (36,500) -- -- -- (36,500)
Long-term debt repayments ........ (1,085) (31) -- -- (1,116)
Proceeds from issuance of stock .. 6,660 -- -- -- 6,660
Repurchase of common stock ....... -- -- -- -- --
Intercompany advances ............ (97,175) 97,175 -- -- --
--------- --------- ----------- ----------- ---------
Net cash provided by (used in)
financing activities ........ (66,600) 97,144 -- -- 30,544
--------- --------- ----------- ----------- ---------
Net increase (decrease) in cash (59,566) 2,103 -- -- (57,463)
Cash at the beginning of the period . 59,665 29,535 -- -- 89,200
--------- --------- ----------- ----------- ---------
Cash at the end of the period ....... $ 99 $ 31,638 $ -- $ -- $ 31,737
========= ========= =========== =========== =========
</TABLE>
15
<PAGE> 17
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
----------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARY SUBSIDIARY ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES .............. $ 167 $ 49,508 $ -- $ -- $ 49,675
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions ............. -- (8,959) -- -- (8,959)
Proceeds from sales of property and
equipment ...................... -- 449 -- -- 449
Capital expenditures .............. -- (40,003) -- -- (40,003)
--------- --------- --------- --------- ---------
Net cash used in investing
activities ................... -- (48,513) -- -- (48,513)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings ......... 200,400 -- -- -- 200,400
Revolving loan repayments ......... (189,000) -- -- -- (189,000)
Long-term debt repayments ......... (722) (665) -- -- (1,387)
Repurchase of common stock ........ (833) -- -- -- (833)
Intercompany advances ............. (10,012) 10,012 -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities ......... (167) 9,347 -- -- 9,180
--------- --------- --------- --------- ---------
Net increase in cash ........... -- 10,342 -- -- 10,342
Cash at the beginning of the period .. -- 18,040 -- -- 18,040
--------- --------- --------- --------- ---------
Cash at the end of the period ........ $ -- $ 28,342 $ -- $ -- $ 28,382
========= ========= ========= ========= =========
</TABLE>
16
<PAGE> 18
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
unaudited consolidated financial statements and notes to unaudited consolidated
financial statements included herein, and the audited financial statements and
the Management's Discussion and Analysis included with our Form 10-K for the
year ended December 31, 1999.
OVERVIEW
We are a holding company which, through our wholly owned subsidiaries,
owns, operates and franchises a network of travel centers in the United States,
with 159 network sites nationwide, including 150 company-owned locations. We
were formed in December 1992 to facilitate the acquisition of the Unocal network
in April 1993. In December 1993, we acquired the BP network. In December 1998,
we acquired the Burns Bros. network, and in June 1999, we acquired the Travel
Ports network.
PENDING MERGER TRANSACTION
On May 31, 2000, we and shareholders owning a majority of our voting
stock 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, under which TCA Acquisition
Corporation will merge with and into us. This merger is part of a series of
proposed transactions that includes a refinancing of our outstanding
indebtedness with an increased amount of indebtedness; equity contributions from
Oak Hill, members of our management and certain other investors; and redemption
of all shares of our outstanding capital stock with the exception of certain
shares owned by our management and Freightliner LLC. The merger and the related
transactions are expected to be completed in November 2000.
NETWORK COMPOSITION
The changes in the number of sites within our network and in their
method of operation are significant factors influencing the changes from the
prior year in our results of operations. In June 1999, we acquired the network
assets of Travel Ports, which consisted of 16 travel centers. During the second
half of 1999, we sold three company-operated sites, sold one leased site to the
lessee-operator of that site who, in conjunction with the sale, signed a
franchise agreement to become a franchisee-owned site, sold one closed site,
closed two company-operated sites now held for sale, and opened two
newly-constructed company-operated sites. During the first quarter of 2000, we
acquired two new company-operated sites, converted a leased site to a
company-operated site and converted a franchisee-owned site to a
company-operated site. In the third quarter of 2000, a franchisee-owned site was
eliminated from our network. The following table sets forth the number and type
of ownership and management of the travel centers operating in our network.
[CAPTION]
<TABLE>
AS OF SEPTEMBER 30, AS OF
------------------ DECEMBER 31,
1999 2000 1999
---- ---- ----
<S> <C> <C> <C>
Company-owned and operated sites(1) 122 122 118
Company-owned and leased sites 29 28 29
--- --- ---
Total company-owned sites 151 150 147
Franchisee-owned sites 11 9 11
--- --- ---
Total 162 159 158
=== === ===
</TABLE>
(1) Excludes two closed sites held for sale as of September 30, 2000 and
December 31, 1999 and one closed site held for sale as of September 30, 1999.
17
<PAGE> 19
RESULTS OF OPERATIONS
Revenues
Our consolidated revenues for the three- and nine-month periods ended
September 30, 2000 were $542.1 million and $1,485.7 million, respectively, which
represent increases from the same periods in the prior year of $120.2 million,
or 28.5%, for the three-month period and $453.8 million, or 44.0%, for the
nine-month period.
Fuel revenue for the three- and nine- month periods ended September 30,
2000 increased by $106.5 million, or 38.0%, and $392.0 million, or 59.3%,
respectively over the same periods in 1999. The increases were attributable to
changes in diesel fuel sales volume, increases in gasoline sales volumes and
increases in average sales prices. Average diesel fuel and gasoline sales prices
for the first nine months of 2000 increased by 58.3% and 41.3%, respectively, as
compared to the same period in 1999. For the three months ended September 30,
2000 average diesel fuel and gasoline sales prices increased 46.4% and 32.0%,
respectively, over the same period in 1999. The increase in average sales prices
was attributable to increasing crude oil prices and refined products prices
through the first nine months of 2000. Diesel fuel sales volumes for the three-
and nine-month periods ended September 30, 2000 decreased by 6.8% and increased
by 0.1%, respectively, as compared to the same periods in 1999, while gasoline
sales volumes for the three- and nine-month periods ended September 30, 2000
increased by 17.6% and 20.8%, respectively, as compared to the same periods in
1999. The decrease in diesel fuel volumes for the third quarter 2000 compared to
the third quarter of 1999 was the result of an 8.0% decrease in same-site diesel
volumes partially offset by volume from new sites and conversions of two
franchisee locations to company-operated locations in the first quarter of 2000.
The slight increase in diesel fuel volumes for the nine-month period was due to
added volume from the increased number of sites, partially offset by a decrease
in same-site volumes for the period of 10.3%. The gasoline volume increases were
due to the added volume from the increased number of sites, combined with a
same-site increase of 6.8% in gasoline volumes in the first nine months of 2000
compared to the first nine months of 1999. The decrease in same-site diesel fuel
sales volume was primarily attributable to softer demand for diesel fuel on the
U.S. interstate highway system, primarily from smaller trucking fleets and
independent truck drivers, as a result of both the sharp rise in and the
volatility of diesel fuel prices experienced through the first nine months of
2000. The sharp rise in diesel fuel prices was driven by crude oil price
increases and reduced domestic refined product inventories. For the three months
ended September 30, 2000, we sold 345.6 million gallons of diesel fuel and 30.8
million gallons of gasoline, as compared to 370.6 million gallons of diesel fuel
and 26.2 million gallons of gasoline during the same period of 1999. For the
nine months ended September 30, 2000, we sold 1,017.5 million gallons of diesel
fuel and 75.4 million gallons of gasoline, as compared to 1,016.7 million
gallons of diesel fuel and 62.4 million gallons of gasoline during the same
period in 1999.
Non-fuel revenues for the three- and nine-month periods ended September
30, 2000 of $150.6 million and $418.7 million, respectively, reflected increases
of $14.0 million, or 10.2%, and $63.3 million, or 17.8%, respectively, from the
same periods in 1999. The increases were primarily attributable to the increased
number of company-operated sites in the network. Further, on a same-site basis,
non-fuel revenue increased 3.9% for the nine months ended September 30, 2000
versus the same period in 1999. This same-site increase reflects increased
customer traffic resulting, in part, from the significant capital improvements
that we have made in the network under our capital investment program to
re-image, re-brand and upgrade our travel centers, partially offset by reduced
non-fuel sales volume resulting from the depressing effect of the significant
increases in fuel prices on both the disposable income of certain of our
customers and the volume of truck traffic on the highways.
Rent and royalty revenues for the three- and nine-month periods ended
September 30, 2000 reflected decreases of $0.2 million, or 4.0%, and $1.4
million, or 9.0%, respectively, from the same periods in 1999. The decreases
were attributable to the rent and royalty revenue lost as a result of the
conversion of one leased site to a franchisee-owned site during the third
quarter of 1999, the conversions of one leased site and one franchisee-owned
site to company-operated sites during the first quarter of 2000 and the
elimination of one franchisee-owned site in the third quarter of 2000. These
decreases were partially offset by an increase in same-site rent and royalty
revenues of 0.4% for the nine months ended September 30, 2000 versus 1999.
Same-site rent revenues increased 2.0%, and were partially offset by same-site
royalty decreases of 2.2%. The increases in same-site rent revenues for the
nine-month period ended September 30, 2000 versus the nine-month period ended
September 30, 1999 were the result of
18
<PAGE> 20
inflation adjustments made pursuant to our rent agreements with our leased
sites. The decreases in same-site royalties for the same period were due to
decreased non-fuel revenues at franchisee locations resulting from the
depressing effect of the significant increases in fuel prices on both the
disposable income of certain of our franchisees' customers and on the volume of
truck traffic on the highways.
Gross Profit
Our gross profit for the three months ended September 30, 2000 was
$117.9 million, compared to $112.1 million for the same period in 1999, an
increase of $5.8 million, or 5.2%. For the nine months ended September 30, 2000,
our gross profit was $338.6 million, compared to $298.9 million for the same
period in 1999, an increase of $39.7 million, or 13.3%. The increase in our
gross profit was primarily due to increases in non-fuel revenues, partially
offset by decreased fuel margins and rent revenue.
Operating and Selling, General and Administrative Expenses
Operating expenses include the direct expenses of company-operated
sites and the ownership costs of leased sites. Selling, general and
administrative expenses include corporate overhead and administrative costs.
Our operating expenses increased by $6.1 million, or 8.1%, to $81.2
million for the three-month period ended September 30, 2000 compared to $75.1
million for the same period in 1999. Our operating expenses increased by $33.5
million, or 16.8%, to $232.3 million for the nine-month period ended September
30, 2000 compared to $198.8 million for the same period in 1999. These increases
reflected the increased number of company-operated sites, as well as increased
non-fuel sales volume at continuing sites. On a same-site basis, operating
expenses as a percentage of non-fuel revenues for the nine months ended
September 30, 2000 were 53.3%, compared to 54.3% for the same period in 1999.
Our selling, general and administrative expenses decreased from $9.6
million for the three months ended September 30, 1999 to $9.1 million for the
three months ended September 30, 2000. Selling, general and administrative
expenses decreased from $29.3 million for the nine months ended September 30,
1999 to $28.9 million for the nine months ended September 30, 2000, despite the
increased number of sites in our network.
Transition Expenses
Transition expenses are the costs incurred from combining the Unocal,
BP, Burns Bros. and Travel Ports networks. These expenses primarily include
employee severance and relocation expenses, legal expenses, site closing and
franchise termination costs, site training costs, deferred site maintenance and
certain asset write-offs. Transition expenses for the first nine months of 2000
decreased from $3.0 million during the same period in 1999 to $1.0 million. We
anticipate incurring less than $0.1 million of transition expenses in the fourth
quarter of 2000.
Depreciation and Amortization Expense
Depreciation and amortization expense for the three- and nine-month
periods ended September 30, 2000 was $16.4 million and $48.1 million,
respectively, compared to $15.1 million and $36.9 million, respectively, for the
same periods last year. These increases resulted from a larger base of assets in
2000 due to the Travel Ports acquisition and continued capital investments under
the capital investment program.
Income from Operations
We generated income from operations of $27.2 million for the nine
months ended September 30, 2000, compared to income from operations of $28.7
million for the same period in 1999. For the three months ended September 30,
2000, income from operations was $10.5 million, compared to $10.9 million for
the same period in 1999. The decreases of 3.7% for the three-month period and
5.2% for the nine-month period were both primarily attributable to the increase
in depreciation and amortization expense and a decreased gain on sales of
property and equipment, partially offset by increased gross profit and a net
decrease in other expenses. EBITDA (defined as net
19
<PAGE> 21
income plus the sum of (a) income taxes, (b) interest expense, net, (c)
depreciation, amortization and other non-cash charges, (d) transition expense
and (e) gains or losses from sales of property and equipment) for the nine
months ended September 30, 2000 increased by $6.6 million to $77.4 million, as
compared to $70.8 million for the same period in the prior year. For the three
months ended September 30, 2000, EBITDA increased by $0.2 million to $27.6
million, as compared to $27.4 million for the same period in 1999. The
increased EBITDA was primarily the result of additional company-operated sites
obtained in the Travel Ports acquisition and increased non-fuel revenues
resulting from the capital improvements we have made.
Interest Expense - Net
Interest expense, net, for the nine months ended September 30, 2000
increased by $4.8 million, or 17.4%, compared to the same period in 1999.
Interest expense, net, for the three months ended September 30, 2000 increased
by $1.1 million, or 11.0%, as compared to the same period in 1999. Those
increases resulted from increased interest rates and the increased debt balance
that resulted primarily from the Travel Ports acquisition.
Income taxes
Our effective income tax rates for the nine months ended September 30,
2000 and September 30, 1999 were 34.7% and 83.7%, respectively. These rates
differed from the federal statutory rate primarily due to state income taxes and
nondeductible expenses, partially offset by the benefit of certain tax credits.
The change between years in the effective tax rate primarily resulted from our
inability to recognize a tax benefit on our operating losses in many states.
LIQUIDITY AND CAPITAL RESOURCES
Our principal liquidity requirements are to meet our working capital
and capital expenditure needs, including expenditures for acquisitions and
expansion, and to service the payments of principal and interest on outstanding
indebtedness.
Net cash provided by operating activities totaled $49.7 million for the
nine months ended September 30, 2000, compared to $30.0 million for the same
period in the prior year. The increase was primarily the result of both
increased EBITDA for the nine months ended September 30, 2000 as compared to the
same period in 1999, and $7.3 million of cash generated from a decrease in net
working capital during the nine months ended September 30, 2000 as compared to
$14.2 million of cash invested in net working capital for the same period in
1999.
Net cash used in investing activities decreased to $48.5 million for
the nine months ended September 30, 2000 from $118.0 million for the same period
in 1999. During the nine months ended September 30, 2000, we invested $9.0
million to convert one leased site to a company-operated site, to convert one
franchisee-owned site to a company-operated site, to acquire two new
company-operated sites and to acquire a minority investment in a related
business. For the same period in 1999, we invested $57.0 million to acquire
Travel Ports. Capital expenditures for the nine months ended September 30, 2000
were $26.8 million less than for the same period in 1999. This decrease was
primarily attributable to a planned reduction in capital spending in 2000 as
compared to 1999, primarily reflecting a reduced level of one-time investments,
such as re-branding and information systems, at the sites acquired from Burns
Bros. and Travel Ports.
Net cash provided by financing activities was $9.2 million during the
nine months ended September 30, 2000, while net cash provided by financing
activities for the same period in 1999 was $30.5 million. For 2000, $11.4
million of cash was provided by net borrowings under our revolving credit
facility and $2.2 million was used to make debt repayments and repurchase shares
of our common stock. For the nine months ended September 30, 1999, $25.0 million
of cash was provided by borrowings under our revolving credit facility,
primarily to fund a part of the purchase price of the Travel Ports acquisition.
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We expect to invest approximately $70.0 million in our travel center
network from September 30, 2000 through the end of 2001 in connection with our
capital investment program to maintain, re-image, re-brand, upgrade and increase
the number of travel centers. We have budgeted expenditures to add additional
sites, re-brand and re- image sites, add additional non-fuel offerings, such as
truck maintenance and repair shops and QSRs, at existing sites, make required
environmental improvements, and purchase, install and upgrade our information
systems. The capital expenditures budget for the remainder of 2000 is
approximately $20.0 million.
We anticipate that we will be able to fund our 2000 working capital
requirements and capital expenditures primarily from funds generated from
operations and asset sales, and, to the extent necessary, from borrowings under
our revolving credit facility. Our long-term liquidity requirements, including
capital expenditures, are expected to be financed by a combination of internally
generated funds, borrowings and other sources of external financing as needed.
As of September 30, 2000, we had available $12.0 million of our $40.0 million
revolving credit facility.
ENVIRONMENTAL MATTERS
We own and operate underground storage tanks and aboveground storage
tanks at company-operated sites and leased sites which must comply with
Environmental Laws. We have estimated the current ranges of remediation costs at
currently active sites and what we believe will be our ultimate share for these
costs and, as of September 30, 2000, we had a reserve of approximately $6.0
million for unindemnified environmental matters for which we are responsible.
Under the environmental agreements entered into as part of the acquisitions of
the Unocal and BP networks, Unocal and BP are required to provide
indemnification for, and conduct remediation of, certain pre-closing
environmental conditions. While it is not possible to quantify with certainty
our environmental exposure, we believe that the potential liability, beyond that
considered in the reserve, for all environmental proceedings, based on
information known to date, will not have a material adverse effect on our
financial condition, results of operations or liquidity.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"), which requires entities to recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. Changes in the fair values are required to be recognized in
income when they occur, except for derivatives that qualify as hedges. For us,
adoption of this standard, as subsequently amended, is required for the first
quarter of 2001. At this time, we have not completed our analysis of the effect
on our financial statements of adopting FAS 133. However, as we use
derivatives on a limited basis and only as hedges of either commodity price risk
or interest rate risk, the effect of FAS 133 on our statement of operations is
not expected to be material.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101,
"Revenue Recognition in Financial Statements," which provides guidance related
to revenue recognition based on interpretations and practices promulgated by the
SEC and requires companies to report any changes in revenue recognition as a
cumulative change in accounting principle at the time of implementation. Before
modification by SAB 101B, SAB 101 was to be effective with the first quarter of
2000. In June 2000, the SEC issued SAB 101B, "Second Amendment: Revenue
Recognition in Financial Statements," which delays implementation of SAB 101
until the fourth quarter of 2000. We are currently determining the effect, if
any, SAB 101 will have on our financial statements, but we do not expect its
adoption will have any significant effect on our financial statements.
FORWARD-LOOKING STATEMENTS
This 10-Q includes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements relate to our
future prospects, developments and business strategies. The statements contained
in this report that are not statements of historical fact may include
forward-looking statements that involve a number of risks and uncertainties. We
have used the words "may," "will," "expect," "anticipate," "believe,"
"estimate," "plan," "intend," and similar expressions in this report to identify
forward-looking statements. These forward-looking statements are made based on
expectations and beliefs concerning future events affecting us and are subject
to uncertainties and factors relating to our operations and business
environment, all of which are
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difficult to predict and many of which are beyond our control, that could cause
our actual results to differ materially from those matters expressed or implied
by forward-looking statements. The following factors are among those that could
cause our actual results to differ materially from the forward-looking
statements:
- competition from other travel center and truck stop operators,
including additional or improved services or facilities of
competitors;
- the economic condition of the trucking industry, which in turn is
dependent on general economic factors;
- increased environmental regulation;
- changes in governmental regulation of the trucking industry, including
regulations relating to diesel fuel and gasoline;
- diesel fuel and gasoline pricing;
- availability of diesel fuel supply;
- delays in completing our capital investment program to re-image,
re-brand and upgrade our travel center sites;
- difficulties that may be encountered by us or our franchisees in
implementing our truck repair and maintenance program; and
- availability of sufficient qualified personnel to staff our
company-operated sites.
All of our forward-looking statements should be considered in light of
these factors. We do not undertake to update our forward-looking statements to
reflect future events or circumstances.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have no material changes to the disclosure on this matter made in
our annual report on Form 10-K for the year ended December 31, 1999.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are involved from time to time in various legal and administrative
proceedings and threatened legal and administrative proceedings incidental to
the ordinary course of our business. We believe that we are not now involved in
any litigation, individually, or in the aggregate, which could have a material
adverse affect on our business, financial condition, results of operations or
cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
third quarter.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Exhibit
-------------------- ----------------------------------------------------
27 Financial Data Schedule
(b) Reports on Form 8-K
On October 2, 2000, we filed a report on Form 8-K related to our
potential merger with TCA Acquisition Corporation.
On October 20, 2000 we filed a report on Form 8-K related to
disclosures required by Regulation FD.
On November 8, 2000 we filed a report on Form 8-K announcing our
results for the third quarter of 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRAVELCENTERS OF AMERICA, INC.
(Registrant)
Date: November 14, 2000 By: /s/ James W. George
------------------------------------------
Name: James W. George
Title: Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
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