<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 June 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
--- ---
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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 June 30, 2000 and December
31, 1999 2
Unaudited Consolidated Statements of Operations and Retained
Earnings (Deficit) for the three months ended June 30, 2000
and 1999 and for the six months ended June 30, 2000 and 1999 3
Unaudited Consolidated Statements of Cash Flows for the six
months ended June 30, 2000 and 1999 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>
JUNE 30,
2000 DECEMBER 31,
(UNAUDITED) 1999
------------ ------------
ASSETS (IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Current assets:
Cash.............................................................................. $ 18,988 $ 18,040
Accounts receivable (less allowance for doubtful accounts of $3,400 for 2000 and
$2,894 for 1999)............................................................... 79,114 66,439
Inventories....................................................................... 58,223 59,043
Deferred income taxes............................................................. 3,980 4,533
Other current assets.............................................................. 14,617 16,441
---------- ----------
Total current assets......................................................... 174,922 164,496
Notes receivable, net................................................................ 1,400 1,383
Property and equipment, net.......................................................... 452,631 454,093
Intangible assets.................................................................... 26,430 28,792
Deferred financing costs............................................................. 7,708 8,411
Deferred income taxes................................................................ 4,250 1,879
Other assets......................................................................... 6,224 808
---------- ----------
Total assets................................................................. $ 673,565 $ 659,862
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.............................................. $ 1,601 $ 1,601
Accounts payable.................................................................. 78,935 60,920
Other accrued liabilities......................................................... 60,256 66,743
---------- ----------
Total current liabilities.................................................... 140,792 129,264
Commitments and contingencies (Note 5)
Long-term debt....................................................................... 409,624 404,369
Deferred income taxes................................................................ 1,598 1,639
Other long-term liabilities.......................................................... 17,447 16,615
---------- ----------
569,461 551,887
Mandatorily redeemable senior convertible participating preferred stock.............. 85,121 79,739
Other preferred stock, common stock and other stockholders' equity................... 52,042 53,000
Retained (deficit)................................................................... (33,059) (24,764)
---------- ----------
18,983 28,236
---------- ----------
Total liabilities and stockholders' equity................................... $ 673,565 $ 659,862
========== ==========
</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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ------------------------
2000 1999 2000 1999
----------- --------- --------- ---------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues:
Fuel................................................... $ 337,979 $ 217,828 $ 666,182 $ 381,286
Non-fuel............................................... 144,158 119,036 268,045 218,742
Rent and royalties..................................... 4,673 5,507 9,393 10,572
--------- --------- --------- ---------
Total revenues......................................... 486,810 342,371 943,620 610,600
Cost of revenues (excluding depreciation)................. 370,296 241,567 722,968 423,245
--------- --------- --------- ---------
Gross profit (excluding depreciation)..................... 116,514 100,804 220,652 187,355
Operating expenses........................................ 78,341 65,601 151,125 124,336
Selling, general and administrative expenses.............. 9,953 10,375 19,719 19,661
Transition expenses....................................... 108 1,192 367 1,647
Depreciation and amortization expense..................... 16,623 10,558 31,752 21,767
Loss on sales of property and equipment................... 25 210 86 260
Stock compensation expense................................ 450 900 900 1,800
--------- --------- --------- ---------
Income from operations.................................... 11,014 11,968 16,703 17,884
Interest (expense), net................................... (10,868) (9,136) (21,173) (17,503)
--------- --------- --------- ---------
Income (loss) before income taxes......................... 146 2,832 (4,470) 381
Provision (benefit) for income taxes...................... 80 1,042 (1,557) 268
--------- --------- --------- ---------
Net income (loss)......................................... 66 1,790 (2,913) 113
Less: preferred dividends................................. (2,691) (2,361) (5,382) (4,723)
Retained (deficit) - beginning of the period.............. (30,434) (19,137) (24,764) (15,098)
--------- --------- --------- ---------
Retained (deficit) - end of the period.................... $ (33,059) $ (19,708) $ (33,059) $ (19,708)
========= ========= ========= =========
Earnings per common share (basic and diluted)............. $ (3.05) $ (0.91) $ (9.55) $ (7.51)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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TRAVELCENTERS OF AMERICA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
2000 1999
------------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................................. $ (2,913) $ 113
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization expense........................................... 31,752 21,767
Deferred income tax provision................................................... (1,859) 570
Provision for doubtful accounts................................................. 630 771
Provision for stock compensation................................................ 900 1,800
Loss on sales of property and equipment......................................... 86 260
Changes in assets and liabilities, adjusted for the effects of business
acquisitions:
Accounts receivable........................................................... (13,430) 3,863
Inventories................................................................... 1,829 215
Other current assets.......................................................... 1,824 (9,056)
Accounts payable.............................................................. 18,015 (941)
Other current liabilities..................................................... (6,487) (10,588)
Other, net...................................................................... (697) (89)
---------- ----------
Net cash provided by operating activities....................................... 29,650 8,685
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions ............................................................. (8,959) (57,044)
Proceeds from sales of property and equipment...................................... 127 209
Capital expenditures............................................................... (23,689) (44,838)
---------- ----------
Net cash used in investing activities........................................... (32,521) (101,673)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings.......................................................... 128,100 25,000
Revolving loan repayments.......................................................... (122,100) -
Long-term debt repayments.......................................................... (1,348) (744)
Repurchase of common stock......................................................... (833) -
---------- ----------
Net cash provided by financing activities....................................... 3,819 24,256
---------- ----------
Net increase (decrease) in cash............................................... 948 (68,732)
Cash at the beginning of the period................................................... 18,040 89,200
---------- ----------
Cash at the end of the period......................................................... $ 18,988 $ 20,468
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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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 other motorists through
our 160 full-service travel centers located in 40 states, primarily operating
under the "TravelCenters of America" or "TA" brand names. Of our 160 network
locations at June 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." Ten 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 the motoring public.
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 with
TCA Acquisition Corporation, a newly created corporation formed at the direction
of 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 the third quarter or early fourth
quarter of 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., National Auto/Truckstops, Inc., and TA
Licensing, Inc. (formerly known as Travel Port Systems, Inc.), and TA Travel,
L.L.C., a wholly owned subsidiary of TA Operating Corporation. Intercompany
accounts and transactions have been eliminated.
The accompanying unaudited, consolidated financial statements as of and
for the three- and six-month periods ended June 30, 2000 and 1999 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 six-month periods ended June 30, 2000 and 1999, 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 JUNE 30 SIX MONTHS ENDED JUNE 30
------------------------------- -------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
(DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net income (loss)................................... $ 66 $ 1,790 $ (2,913) $ 113
Less: Preferred stock dividends.................... (2,691) (2,361) (5,382) (4,723)
--------- -------- -------- --------
Net loss available to common stockholders........... (2,625) (571) (8,295) (4,610)
Weighted average shares outstanding................. 860 628 869 614
-------- -------- -------- --------
Loss per share...................................... $ (3.05) $ (0.91) $ (9.55) $ (7.51)
========= ======== ======= =========
</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 six-month periods ended June 30, 2000 and 1999.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Non-fuel merchandise................................................................... $ 49,767 $ 51,043
Petroleum products..................................................................... 8,456 8,000
---------- ----------
Total inventories................................................................ $ 58,223 $ 59,043
========== ==========
</TABLE>
4. TRAVEL PORTS ACQUISITION
Effective June 1, 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 $9,907,000,
has been recorded as goodwill and is being amortized on a straight-line basis
over 15 years.
6
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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>
SIX MONTHS ENDED
JUNE 30, 1999
-------------------
(IN THOUSANDS OF
DOLLARS EXCEPT
PER SHARE AMOUNTS)
<S> <C>
Total revenue..................................................................................... $ 667,059
Gross profit...................................................................................... $ 211,881
Income from operations............................................................................ $ 21,854
Net income........................................................................................ $ 1,821
Loss per common share (basic and diluted)......................................................... $ (4.66)
</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 operation
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
operation 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 June 30, 2000, we had a
reserve for these matters of $6,844,000. While it is not possible to quantify
with certainty the
7
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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 routine 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- ---------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
(DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Cash paid during the period for:
Interest $ 14,459 $ 13,175 $ 20,721 $ 17,550
Income taxes (net of refunds) $ (56) $ 984 $ 1,631 $ 1,790
</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 June 30, 2000 and December 31, 1999, our consolidating statements of
operations and retained earnings (deficit) for the three- and six-month periods
ended June 30, 2000 and 1999 and the consolidating statements of cash flows for
the six months ended June 30, 2000 and 1999. 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 its 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
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TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET SCHEDULES:
<TABLE>
<CAPTION>
JUNE 30, 2000
----------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------------- ------------- -------------- ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash....................................... $ - $ 18,988 $ - $ - $ 18,988
Accounts receivable, net................... - 79,187 1,180 (1,253) 79,114
Inventories................................ - 58,223 - - 58,223
Deferred income taxes...................... - 3,980 - - 3,980
Other current assets....................... 137 14,480 - - 14,617
---------- ---------- ---------- ----------- ----------
Total current assets.................. 137 174,858 1,180 (1,253) 174,922
Notes receivable, net......................... 1,085 315 - - 1,400
Property and equipment, net................... - 452,631 - - 452,631
Intangible assets............................. - 26,430 - - 26,430
Deferred financing costs...................... 7,708 - - - 7,708
Deferred income taxes......................... 880 3,370 - - 4,250
Other assets.................................. - 6,224 - - 6,224
Investment in subsidiaries.................... 116,238 - - (116,238) -
---------- ---------- ---------- ----------- ----------
Total assets.......................... $ 126,048 $ 663,828 $ 1,180 $ (117,491) $ 673,565
========== ========== ========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt....... $ 1,446 $ 155 $ - $ - $ 1,601
Accounts payable........................... - 78,695 240 - 78,935
Other accrued liabilities.................. 4,553 56,255 701 (1,253) 60,256
---------- ---------- ---------- ----------- ----------
Total current liabilities............. 5,999 135,105 941 (1,253) 140,792
Long-term debt................................ 406,773 2,851 - - 409,624
Deferred income taxes......................... - 1,598 - - 1,598
Intercompany payable (receivable)............. (392,083) 398,476 (6,393) - -
Other liabilities............................. - 17,447 - - 17,447
---------- ---------- ------------ ----------- ----------
Total liabilities..................... 20,689 555,477 (5,452) (1,253) 569,461
Mandatorily redeemable senior convertible
participating preferred stock.............. 85,121 - - - 85,121
Other preferred stock, common stock and other
stockholders' equity....................... 53,297 84,838 - (86,093) 52,042
Retained earnings (deficit)................... (33,059) 23,513 6,632 (30,145) (33,059)
---------- ---------- ---------- ----------- ----------
20,238 108,351 6,632 (116,238) 18,983
---------- ---------- ---------- ----------- ----------
Total liabilities and stockholders'
equity............................. $ 126,048 $ 663,828 $ 1,180 $ (117,491) $ 673,565
========== ========== ========== =========== ==========
</TABLE>
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TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<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 401,495
discount)............................... 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
Other preferred stock, common stock and 54,255
other stockholders' equity.............. 84,839 - (86,094) 53,000
Retained earnings (deficit)................ (24,764) 24,941 7,382 (32,323) (24,764)
---------- ---------- ---------- ----------- ----------
29,491 109,780 7,382 (118,417) 28,236
---------- ---------- ---------- ----------- ----------
Total liabilities and stockholders' equity $ 129,048 $ 648,136 $ 1,095 $ (118,417) $ 659,862
========== ========== ========== =========== ==========
</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 JUNE 30, 2000
------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues:
Fuel................................... $ - $ 337,979 $ - $ - $ 337,979
Non-fuel............................... - 144,158 - - 144,158
Rent and royalties..................... - 4,156 1,770 (1,253) 4,673
---------- ---------- ---------- ---------- ----------
Total revenues......................... - 486,293 1,770 (1,253) 486,810
Cost of revenues (excluding depreciation). - 370,296 - - 370,296
---------- ---------- ---------- ---------- ----------
Gross profit (excluding depreciation)..... - 115,997 1,770 (1,253) 116,514
Operating expenses........................ - 78,323 1,271 (1,253) 78,341
Selling, general and
administrative expenses............... 200 8,567 1,186 - 9,953
Transition expenses....................... - 108 - - 108
Depreciation and amortization expense..... 357 16,266 - - 16,623
Loss on sales of property and equipment - 25 - - 25
Stock compensation expense................ - 450 - - 450
---------- ---------- ------------ ------------ ----------
Income (loss) from operations............. (557) 12,258 (687) - 11,014
Interest (expense), net................... - (10,865) (3) - (10,868)
Equity income (loss)...................... 434 - - (434) -
---------- ---------- ------------ ------------ ----------
Income (loss) before income taxes......... (123) 1,393 (690) (434) 146
Provision (benefit) for income taxes...... (189) 544 (275) - 80
---------- ---------- ------------ ------------ ----------
Net income (loss)......................... 66 849 (415) (434) 66
Less: preferred dividends................. (2,691) - - - (2,691)
Retained earnings (deficit) - beginning of the
period................................. (30,434) 22,664 7,047 (29,711) (30,434)
---------- ---------- ---------- ---------- ----------
Retained earnings (deficit) - end of the period $ (33,059) $ 23,513 $ 6,632 $ (30,145) $ (33,059)
========== ========== ========== ========== ==========
</TABLE>
11
<PAGE> 13
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
-------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------------- -------------- ------------- ------------ --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues:
Fuel................................... $ - $ 217,828 $ - $ - $ 217,828
Non-fuel............................... - 118,611 425 - 119,036
Rent and royalties..................... - 3,621 1,886 - 5,507
---------- ---------- ---------- ---------- ----------
Total revenues......................... - 340,060 2,311 - 342,371
Cost of revenues (excluding depreciation). - 241,567 - - 241,567
---------- ---------- ---------- ---------- ----------
Gross profit (excluding depreciation)..... - 98,493 2,311 - 100,804
Operating expenses........................ - 65,335 266 - 65,601
Selling, general and
administrative expenses............... 240 9,147 988 - 10,375
Transition expense........................ - 1,192 - - 1,192
Depreciation and amortization expense..... 334 10,224 - - 10,558
Loss on sales of property and equipment - 210 - - 210
Stock compensation expense................ - 900 - - 900
---------- ---------- ---------- ---------- ----------
Income (loss) from operations............. (574) 11,485 1,057 - 11,968
Interest (expense), net................... - (9,136) - - (9,136)
Equity income (loss)...................... 2,169 - - (2,169) -
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes ........ 1,595 2,349 1,057 (2,169) 2,832
Provision (benefit) for income taxes...... (195) 843 394 - 1,042
---------- ---------- ---------- ---------- ----------
Net income (loss)......................... 1,790 1,506 663 (2,169) 1,790
Less: preferred dividends................. (2,361) - - - (2,361)
Retained earnings (deficit) - beginning of
the period............................. (19,137) 24,427 6,659 (31,086) (19,137)
---------- ---------- ---------- ---------- ----------
Retained earnings (deficit) - end of the
period................................. $ (19,708) $ 25,933 $ 7,322 $ (33,255) $ (19,708)
=========== ========== ========== ========== ==========
</TABLE>
12
<PAGE> 14
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues:
Fuel................................... $ - $ 666,182 $ - $ - $ 666,182
Non-fuel............................... - 268,045 - - 268,045
Rent and royalties..................... - 8,257 3,501 (2,365) 9,393
---------- ---------- ---------- ---------- ----------
Total revenues......................... - 942,484 3,501 (2,365) 943,620
Cost of revenues (excluding depreciation). - 722,968 - - 722,968
---------- ---------- ---------- ---------- ----------
Gross profit (excluding depreciation)..... - 219,516 3,501 (2,365) 220,652
Operating expenses........................ - 151,093 2,397 (2,365) 151,125
Selling, general and
administrative expenses............... 400 16,977 2,342 - 19,719
Transition expenses....................... - 367 - - 367
Depreciation and amortization expense..... 713 31,039 - - 31,752
Loss on sales of property and equipment - 86 - - 86
Stock compensation expense................ - 900 - - 900
---------- ---------- ------------ ------------ ----------
Income (loss) from operations............. (1,113) 19,054 (1,238) - 16,703
Interest (expense), net................... - (21,170) (3) - (21,173)
Equity income (loss)...................... (2,178) - - 2,178 -
---------- ---------- ------------ ------------ ----------
Income (loss) before income taxes......... (3,291) (2,116) (1,241) 2,178 (4,470)
Provision (benefit) for income taxes...... (378) (688) (491) - (1,557)
---------- ---------- ------------ ------------ ----------
Net income (loss)......................... (2,913) (1,428) (750) 2,178 (2,913)
Less: preferred dividends................. (5,382) - - - (5,382)
Retained earnings (deficit) - beginning
of the period............................ (24,764) 24,941 7,382 (32,323) (24,764)
---------- ---------- ---------- ---------- ----------
Retained earnings (deficit) - end of the period $ (33,059) $ 23,513 $ 6,632 $ (30,145) $ (33,059)
========== ========== ========== ========== ==========
</TABLE>
13
<PAGE> 15
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
-------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR ELIMINATIONS CONSOLIDATED
COMPANY SUBSIDIARY SUBSIDIARY
-------------- -------------- ------------- ------------ --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues:
Fuel................................... $ - $ 381,286 $ - $ - $ 381,286
Non-fuel............................... - 218,136 606 - 218,742
Rent and royalties..................... - 7,029 3,543 - 10,572
---------- ---------- ---------- ---------- ----------
Total revenues......................... - 606,451 4,149 - 610,600
Cost of revenues (excluding depreciation). - 423,245 - - 423,245
---------- ---------- ---------- ---------- ----------
Gross profit (excluding depreciation)..... - 183,206 4,149 - 187,355
Operating expenses........................ - 123,863 473 - 124,336
Selling, general and
administrative expenses............... 486 17,969 1,206 - 19,661
Transition expense........................ - 1,647 - - 1,647
Depreciation and amortization expense..... 668 21,099 - - 21,767
Loss on sales of property and equipment - 260 - - 260
Stock compensation expense................ - 1,800 - - 1,800
---------- ---------- ---------- ---------- ----------
Income (loss) from operations............. (1,154) 16,568 2,470 - 17,884
Interest (expense), net................... - (17,503) - - (17,503)
Equity income (loss)...................... 875 - - (875) -
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes ........ (279) (935) 2,470 (875) 381
Provision (benefit) for income taxes...... (392) (261) 921 - 268
---------- ---------- ---------- ---------- ----------
Net income (loss)......................... 113 (674) 1,549 (875) 113
Less: preferred dividends................. (4,723) - - - (4,723)
Retained earnings (deficit) - beginning of
the period............................. (15,098) 26,607 5,773 (32,380) (15,098)
---------- ---------- ---------- ---------- ----------
Retained earnings (deficit) - end of the
period................................. $ (19,708) $ 25,933 $ 7,322 $ (33,255) $ (19,708)
========== ========== ========== ========== ==========
</TABLE>
14
<PAGE> 16
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS SCHEDULES:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
-------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR ELIMINATIONS CONSOLIDATED
COMPANY SUBSIDIARY SUBSIDIARY
-------------- -------------- ------------ ------------ --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES.................. $ (4,131) $ 33,781 $ - $ - $ 29,650
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions................. - (8,959) - - (8,959)
Proceeds from sales of property and
equipment.......................... - 127 - - 127
Capital expenditures.................. - (23,689) - - (23,689)
---------- ---------- ---------- ---------- ----------
Net cash used in investing
activities....................... - (32,521) - - (32,521)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings............. 128,100 - - - 128,100
Revolving loan repayments............. (122,100) - - - (122,100)
Long-term debt repayments............. (722) (626) - - (1,348)
Repurchase of common stock.......... (833) - - - (833)
Intercompany advances............... (314) 314 - - -
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities............. 4,131 (312) - - 3,819
---------- ---------- ---------- ---------- ----------
Net increase in cash............... - 948 - - 948
Cash at the beginning of the period...... - 18,040 - - 18,040
---------- ---------- ---------- ---------- ----------
Cash at the end of the period............ $ - $ 18,988 $ - $ - $ 18,988
========== ========== ========== ========== ==========
</TABLE>
15
<PAGE> 17
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
-------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR ELIMINATIONS CONSOLIDATED
COMPANY SUBSIDIARY SUBSIDIARY
-------------- -------------- ------------ ------------ --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES.................. $ 4,019 $ 4,666 $ - $ - $ 8,685
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions................. - (57,044) - - (57,044)
Proceeds from sales of
property and equipment.............. - 209 - - 209
Capital expenditures.................. - (44,838) - - (44,838)
---------- ---------- ---------- ---------- ----------
Net cash used in investing
activities....................... - (101,673) - - (101,673)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings............. 25,000 - - - 25,000
Long-term debt repayments............. (723) (21) - - (744)
Intercompany advances............... (87,862) 87,862 - - -
---------- ---------- ---------- ---------- ----------
Net cash used in financing
activities....................... (63,585) 87,841 - - 24,256
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash.... (59,566) (9,166) - - (68,732)
Cash at the beginning of the period...... 59,665 29,535 - - 89,200
---------- ---------- ---------- ---------- ----------
Cash at the end of the period............ $ 99 $ 20,369 $ - $ - $ 20,468
========== ========== ========== ========== ==========
</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 160 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 with TCA
Acquisition Corporation, a newly created corporation formed at the direction of
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 the third quarter or early fourth
quarter of 2000.
NETWORK COMPOSITION
The changes in the number of sites within our network and in their
method of operation are the most 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 such site who, in conjunction with such 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. The following table sets forth the number and type of
ownership and management of the travel centers operating in our network.
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
-------------------------- DECEMBER 31,
2000 1999 1999
----------- ----------- ------------
<S> <C> <C> <C>
Company-owned and operated sites(1) 122 122 118
Company-owned and leased sites 28 30 29
-------- -------- --------
Total company-owned sites 150 152 147
Franchisee-owned sites 10 10 11
-------- -------- --------
Total 160 162 158
======== ======== ========
</TABLE>
(1) Excludes two closed sites held for sale as of June 30, 2000 and December 31,
1999 and one closed site held for sale as of June 30, 1999.
17
<PAGE> 19
RESULTS OF OPERATIONS
Revenues
Our consolidated revenues for the three- and six-month periods ended
June 30, 2000 were $486.8 million and $943.6 million, respectively, which
represent increases from the same periods in the prior year of $144.4 million,
or 42.2%, for the three-month period and $333.0 million, or 54.5%, for the
six-month period.
Fuel revenue for the three- and six- month periods ended June 30, 2000
increased by $120.1 million, or 55.1%, and $284.9 million, or 74.7%,
respectively over the same periods in 1999. The increases were attributable to
increases in diesel fuel and gasoline sales volumes as well as increases in
average sales prices. Average diesel fuel and gasoline sales prices for the
first six months of 2000 increased by 67.3% and 49.6%, respectively, as compared
to 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 six months of 2000. Diesel fuel sales volumes for the three- and
six-month periods ended June 30, 2000 increased by 3.1% and 4.0%, respectively,
as compared to the same periods in 1999, while gasoline sales volumes for the
three- and six-month periods ended June 30, 2000 increased by 24.9% and 23.1%,
respectively, as compared to the same periods in 1999. These volume increases
were due to added volume from the increased number of network sites and a
same-site increase of 4.9% for gasoline sales volume during the first six months
of 2000 as compared to the first six months of 1999, somewhat offset by a
same-site decrease of 11.3% for diesel fuel sales volume during the first six
months of 2000 as compared to the first six months of 1999. This same-site
decrease in diesel fuel sales volume was primarily attributable to reduced
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 six months of 2000. The sharp rise in diesel fuel prices was driven by
crude oil price increases, reduced domestic refined product inventories and
increased demand for home heating oil, primarily in the northeastern United
States. For the three months ended June 30, 2000, we sold 339.2 million gallons
of diesel fuel and 25.9 million gallons of gasoline, as compared to 326.0
million gallons of diesel fuel and 20.7 million gallons of gasoline during the
same period of 1999. For the six months ended June 30, 2000, we sold 671.9
million gallons of diesel fuel and 44.6 million gallons of gasoline, as compared
to 646.1 million gallons of diesel fuel and 36.2 million gallons of gasoline
during the same period in 1999.
Non-fuel revenues for the three- and six-month periods ended June 30,
2000 of $144.2 million and $268.0 million, respectively, reflected increases of
$25.1 million, or 21.1%, and $49.3 million, or 22.5%, 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 4.4% for the six months ended June 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 our customers and the volume of
truck traffic on the highways.
Rent and royalty revenues for the three- and six-month periods ended
June 30, 2000 reflect $0.8 million, or 14.5%, and $1.2 million, or 11.3%,
respectively, decreases 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
and the conversions of one leased site and one franchisee-owned site to
company-operated sites during the first quarter of 2000, somewhat offset by a
same-site rent increase of 1.5% and a same-site royalty revenue increase of
0.9%.
Gross Profit
Our gross profit for the three months ended June 30, 2000 was $116.5
million, compared to $100.8 million for the same period in 1999, an increase of
$15.7 million, or 15.6%. For the six months ended June 30, 2000, our gross
profit was $220.7 million, compared to $187.4 million for the same period in
1999, an increase of $33.3 million, or 17.8%. The increase in our gross profit
was primarily due to increases in non-fuel revenues and fuel margin, partially
offset by decreased rent revenue.
18
<PAGE> 20
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 $12.7 million, or 19.4%, to $78.3
million for the three- month period ended June 30, 2000 compared to $65.6
million for the same period in 1999. Our operating expenses increased by $26.8
million, or 21.6%, to $151.1 million for the six-month period ended June 30,
2000 compared to $124.3 million for the same period in 1999. These increases
reflect 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 six months ended June 30,
2000 were 50.9%, compared to 51.3% for the same period in 1999.
Our selling, general and administrative expenses decreased from $10.4
million for the three months ended June 30, 1999 to $10.0 million for the three
months ended June 30, 2000. For the six-months ended June 30, 2000, selling,
general and administrative expenses were $19.7 million, which reflects no change
from the same period in 1999.
Transition Expenses
Transition expenses were the costs incurred from combining the Unocal,
BP, Burns Bros. and Travel Ports networks. These expenses primarily included
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 six months of 2000
decreased from $1.6 million during the same period in 1999 to $0.4 million. We
anticipate incurring less than $1.0 million in transition expenses in 2000.
Depreciation and Amortization Expense
Depreciation and amortization expense for the three- and six-month
periods ended June 30, 2000 was $16.6 million, and $31.8 million, respectively,
compared to $10.6 million and $21.8 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 $16.7 million for the six months
ended June 30, 2000, compared to income from operations of $17.9 million for the
same period in 1999. For the three months ended June 30, 2000, income from
operations was $11.0 million, compared to $12.0 million for the same period in
1999. These decreases of 8.3% and 6.7%, respectively, for the three-month and
six-month periods were primarily attributable to the increases in depreciation
and amortization expense exceeding the increases in gross profit less operating
expenses. EBITDA (defined as net 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 six months ended June 30, 2000 was $49.8 million,
compared to $43.4 million for the same period in the prior year. For the three
months ended June 30, 2000, EBITDA was $28.2 million compared to $24.8 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 significant capital improvements
we have made.
Interest Expense - Net
Interest expense, net, for the six months ended June 30, 2000 increased
by $3.7 million, or 21.1%, compared to the same period in 1999. Interest
expense, net, for the three months ended June 30, 2000 increased by $1.8
million, or 19.8%, 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.
19
<PAGE> 21
Income taxes
Our effective income tax rate for the six months ended June 30, 2000
and June 30, 1999 was 34.8% and 70.4%, respectively. These rates differed from
the federal statutory rate due primarily 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 was primarily the result of changes in
state taxes, net of the federal effect, and nondeductible expenses.
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 $29.7 million for the
six months ended June 30, 2000, compared to $8.7 million for the same period in
the prior year. The increase was primarily the result of both increased EBITDA
for the six months ended June 30, 2000 as compared to the same period in 1999,
and $1.1 million of cash generated from a decrease in net working capital during
the six months ended June 30, 2000 as compared to $16.6 million of cash invested
in an increase in net working capital for the same period in 1999.
Net cash used in investing activities decreased to $32.5 million for
the six months ended June 30, 2000, from $101.7 million for the same period in
1999. During the six-months ended June 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 six months ended June 30, 2000 were
$21.1 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 $3.8 million during the
six months ended June 30, 2000, while net cash provided by financing activities
for the same period in 1999 was $24.3 million. For 2000, $6.0 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 six months ended June 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.
We expect to invest approximately $79 million in our travel center
network from June 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 $34 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 June 30, 2000, we had available $17.4 million of our $40.0 million
revolving credit facility.
20
<PAGE> 22
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 such
costs and, as of June 30, 2000, we had a reserve of $6.8 million for
unindemnified environmental matters for which we are held 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 PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"), which requires entities to recognize all derivatives
as either assets or liabilities in the balance sheet and measure those
instruments at fair value. Changes in the fair values are required to be
recognized in income when they occur, except for derivatives that qualify as
hedges. For 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
utilize 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.
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 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 governmental regulation;
- 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.
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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 routine 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
On June 19, 2000, the holders of 5,484,135 shares of the 6,119,091
total shares of our outstanding voting stock, by written consent without a
meeting, approved and authorized the Recapitalization Agreement and Plan of
Merger, dated May 31, 2000, among us, TCA Acquisition Corporation and certain of
our stockholders, and the merger transactions contemplated therein. In
accordance with Section 228 of the Delaware General Corporation Law, notice of
the action was provided to the holders of the 634,956 shares of voting stock
who did not participate in the written consent.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
-------------------- ---------------------------------------------------------------------------------------------
<S> <C>
2.1 Recapitalization Agreement and Plan of Merger dated as of May 31, 2000
10.1 * TA Operating Corporation Transition Plan
10.2 * Form of Executive Employment Agreement
10.3 * Schedule of Executive Employment Agreements omitted pursuant to Instruction 2 to Item 601
of Regulation S-K.
10.4 * Form of Amendment No. 1 to Executive Employment Agreement
10.5 * Schedule of Amendment No. 1 to Executive Employment Agreements omitted pursuant to
Instruction 2 to Item 601 of Regulation S-K.
10.6 * Amendment No. 1 to the 1997 Stock Incentive Plan
10.7 * Form of 1997 Stock Incentive Plan - Nonqualified Stock Option Agreement
10.8 * Schedule of 1997 Stock Incentive Plan - Nonqualified Stock Option Agreements omitted
pursuant to Instruction 2 to Item 601 of Regulation S-K.
10.9 * Success Bonus Letter
27 Financial Data Schedule
</TABLE>
* Denotes executive compensation plans.
(b) Reports on Form 8-K
On June 1, 2000, we filed a report on Form 8-K related to our potential
merger with TCA Acquisition Corporation.
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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: August 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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