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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, 2002
Commission file number 333-52442
-------------------------
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 44145-5639
(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 [ ]
As of October 31, 2002, there were outstanding 6,939,498 shares of our
common stock, par value $0.00001 per share. The outstanding shares of our common
stock were issued in transactions not involving a public offering. As a result,
there is no public market for our shares.
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.
INDEX PAGE NO.
----- --------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheet as of December 31, 2001 (derived
from audited data) and September 30, 2002 (unaudited)....... 2
Unaudited Consolidated Statement of Operations for the
three months and the nine months ended September 30, 2001
and 2002.................................................... 3
Unaudited Consolidated Statement of Cash Flows for the nine
months ended September 30, 2001 and 2002.................... 4
Unaudited Statement of Stockholders' Equity for the nine
months ended September 30, 2001 and 2002.................... 5
Selected Notes to Unaudited Consolidated Financial
Statements.................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 20
Item 3. Quantitative and Qualitative Disclosures About
Market Risk................................................. 27
Item 4. Controls and Procedures..................................... 28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 28
Item 4. Submission of Matters to a Vote of Security Holders......... 28
Item 6. Exhibits and Reports on Form 8-K............................ 28
SIGNATURE............................................................................... 29
CERTIFICATIONS.......................................................................... 30
1
TRAVELCENTERS OF AMERICA, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30,
DECEMBER 31, 2002
2001 (UNAUDITED)
------------------------------
ASSETS (IN THOUSANDS OF DOLLARS)
Current assets:
Cash.............................................................................. $ 19,888 $ 21,471
Accounts receivable (less allowance for doubtful accounts of $3,060 for 2001 and
$2,673 for 2002)............................................................... 43,856 51,846
Inventories....................................................................... 57,419 57,197
Deferred income taxes............................................................. 5,044 4,874
Other current assets.............................................................. 8,121 6,589
---------- ----------
Total current assets......................................................... 134,328 141,977
Property and equipment, net.......................................................... 461,167 451,221
Intangible assets, net............................................................... 23,561 26,382
Deferred financing costs, net........................................................ 30,202 28,252
Deferred income taxes................................................................ 19,908 16,111
Other noncurrent assets.............................................................. 10,690 12,230
---------- ----------
Total assets................................................................. $ 679,856 $ 676,173
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.............................................. $ 3,409 $ 3,457
Accounts payable.................................................................. 60,429 67,068
Other accrued liabilities......................................................... 43,541 56,349
---------- ----------
Total current liabilities.................................................... 107,379 126,874
Commitments and contingencies (Note 8)
Long-term debt....................................................................... 548,869 526,276
Deferred income taxes................................................................ 2,851 2,738
Other noncurrent liabilities......................................................... 7,857 5,330
---------- ----------
666,956 661,218
Redeemable equity.................................................................... 565 681
Nonredeemable equity:
Common stock and other stockholders' equity....................................... 213,923 215,371
Accumulated deficit............................................................... (201,588) (201,097)
---------- ----------
Total nonredeemable equity................................................... 12,335 14,274
---------- ----------
Total liabilities, redeemable equity and nonredeemable stockholders' equity.. $ 679,856 $ 676,173
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
2
TRAVELCENTERS OF AMERICA, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------------------
2001 2002 2001 2002
--------------------------------------------------------------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
Revenues:
Fuel...................................................... $ 343,363 $ 321,455 $ 1,066,460 $ 878,033
Non-fuel.................................................. 159,426 168,756 444,307 466,997
Rent and royalties........................................ 4,516 3,891 13,126 11,879
----------- ----------- ----------- -----------
Total revenues...................................... 507,305 494,102 1,523,893 1,356,909
Cost of goods sold (excluding depreciation):
Fuel...................................................... 315,431 296,037 987,853 802,720
Non-fuel.................................................. 66,002 70,284 182,226 192,377
----------- ----------- ----------- -----------
Total cost of goods sold (excluding depreciation)...
depreciation)..................................... 381,433 366,321 1,170,079 995,097
----------- ----------- ----------- -----------
Gross profit (excluding depreciation)........................ 125,872 127,781 353,814 361,812
Operating expenses........................................... 84,640 85,280 245,287 248,385
Selling, general and administrative expenses................. 9,658 9,399 29,502 28,981
Depreciation and amortization expense........................ 15,489 16,232 45,319 45,601
Gain on sales of property and equipment...................... (71) (949) (1,385) (963)
----------- ----------- ----------- -----------
Income from operations....................................... 16,156 17,819 35,091 39,808
Interest and other financial costs, net...................... (14,128) (12,843) (44,402) (38,787)
----------- ----------- ----------- -----------
Income (loss) before income taxes............................ 2,028 4,976 (9,311) 1,021
Provision (benefit) for income taxes......................... (470) 1,724 (3,783) 530
----------- ----------- ----------- -----------
Net income (loss)............................................ $ 2,498 $ 3,252 $ (5,528) $ 491
=========== =========== =========== ===========
Income (loss) per common share:
Basic..................................................... $ 0.36 $ 0.47 $ (0.80) $ 0.07
Diluted................................................... $ 0.36 $ 0.46 $ (0.80) $ 0.07
The accompanying notes are an integral part of these
consolidated financial statements.
3
TRAVELCENTERS OF AMERICA, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2001 2002
------------- -------------
(IN THOUSANDS OF DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................................. $ (5,528) $ 491
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization expense.......................................... 45,319 45,601
Amortization of deferred financing costs....................................... 1,911 2,250
Deferred income tax provision.................................................. (4,164) 3,107
Provision for doubtful accounts................................................ 750 750
(Gain) on sales of property and equipment...................................... (1,385) (963)
Changes in assets and liabilities, adjusted for the effects of business
acquisitions:
Accounts receivable......................................................... 7,901 (10,281)
Inventories................................................................. 2,709 682
Other current assets........................................................ 7,284 1,154
Accounts payable and other accrued liabilities.............................. (9,463) 19,597
Other, net........................................................................ (2,718) (2,852)
-------- --------
Net cash provided by operating activities..................................... 42,616 59,536
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions............................................................ - (3,526)
Proceeds from sales of property and equipment.................................... 6,010 3,945
Capital expenditures............................................................. (41,247) (34,592)
-------- --------
Net cash used in investing activities......................................... (35,237) (34,173)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Revolving loan borrowings (repayments), net...................................... (8,000) (20,900)
Long-term debt repayments........................................................ (81) (2,546)
Issuance of common stock......................................................... 38 116
Debt issuance costs.............................................................. - (300)
Merger and recapitalization expenses paid........................................ (3,316) (150)
-------- --------
Net cash used in financing activities......................................... (11,359) (23,780)
-------- --------
Net increase (decrease) in cash........................................... (3,980) 1,583
Cash at the beginning of the period.................................................. 29,019 19,888
-------- --------
Cash at the end of the period........................................................ $ 25,039 $ 21,471
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
4
TRAVELCENTERS OF AMERICA, INC.
UNAUDITED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------
2001 2002
-------------------------------------
(IN THOUSANDS OF DOLLARS)
COMMON STOCK:
Balance at beginning and end of period.................................... $ 3 $ 3
=========== ===========
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning and end of period.................................... $ 215,840 $ 215,840
=========== ===========
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Balance at beginning of period............................................ $ - $ (1,920)
Change in accounting principle, net of tax......................... (343) -
Change in fair value of interest rate protection agreement, net
of tax........................................................... (1,700) 1,448
----------- -----------
Balance at end of period.................................................. $ (2,043) $ (472)
=========== ===========
ACCUMULATED DEFICIT:
Balance at beginning of period............................................ $ (191,746) $ (201,588)
Net income (loss).................................................. (5,528) 491
----------- -----------
Balance at end of period.................................................. $ (197,274) $ (201,097)
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
5
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION AND SUMMARY OF OPERATING STRUCTURE
We are a holding company which, through our wholly owned subsidiaries,
owns, operates and franchises travel centers along the United States interstate
highway system to serve long-haul trucking fleets and their drivers, independent
truck drivers and general motorists. At September 30, 2002, our geographically
diverse nationwide network of full-service travel centers consisted of 151 sites
located in 40 states. Our operations are conducted through three distinct types
of travel centers: (1) sites owned or leased and operated by us, which we refer
to as company-operated sites; (2) sites owned by us and leased to independent
lessee-franchisees, which we refer to as leased sites; and (3) sites owned and
operated by independent franchisees, which we refer to as franchisee-owned
sites.
Our travel centers are located at key points along the U.S. interstate
highway system, typically on 20- to 25-acre sites. Operating under the
"TravelCenters of America" and "TA" brand names, our nationwide network provides
our customers with diesel fuel and gasoline as well as non-fuel products and
services such as truck repair and maintenance services, full-service
restaurants, more than 20 different brands of fast food restaurants, travel and
convenience stores with a selection of over 4,000 items and other driver
amenities. We also collect rents and franchise royalties from the franchisees
who operate the leased sites and franchisee-owner sites and, as a franchisor,
assist our franchisees in providing service to long-haul trucking fleets and
their drivers, independent truck drivers and general motorists.
The consolidated financial statements include the accounts of
TravelCenters of America, Inc. and its wholly owned subsidiaries, TA Operating
Corporation and TA Franchise Systems Inc., as well as TA Licensing, Inc., TA
Travel, L.L.C., TravelCenters Realty, Inc. and TravelCenters Properties, L.P.,
which are all direct or indirect 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, 2001 and 2002 have
been prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. Accordingly, these
statements should be read in conjunction with our audited financial statements
as of and for the year ended December 31, 2001. 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, our consolidated financial position at
September 30, 2002, our results of operations for the three- and nine-month
periods ended September 30, 2001 and 2002, and our changes in nonredeemable
stockholders' equity and cash flows for the nine-month periods ended September
30, 2001 and 2002, and are not necessarily indicative of the results to be
expected for the full year.
2. RECENTLY ADOPTED ACCOUNTING STANDARDS
FAS 142. Effective January 1, 2002, we adopted Statement of Financial
Accounting Standards (FAS) No. 142, "Goodwill and Other Intangible Assets."
Under FAS 142, goodwill and intangible assets with indefinite lives are no
longer amortized but are reviewed annually (or more frequently if impairment
indicators arise) for impairment. Separable intangible assets that are not
deemed to have indefinite lives continue to be amortized over their useful
lives. Our trademark intangible assets have been deemed to have indefinite
lives. During the first quarter of 2002 we completed the transitional impairment
test for our trademarks and determined that the estimated fair values of these
intangible assets exceeded their respective carrying amounts. Accordingly, we
did not recognize an impairment loss with respect to our trademark intangible
assets. For purposes of testing goodwill for impairment under the transitional
accounting provisions of FAS 142, goodwill must first be allocated to reporting
units. FAS 142 requires us to compare the fair value of the reporting unit to
its carrying value to determine if there is potential impairment. If the fair
value of the reporting unit is less than its carrying value, an impairment loss
would be recognized to the extent that the fair value of the goodwill within the
reporting unit is less than the carrying value. For purposes of applying the
provisions of FAS 142, we have determined that we are one reporting unit. The
fair value of the reporting unit exceeded the carrying value of the reporting
unit at January 1, 2002. Accordingly, we did not recognize an impairment loss
with respect to our goodwill.
6
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following table provides a reconciliation of the prior-year
periods' reported net income (loss) to adjusted net income (loss) had FAS 142
been applied as of the beginning of 2001:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------------------------
2001 2002 2001 2002
------------------------------------------------------------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
Reported net income (loss)........................ $ 2,498 $ 3,252 $ (5,528) $ 491
Add back amortization (net of tax):
Goodwill........................................ 316 - 948 -
Trademarks...................................... 32 - 95 -
--------- --------- --------- ---------
Adjusted net income (loss)........................ $ 2,846 $ 3,252 $ (4,485) $ 491
========= ========= ========= =========
Earnings per share - basic:
Reported net income (loss)...................... $ 0.36 $ 0.47 $ (0.80) $ 0.07
Goodwill amortization........................... 0.05 - 0.14 -
Trademarks amortization......................... - - 0.01 -
-------- --------- --------- ---------
Adjusted net income (loss)........................ $ 0.41 $ 0.47 $ (0.65) $ 0.07
========= ========= ========= =========
Earnings per share - diluted:
Reported net income (loss)...................... $ 0.36 $ 0.46 $ (0.80) $ 0.07
Goodwill amortization........................... 0.05 - 0.14 -
Trademarks amortization......................... - - 0.01 -
-------- --------- --------- ---------
Adjusted net income (loss)........................ $ 0.41 $ 0.46 $ (0.65) $ 0.07
========= ========= ========= =========
FAS 144. Effective January 1, 2002, we adopted FAS 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." This statement amended
previous accounting and disclosure requirements for impairments and disposals of
long-lived assets, including with respect to discontinued operations. The
provisions of FAS 144 are generally to be applied prospectively. Adoption of FAS
144 had no effect on our consolidated results of operations and financial
position.
3. EARNINGS PER SHARE
A reconciliation of the income and shares used in the computation
follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------------------------
2001 2002 2001 2002
------------------------------------------------------------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
Basic earnings per share:
Net income (loss).................................. $ 2,498 $ 3,252 $ (5,528) $ 491
Weighted average shares outstanding................ 6,932 6,939 6,931 6,935
--------- --------- --------- ---------
Basic income (loss) per share...................... $ 0.36 $ 0.47 $ (0.80) $ 0.07
========= ========= ========= =========
Diluted earnings per share:
Net income (loss).................................. $ 2,498 $ 3,252 $ (5,528) $ 491
Weighted average shares outstanding................ 6,932 6,939 6,931 6,935
Add: exercisable warrants......................... - 208 - 208
--------- --------- --------- ---------
Total shares for denominator....................... 6,932 7,147 6,931 7,143
--------- --------- --------- ---------
Diluted income (loss) per share...................... $ 0.36 $ 0.46 $ (0.80) $ 0.07
========= ========= ========= =========
7
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
There were no exercisable warrants or vested stock-options outstanding
during the nine-month period ended September 30, 2001. The assumed conversion of
vested stock options would have had no effect on earnings per share for the
three-and nine-month periods ended September 30, 2002.
4. COMPREHENSIVE INCOME
Comprehensive income (loss) consisted of the following:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------------------------
2001 2002 2001 2002
------------------------------------------------------------
(IN THOUSANDS OF DOLLARS)
Net income (loss).............................. $ 2,498 $ 3,252 $ (5,528) $ 491
Change in accounting principle, net of tax of
$176......................................... - - (343) -
Gain (loss) on fair value of interest rate
protection agreement, net of tax............. (781) 547 (1,700) 1,448
---------- ---------- ---------- ----------
Total comprehensive income (loss)............ $ 1,717 $ 3,799 $ (7,571) $ 1,939
========== ========== ========== ==========
In recognizing the gain (loss) related to the changes in fair value of
the interest rate protection agreement, for the three- and nine-month periods
ended September 30, 2001 we increased our deferred tax assets by $402,000 and
$877,000, respectively, while for the three- and nine-month periods ended
September 30, 2002 we decreased our deferred tax assets by $281,000 and
$746,000, respectively.
5. INVENTORIES
Inventories consisted of the following:
DECEMBER 31, SEPTEMBER 30,
2001 2002
-------------------------------
(IN THOUSANDS OF DOLLARS)
Non-fuel merchandise....................................................... $ 51,808 $ 50,841
Petroleum products......................................................... 5,611 6,356
----------- -----------
Total inventories...................................................... $ 57,419 $ 57,197
============ ============
6. PROPERTY AND EQUIPMENT
At December 31, 2001, we were holding for sale eight facilities. Two of
these facilities had been closed in 1999 and we continued to operate the others.
Based on the estimated sales proceeds and costs of selling these sites, and
other such sites that we sold during 2001, impairment charges of $2,489,000 were
recognized during 2001. At December 31, 2001, we had an impairment reserve
related to these facilities of $1,858,000. During the nine-month period ended
September 30, 2002, as a result of revisions to our estimated amounts of sales
proceeds, we recognized additional impairment charges of $1,475,000. We also
sold three of these facilities during the nine-month period ended September 30,
2002, and at September 30, 2002 we had an impairment reserve related to the
remaining five facilities held for sale of $1,111,000. The impairment charges
were included in depreciation and amortization expense in our consolidated
statement of operations. The total carrying values of the facilities held for
sale at December 31, 2001 and September 30, 2002, after reflecting the
impairment charges, were $9,904,000 and $4,262,000, respectively. For the
nine-month periods ended September 30, 2001 and 2002, operations at the eight
sites, excluding the impairment charges, generated income from operations of
$278,000 and $541,000, respectively. We are actively marketing these sites for
sale.
8
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
7. INTANGIBLE ASSETS
Intangible assets consisted of the following:
DECEMBER 31, SEPTEMBER 30,
2001 2002
-------------------------------
(IN THOUSANDS OF DOLLARS)
Amortizable intangible assets:
Noncompetition agreements........................................... $ 26,200 $ 26,200
Leasehold interest.................................................. 1,724 1,724
Other............................................................... 849 849
------------ ------------
Total amortizable intangible assets............................. 28,773 28,773
Less - accumulated amortization............................................ 25,953 27,374
------------ ------------
Net carrying value of amortizable intangible assets............. 2,820 1,399
Net carrying value of goodwill............................................. 19,343 23,585
Net carrying value of trademarks........................................... 1,398 1,398
------------ ------------
Intangible assets, net.......................................... $ 23,561 $ 26,382
============ ============
The changes in the carrying amount of goodwill for the nine months
ended September 30, 2002 were as follows (in thousands of dollars):
Balance as of January 1, 2002.............................. $ 19,343
Goodwill recorded during the period........................ 4,242
-----------
Balance as of September 30, 2002........................... $ 23,585
===========
During the nine months ended September 30, 2002, we recorded $4,242,000
of goodwill as a result of the business acquisitions we completed in connection
with converting four leased sites to company-operated sites.
Total amortization expense for our amortizable intangible assets for
the nine-month periods ended September 30, 2001 and 2002 were $1,422,000 and
$1,422,000, respectively. The estimated aggregate amortization expense for our
amortizable intangible assets for the year ending December 31, 2002 and each of
the three succeeding fiscal years are $1,896,000 for 2002; $678,000 for 2003;
$176,000 for 2004 and $70,000 for 2005. Our amortizable intangible assets will
be fully amortized by December 31, 2005.
8. 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.
9
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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, 2002, we had a
reserve for these matters of $3,337,000. While it is not possible to quantify
with certainty the 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 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.
9. SUPPLEMENTAL CASH FLOW INFORMATION
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2001 2002
--------------- ---------------
(IN THOUSANDS OF DOLLARS)
Revolving loan borrowings................................................. $ 524,600 $ 355,400
Revolving loan repayments................................................. (532,600) (376,300)
----------- -----------
Revolving loan borrowings (repayments), net............................. $ (8,000) $ (20,900)
=========== ===========
Cash paid during the period for:
Interest................................................................ $ 40,140 $ 30,095
Income taxes (net of refunds)........................................... $ (4,426) $ (1,952)
During the nine-month period ended September 30, 2002, we acquired
$1,468,000 of inventory, property and equipment and goodwill in settlement of
accounts receivable as part of the conversions of leased sites to
company-operated sites and received $250,000 of notes as partial consideration
for inventories sold in connection with the sale of two company-operated sites.
10
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
10. OTHER INFORMATION
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------------------------
2001 2002 2001 2002
------------------------------------------------------------
(IN THOUSANDS OF DOLLARS)
Interest and other financial costs consisted of the
following:
Cash interest expense......................... $ (13,185) $ (11,793) $ (41,763) $ (35,735)
Cash interest income.......................... 21 28 99 99
Amortization of discount on debt.............. (273) (308) (827) (901)
Amortization of deferred financing costs...... (691) (770) (1,911) (2,250)
---------- ---------- ---------- ----------
Interest and other financial costs, net....... $ (14,128) $ (12,843) $ (44,402) $ (38,787)
========== ========== ========== ==========
11. RELATED PARTY TRANSACTIONS
During the nine-month periods ended September 30, 2001 and 2002, we
made purchases of diesel fuel in the amounts of $158,327,000 and $128,117,000,
respectively, from a company in which we have a minority investment and made
sales of diesel fuel in the amounts of $10,670,000 and $2,360,000, respectively,
to this affiliate. We also lease a travel center from this affiliate. Rent
expense related to this site for the nine-month periods ended September 30, 2001
and 2002 was $306,000 and $306,000, respectively. At December 31, 2001 and
September 30, 2002, our receivables from this affiliate were $789,000 and
$3,000, respectively, while our payables to this affiliate were $944,000 and
$407,000, respectively.
Certain members of our senior management have purchased common stock
pursuant to management subscription agreements. As a result of such purchases,
we have notes and related interest receivable from the management stockholders
totaling $1,310,000 and $1,479,000 at December 31, 2001 and September 30, 2002,
respectively.
12. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES
The following schedules set forth our condensed consolidating balance
sheet schedules as of December 31, 2001 and September 30, 2002, our condensed
consolidating statement of operations schedules for the three- and nine-month
periods ended September 30, 2001 and 2002 and our condensed consolidating
statement of cash flows schedules for the nine-month periods ended September 30,
2001 and 2002. In the following schedules, "Parent Company" refers to the
unconsolidated balances of TravelCenters of America, Inc., "Guarantor
Subsidiaries" refers to the combined unconsolidated balances of TA Operating
Corporation and its subsidiaries, and "Nonguarantor Subsidiary" refers to the
balances of TA Franchise Systems Inc. "Eliminations" represent the adjustments
necessary to (a) eliminate intercompany transactions and (b) eliminate our
investments in our subsidiaries.
The Guarantor Subsidiaries, (TA Operating Corporation, TA Licensing,
Inc., TA Travel, L.L.C., TravelCenters Realty, Inc. and TravelCenters
Properties, L.P.), are direct or indirect wholly-owned subsidiaries of ours and
have fully and unconditionally, jointly and severally, guaranteed our
indebtedness.
11
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET SCHEDULES:
DECEMBER 31, 2001
------------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR ELIMINATIONS CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARY
--------------- ------------------------------ --------------- ---------------
(IN THOUSANDS OF DOLLARS)
ASSETS
Current assets:
Cash....................................... $ - $ 19,888 $ - $ - $ 19,888
Accounts receivable, net................... - 43,820 1,160 (1,124) 43,856
Inventories................................ - 57,419 - - 57,419
Deferred income taxes...................... - 4,997 47 - 5,044
Other current assets....................... 622 7,499 - - 8,121
----------- ----------- ----------- ----------- -----------
Total current assets.................. 622 133,623 1,207 (1,124) 134,328
Property and equipment, net................... - 461,167 - - 461,167
Intangible assets, net........................ - 23,561 - - 23,561
Deferred financing costs, net................. 30,202 - - - 30,202
Deferred income taxes......................... 28,571 (8,663) - - 19,908
Other noncurrent assets....................... 1,249 9,441 - - 10,690
Investment in subsidiaries.................... 226,137 - - (226,137) -
----------- ----------- ----------- ----------- -----------
Total assets.......................... $ 286,781 $ 619,129 $ 1,207 $ (227,261) $ 679,856
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt....... $ 3,280 $ 129 $ - $ - $ 3,409
Accounts payable........................... - 60,269 160 - 60,429
Other accrued liabilities.................. 2,605 40,818 1,242 (1,124) 43,541
----------- ----------- ----------- ----------- -----------
Total current liabilities............. 5,885 101,216 1,402 (1,124) 107,379
Long-term debt (net of unamoritized discount). 546,110 2,759 - - 548,869
Deferred income taxes......................... - 2,851 - - 2,851
Intercompany payable (receivable)............. (282,279) 287,346 (5,067) - -
Other noncurrent liabilities.................. 2,911 4,946 - - 7,857
----------- ----------- ------------ ----------- -----------
Total liabilities..................... 272,627 399,118 (3,665) (1,124) 666,956
Redeemable equity............................. 565 - - - 565
Nonredeemable stockholders' equity:
Common stock and other nonredeemable
stockholders equity 215,177 192,335 - (193,589) 213,923
Retained earnings (deficit)................ (201,588) 27,676 4,872 (32,548) (201,588)
----------- ----------- ----------- ----------- -----------
Total nonredeemable stockholders'
equity............................. 13,589 220,011 4,872 (226,137) 12,335
----------- ----------- ----------- ----------- -----------
Total liabilities, redeemable equity
and nonredeemable stockholders'
equity............................. $ 286,781 $ 619,129 $ 1,207 $ (227,261) $ 679,856
=========== =========== =========== =========== ===========
12
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
----------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR ELIMINATIONS CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARY
------------- --------------- ------------------------------ ---------------
(IN THOUSANDS OF DOLLARS)
ASSETS
Current assets:
Cash.................................... $ - $ 21,471 $ - $ - $ 21,471
Accounts receivable, net................ - 52,141 882 (1,177) 51,846
Inventories............................. - 57,197 - - 57,197
Deferred income taxes................... - 4,830 44 - 4,874
Other current assets.................... 427 6,162 - - 6,589
---------- ---------- ---------- ---------- ----------
Total current assets............... 427 141,801 926 (1,177) 141,977
Property and equipment, net................ - 451,221 - - 451,221
Intangible assets, net..................... - 26,382 - - 26,382
Deferred financing costs, net.............. 28,252 - - - 28,252
Deferred income taxes...................... 24,154 (8,043) - - 16,111
Other noncurrent assets.................... 1,014 11,216 - - 12,230
Investment in subsidiaries................. 245,637 - - (245,637) -
---------- ---------- ---------- ---------- ----------
Total assets....................... $ 299,484 $ 622,577 $ 926 $ (246,814) $ 676,173
========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.. $ 3,280 $ 177 $ - $ - $ 3,457
Accounts payable...................... - 67,031 37 - 67,068
Other accrued liabilities............. 3,019 53,577 930 (1,177) 56,349
---------- ---------- ---------- ---------- ----------
Total current liabilities........ 6,299 120,785 967 (1,177) 126,874
Long-term debt (net of unamortized
discount)............................. 523,568 2,708 - - 526,276
Deferred income taxes.................... - 2,738 - - 2,738
Intercompany payable (receivable)........ (247,308) 252,238 (4,930) - -
Other noncurrent liabilities............. 716 4,614 - - 5,330
---------- ---------- ---------- ---------- ----------
Total liabilities................ 283,275 383,083 (3,963) (1,177) 661,218
Redeemable equity........................ 681 - - - 681
Nonredeemable stockholders' equity:
Common stock and other
stockholders' equity............... 216,625 192,337 - (193,591) 215,371
Retained earnings (deficit).......... (201,097) 47,157 4,889 (52,046) (201,097)
---------- ---------- ---------- ---------- ----------
Total nonredeemable stockholders'
equity........................ 15,528 239,494 4,889 (245,637) 14,274
---------- ---------- ---------- ---------- ----------
Total liabilities, redeemable
equity and nonredeemable
stockholders' equity.......... $ 299,484 $ 622,577 $ 926 $ (246,814) $ 676,173
========== ========== ========== ========== ==========
13
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS SCHEDULES:
THREE MONTHS ENDED SEPTEMBER 30, 2001
-------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR ELIMINATIONS CONSOLIDATED
COMPANY SUBSIDIARY SUBSIDIARY
-------------- -------------- -------------------------------------------
(IN THOUSANDS OF DOLLARS)
Revenues:
Fuel................................... $ - $ 343,363 $ - $ - $ 343,363
Non-fuel............................... - 159,426 - - 159,426
Rent and royalties..................... - 4,011 1,758 (1,253) 4,516
---------- ---------- ---------- ---------- ----------
Total revenues......................... - 506,800 1,758 (1,253) 507,305
Cost of goods sold (excluding depreciation) - 381,433 - - 381,433
---------- ---------- ---------- ---------- ----------
Gross profit (excluding depreciation)..... - 125,367 1,758 (1,253) 125,872
Operating expenses........................ - 84,643 1,250 (1,253) 84,640
Selling, general and
administrative expenses............... 229 8,619 810 - 9,658
Depreciation and amortization expense..... - 15,489 - - 15,489
(Gain) on sales of property and equipment - (71) - - (71)
---------- ---------- ---------- ---------- ----------
Income (loss) from operations............. (229) 16,687 (302) - 16,156
Interest and other financial costs, net... (6,438) (7,690) - - (14,128)
Equity income (loss)...................... 1,866 - - (1,866) -
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes......... (4,801) 8,997 (302) (1,866) 2,028
Provision (benefit) for income taxes...... (7,299) 6,932 (103) - (470)
---------- ---------- ---------- ---------- ----------
Net income (loss)......................... $ 2,498 $ 2,065 $ (199) $ (1,866) $ 2,498
========== ========== ========== ========== ==========
14
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2002
-------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR ELIMINATIONS CONSOLIDATED
COMPANY SUBSIDIARY SUBSIDIARY
-------------- -------------- -------------------------------------------
(IN THOUSANDS OF DOLLARS)
Revenues:
Fuel................................... $ - $ 321,455 $ - $ - $ 321,455
Non-fuel............................... - 168,756 - - 168,756
Rent and royalties..................... - 3,483 1,585 (1,177) 3,891
---------- ---------- ---------- ---------- ----------
Total revenues......................... - 493,694 1,585 (1,177) 494,102
Cost of goods sold (excluding depreciation) - 366,321 - - 366,321
---------- ---------- ---------- ---------- ----------
Gross profit (excluding depreciation)..... - 127,373 1,585 (1,177) 127,781
Operating expenses........................ - 85,264 1,193 (1,177) 85,280
Selling, general and
administrative expenses............... 215 8,823 361 - 9,399
Depreciation and amortization expense..... - 16,232 - - 16,232
(Gain) on sales of property and equipment - (949) - - (949)
---------- ---------- ---------- ---------- ----------
Income (loss) from operations............. (215) 18,003 31 - 17,819
Interest and other financial costs, net... (8,719) (4,124) - - (12,843)
Equity income (loss)...................... 10,617 - - (10,617) -
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes......... 1,683 13,879 31 (10,617) 4,976
Provision (benefit) for income taxes...... (1,569) 3,280 13 - 1,724
---------- ---------- ---------- ---------- ----------
Net income (loss)......................... $ 3,252 $ 10,599 $ 18 $ (10,617) $ 3,252
========== ========== ========== ========== ==========
15
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2001
---------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR ELIMINATIONS CONSOLIDATED
COMPANY SUBSIDIARY SUBSIDIARY
---------------- -------------- -------------- ----------- --------------
(IN THOUSANDS OF DOLLARS)
Revenues:
Fuel.................................. $ - $ 1,066,460 $ - $ - $ 1,066,460
Non-fuel.............................. - 444,307 - - 444,307
Rent and royalties.................... - 11,497 4,919 (3,290) 13,126
---------- ----------- ---------- ---------- -----------
Total revenues........................ - 1,522,264 4,919 (3,290) 1,523,893
Cost of goods sold (excluding
depreciation)......................... - 1,170,079 - - 1,170,079
---------- ----------- ---------- ---------- -----------
Gross profit (excluding depreciation).... - 352,185 4,919 (3,290) 353,814
Operating expenses....................... - 245,242 3,335 (3,290) 245,287
Selling, general and
administrative expenses.............. 483 26,763 2,256 - 29,502
Depreciation and amortization expense.... - 45,319 - - 45,319
(Gain) on sales of property and equipment - (1,385) - - (1,385)
---------- ----------- ---------- ---------- -----------
Income (loss) from operations............ (483) 36,246 (672) - 35,091
Interest and other financial costs, net.. (19,421) (24,981) - - (44,402)
Equity income (loss)..................... 3,000 - - (3,000) -
---------- ----------- ---------- ---------- -----------
Income (loss) before income taxes........ (16,904) 11,265 (672) (3,000) (9,311)
Provision (benefit) for income taxes..... (11,376) 7,822 (229) - (3,783)
---------- ----------- ---------- ---------- -----------
Net income (loss)........................ $ (5,528) $ 3,443 $ (443) $ (3,000) $ (5,528)
========== =========== ========== ========== ===========
16
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2002
---------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR ELIMINATIONS CONSOLIDATED
COMPANY SUBSIDIARY SUBSIDIARY
---------------- -------------- ------------- --------------------------
(IN THOUSANDS OF DOLLARS)
Revenues:
Fuel.................................. $ - $ 878,033 $ - $ - $ 878,033
Non-fuel.............................. - 466,997 - - 466,997
Rent and royalties.................... - 10,683 4,544 (3,348) 11,879
---------- ----------- ---------- ---------- -----------
Total revenues........................ - 1,355,713 4,544 (3,348) 1,356,909
Cost of goods sold (excluding
depreciation)......................... - 995,097 - - 995,097
---------- ----------- ---------- ---------- -----------
Gross profit (excluding depreciation).... - 360,616 4,544 (3,348) 361,812
Operating expenses....................... - 248,341 3,392 (3,348) 248,385
Selling, general and
administrative expenses.............. 953 26,906 1,122 - 28,981
Depreciation and amortization expense.... - 45,601 - - 45,601
(Gain) on sales of property and equipment - (963) - - (963)
---------- ----------- ---------- ---------- -----------
Income (loss) from operations............ (953) 40,731 30 - 39,808
Interest and other financial costs, net.. (25,621) (13,166) - - (38,787)
Equity income (loss)..................... 19,498 - - (19,498) -
---------- ----------- ---------- ---------- -----------
Income (loss) before income taxes........ (7,076) 27,565 30 (19,498) 1,021
Provision (benefit) for income taxes..... (7,567) 8,084 13 - 530
---------- ----------- ---------- ---------- -----------
Net income (loss)........................ $ 491 $ 19,481 $ 17 $ (19,498) $ 491
========== =========== ========== ========== ===========
17
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW SCHEDULES:
NINE MONTHS ENDED SEPTEMBER 30, 2001
-------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR ELIMINATIONS CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARY
-------------- -------------- ---------------------------- --------------
(IN THOUSANDS OF DOLLARS)
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES.................. $ (5,929) $ 48,545 $ - $ - $ 42,616
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and
equipment.......................... - 6,010 - - 6,010
Capital expenditures.................. - (41,247) - - (41,247)
---------- ---------- ---------- ---------- ----------
Net cash used in investing
activities....................... - (35,237) - - (35,237)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings
(repayments), net.................. (8,000) - - - (8,000)
Long-term debt repayments............. - (81) - - (81)
Issuance of common stock............ 38 - - - 38
Merger and recapitalization
expenses paid.................... (3,316) - - - (3,316)
Intercompany advances............... 17,207 (17,207) - - -
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities............. 5,929 (17,288) - - (11,359)
---------- ---------- ---------- ---------- ----------
Net decrease in cash............... - (3,980) - - (3,980)
Cash at the beginning of the period...... - 29,019 - - 29,019
---------- ---------- ---------- ---------- ----------
Cash at the end of the period............ $ - $ 25,039 $ - $ - $ 25,039
========== ========== ========== ========== ==========
18
TRAVELCENTERS OF AMERICA, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2002
-------------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR ELIMINATIONS CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARY
-------------- -------------- ---------------------------- --------------
(IN THOUSANDS OF DOLLARS)
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES.................. $ (11,427) $ 71,100 $ (137) $ - $ 59,536
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions................. - (3,526) - - (3,526)
Proceeds from sales of property and
equipment.......................... - 3,945 - - 3,945
Capital expenditures.................. - (34,592) - - (34,592)
---------- ---------- ---------- ---------- ----------
Net cash used in investing
activities....................... - (34,173) - - (34,173)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving loan borrowings
(repayments), net.................. (20,900) - - - (20,900)
Long-term debt repayments............. (2,460) (86) - - (2,546)
Issuance of common stock............ 116 - - - 116
Debt issuance costs................. (300) - - - (300)
Merger and recapitalization
expenses paid.................... (150) - - - (150)
Intercompany advances............... 35,121 (35,258) 137 - -
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities............. 11,427 (35,344) 137 - (23,780)
---------- ---------- ---------- ---------- ----------
Net increase in cash............... - 1,583 - - 1,583
Cash at the beginning of the period...... - 19,888 - - 19,888
---------- ---------- ---------- ---------- ----------
Cash at the end of the period............ $ - $ 21,471 $ - $ - $ 21,471
========== ========== ========== ========== ==========
19
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 selected 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, 2001. Our results of operations for a
particular quarter may not be indicative of results expected during the other
quarters or for the entire year.
CRITICAL ACCOUNTING POLICIES
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, 2001 except that
effective January 1, 2002, we adopted two recently issued accounting standards,
Statement of Financial Accounting Standards (FAS) No. 142, "Goodwill and Other
Intangible Assets," and FAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." With respect to our adoption of FAS 142 for goodwill, we
have determined that we are one reporting unit and that the estimated fair value
of that reporting unit, based on a discounted cash flow analysis, exceeded its
carrying value as of January 1, 2002. With respect to our trademark intangible
assets, the estimated fair values, based on a discounted cash flow analysis,
exceeded the carrying value as of January 1, 2002. Accordingly, we have not
recognized an impairment charge with respect to any of our intangible assets. A
number of assumptions and methods are used in preparing the valuations
underlying these impairment tests, including estimates of future cash flows and
discount rates. Applying other assumptions or valuation methods could result in
different results of these impairment tests. Similarly, defining the reporting
unit differently could lead to a different result for goodwill.
OVERVIEW
We are a holding company which, through our wholly owned subsidiaries,
owns, operates and franchises travel centers along the United States interstate
highway system to serve long-haul trucking fleets and their drivers, independent
truck drivers and general motorists. Our network is the largest, and only
nationwide, full-service travel center network in the United States. Our
geographically diverse network consists of 151 sites located in 40 states. Our
operations are conducted through three distinct types of travel centers:
- sites owned or leased and operated by us, which we refer to as
company-operated sites;
- sites owned by us and leased to independent
lessee-franchisees, which we refer to as leased sites; and
- sites owned and operated by independent franchisees, which we
refer to as franchisee-owned sites.
Our travel centers are located at key points along the U.S. interstate
highway system, typically on 20- to 25-acres sites. Most of our network
properties were developed more than 20 years ago when prime real estate
locations along the interstate highway system were more readily available than
they are today, making a network such as ours difficult to replicate. Operating
under the "TravelCenters of America" and "TA" brand names, our nationwide
network provides an advantage to long-haul trucking fleets by enabling them to
route their trucks within a single network from coast to coast.
One of the primary strengths of our business is the diversity of our
revenue sources. We have a broad range of product and service offerings,
including diesel fuel and gasoline, truck repair and maintenance services,
full-service restaurants, more than 20 different brands of fast food
restaurants, travel and convenience stores with a selection of over 4,000 items
and other driver amenities.
The non-fuel products and services we offer to our customers complement
our fuel business and provide us a means to increase our revenues and gross
profit despite price pressure on fuel as a result of competition and volatile
crude oil and petroleum product prices, particularly in times of historically
high prices. For the nine-month periods ended September 30, 2001 and 2002, our
revenues and gross profit were composed as follows:
20
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2001 2002
-----------------------------
(IN THOUSANDS OF DOLLARS)
Revenues:
Fuel................................................................................ 70.0% 64.7%
Non-fuel............................................................................ 29.2% 34.4%
Rent and royalties.................................................................. 0.8% 0.9%
--------- ---------
Total revenues................................................................ 100.0% 100.0%
========= =========
Gross profit (excluding depreciation):
Fuel................................................................................ 22.2% 20.8%
Non-fuel............................................................................ 74.1% 75.9%
Rent and royalties.................................................................. 3.7% 3.3%
--------- ---------
Total gross profit (excluding depreciation)................................... 100.0% 100.0%
========= =========
COMPOSITION OF OUR NETWORK
The changes in the number of sites within our network and in their
method of operation (company-operated, leased or franchisee-owned) are
significant factors influencing the changes in our results of operations. The
following table summarizes the changes in the composition of our network from
December 31, 2000 through September 30, 2002:
COMPANY- FRANCHISEE-
OPERATED LEASED OWNED TOTAL
SITES SITES SITES SITES
-------------- -------------- -----------------------------
Number of sites at December 31, 2000(1)................. 122 26 9 157
January - September 2001 Activity:
Sales of sites....................................... (1) (1) - (2)
------ ------ ------ -----
Number of sites at September 30, 2001................... 121 25 9 155
October - December 2001 Activity:
Sales of sites....................................... (2) - - (2)
------ ------ ------ -----
Number of sites at December 31, 2001.................... 119 25 9 153
2002 Activity:
New sites............................................ 1 - - 1
Sales of sites....................................... (3) - - (3)
Conversions of leased sites to
company-operated sites............................. 4 (4) - -
------ ------ ------ ----
Number of sites at September 30, 2002................... 121 21 9 151
====== ====== ====== =====
(1)Includes one company-operated site held for development until its
construction was completed during 2001.
In October 2002, the lease and franchise agreements covering another
leased site were mutually terminated and, as a result, this site was converted
into a company-operated site.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 2002 COMPARED TO QUARTER ENDED SEPTEMBER 30, 2001
Revenues. Our consolidated revenues for the quarter ended September 30,
2002 were $494.1 million, which represents a decrease from the quarter ended
September 30, 2001 of $13.2 million, or 2.6%, that is primarily attributable to
a decrease in fuel revenue.
21
Fuel revenue for the quarter ended September 30, 2002 decreased by
$21.9 million, or 6.4%, as compared to the same period in 2001. The decrease was
attributable principally to decreases in diesel fuel and gasoline average
selling prices. Average diesel fuel and gasoline sales prices for the quarter
ended September 30, 2002 decreased by 5.2% and 4.2%, respectively, as compared
to the same period in 2001, primarily reflecting decreases in commodity prices
and also reflecting our more competitive retail fuel pricing. The fuel revenue
decline also resulted from a decrease in our diesel fuel sales volumes that was
partially offset by an increase in gasoline sales volumes. Diesel fuel and
gasoline sales volumes for the quarter ended September 30, 2002 decreased 3.7%
and increased 17.1%, respectively, as compared to the same period in 2001. For
the quarter ended September 30, 2002, we sold 329.0 million gallons of diesel
fuel and 43.2 million gallons of gasoline, as compared to 341.6 million gallons
of diesel fuel and 36.9 million gallons of gasoline for the quarter ended
September 30, 2001. The diesel fuel sales volume decrease resulted from a 3.6%
decrease in same-site diesel fuel sales volumes and a net reduction in sales
volumes at sites we added to or eliminated from our network during 2001 and
2002. The gasoline sales volume increase was primarily attributable to a 12.0%
increase in same-site gasoline sales volumes. We believe the same-site diesel
fuel sales volume decrease resulted from a decline in trucking activity in the
third quarter of 2002 as compared to the third quarter of 2001, resulting from
the general condition of the United States economy, and occurred in spite of our
continued emphasis on competitively pricing our diesel fuel. We believe the
same-site increase in gasoline sales volume resulted primarily from increased
general motorist visits to our sites as a result of our gasoline and QSR
offering upgrades and additions under our capital program, as well as our more
competitive retail gasoline pricing.
Non-fuel revenues for the quarter ended September 30, 2002 of $168.8
million reflected an increase of $9.4 million, or 5.9%, from the same period in
2001. The increase was primarily attributable to an increase in non-fuel sales
on a same-site basis of 3.6% for the quarter ended September 30, 2002 versus the
same period in 2001. We believe the same-site increase reflected 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. The increase was also
attributable to the net increase in sales at the company-operated sites added
to, or eliminated from, our network since June 2001.
Rent and royalty revenues for the quarter ended September 30, 2002
reflected a $0.6 million, or 13.3%, decrease from the same period in 2001. This
decrease was primarily attributable to the rent and royalty revenue lost as a
result of the conversions of leased sites to company-operated sites, partially
offset by a 2.6% increase in same-site royalty revenue and a 2.3% increase in
same-site rent revenue.
Gross Profit (excluding depreciation). Our gross profit for the quarter
ended September 30, 2002 was $127.8 million, compared to $125.9 million for the
same period in 2001, an increase of $1.9 million, or 1.5%. The increase in our
gross profit was primarily due to increases in gasoline sales volume and
non-fuel sales volume that were partially offset by a decrease in diesel fuel
sales volume, a reduced level of diesel fuel and gasoline margins per gallon and
decreased rent and royalty revenue.
Operating and Selling, General and Administrative Expenses. Operating
expenses included the direct expenses of company-operated sites and the
ownership costs of leased sites. Selling, general and administrative expenses
included corporate overhead and administrative costs.
Our operating expenses increased by $0.7 million, or 0.8%, to $85.3
million for the quarter ended September 30, 2002 compared to $84.6 million for
the same period in 2001. This increase was attributable to a $2.4 million net
increase resulting from company-operated sites we added to our network or
eliminated from our network since June 2001, partially offset by a 1.9% decline
in operating expenses on a same-site basis, despite an increase in non-fuel
sales volume. On a same-site basis, operating expenses as a percentage of
non-fuel revenues for the third quarter of 2002 were 49.7%, compared to 52.5%
for the same period in 2001. The same-site results reflected reduced utility
costs and the results of our cost-control measures at our sites.
Our selling, general and administrative expenses for the quarter ended
September 30, 2002 were $9.4 million, which reflected a decrease of $0.3
million, or 3.1%, from the same period in 2001.
22
Depreciation and Amortization Expense. Depreciation and amortization
expense for the quarter ended September 30, 2002 was $16.2 million, compared to
$15.5 million for the same period in 2001. This increase was attributable to a
higher level of depreciable assets in 2002 as compared to 2001, partially offset
by reduced depreciation as a result of changes we made in depreciable lives for
certain assets that were effective April 1, 2001, and reduced amortization
expense due to the adoption of FAS 142. During the quarter ended September 30,
2002 we recognized an impairment charge of $0.3 million with respect to certain
of the sites we are holding for sale as a result of reductions in estimated
sales proceeds.
As a result of adopting FAS 142 effective January 1, 2002, our goodwill
and trademark intangible assets are no longer amortized. Pursuant to FAS 142,
intangible assets must be periodically tested for impairment. During the first
quarter of 2002, we completed our transitional impairment review of our
trademark intangible assets and determined that there was no impairment. During
the second quarter of 2002 we completed the transitional impairment review of
goodwill and determined that there was no impairment. We also adopted FAS 144
effective January 1, 2002. The adoption of FAS 144 did not have a material
impact on our consolidated results of operations.
Income from Operations. We generated income from operations of $17.8
million for the quarter ended September 30, 2002, compared to income from
operations of $16.2 million for the same period in 2001. This increase of $1.6
million, or 9.9%, was primarily attributable to the increases in gross profit
and gains on asset sales that were partially offset by the increases in
operating expenses and depreciation and amortization expense. EBITDA for the
quarter ended September 30, 2002 was $34.1 million, as compared to EBITDA of
$31.6 million for the quarter ended September 30, 2001. This increase of $2.5
million, or 7.9% resulted from the increases in gross profit and gains on asset
sales that were partially offset by the net increase in operating and
administrative expenses. EBITDA, as used here, is based on the definition for
EBITDA in our debt agreements and consists of net income plus the sum of (a)
income taxes, (b) interest and other financial costs, net, (c) depreciation,
amortization and other noncash charges, which includes stock compensation
expense, and (d) transition expense. We have included certain information
concerning EBITDA because we believe that EBITDA is generally accepted as
providing useful information regarding a company's ability to service and/or
incur debt. EBITDA should not be considered in isolation from, or as a
substitute for, net income, cash flows or other consolidated income or cash flow
statement data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity. While
EBITDA is frequently used as a measure of operations and ability to meet debt
service requirements, it is not necessarily comparable to similarly titled
captions of other companies due to differences in methods of calculation.
Interest and Other Financial Costs--Net. Interest and other financial
costs, net, for the quarter ended September 30, 2002 decreased by $1.3 million,
or 9.2%, compared to 2001. This decrease resulted from the decline in interest
rates since the third quarter of 2001 as well as from our decreased level of
indebtedness.
Income Taxes. Our effective income tax rate for the quarter ended
September 30, 2002 was 34.6%. This rate differed from the federal statutory rate
due primarily to state income taxes and nondeductible expenses, partially offset
by the benefit of certain tax credits. For the quarter ended September 30, 2001,
we recognized an income tax benefit of $0.5 million despite a $2.0 million
pre-tax income. This resulted from an adjustment during that quarter of the
deferred tax asset related to our net operating loss carryforwards to reflect
larger tax deductions in our 2000 income tax returns than we estimated we would
have.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2001
Revenues. Our consolidated revenues for the nine months ended September
30, 2002 were $1,356.9 million, which represents a decrease from the nine months
ended September 30, 2001 of $167.0 million, or 11.0%, that is primarily
attributable to a decrease in fuel revenue.
Fuel revenue for the nine months ended September 30, 2002 decreased by
$188.5 million, or 17.7%, as compared to the same period in 2001. The decrease
was attributable principally to decreases in diesel fuel and gasoline average
selling prices. Average diesel fuel and gasoline sales prices for the nine
months ended September 30, 2002 decreased by 17.1% and 16.5%, respectively, as
compared to the same period in 2001, primarily reflecting decreases in commodity
prices and also reflecting our more competitive retail fuel pricing. The fuel
revenue decline also resulted from a decrease in our diesel fuel sales volumes
that was partially offset by an increase in gasoline sales volumes. Diesel fuel
and gasoline sales volumes for the nine months ended September 30, 2002
decreased 4.0% and increased 31.0%, respectively, as compared to the same period
in 2001. For the nine months ended September 30, 2002, we sold 999.2 million
gallons of diesel fuel and 118.7 million
23
gallons of gasoline, as compared to 1,040.9 million gallons of diesel fuel and
90.6 million gallons of gasoline for the nine months ended September 30, 2001.
The diesel fuel sales volume decrease resulted from a 12.8 million gallon, or
25.9%, decline in our wholesale diesel fuel sales as a result of a planned
retrenchment in this area, a 2.4% decrease in same-site diesel fuel sales
volumes, and a net reduction in sales volumes at sites we added to or eliminated
from our network during 2001 and 2002. The gasoline sales volume increase was
primarily attributable to a 26.9% increase in same-site gasoline sales volumes.
We believe the same-site diesel fuel sales volume decrease resulted from a
decline in trucking activity in 2002 as compared to 2001, resulting from the
general condition of the United States economy, and occurred in spite of our
continued emphasis on competitively pricing our diesel fuel. We believe the
same-site increase in gasoline sales volume resulted primarily from increased
general motorist visits to our sites as a result of our gasoline and QSR
offering upgrades and additions under our capital program, as well as our more
competitive retail gasoline pricing.
Non-fuel revenues for the nine months ended September 30, 2002 of
$467.0 million reflected an increase of $22.7 million, or 5.1%, from the same
period in 2001. The increase was primarily attributable to an increase in
non-fuel sales on a same-site basis of 3.6% for the nine months ended September
30, 2002 versus the same period in 2001. We believe the same-site increase
reflected 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. The
increase was also attributable to the net increase in sales at the
company-operated sites added to, or eliminated from, our network during 2001 and
2002.
Rent and royalty revenues for the nine months ended September 30, 2002
reflected a $1.2 million, or 9.2%, decrease from the same period in 2001. This
decrease was primarily attributable to the rent and royalty revenue lost as a
result of the conversions of leased sites to company-operated sites, partially
offset by a 1.8% increase in same-site royalty revenue and a 3.5% increase in
same-site rent revenue.
Gross Profit (excluding depreciation). Our gross profit for the nine
months ended September 30, 2002 was $361.8 million, compared to $353.8 million
for the same period in 2001, an increase of $8.0 million, or 2.3%. The increase
in our gross profit was primarily due to increases in gasoline sales volume and
non-fuel sales volume that were partially offset by a decrease in diesel fuel
sales volume, a reduced level of gasoline margin per gallon and decreased rent
and royalty revenue.
Operating and Selling, General and Administrative Expenses. Operating
expenses included the direct expenses of company-operated sites and the
ownership costs of leased sites. Selling, general and administrative expenses
included corporate overhead and administrative costs.
Our operating expenses increased by $3.1 million, or 1.3%, to $248.4
million for the nine months ended September 30, 2002 compared to $245.3 million
for the same period in 2001. This increase was attributable to a $3.6 million
net increase resulting from company-operated sites we added to our network or
eliminated from our network during 2001 or 2002, partially offset by a 0.2%
decline in operating expenses on a same-site basis. On a same-site basis,
operating expenses as a percentage of non-fuel revenues for the nine months
ended September 30, 2002 were 52.5%, compared to 54.5% for the same period in
2001, reflecting reduced utility costs and the results of our cost-control
measures at our sites.
Our selling, general and administrative expenses for the nine months
ended September 30, 2002 were $29.0 million, which reflected a decrease of $0.5
million, or 1.7% from the same period in 2001.
Depreciation and Amortization Expense. Depreciation and amortization
expense for the nine months ended September 30, 2002 was $45.6 million, compared
to $45.3 million for the same period 2001. This increase was attributable to an
increase in the depreciable assets balances, partially offset by a $1.3 million
decrease in amortization of intangible assets and the change we made in
depreciable lives of certain assets effective April 1, 2001. During the nine
months ended September 30, 2002 we recognized an impairment charge of $1.1
million with respect to certain of the sites we are holding for sale as a result
of reductions in estimated sales proceeds.
As a result of adopting FAS 142 effective January 1, 2002, our goodwill
and trademark intangible assets are no longer amortized. Pursuant to FAS 142,
intangible assets must be periodically tested for impairment. During the first
quarter of 2002, we completed our transitional impairment review of our
trademark intangible assets and determined that there was no impairment. During
the second quarter of 2002 we completed the transitional impairment review of
goodwill and determined that there was no impairment. We also adopted FAS 144
effective January 1, 2002. The adoption of FAS 144 did not have a material
impact on our consolidated results of operations.
24
Income from Operations. We generated income from operations of $39.8
million for the nine months ended September 30, 2002, compared to income from
operations of $35.1 million for the same period in 2001. This increase of $4.7
million, or 13.4%, was primarily attributable to the increase in gross profit
that was partially offset by the increase in operating expenses. EBITDA for the
nine months ended September 30, 2002 was $85.4 million, as compared to EBITDA of
$80.4 million for the nine months ended September 30, 2001. This increase of
$5.0 million, or 6.2%, occurred despite a $0.4 million decrease in gains on
sales of property and equipment in 2002 as compared to 2001 and was primarily
attributable to the increase in gross profit that was partially offset by
increased operating expenses. EBITDA, as used here, is based on the definition
for EBITDA in our debt agreements and consists of net income plus the sum of (a)
income taxes, (b) interest and other financial costs, net, (c) depreciation,
amortization and other noncash charges, which includes stock compensation
expense, and (d) transition expense.
Interest and Other Financial Costs--Net. Interest and other financial
costs, net, for the nine months ended September 30, 2002 decreased by $5.6
million, or 12.6%, compared to 2001. This decrease resulted from the decline in
interest rates during 2001 as well as from the decrease in our indebtedness.
Income Taxes. Our effective income tax rate for the nine-month period
ended September 30, 2002 was 51.9% while the benefit rate for the nine-month
period ended September 30, 2001 was 40.6%. 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. These factors had a
relatively larger effect on the 2002 effective rate due to the low level of
pre-tax income in the 2002 period.
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. Our principal source of liquidity to meet these requirements is
operating cash flows. The revolving credit facility of our Senior Credit
Facility provides us a secondary source of liquidity, primarily to better match
the timing of cash expenditures to the timing of our cash receipts due to the
somewhat seasonal nature of our operations, the uneven level of capital
expenditures throughout the year and the timing of debt and interest payments.
The primary risks we face with respect to the expected levels of operating cash
flows are a decrease in the demand of our customers for our products and
services and increases in crude oil and/or petroleum product prices and
increases in interest rates. It is reasonably likely that the United States
economy could fall into a deeper recession, or make a slower recovery, than
expected. Similarly, it is reasonably likely that interest rates and petroleum
product prices will increase during the remainder of 2002 and 2003 from levels
that existed during 2001 and the first nine months of 2002, possibly to levels
greater than that contemplated in our expectations. If the economy stagnates or
worsens, our customers could be adversely affected, which could further
intensify competition within our industry and reduce the level of cash we could
generate from our operations. A one-percentage point increase in interest rates
increases our annual cash outlays by approximately $4.2 million. A significant
increase in diesel fuel and gasoline prices increases our cash investment in
working capital and can also have a depressing effect on our sales volumes and
fuel margins per gallon. The primary risk we face with respect to the expected
availability of borrowings under our revolving credit facility are the
limitations imposed upon us by the covenants contained in our Senior Credit
Facility. Should our level of sales volume or interest rate and petroleum
products price levels vary adversely and significantly from expectations, it is
reasonably likely that we would need to reduce our capital expenditures or be
effectively barred from further revolving credit facility borrowings in order to
maintain compliance with our debt covenants, in the absence of a debt covenant
waiver or an amendment to the related agreement. We have been in compliance with
all of our debt covenants throughout 2002 and we expect to remain in compliance
with all of our debt covenants throughout 2002 and 2003.
We anticipate that we will be able to fund our 2002 working capital
requirements and capital expenditures primarily from funds generated from
operations and proceeds from the sales of travel centers we are holding for
sale, and, to the extent necessary, from borrowings under our revolving credit
facility. At September 30, 2002, we had outstanding borrowings and issued
letters of credit of $23.0 million and $13.1 million, respectively, leaving
$63.9 million of our $100 million revolving credit facility available for
borrowings. 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.
Our ability to fund our capital investment requirements, interest and principal
payment obligations and working capital requirements and to comply with all of
the financial covenants under our debt agreements depends on our future
operations, performance and cash flow. These are subject to prevailing economic
conditions and to financial, business and other factors, some of which are
beyond our control.
25
HISTORICAL CASH FLOWS
Net cash provided by operating activities totaled $59.5 million for the
first nine months of 2002, compared to $42.6 million for the same period in the
prior year. The increase in the amount of cash our operations generated was
primarily due to increased EBITDA and decreased interest payments. In addition,
the cash generated by net reductions of working capital was $8.3 million for the
nine months ended September 30, 2002 as compared to $5.7 million for the nine
months ended September 30, 2001.
Net cash used in investing activities was $34.2 million for the first
nine months of 2002, as compared to $35.2 million for the first nine months of
2001. This decrease in cash used in investing activities is primarily
attributable to a decreased level of capital investments in 2002 as compared to
2001, partially offset by decreased proceeds from sales of property and
equipment. In the first nine months of 2002, we received $3.9 million of sales
proceeds, primarily from the sales of three travel center sites, while in the
first nine months of 2001 we received $6.0 million of proceeds from asset sales.
In the first nine months of 2001, we made no business acquisitions, while in the
first nine months of 2002 we completed four business acquisitions, converting
four leased sites to company-operated sites. Our plan for 2002 included a
reduction in our capital spending both as a result of our progress to date with
respect to our site re-image program and also in response to the soft economic
environment in the United States. We expect 2002 capital expenditures and
business acquisitions, net of proceeds from asset sales, to total approximately
$42 million to $43 million.
Net cash used in financing activities was $23.8 million during the
first nine months of 2002 and $11.4 million during the first nine months of
2001. In the first nine months of 2002, we made net repayments of revolving
credit facility indebtedness of $20.9 million, made scheduled debt repayments of
$2.5 million, and paid $0.5 million of fees and expenses recognized in
connection with our merger and recapitalization transactions of November 2000.
In the first nine months of 2001, we made net repayments of revolving credit
facility indebtedness of $8.0 million and used $3.3 million to pay fees related
to our merger and recapitalization transactions of November 2000.
DESCRIPTION OF INDEBTEDNESS
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, 2001.
OFF-BALANCE SHEET ARRANGEMENTS
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, 2001.
SUMMARY OF CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
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, 2001.
ENVIRONMENTAL MATTERS
We own and operate underground storage tanks and aboveground storage
tanks at company-operated sites and leased sites that 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 those
costs and, as of September 30, 2002, we had a reserve of $3.3 million for
unindemnified environmental matters for which we are responsible. Under the
environmental agreements entered into as part of the acquisition of the Unocal
and BP networks, Unocal and BP are required to provide indemnification for, and
conduct remediation of, certain pre-closing environmental conditions. In
addition, we have obtained insurance of up to $25.0 million for known and up to
$40.0 million for unknown environmental liabilities, subject, in each case, to
certain limitations. 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 our liquidity.
26
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued FAS 143, "Accounting for Asset Retirement
Obligations." FAS 143 requires recognition of the fair value of the liability
associated with the legal obligation to retire long-lived assets in the period
in which the obligation is incurred. At that time, an asset retirement cost of
an equal amount is to be capitalized and subsequently allocated to expense using
a systematic and rational approach over the estimated useful life of the related
asset. We are required to adopt FAS 143 effective January 1, 2003. We are
currently evaluating the effects of adopting FAS 143, but do not anticipate that
adopting FAS 143 will have a material effect on our results of operations or
financial position. Adopting FAS 143 will have no effect on our liquidity.
FORWARD-LOOKING STATEMENTS
This quarterly report 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 quarterly 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 quarterly report to identify forward-looking statements. These
forward-looking statements are made based on our 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 in 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;
- changes in accounting principles generally accepted in the
United States;
- changes in interest rates;
- diesel fuel and gasoline pricing;
- availability of diesel fuel and gasoline supply;
- delays in completing our capital investment program to
re-image, re-brand and upgrade our travel center sites; and
- availability of sufficient qualified personnel to staff
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, 2001.
27
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Our Chief Executive Officer and Chief Financial Officer, after
conducting an evaluation, together with other members of our management, of the
effectiveness of the design and operation of our disclosure controls and
procedures as of a date within 90 days of the filing of this report, have
concluded that our disclosure controls and procedures (as defined in Exchange
Act Rule 13a-14 (c)) were effective to ensure that information required to be
disclosed by us in our reports filed or submitted under the Securities Exchange
Act of 1934 (the "Exchange Act") is recorded, processed, summarized, and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission (the "SEC").
(b) Changes in internal controls.
There were no significant changes in our internal controls or in other
factors that could significantly affect our internal controls
subsequent to the date of our most recent evaluation of our internal
controls.
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 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 of 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
We filed a Form 8-K dated as of August 12, 2002 with respect to the
submission by each of our Principal Executive Officer and Principal Financial
Officer to the Securities and Exchange Commission of sworn statements in
accordance with the SEC's June 27, 2002 Order No. 4-460.
28
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 12, 2002 By: /s/ James W. George
-------------------------------------------
Name: James W. George
Title: Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
29
CERTIFICATIONS
I, Edwin P. Kuhn, certify that:
1. I have reviewed this quarterly report on Form 10-Q of TravelCenters of
America, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 12, 2002 By: /s/ Edwin P. Kuhn
-----------------------------------------------
Name: Edwin P. Kuhn
Title: Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
30
I, James W. George, certify that:
1. I have reviewed this quarterly report on Form 10-Q of TravelCenters of
America, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 12, 2002 By: /s/ James W. George
-----------------------------------------
Name: James W. George
Title: Senior Vice President, Chief
Financial Officer and Secretary
(Principal Financial Officer and
Principal Accounting Officer)
31