UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 30, 2008 |
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OR |
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-33274
TRAVELCENTERS OF AMERICA LLC
(Exact name of registrant as specified in its charter)
Delaware |
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20-5701514 |
(State or Other Jurisdiction of Incorporation or |
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(I.R.S. Employer Identification No.) |
Organization) |
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24601 Center Ridge Road, Suite 200, Westlake, OH 44145-5639
(Address of Principal Executive Offices)
(440) 808-9100
(Registrants 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 o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer x |
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Smaller reporting company o |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Number of Common Shares outstanding at November 7, 2008: 16,048,865 common shares.
TRAVELCENTERS OF AMERICA LLC
FORM 10-Q
September 30, 2008
As used herein the terms we, us, our and TA include TravelCenters of America LLC and its consolidated subsidiaries unless otherwise expressly stated or the context otherwise requires.
TravelCenters of America LLC
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share data)
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September 30, |
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December 31, |
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2008 |
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2007 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
144,049 |
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$ |
148,876 |
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Restricted cash |
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4,801 |
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Restricted investments |
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271,415 |
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Accounts receivable (less allowance for doubtful accounts of $3,319 as of September 30, 2008 and $2,327 as of December 31, 2007) |
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110,393 |
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110,555 |
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Inventories |
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149,013 |
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148,005 |
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Leasehold improvement receivable |
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11,228 |
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25,000 |
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Other current assets |
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59,931 |
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37,362 |
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Total current assets |
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474,614 |
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746,014 |
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Property and equipment, net |
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419,431 |
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397,266 |
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Intangible assets, net |
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36,595 |
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39,962 |
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Leasehold improvement receivable |
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10,597 |
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63,320 |
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Other noncurrent assets |
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20,291 |
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16,759 |
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Total assets |
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$ |
961,528 |
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$ |
1,263,321 |
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Liabilities and Shareholders Equity |
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Current liabilities: |
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Current maturities of long term debt |
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$ |
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$ |
262,866 |
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Accounts payable |
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160,135 |
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154,906 |
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Other current liabilities |
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131,758 |
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150,011 |
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Total current liabilities |
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291,893 |
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567,783 |
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Other noncurrent liabilities |
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73,970 |
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55,479 |
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Capital lease obligations |
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104,240 |
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105,859 |
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Deferred leasehold improvement allowance |
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89,683 |
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94,760 |
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Total liabilities |
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559,786 |
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823,881 |
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Commitments and contingencies |
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Shareholders equity: |
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Common shares, no par value, 16,048,985 and 14,489,265 shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively |
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543,834 |
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539,476 |
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Accumulated other comprehensive income |
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774 |
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1,272 |
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Accumulated deficit |
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(142,866 |
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(101,308 |
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Total shareholders equity |
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401,742 |
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439,440 |
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Total liabilities and shareholders equity |
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$ |
961,528 |
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$ |
1,263,321 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
1
TravelCenters of America LLC
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)
(in thousands, except per share data)
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Three Months Ended |
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September 30, |
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2008 |
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2007 |
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Revenues: |
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Fuel |
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$ |
1,832,414 |
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$ |
1,447,583 |
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Non-fuel |
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321,429 |
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332,102 |
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Rent and royalties |
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3,850 |
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3,933 |
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Total revenues |
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2,157,693 |
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1,783,618 |
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Cost of goods sold (excluding depreciation): |
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Fuel |
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1,747,106 |
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1,392,628 |
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Non-fuel |
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134,991 |
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143,088 |
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Total cost of goods sold (excluding depreciation) |
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1,882,097 |
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1,535,716 |
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Operating expenses: |
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Site level operating |
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166,567 |
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163,287 |
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Selling, general & administrative |
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21,256 |
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32,597 |
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Real estate rent |
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58,696 |
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57,908 |
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Depreciation and amortization |
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10,445 |
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5,976 |
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Total operating expenses |
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256,964 |
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259,768 |
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Income (loss) from operations |
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18,632 |
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(11,866 |
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Equity in income of joint venture |
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465 |
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547 |
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Interest income |
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862 |
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7,043 |
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Interest expense |
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(3,154 |
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(5,108 |
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Income (loss) before income taxes |
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16,805 |
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(9,384 |
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Provision for income taxes |
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150 |
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7,074 |
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Net income (loss) |
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$ |
16,655 |
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$ |
(16,458 |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustments, (net of taxes of $(101) and $132, respectively) |
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(294 |
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676 |
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Comprehensive income (loss) |
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$ |
16,361 |
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$ |
(15,782 |
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Weighted average shares outstanding: |
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Basic |
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15,084 |
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13,884 |
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Diluted |
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15,359 |
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13,884 |
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Income (loss) per share: |
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Basic |
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$ |
1.10 |
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$ |
(1.19 |
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Diluted |
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$ |
1.08 |
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$ |
(1.19 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
TravelCenters of America LLC
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)
(in thousands, except per share data)
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Company |
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Predecessor |
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Nine Months |
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Eight Months |
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One Month |
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Ended |
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Ended |
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Ended |
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September 30, |
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September 30, |
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January 31, |
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Revenues: |
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Fuel |
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$ |
5,415,499 |
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$ |
3,266,012 |
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$ |
285,053 |
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Non-fuel |
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916,874 |
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732,371 |
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66,795 |
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Rent and royalties |
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11,010 |
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8,361 |
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834 |
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Total revenues |
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6,343,383 |
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4,006,744 |
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352,682 |
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Cost of goods sold (excluding depreciation): |
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Fuel |
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5,227,879 |
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3,153,507 |
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270,694 |
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Non-fuel |
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384,530 |
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309,611 |
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27,478 |
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Total cost of goods sold (excluding depreciation) |
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5,612,409 |
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3,463,118 |
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298,172 |
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Operating expenses: |
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Site level operating |
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484,532 |
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361,173 |
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36,093 |
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Selling, general & administrative |
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77,298 |
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69,621 |
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8,892 |
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Real estate rent |
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174,789 |
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132,167 |
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931 |
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Depreciation and amortization |
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32,516 |
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19,333 |
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5,786 |
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Merger related |
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44,972 |
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Total operating expenses |
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769,135 |
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582,294 |
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96,674 |
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Loss from operations |
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(38,161 |
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(38,668 |
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(42,164 |
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Debt extinguishment expenses |
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(16,140 |
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Equity in income of joint venture |
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821 |
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737 |
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Interest income |
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6,171 |
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12,161 |
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1,131 |
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Interest expense |
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(9,892 |
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(9,375 |
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(5,345 |
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Loss before income taxes |
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(41,061 |
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(35,145 |
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(62,518 |
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Provision (benefit) for income taxes |
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497 |
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(2,730 |
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(40,470 |
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Net loss |
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$ |
(41,558 |
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$ |
(32,415 |
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$ |
(22,048 |
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Other comprehensive loss, net of tax: |
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Foreign currency translation adjustments, (net of taxes of $(171), $361 and $(47), respectively) |
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(498 |
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1,243 |
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(47 |
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Comprehensive loss |
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$ |
(42,056 |
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$ |
(31,172 |
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$ |
(22,095 |
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Weighted average shares outstanding: |
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Basic and diluted |
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14,498 |
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10,519 |
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6,937 |
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Loss per share: |
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Basic and diluted |
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$ |
(2.87 |
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$ |
(3.08 |
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$ |
(3.18 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
TravelCenters of America LLC
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
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Company |
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Predecessor |
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Nine Months |
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Eight Months |
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One Month |
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Ended |
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Ended |
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Ended |
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September 30, |
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September 30, |
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January 31, |
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Cash flows from operating activities: |
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Net loss |
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$ |
(41,558 |
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$ |
(32,415 |
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$ |
(22,048 |
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Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Noncash rent expense |
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20,987 |
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12,428 |
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34 |
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Cash received for leasehold improvements sold to Hospitality Trust |
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69,839 |
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13,667 |
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Share based compensation expense |
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782 |
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260 |
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4,268 |
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Depreciation and amortization |
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32,516 |
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19,333 |
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5,786 |
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Equity in income of joint venture |
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(821 |
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(737 |
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Amortization of deferred financing costs |
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312 |
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267 |
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Debt extinguishment expenses |
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16,140 |
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Deferred income tax provision and change in valuation allowance |
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(2,730 |
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(33,827 |
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Provision for doubtful accounts |
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1,284 |
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446 |
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50 |
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Changes in assets and liabilities, net of effects of acquisitions: |
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Accounts receivable |
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(869 |
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(28,012 |
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9,112 |
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Inventories |
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(1,048 |
) |
(15,357 |
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4,779 |
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Other current assets |
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(22,578 |
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(15,477 |
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(10,452 |
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Accounts payable and other current accrued liabilities |
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7,014 |
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924 |
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59,966 |
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Other, net |
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(7,050 |
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(7,938 |
) |
5,950 |
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Net cash provided by (used in) operating activities |
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58,810 |
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(55,608 |
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40,025 |
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Cash flows from investing activities: |
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Acquisitions of businesses |
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(25,059 |
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Proceeds from asset sales |
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2,753 |
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19 |
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35 |
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Proceeds from assets sold to Hospitality Trust |
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1,438 |
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Capital expenditures |
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(71,153 |
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(75,905 |
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(7,176 |
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Net cash used in investing activities |
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(68,400 |
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(99,507 |
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(7,141 |
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Cash flows from financing activities: |
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Decrease in checks drawn in excess of bank balances |
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(8,170 |
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Proceeds from issuance of common shares |
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205,338 |
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Long term debt repayments |
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(54 |
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Cash security for letters of credit refunded (deposited) |
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4,801 |
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(37,007 |
) |
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Net cash provided by (used in) financing activities |
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4,801 |
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168,331 |
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(8,224 |
) |
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Effect of exchange rate changes on cash |
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(38 |
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114 |
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(7 |
) |
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Net increase (decrease) in cash |
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(4,827 |
) |
13,330 |
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24,653 |
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Cash and cash equivalents at the beginning of the period |
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148,876 |
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245,010 |
|
55,297 |
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Cash and cash equivalents at the end of the period |
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$ |
144,049 |
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$ |
258,340 |
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$ |
79,950 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
1. Basis of Presentation, Business Description and Organization
TravelCenters of America LLC, together with its subsidiaries, which we refer to collectively as the Company, we, us and our, operates and franchises travel centers under the TravelCenters of America, TA and Petro brands primarily along the U.S. interstate highway system. Our customers include trucking fleets and their drivers, independent truck drivers and motorists. Our travel centers are typically 20 to 25 acre sites and provide 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, quick service restaurants, travel and convenience stores and various other driver services. We also collect rents and franchise royalties from our franchisees.
The accompanying condensed consolidated financial statements are unaudited. These unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, applicable for interim financial statements. Therefore, the disclosures do not include all the information necessary for complete financial statements in accordance with GAAP. These unaudited interim financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2007. In the opinion of our management, all adjustments, which include only normal recurring adjustments, considered necessary for a fair presentation have been included. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.
At September 30, 2008, our business included 236 travel centers in 41 states and in Canada, 167 of which were operated under the Travel Centers of America or TA brand names and 69 that were operated under the Petro brand name. We operated 189 of these travel centers, which we refer to as Company operated sites, and our franchisees operated 47 of these travel centers, including 10 travel centers which our franchisees sublease from us and 37 travel centers which our franchisees own or lease from other lessors.
We were formed as a Delaware limited liability company on October 10, 2006. Our initial capitalization of one dollar was provided by Hospitality Properties Trust, or Hospitality Trust, on our formation date. Until January 31, 2007, we were a wholly owned, indirect subsidiary of Hospitality Trust that conducted no business activities. On January 31, 2007, Hospitality Trust acquired Travel Centers of America, Inc., our predecessor, through a merger of a subsidiary of ours with and into TravelCenters of America, Inc., restructured the business of our predecessor and distributed our then outstanding shares to Hospitality Trust shareholders in a spin off transaction. The principal effects of the restructuring were that (i) our predecessor became our 100% owned subsidiary, (ii) subsidiaries of Hospitality Trust that we do not own became owners of the real estate at substantially all of the travel centers and certain other assets previously owned by our predecessor, (iii) we entered a lease for that real estate and those other assets with those subsidiaries of Hospitality Trust, which we refer to as the TA Lease, and (iv) all of the outstanding indebtedness of our predecessor was repaid in full. We refer to these January 31, 2007 events as the HPT Transaction (see Note 3). We retained the balance of the assets previously owned by our predecessor and continued their operations. We sometimes refer to Hospitality Trust and the subsidiaries of Hospitality Trust from which we lease properties collectively as Hospitality Trust.
On May 30, 2007, we acquired Petro Stopping Centers, L.P., or Petro, from Petro Stopping Centers Holdings, L.P., or Petro Holdings, which transaction we refer to as the Petro Acquisition (see Note 3). Also on May 30, 2007, Hospitality Trust acquired Petro Holdings, which owned the real estate of 40 Petro travel centers. Simultaneously with Hospitality Trusts acquisition of this real estate, we leased these 40 travel centers from Hospitality Trust. We refer to this lease as the Petro Lease. On September 1, 2008, Petro merged with and into our wholly owned subsidiary TA Operating LLC. At that time, Petros separate legal existence ceased; however, we continue to operate Petros travel centers under the Petro brand.
2. Recently Issued Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, or FAS 157. FAS 157 provides a common fair value hierarchy for companies to follow to determine fair value measurements in the preparation of financial statements and expands disclosure requirements relating to how such fair value measurements were developed. FAS 157 clarifies the principle that fair value should be based on the assumptions that the marketplace would use when pricing an asset or liability, rather than company specific data. FAS 157 is effective for fiscal years beginning after November 15, 2007. However, on February 12, 2008, the FASB issued Staff Position 157-2 which delayed the effective date of FAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair
5
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
value in the financial statements on a recurring basis. For items within its scope, this Staff Position defers the effective date of FAS 157 to fiscal years beginning after November 15, 2008. The Company adopted FAS 157 effective January 1, 2008, for its financial assets and liabilities and this adoption did not have a material effect on the consolidated financial statements. We do not believe that the adoption, effective January 1, 2009, of FAS 157 for our non-financial assets and liabilities will have a material effect on our consolidated financial statements.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations, or FAS 141(R). FAS 141(R) establishes principles and requirements for how the acquirer shall recognize and measure in its financial statements the identifiable assets acquired, liabilities assumed, any non-controlling interest in the acquiree and goodwill acquired in a business combination. FAS 141(R) is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the effect that adopting FAS 141(R) will have on our consolidated financial statements.
3. HPT Transaction and Petro Acquisition
On January 31, 2007, the HPT Transaction was consummated and we entered the TA Lease. On May 30, 2007, we consummated the Petro Acquisition and entered the Petro Lease. Significant differences exist between our statement of operations and comprehensive income (loss) and that of our predecessor.
The following unaudited pro forma information presents our results of operations for the 2007 periods as if both the HPT Transaction and the Petro Acquisition had occurred on January 1, 2007:
|
|
Three Months |
|
Nine Months |
|
|||
|
|
|
|
|
|
|||
Total revenues |
|
$ |
1,783,618 |
|
$ |
5,234,089 |
|
|
Net loss |
|
$ |
(16,458 |
) |
$ |
(79,844 |
) |
|
Loss per common share |
|
$ |
(1.19 |
) |
$ |
(7.44 |
) |
|
These pro forma results of operations are presented for comparative purposes only and do not purport to be indicative of the results of operations that actually would have resulted had the HPT Transaction and the Petro Acquisition occurred at the beginning of the period presented, or that may result in the future. The pro forma results for the nine months ended September 30, 2007 include $66,554 of merger related expenses, $16,662 of debt extinguishment expenses and $4,268 of share based compensation expense, each incurred by our predecessor or Petro as a result of the HPT Transaction or our Petro Acquisition, and $15,251 of expenses related to employee retention and separation payments. The pro forma results for the three months ended September 30, 2007 include $6,882 of expenses related to employee retention and separation payments. We do not include motor fuel taxes in our fuel revenues and fuel cost of sales; however, prior to the Petro Acquisition, Petro included motor fuel taxes in their fuel revenues and fuel cost of sales. For purposes of the pro forma presentation provided above, these amounts, for periods prior to May 30, 2007, have not been removed from Petros reported revenues for periods prior to the Petro Acquisition. For the nine months ended September 30, 2007, the total revenues presented above include $130,240 of motor fuel taxes that were also included in fuel cost of sales.
6
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
4. Earnings Per Share
As of the date of the HPT Transaction and continuing through September 30, 2008, we did not have any share options or warrants outstanding. During the quarter ended September 30, 2008, we issued 1,540,000 common shares to Hospitality Trust under the terms of a rent deferral agreement with HPT (see Note 8) and 5,000 common shares under our equity incentive plan (see Note 7).
The following table reconciles our basic earnings per common share to diluted earnings per common share. The assumed exercise of our predecessors stock options and warrants, all of which were cancelled in connection with the HPT Transaction, would have had an anti-dilutive effect on loss per share for the one month period ended January 31, 2007. Our unvested common share grants would have had an anti-dilutive effect on our loss per common share for the nine months ended September 30, 2008 and the three months and eight months ended September 30, 2007.
|
|
|
|
|
|
Nine months |
|
Eight months |
|
One month |
|
|||||
|
|
Three months ended |
|
ended |
|
ended |
|
Ended |
|
|||||||
|
|
September 30, |
|
September 30, |
|
September 30, |
|
January 31, |
|
|||||||
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
2007 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Determination of shares: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Weighted average common shares outstanding |
|
15,084 |
|
13,884 |
|
14,498 |
|
10,519 |
|
6,937 |
|
|||||
Dilutive effect of unvested shares issued under equity incentive plan |
|
275 |
|
|
|
|
|
|
|
|
|
|||||
Diluted weighted average common shares outstanding |
|
15,359 |
|
13,884 |
|
14,498 |
|
10,519 |
|
6,937 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Basic earnings (loss) per common share |
|
$ |
1.10 |
|
$ |
(1.19 |
) |
$ |
(2.87 |
) |
$ |
(3.08 |
) |
$ |
(3.18 |
) |
Diluted earnings (loss) per common share |
|
$ |
1.08 |
|
$ |
(1.19 |
) |
$ |
(2.87 |
) |
$ |
(3.08 |
) |
$ |
(3.18 |
) |
5. Inventories
Inventories consisted of the following:
|
|
September 30, |
|
December 31, |
|
||
|
|
2008 |
|
2007 |
|
||
|
|
|
|
|
|
||
Non-fuel merchandise |
|
$ |
109,618 |
|
$ |
105,222 |
|
Petroleum products |
|
39,395 |
|
42,783 |
|
||
Total inventories |
|
$ |
149,013 |
|
$ |
148,005 |
|
6. Restricted Investments, Current Maturities of Long Term Debt and Credit Facility
The 9% Notes. Simultaneously with the Petro Acquisition, we and Hospitality Trust made arrangements to call Petros 9% Senior Secured Notes due 2012, which we refer to as the 9% Notes, by depositing with the trustee for the 9% Notes U.S. Treasury obligations sufficient to effect a covenant defeasance, to pay all of the interest due on the 9% Notes until the redemption date and to pay the full amount of the 9% Notes, including the redemption premium, on the redemption date of February 15, 2008. On December 31, 2007, $250,000 in principal amount of the 9% Notes was outstanding. The 9% Notes were our obligations and remained so until the redemption date, and are included on our balance sheet as of December 31, 2007, at their estimated fair value, which includes the redemption premium. On February 15, 2008, we paid the 9% Notes, the redemption premium and accrued interest using funds from the restricted investments that had been held by the trustee for that purpose.
7
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
Revolving Credit Facility. We have a $100,000 revolving credit agreement, or our credit facility, under which a maximum of $100,000 may be drawn, repaid and redrawn until maturity in November 2012. The maximum amount is subject to limits based on qualified collateral. The credit facility may be used for general business purposes and provides for the issuance of letters of credit. Generally, no principal payments are due until maturity. Credit facility borrowings bear interest at LIBOR plus a spread that is currently 100 basis points, subject to adjustment based upon facility availability, utilization and other requirements. The credit facility is collateralized principally by our accounts receivable and inventory. On July 8, 2008, we entered an amendment to the credit facility to add as qualified collateral certain receivables and inventory related to our Petro sites, which assets had been previously excluded from the collateral supporting our credit facility.
The credit facility requires maintenance of collateral, limits the incurrence of debt and liens, restricts our making certain investments and the payment of dividends and other distributions, requires a minimum fixed charge ratio under certain circumstances and has other customary covenants and conditions. The credit facility provides for acceleration of principal and interest payments upon an event of default. Events of default include, but are not limited to, failure to pay interest or other amounts due, a change in control of us, as defined in the credit facility, and our default of the lease agreements with Hospitality Trust or our management and shared services agreement with Reit Management & Research LLC, or Reit Management.
At December 31, 2007 and September 30, 2008, there were no amounts outstanding under our revolving credit facility, but at September 30, 2008, we had outstanding $69,613 of letters of credit issued under this facility, which we caused to be issued to secure certain purchases, insurance, fuel tax and other trade obligations.
7. Shareholders Equity and Equity Incentive Plans
On January 31, 2007, as part of the HPT Transaction, Hospitality Trust distributed 8,808,575 of our common shares to its shareholders in a spin off transaction. In July and August 2007 we issued an additional 5,335,090 of our common shares in a public offering.
Pursuant to the rent deferral agreement described in Note 8, on August 11, 2008, we issued to Hospitality Trust 1,540,000 common shares, approximately 9.6% of our shares outstanding after this new issuance. In the event we do not defer in full the permitted amounts through December 31, 2009, a pro-rata amount of our shares issued to Hospitality Trust may be repurchased by us from Hospitality Trust for nominal consideration. This deferral agreement also includes a prohibition on share repurchases and dividends by us while any deferred rent remains unpaid. The shares issued to Hospitality Trust were valued in the aggregate at $3,577, their estimated fair value based on the closing price of our common shares on the date of issuance, and were recorded in our consolidated financial statements as an increase in shareholders equity with an offsetting increase in a deferred financing cost asset that will be amortized into interest expense over the period through December 31, 2009.
Equity Incentive Plans. An aggregate of 2,000,000 of our common shares were authorized for issuance under the terms of our 2007 Equity Compensation Plan, or the Plan. During the nine months ended September 30, 2008, 30,000 shares were awarded under the Plan. These awards were valued at an aggregate value of $70 based on the closing prices of our shares on the exchange on which they are traded on the dates of the grants. As of September 30, 2008, 1,634,680 shares remained available for issuance under our Plan. We recognized $232 and $782 of noncash share based compensation expense for the three and nine month periods ended September 30, 2008, respectively, and recognized $260 of such expense during the eight months ended September 30, 2007.
Our predecessor had a share option plan that we did not assume. All 939,375 share options that were outstanding under our predecessors share option plan as of December 31, 2006 were cancelled as part of the HPT Transaction on January 31, 2007. Our predecessor recognized share based compensation expense of $4,268 in January 2007 when its outstanding options vested and were cancelled as a result of the HPT Transaction.
8. Related Party Transactions
One of our Managing Directors, Barry Portnoy, is a managing trustee of Hospitality Trust and the Chairman and majority owner of Reit Management. Our other Managing Director and President is also an executive vice president of Reit Management. Our Treasurer and Chief Financial Officer is also a senior vice president of Reit Management. In addition to providing services to us, Reit Management also provides services to Hospitality Trust. Further, Hospitality Trust owns approximately 9.6% of our outstanding common shares. For these reasons, we consider Hospitality Trust and Reit Management to be related parties of ours. For a further
8
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
description of relationships among us, Hospitality Trust and Reit Management, please review the contracts among these parties which are publicly available as exhibits to our public filings with the Securities and Exchange Commission, or the SEC, and are accessible at the SEC website, www.sec.gov, and also see our descriptions of these relationships in our Proxy Statement for our 2008 Annual Meeting of Shareholders, the descriptions in our periodic reports filed with the SEC after the date of that Proxy Statement of certain applicable agreements entered following that date and the description of the risks which may arise from these relationships in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2007, all of which documents are also accessible at the SEC website.
We were formerly a 100% subsidiary of Hospitality Trust and Hospitality Trust is our principal landlord. During 2007 we completed both the HPT Transaction and the Petro Acquisition together with Hospitality Trust. Under these leases we are required to pay the following rent amounts: (i) minimum amounts of rent to Hospitality Trust specified in the TA Lease and the Petro Lease, (ii) additional rent to Hospitality Trust in connection with certain sales to Hospitality Trust of qualifying improvements at sites leased from Hospitality Trust, and (iii) the underlying ground lease payments at those sites subleased to us by Hospitality Trust, which ground lease payments we pay directly to the party from whom Hospitality Trust leases the site. For certain sites, Hospitality Trust has exercised purchase options or otherwise acquired the leased properties that had previously been subleased to us and we now pay the related ground lease rents to Hospitality Trust.
Under the TA Lease, we can sell to Hospitality Trust certain capital improvements we make to properties owned by Hospitality Trust with no increase in our rent payable to Hospitality Trust. These sales originally were limited to $125,000 with no more than $25,000 of sales permitted in any one year. On May 12, 2008, we and Hospitality Trust amended the TA Lease. This lease amendment permits us to sell to Hospitality Trust qualified improvements which we have made or may make to the travel centers leased from Hospitality Trust under the TA Lease on an expedited basis. In the event that we elect to sell these capital improvements before the time contractually permitted by the original lease terms, Hospitality Trusts purchase commitment amount is discounted to reflect the accelerated receipt of funds by us according to a present value formula established in the amended lease. During the nine month period ended September 30, 2008, we sold leasehold improvements to Hospitality Trust for total cash proceeds, after the discounts for accelerated receipts, of $69,838. At September 30, 2008, $25,821 of the $125,000 total amount of the leasehold improvements saleable to Hospitality Trust with no increase in our rent remained available.
On August 11, 2008 we entered a rent deferral agreement with Hospitality Trust. Under the terms of the deferral agreement we have the option to defer our monthly rent payments to Hospitality Trust by up to $5,000 per month for periods beginning July 1, 2008 until December 31, 2010 and we are not obligated to pay cash interest on the deferred rent through December 31, 2009. Also pursuant to the deferral agreement, we issued 1,540,000 of our common shares to Hospitality Trust (which represents approximately 9.6% of our shares outstanding after this new issuance). In the event we do not defer our monthly payments for all the permitted amounts through December 31, 2009, we may repurchase a pro-rata amount of our shares issued to Hospitality Trust for nominal consideration. In the event that any rents which have been deferred remain unpaid or additional rent amounts are deferred after December 31, 2009, interest on all such amounts is payable to Hospitality Trust monthly at the rate of 12% per annum, beginning January 1, 2010. No additional rent deferrals are permitted for rent periods after December 31, 2010. Any deferred rent (and interest thereon) not paid is due to Hospitality Trust on July 1, 2011. Any deferred amounts (and related interest) may be prepaid at any time. This deferral agreement also includes a prohibition on share repurchases and dividends by us while any deferred rent remains unpaid and has change of control covenants so that amounts deferred will be immediately payable to Hospitality Trust in the event we experience a change of control while deferred rent is unpaid. As of September 30, 2008, we had deferred an aggregate of $15,000 of rent payable to Hospitality Trust.
9
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
The following table summarizes the various amounts related to our leases with Hospitality Trust that are reflected in our operating results:
|
|
Three Months |
|
Nine Months |
|
Eight Months |
|
||||||
|
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Minimum base rent cash payments |
|
$ |
39,806 |
|
$ |
53,932 |
|
$ |
148,835 |
|
$ |
123,416 |
|
Rent for improvements sold to Hospitality Trust |
|
31 |
|
31 |
|
92 |
|
41 |
|
||||
Rent for ground leases acquired by Hospitality Trust |
|
2,099 |
|
511 |
|
5,044 |
|
1,258 |
|
||||
Total rent payments to Hospitality Trust |
|
41,936 |
|
54,474 |
|
153,971 |
|
124,715 |
|
||||
Required straight line rent adjustments |
|
3,424 |
|
4,299 |
|
10,564 |
|
11,464 |
|
||||
Rent deferred under rent deferral agreement |
|
15,000 |
|
|
|
15,000 |
|
|
|
||||
Less capital lease obligation amortization |
|
(540 |
) |
(480 |
) |
(1,620 |
) |
(1,280 |
) |
||||
Less amount recognized as interest |
|
(2,342 |
) |
(2,402 |
) |
(7,026 |
) |
(6,405 |
) |
||||
Less deferred leasehold improvement allowance amortization |
|
(1,692 |
) |
(1,693 |
) |
(5,077 |
) |
(4,513 |
) |
||||
Rent to Hospitality Trust recognized as rent expense |
|
$ |
55,786 |
|
$ |
54,198 |
|
$ |
165,812 |
|
$ |
123,981 |
|
Other current liabilities in our consolidated balance sheets at September 30, 2008 and December 31, 2007, include $13,282 and $17,987, respectively, for rent due to Hospitality Trust. Other noncurrent liabilities in our consolidated balance sheet at September 30, 2008 included $15,000 of deferred rent payable to Hospitality Trust under the rent deferral agreement.
We are party to a management and shared services agreement with Reit Management. Reit Management assists us with various aspects of our business, which may include, but are not limited to, compliance with various laws and rules applicable to our status as a publicly owned company, maintenance of our travel centers, site selection for properties on which new travel centers may be developed, identification of, and purchase negotiation for travel centers and travel center companies, accounting and financial reporting, capital markets and financing activities, investor relations and general oversight of all our daily business activities, including legal matters, human resources, insurance programs, management information systems and the like. For these services, we pay Reit Management a fee equal to 0.6% of our fuel gross margin and 0.6% of our total non-fuel revenues. The fee is payable monthly based upon the prior months margin or revenues, as applicable. In connection with the payments made to Reit Management under the management and shared services agreement, for the three months ended September 30, 2008 and 2007, we recognized expense of $2,482 and $2,339, respectively, and for the nine and eight months ended September 30, 2008 and 2007 we recognized expense of $6,635 and $5,049, respectively, included in selling, general and administrative expenses.
We have a minority joint venture interest in Petro Travel Plaza Holdings LLC, which owns one travel center that we operate under a management agreement and a parcel of land upon which Petro Travel Plaza Holdings LLC is developing a new travel center that we expect to operate. This investment is accounted for under the equity method. We recognized equity income of $821 and $737 for the nine months ended September 30, 2008 and the eight months ended September 30, 2007, respectively. In addition, included in our results for the nine month period ended September 30, 2008 and eight month period ended September 30, 2007 was management and accounting fee income of $285 and $129, respectively, earned from managing this joint venture. At September 30, 2008 and December 31, 2007, we had a net payable to this joint venture of $1,742 and $4,406, respectively. On October 8, 2008 we made a capital contribution to Petro Travel Plaza Holdings LLC in the amount of $6,970 in conjunction with our joint venture partner contributing land to the joint venture, such that our ownership percentage remained at 40%.
9. Commitments and Contingencies
Guarantees
In the normal course of our business we periodically enter into agreements that contain guarantees or indemnification provisions. While the maximum amount to which we may be exposed under such agreements cannot be estimated, we do not believe that any potential guaranty or indemnification will have a material adverse effect on our consolidated financial position or results of operations.
10
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
We offer a warranty of our workmanship in our truck repair shops, but we believe the annual warranty expense and corresponding liability are not material to us.
Environmental Matters
Our operations and properties are extensively regulated by environmental laws that (i) regulate our operations that may have adverse environmental effects, such as potentially hazardous discharges to air, soil and water, (ii) regulate our management of petroleum products and other potentially hazardous substances, and (iii) impose liability for the costs of cleaning up sites affected by, and for damages resulting from, disposal or other releases of hazardous substances. We use underground and above ground storage tanks to store petroleum products and waste at our travel centers; and we must comply with requirements of environmental laws regarding tank construction, integrity testing, leak detection and monitoring, overfill and spill control, contaminant release reporting, financial assurance and corrective action in the event of a release from a storage tank into the environment. We regularly conduct investigatory and/or remedial actions with respect to releases of hazardous substances at a number of our sites. We regularly receive notices of alleged violations of environmental laws at travel centers.
Under certain environmental agreements entered into as part of our predecessors acquisitions of travel centers, prior owners of certain of our sites are required to indemnify us for certain environmental conditions. Certain of our remediation expenditures may be recovered from state government administered tank funds. In addition, we have insurance of up to $35,000 for environmental liabilities at certain of our travel centers that were known at the time the policies were issued, and up to $60,000 for unknown environmental liabilities, subject, in each case, to certain limitations and deductibles.
At September 30, 2008, we had an accrued liability for environmental matters of $10,146, as well as a receivable for expected recoveries of certain of these estimated future expenditures and cash in an escrow account to fund certain of these estimated future expenditures, resulting in an estimated net amount of $3,645 to be funded by us in the future. While it is not possible to quantify with certainty our environmental exposure, in our opinion, based upon the information now known to us, our potential liability for clean up and remediation in excess of the accrual we have recorded will not have a material adverse effect on our financial condition, results of operations or cash flows.
While the costs of our environmental compliance in the past have not had, and we do not believe such costs will have, a material adverse impact on us, it is impossible to predict the ultimate effect that changing circumstances and changing environmental laws may have on us in the future. We cannot be certain that additional contamination presently unknown to us does not exist at our sites, or that material liability will not be imposed on us in the future. If additional environmental matters arise or are discovered, or if additional environmental requirements are imposed by government agencies, increased environmental compliance or remediation expenditures may be required, and such costs could have a material adverse effect on us.
Pending Litigation
In February 2006 a subsidiary of our predecessor, Pilot Travel Centers, LLC, or Pilot, a competitor of ours, and others were sued by Flying J, Inc., or Flying J, another one of our competitors, and its affiliates in the U.S. District Court for the District of Utah. In essence the lawsuit claimed that we, Pilot and others participated in an unlawful concerted antitrust action to refuse to accept a payment card issued by a Flying J affiliate. Flying J and its affiliates sought damages in amounts to be determined at trial and other relief. In April 2008 we settled this litigation by paying $5,000 and by agreeing to accept the payment card issued by one of Flying Js affiliates. As a result of this settlement, we were dismissed from the litigation on May 5, 2008. The expense related to this settlement was recognized in the first quarter of 2008 in our selling, general and administrative expenses and we paid the settlement amount in April 2008.
In May 2007 we terminated a contract with Simons Petroleum, Inc., or Simons, a fuel marketer, that had been entered by our predecessor. This contract permitted Simons to market fuel to trucking companies and distribute that fuel through our TA branded locations in exchange for paying low pumping fees to us. The termination was made at our option as provided in the contract and required an 18 month wind down period during which Simons may continue to market and distribute fuel through our locations. A dispute arose between us and Simons regarding the proper conduct of the parties during the wind down period. After settlement negotiations were conducted, we and Simons participated in a mediation, which failed to produce a settlement. In February 2008, we
11
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
and Simons participated in a binding arbitration, under the auspices of the American Arbitration Association, or AAA. On March 14, 2008, we received the AAA ruling, which ordered us to pay Simons $900 and to accept new customers, if any, presented to us by Simons until November 7, 2008. We recognized the expense of $900 related to the AAA ruling in the fourth quarter of 2007 and paid this amount in April 2008.
On February 1, 2008, we commenced litigation against E2 Investment Partners LLC and related entities and individuals in the Delaware Court of Chancery. On December 31, 2007, these defendants forwarded a letter to us proposing directors and other matters for consideration at our 2008 annual meeting of shareholders. We sought a court order declaring that the defendants did not comply with our limited liability company agreement, or LLC agreement, and that therefore the defendants notice was invalid and their proposed nominees and other matters were not properly presented for consideration at our 2008 annual meeting. On April 4, 2008, the Delaware Court of Chancery issued an order declaring that the defendants notice breached our LLC agreement and was therefore invalid and of no force or effect. On May 8, 2008, we commenced a second litigation against the same defendants in the Delaware Court of Chancery to collect our costs and expenses arising from the defendants breach of our LLC agreement. On July 2, 2008, the defendants filed an answer to our complaint and generally denied liability. Certain defendants in this litigation have recently hired new counsel and filed a motion to dismiss. We have opposed their motion and filed a cross motion for partial summary judgment. No hearing has yet been scheduled for these motions. We do not know what amounts, if any, will ultimately be collected by us.
On February 1, 2008, Alan R. Kahn filed a purported derivative action in the Delaware Court of Chancery on behalf of TA against members of our board of directors, Hospitality Trust and Reit Management. This action alleges that our directors breached their fiduciary duties in connection with the Petro Acquisition and seeks an award of unspecified damages and reformation of our Petro Lease. This action also appears to allege that Reit Management and Hospitality Trust aided and abetted our directors. Under our LLC agreement and agreements with Reit Management and Hospitality Trust, we are liable to indemnify our directors, Hospitality Trust and Reit Management for liabilities, costs and expenses incurred by them in connection with this litigation. On May 6, 2008, we moved to dismiss this complaint. On June 20, 2008 the plaintiff filed an amended complaint making additional allegations regarding the members of our board of directors and withdrawing his request for reformation of the Petro Lease. On July 2, 2008, we moved to dismiss the amended complaint. On September 12, 2008, the plaintiff filed his answering brief in opposition to our motion to dismiss. The answering brief stated that the plaintiff would voluntarily dismiss his claims against Reit Management and also conceded that the plaintiff was unable to effect service of process on Hospitality Trust. On October 7, 2008, we filed our reply brief in support of our motion to dismiss. On October 30, 2008, Mr. Kahns claims against Reit Management were dismissed. A hearing on our motion to dismiss is scheduled for November 25, 2008. We believe the plaintiffs allegations are without merit.
Beginning in mid December 2006, a series of class action lawsuits were filed against numerous companies in the petroleum industry, including our predecessor and subsidiaries, in United States District courts in over 20 states. Major petroleum companies and significant retailers in the industry have been named as defendants in one or more of these lawsuits. The plaintiffs in the lawsuits generally allege that they are retail purchasers who purchased motor fuel at temperatures greater than 60 degrees Fahrenheit at the time of sale. One theory alleges that the plaintiffs purchased smaller quantities of motor fuel than the amount for which we and other defendants charged them because the defendants measured the amount of motor fuel delivered by volume of gallons which, at higher temperatures, contain less energy. These temperature cases seek, among other relief, an order requiring the defendants to install temperature correcting equipment on their retail motor fuel dispensing devices, damages, and attorneys fees. A second theory alleges that fuel taxes are calculated in temperature adjusted 60 degree gallons and are collected by the federal and various state governments from suppliers and wholesalers, who are reimbursed in the amount of the tax by us and other retailers before the fuel is sold to consumers. These tax cases allege that when the fuel is subsequently sold to consumers at temperatures above 60 degrees, the retailers sell a greater volume of fuel than the amount on which they paid tax, and therefore reap an excess profit because the customers pay more tax than the retailer paid. These tax cases seek, among other relief, recovery of excess taxes paid and punitive damages. We believe that there are substantial factual and legal defenses to the theories alleged in these cases. The cases have been consolidated into one court pursuant to multi-district litigation procedures; and, because discovery has only recently commenced, we cannot estimate our ultimate exposure to loss or liability, if any, related to these lawsuits.
In November 2006 Great American Insurance Company of New York and Novartis Pharmaceuticals Corporation, or Novartis, filed a complaint in the United States District Court for the Southern District of New York against our predecessor and an
12
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
unrelated party Prime, Inc., or Prime, in connection with the alleged theft of a tractor trailer operated by Prime which contained Novartis pharmaceutical products. The alleged theft occurred at our Bloomsbury, New Jersey travel center. Novartis seeks damages up to or exceeding $30,000 together with interest and costs, attorneys fees and disbursements. On January 5, 2007, our predecessor answered Novartis complaint and asserted a cross claim for contribution and indemnification against Prime. On September 12, 2008, we and Prime filed motions for summary judgment as to liability and damages. Plaintiffs filed a motion for summary judgment as to damages. A hearing on these motions is scheduled for November 14, 2008, and a trial is scheduled to begin on January 5, 2009. We believe that there are substantial defenses to these claims and that any liability arising from this matter may be substantially paid by one or more of our existing insurance policies or by Prime.
In March 2005, a California County, Tehama County, commenced litigation against our predecessor in the Superior Court of California, Tehama County, seeking civil penalties and injunctive relief arising out of a fuel spill which occurred in December 2003. In July 2008, Riverside and San Bernardino Counties in the State of California each filed litigation against us in the Superior Court of California for Riverside and San Bernardino Counties, respectively, seeking civil penalties and injunctive relief for alleged past violations of various state laws and regulations relating to our predecessors management of underground storage tanks. We have been involved in negotiations with these three California counties and one other California county, Shasta County, which also is alleging past violations of various state laws and regulations relating to the management of underground storage tanks, in an effort to resolve their pending and threatened claims. Although we believe that the judgments or settlements which may result from these litigations and negotiations are unlikely to be material to us, Californias environmental laws provide for the possible assessment of large civil penalties for various violations, including some violations which do not result in environmental harm or continuing environmental risks. In addition, only a portion of the claims being asserted by these California counties are likely to be covered under our environmental insurance policies. Accordingly, these litigations and negotiations may result in our obligation to pay material amounts.
On October 3, 2008, we received an investigative subpoena from the Florida Department of Agriculture and Consumer Services requesting the production of documents relating to the retail price and cost of fuel at a site in Florida. In late September and early October 2008, we received investigative demands from the Georgia Governors Office of Consumer Affairs requesting the production of documents relating to the retail price and cost of fuel for the period after September 10, 2008 at three sites in Georgia. In late October 2008, we received an investigative subpoena from the Office of the Attorney General for South Carolina requesting the production of documents relating to the retail price and cost of gasoline at a site in South Carolina. It appears that these investigations are motivated by the increase in fuel prices in the southeastern U.S. after certain refineries and fuel distribution pipelines were shut down during portions of the 2008 hurricane season. We are complying with the requests made in the investigative subpoena and investigative demands from Florida and Georgia.
We are involved from time to time in various other legal and administrative proceedings and threatened legal and administrative proceedings incidental to the ordinary course of our business, none of which we expect, individually or in the aggregate, to have a material adverse effect on our business, financial condition, results of operations or cash flows.
13
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
10. Income Taxes
The provisions (benefits) for income taxes included in our current and historical financial statements were as follows:
|
|
Company |
|
Predecessor |
|
|||||||||||
|
|
Three Months |
|
Three Months |
|
Nine Months |
|
Eight Months |
|
One Month |
|
|||||
|
|
Ended |
|
Ended |
|
Ended |
|
Ended |
|
Ended |
|
|||||
|
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
|
January 31, |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Current tax provision (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|||||
Federal |
|
$ |
|
|
$ |
7,470 |
|
$ |
|
|
$ |
|
|
$ |
(6,750 |
) |
State |
|
150 |
|
1,480 |
|
497 |
|
|
|
107 |
|
|||||
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
150 |
|
8,950 |
|
497 |
|
|
|
(6,643 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Deferred tax provision (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|||||
Federal |
|
(913 |
) |
(10,931 |
) |
(20,938 |
) |
(11,901 |
) |
(31,380 |
) |
|||||
State |
|
(114 |
) |
(1,452 |
) |
(2,487 |
) |
(1,336 |
) |
(2,432 |
) |
|||||
Foreign |
|
(39 |
) |
|
|
(118 |
) |
|
|
(15 |
) |
|||||
|
|
(1,066 |
) |
(12,383 |
) |
(23,543 |
) |
(13,237 |
) |
(33,827 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total tax provision (benefit) |
|
(916 |
) |
(3,433 |
) |
(23,046 |
) |
(13,237 |
) |
(40,470 |
) |
|||||
Change in valuation allowance |
|
1,066 |
|
10,507 |
|
23,543 |
|
10,507 |
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net tax provision (benefit) |
|
$ |
150 |
|
$ |
7,074 |
|
$ |
497 |
|
$ |
(2,730 |
) |
$ |
(40,470 |
) |
Because of our short history and our history of operating losses, we do not currently recognize the benefit of any of our deferred tax assets, including tax loss carry forwards, that may be used to offset future taxable income. We will, however, continue to assess our ability to generate sufficient taxable income during future periods in which our deferred tax assets may be realized. If we later believe it is more likely than not we will recover some or all of our deferred tax assets, we will record an appropriate amount of these assets as an income tax benefit in our consolidated statement of operations at that time. As of December 31, 2007, our federal net operating loss carryforward was approximately $50,470. Our net operating loss carryforwards will begin to expire in 2028.
Our effective tax rates for the three and nine month periods ended September 30, 2008 were a provision of 0.9% and 1.2%, respectively, which differed from the statutory rate primarily due to recognition of a valuation allowance against our net deferred tax assets and to state income taxes net of the federal tax effect. Our effective tax rate for the three and eight month periods ended September 30, 2007 and our predecessors effective tax rate for the one month ended January 31, 2007 were a provision of 75.4%, and benefits of 7.8% and 64.7%, respectively. Our tax rates for the three and eight month periods ended September 30, 2007, differed from the statutory rate primarily due to state income taxes, net of the federal tax effect. Our predecessors tax rate for the one month ended January 31, 2007 differed from the statutory rate primarily due to deductibility for tax purposes of expenses related to stock options that were not expensed for financial reporting purposes, partially offset by certain merger related expenses recognized in the financial statements which were not deductible for income tax purposes.
14
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
11. Supplemental Cash Flow Information.
|
|
Company |
|
Predecessor |
|
|||||
|
|
Nine Months |
|
Eight Months |
|
One Month |
|
|||
|
|
Ended |
|
Ended |
|
Ended |
|
|||
|
|
September 30, |
|
September 30, |
|
January 31, |
|
|||
|
|
|
|
|
|
|
|
|||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|||
Interest paid (net of capitalized interest) |
|
$ |
19,233 |
|
$ |
362 |
|
$ |
32,179 |
|
Income taxes paid (net of refunds) |
|
(4,639 |
) |
6,541 |
|
740 |
|
|||
|
|
|
|
|
|
|
|
|||
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|||
Issuance of common shares |
|
$ |
4,358 |
|
$ |
260 |
|
$ |
|
|
15
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview
We were formed in October 2006 as a Delaware limited liability company. We were formed as a wholly owned subsidiary of Hospitality Trust to succeed to the operating business of our predecessor, which Hospitality Trust acquired on January 31, 2007. Until January 31, 2007, we operated as a shell company subsidiary of Hospitality Trust. Because of the HPT Transaction and the Petro Acquisition described in Note 1 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q, we believe our 2007 historical financial information may not be an appropriate basis for comparison with our current or future financial position, results of operations or cash flows. You should read the following discussion in conjunction with the financial statements included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2007.
Our fuel costs are subject to potentially material changes as a result of the market prices of diesel fuel and gasoline, as well as the availability of these products. These factors are subject to the worldwide petroleum products supply chain, which historically has incurred material price changes as a result of, among other things, severe weather, terrorism, political crises, wars and other military actions and variations in demand, which are often the result of changes in the macroeconomic environment. Over the past few years there has been a significant increase in the cost of diesel fuel and gasoline; first, as crude oil demand increased during the previous economic recovery in the United States and events such as Hurricanes Gustav, Ike and Katrina affected the supply system; then as economic growth in certain developing economies, such as China and India, increased demand for petroleum products; and, more recently, as the world value of the U.S. dollar has declined and as speculation in the price of these commodities has increased. We expect that, although most increases in our costs for these products can largely be passed on to our customers over time, increased prices can result in negative effects on our sales and profitability and material increases in our working capital requirements. We expect that petroleum products markets will continue to be volatile during the next 12 months.
Summary of Travel Center Site Counts
The changes in the number of our sites (company operated, franchisee leased and operated or franchisee owned and operated) are significant factors that influenced the changes in our results of operations. The following table summarizes the changes in the composition of our business from December 31, 2006 through September 30, 2008:
|
|
|
|
|
|
Franchisee |
|
|
|
|
|
|
|
|
|
Owned |
|
|
|
|
|
Company |
|
Franchisee |
|
and |
|
|
|
|
|
Operated |
|
Operated |
|
Operated |
|
Total |
|
Number of travel centers at December 31, 2006 |
|
140 |
|
10 |
|
13 |
|
163 |
|
|
|
|
|
|
|
|
|
|
|
January - September 2007 Activity: |
|
|
|
|
|
|
|
|
|
Acquisition of franchised travel center |
|
1 |
|
|
|
(1 |
) |
|
|
Petro acquisition |
|
45 |
|
|
|
24 |
|
69 |
|
New travel centers |
|
2 |
|
|
|
1 |
|
3 |
|
Closed travel center |
|
(1 |
) |
|
|
|
|
(1 |
) |
Number of travel centers at September 30, 2007 |
|
187 |
|
10 |
|
37 |
|
234 |
|
|
|
|
|
|
|
|
|
|
|
October - December 2007 Activity: |
|
|
|
|
|
|
|
|
|
New travel centers |
|
2 |
|
|
|
|
|
2 |
|
Number of travel centers at December 31, 2007 |
|
189 |
|
10 |
|
37 |
|
236 |
|
|
|
|
|
|
|
|
|
|
|
January September 2008 Activity: |
|
|
|
|
|
|
|
|
|
No activity |
|
|
|
|
|
|
|
|
|
Number of travel centers at September 30, 2008 |
|
189 |
|
10 |
|
37 |
|
236 |
|
16
Relevance of Fuel Revenues
Due to volatile pricing of fuel products and our pricing arrangements with fuel customers, we believe that fuel revenue is not a reliable metric for analyzing our results of operations or our predecessors results from period to period. As a result solely of changes in fuel prices, our fuel revenue may increase or decrease significantly versus our or our predecessors historical results of operations, in both absolute amounts and on a percentage basis, without a comparable change in fuel sales volumes or in gross margin per gallon. We consider fuel volumes and gross margin to be better measures of comparative performance than fuel revenues.
Results of Operations
Three months ended September 30, 2008 compared to September 30, 2007
The following table summarizes our results for the three month periods ended September 30, 2008 and 2007.
|
|
Three Months Ended |
|
$ |
|
% |
|
|||||
(dollars in millions) |
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Revenues: |
|
|
|
|
|
|
|
|
|
|||
Fuel |
|
$ |
1,832.4 |
|
$ |
1,447.6 |
|
$ |
384.8 |
|
26.6 |
% |
Non-fuel |
|
321.4 |
|
332.1 |
|
(10.7 |
) |
-3.2 |
% |
|||
Rent and royalties |
|
3.9 |
|
3.9 |
|
0.0 |
|
-2.1 |
% |
|||
Total revenues |
|
2,157.7 |
|
1,783.6 |
|
374.1 |
|
21.0 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Cost of goods sold (excluding depreciation): |
|
|
|
|
|
|
|
|
|
|||
Fuel |
|
1,747.1 |
|
1,392.6 |
|
354.5 |
|
25.5 |
% |
|||
Non-fuel |
|
135.0 |
|
143.1 |
|
(8.1 |
) |
-5.7 |
% |
|||
Total cost of goods sold (excluding depreciation) |
|
1,882.1 |
|
1,535.7 |
|
346.4 |
|
22.6 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|||
Site level operating expenses |
|
166.6 |
|
163.3 |
|
3.3 |
|
2.0 |
% |
|||
Selling, general & administrative expense |
|
21.3 |
|
32.6 |
|
(11.3 |
) |
-34.8 |
% |
|||
Real estate rent |
|
58.7 |
|
57.9 |
|
0.8 |
|
1.4 |
% |
|||
Depreciation and amortization expense |
|
10.4 |
|
6.0 |
|
4.4 |
|
74.8 |
% |
|||
Total operating expenses |
|
257.0 |
|
259.8 |
|
(2.8 |
) |
-1.1 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Income (loss) from operations |
|
18.6 |
|
(11.9 |
) |
30.5 |
|
257.0 |
% |
|||
Equity income in joint venture |
|
0.5 |
|
0.5 |
|
0.0 |
|
-15.0 |
% |
|||
Interest income |
|
0.9 |
|
7.1 |
|
(6.2 |
) |
-87.8 |
% |
|||
Interest expense |
|
(3.2 |
) |
(5.1 |
) |
1.9 |
|
-38.3 |
% |
|||
Income (loss) before income taxes |
|
16.8 |
|
(9.4 |
) |
26.2 |
|
279.1 |
% |
|||
Provision for income taxes |
|
0.1 |
|
7.1 |
|
(7.0 |
) |
-97.9 |
% |
|||
Net income (loss) |
|
$ |
16.7 |
|
$ |
(16.5 |
) |
$ |
33.2 |
|
201.2 |
% |
17
Same Site Comparisons. A travel center is included in the following same site comparisons if it was continuously operated by us from July 1, 2007 through September 30, 2008 or, in the case of rent revenues and royalty revenues, by a franchisee of ours or the prior owner of Petro for that same period. Travel centers are not excluded from the same site comparisons as a result of expansions in their size or in the services offered.
|
|
Three Months Ended September 30, |
|
$ |
|
% |
|
|||||
(gallons and dollars in millions) |
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Number of company operated travel centers |
|
185 |
|
185 |
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Fuel sales volume (gallons) (1) |
|
491.4 |
|
595.0 |
|
(103.6 |
) |
-17.4 |
% |
|||
Fuel margin(1) |
|
$ |
86.5 |
|
$ |
57.3 |
|
$ |
29.2 |
|
50.9 |
% |
Total non-fuel revenues (1) |
|
$ |
318.2 |
|
$ |
332.2 |
|
$ |
(14.0 |
) |
-4.2 |
% |
Operating expenses (1) (2) |
|
$ |
164.1 |
|
$ |
163.0 |
|
$ |
1.1 |
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|||
Number of franchisee operated travel centers |
|
46 |
|
46 |
|
|
|
|
|
|||
Rent and royalty revenues |
|
$ |
3.9 |
|
$ |
3.9 |
|
$ |
0.0 |
|
-2.6 |
% |
(1) |
Includes fuel volume, fuel margin, revenues and expenses of company operated travel centers only. |
(2) |
Excludes real estate rent expense, Petro integration expenses, legal settlement expense and previously deferred maintenance costs which were expensed under GAAP. |
Revenues. Revenues for the three month period ended September 30, 2008, were $2,157.7 million, which represented an increase from the quarter ended September 30, 2007, of $374.1 million, or 21.0%, primarily related to increases in fuel prices.
Fuel revenues were 84.9% of total revenues for the quarter ended September 30, 2008, as compared to 81.1% for the same period in 2007. Fuel revenue for the quarter ended September 30, 2008, increased by $384.8 million, or 26.6%, as compared to the same period in 2007. This increase was principally the result of increases in fuel prices. The table below shows the changes in fuel revenues between periods that resulted from price and volume changes:
|
|
Gallons |
|
Fuel |
|
|
(gallons and dollars in millions) |
|
Sold |
|
Revenues |
|
|
|
|
|
|
|
|
|
Results for three months ended September 30, 2007 |
|
627.7 |
|
$ |
1,447.6 |
|
|
|
|
|
|
|
|
Increase due to petroleum products price changes |
|
|
|
659.8 |
|
|
Decrease due to same site volume changes |
|
(103.6 |
) |
(237.5 |
) |
|
Increase due to net company operated sites added since July 1, 2007 |
|
4.3 |
|
10.2 |
|
|
Decrease due to wholesale fuel business sales volume variations |
|
(20.5 |
) |
(47.7 |
) |
|
Net increase (decrease) from prior year period |
|
(119.8 |
) |
384.8 |
|
|
|
|
|
|
|
|
|
Results for three months ended September 30, 2008 |
|
507.9 |
|
$ |
1,832.4 |
|
18
On a same site basis for our company operated TA and Petro sites, fuel sales volume decreased by 103.6 million gallons, or 17.4%, during the three months ended September 30, 2008 compared to the same period in 2007. We believe the same site fuel sales volume decrease resulted primarily from a decline in trucking activity that was largely attributable to the slowing of economic activity in the U.S., particularly the declines in the shipments of durable goods, including new home building supplies, as well as a decline in imports into the U.S. that are transported by truck, combined with the high cost of fuel negatively affecting the demands for fuel during the 2008 periods as compared to the 2007 periods. We believe the same site fuel sales volume decrease also resulted from decreased demand from motorists as a result of the high cost of fuel to consumers and the general condition of the U.S. economy. Some portion of our fuel volume declines experienced in the 2008 period may be the result of our strategic fuel pricing decision to not compete for lower margin fuel business. In addition, a portion of the fuel volume declines experienced in the 2008 period were also the result of our decision to reduce our wholesale fuel business activities in March 2008.
Non-fuel revenues were 15.0% of total revenues for the quarter ended September 30, 2008, as compared to 18.6% for the same period in 2007. Non-fuel revenues for the three months ended September 30, 2008 were $321.4 million, a decrease of $10.7 million, or 3.2%, as compared to the same period in 2007. The change between years is primarily related to the decline in sales at those sites we operated during both periods, partially offset by our price increases. On a same site basis for our company operated TA and Petro sites, non-fuel revenues decreased by $14.0 million, or 4.2% during the three months ended September 30, 2008 compared to the same period in 2007. We believe the same site non-fuel revenue decrease reflects decreased customer traffic in our travel centers as a result of many of the factors affecting our fuel sales volumes partially offset by the impact of our sales and marketing initiatives.
Rent and royalty revenues for the three months ended September 30, 2008 were $3.9 million, representing no change from the same period in 2007.
Cost of goods sold (excluding depreciation). Cost of goods sold for the three months ended September 30, 2008, was $1,882.1 million, an increase of $346.4 million, or 22.6%, as compared to the same period in 2007, which was primarily attributable to increased fuel costs. Fuel cost of goods sold for the quarter ended September 30, 2008 of $1,747.1 million increased by $354.5 million, or 25.5%. The increase in fuel cost of goods sold for the quarter ended September 30, 2008 as compared to the same period in 2007 primarily resulted from commodity price increases partially offset by the fuel sales volumes decreases described above.
Non-fuel cost of goods sold for the three months ended September 30, 2008 was $135.0 million, a decrease of $8.1 million, or 5.7%, as compared to the same period in 2007. Non-fuel cost of goods sold also decreased due to same site non-fuel sales decreases noted above, partially offset by increases in product unit costs and from sites added in 2007. Non-fuel cost of goods sold as a percentage of non-fuel revenue was 42.0% for the quarter ended September 30, 2008 compared to 43.1% for the same period in 2007.
19
Site level operating expenses. Site level operating expenses for the three months ended September 30, 2008, were $166.6 million, an increase of $3.3 million, or 2.0%, as compared to the same period in 2007; $1.2 million of this increase resulted from company operated locations added since June 2007.
On a same site basis for our company operated TA and Petro sites, site level operating expenses increased by $1.1 million, or 0.7% in the three months ended September 30, 2008 compared to the same period in 2007. During the 2008 third quarter we experienced decreases as compared to the prior year period in labor and related benefits and payroll tax costs as a result of our March 2008 workforce reduction, other labor control initiatives and the lower sales volumes during the quarter. These savings were offset by increases in other operating expenses that are not as directly related to our volume of business, primarily utilities, real estate and other taxes not based on income, payment card transaction fees and the cost of maintaining our operating locations. On a same site basis, site level operating expenses as a percentage of non-fuel revenues for the quarter ended September 30, 2008 were 51.6%, compared to 49.1% for the same period in 2007. The increase in operating expenses as a percentage of non-fuel revenues results from the fact that a certain portion of our expenses are fixed in nature so decreases in non-fuel revenues do not result in a corresponding decrease in site level operating expenses.
Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended September 30, 2008 were $21.3 million, a decrease of $11.3 million, or 34.8%, as compared to the same period in 2007. This decrease primarily resulted from the elimination of costs associated with Petros El Paso, Texas headquarters, which was closed earlier in 2008, combined with a reduction of expense related to severance and retention payments to certain current and former employees. This decrease also resulted from our cost saving strategies, including our March 2008 workforce reduction and a decrease in legal fees and other costs related to the litigation matters discussed in Note 9 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Real estate rent expense. Rent expense for the three months ended September 30, 2008 was $58.7 million, an increase of $0.8 million as compared to the same period in 2007. Under our real estate leases, we paid rent of $44.7 million during the three months ended September 30, 2008 of which $2.3 million was recognized as interest expense and $0.5 million was recognized as a reduction of our capital lease obligation. We accrued $3.4 million of noncash rent expense to recognize rent expense on a straight line basis over the terms of those leases that include rent escalation provisions and amortized $1.7 million of our deferred leasehold improvement allowance as a reduction of rent expense. In addition, we accrued $15.0 million of rent expense which was not paid in cash pursuant to our rent deferral agreement with Hospitality Trust.
Depreciation and amortization expense. Depreciation and amortization expense for the three months ended September 30, 2008 was $10.4 million, an increase of $4.4 million, or 74.8%, as compared to the same period in 2007 that resulted from an increase in our depreciable assets.
Income (loss) from operations. Net income from operations for the three months ended September 30, 2008, was $18.6 million, an increase of $30.5 million, or 257.0%, as compared to the same period in 2007. This increase was the result of the changes in revenues and expenses described above.
20
Interest income and expense. Interest income and expense consisted of the following:
|
|
Three Months Ended September |
|
$ |
|
|||||
(dollars in millions) |
|
2008 |
|
2007 |
|
Change |
|
|||
|
|
|
|
|
|
|
|
|||
Accretion of leasehold improvement receivable |
|
$ |
0.4 |
|
$ |
1.5 |
|
$ |
(1.1 |
) |
Interest income on restricted investments |
|
|
|
2.4 |
|
(2.4 |
) |
|||
Other interest income |
|
0.5 |
|
3.2 |
|
(2.7 |
) |
|||
Total interest income |
|
$ |
0.9 |
|
$ |
7.1 |
|
$ |
(6.2 |
) |
|
|
|
|
|
|
|
|
|||
Interest on the defeased 9% Notes |
|
$ |
|
|
$ |
2.4 |
|
$ |
(2.4 |
) |
Rent expense classified as interest |
|
2.3 |
|
2.4 |
|
(0.1 |
) |
|||
Amortization of deferred financing costs |
|
0.2 |
|
|
|
0.2 |
|
|||
Other interest expense |
|
0.7 |
|
0.3 |
|
0.4 |
|
|||
Total interest expense |
|
$ |
3.2 |
|
$ |
5.1 |
|
$ |
(1.9 |
) |
The decrease in other interest income was primarily attributable to reduced interest income on our lower cash balances in the third quarter of 2008 as compared to the same period in 2007, and declining interest rates. The decline in interest expense in the third quarter of 2008 as compared to the same period in 2007 was due to the repayment of the Petro notes in February 2008.
Income tax provision (benefit). Our effective tax rates for the three month periods ended September 30, 2008 and 2007 were provisions of 0.9% and 75.4%, respectively. The rate for the 2008 period differs from the statutory rate due to an increase in the valuation allowance against our net deferred tax assets, and to state income taxes net of the federal tax effect. For the 2007 period, the effective tax rate differs from the statutory rate primarily due to state income taxes net of the federal tax effect.
21
Nine months ended September 30, 2008 compared to September 30, 2007
We were spun off from Hospitality Trust on January 31, 2007, and had no operations prior to that time. For the purpose of discussing our nine month historical results of operations, the following table combines our results for the eight months ended September 30, 2007, which include the results of Petro only from May 30, 2007, and the results of our predecessor for the one month ended January 31, 2007, without pro forma adjustments, and compares these combined results of operations to our results for the nine months ended September 30, 2008. The data has been presented to facilitate our discussion below of the trends and changes affecting our operating results. It has been prepared for comparative purposes only and does not purport to be indicative of the results of operations that actually would have resulted had the HPT Transaction occurred on January 1, 2007, and is not indicative of our future results of operations. Due to the Petro Acquisition on May 30, 2007, the results for the 2007 period may not be an appropriate basis for comparison to our current year results. The results shown for the 2007 period include the results from Petro beginning on May 30, 2007 and do not include pro forma adjustments.
|
|
Company |
|
Predecessor |
|
Combined |
|
|
|
|
|
|||||||
|
|
Nine |
|
Eight |
|
One |
|
Nine |
|
|
|
|
|
|||||
|
|
Months |
|
Months |
|
Month |
|
Months |
|
|
|
|
|
|||||
|
|
Ended |
|
Ended |
|
Ended |
|
Ended |
|
|
|
|
|
|||||
|
|
September 30, |
|
September 30, |
|
January 31, |
|
September 30, |
|
$ |
|
% |
|
|||||
(dollars in millions) |
|
2008 |
|
2007 |
|
2007 |
|
2007 |
|
Change |
|
Change |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Fuel |
|
$ |
5,415.5 |
|
$ |
3,266.0 |
|
$ |
285.1 |
|
$ |
3,551.1 |
|
$ |
1,864.4 |
|
52.5 |
% |
Non-fuel |
|
916.9 |
|
732.4 |
|
66.8 |
|
799.2 |
|
117.7 |
|
14.7 |
% |
|||||
Rent and royalties |
|
11.0 |
|
8.4 |
|
0.8 |
|
9.2 |
|
1.8 |
|
19.7 |
% |
|||||
Total revenues |
|
6,343.4 |
|
4,006.8 |
|
352.7 |
|
4,359.5 |
|
1,983.9 |
|
45.5 |
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cost of goods sold (excluding depreciation): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Fuel |
|
5,227.9 |
|
3,153.5 |
|
270.7 |
|
3,424.2 |
|
1,803.7 |
|
52.7 |
% |
|||||
Non-fuel |
|
384.5 |
|
309.6 |
|
27.5 |
|
337.1 |
|
47.4 |
|
14.1 |
% |
|||||
Total cost of goods sold (excluding depreciation) |
|
5,612.4 |
|
3,463.1 |
|
298.2 |
|
3,761.3 |
|
1,851.1 |
|
49.2 |
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Site level operating expenses |
|
484.5 |
|
361.2 |
|
36.1 |
|
397.3 |
|
87.2 |
|
22.0 |
% |
|||||
Selling, general & administrative expense |
|
77.3 |
|
69.6 |
|
8.9 |
|
78.5 |
|
(1.2 |
) |
-1.5 |
% |
|||||
Real estate rent |
|
174.8 |
|
132.2 |
|
0.9 |
|
133.1 |
|
41.7 |
|
31.3 |
% |
|||||
Depreciation and amortization expense |
|
32.5 |
|
19.3 |
|
5.8 |
|
25.1 |
|
7.4 |
|
29.4 |
% |
|||||
Merger related expenses |
|
|
|
|
|
45.0 |
|
45.0 |
|
(45.0 |
) |
-100.0 |
% |
|||||
Total operating expenses |
|
769.1 |
|
582.3 |
|
96.7 |
|
679.0 |
|
90.1 |
|
13.3 |
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Loss from operations |
|
(38.1 |
) |
(38.6 |
) |
(42.2 |
) |
(80.8 |
) |
42.7 |
|
-52.8 |
% |
|||||
Debt extinguishment expense |
|
|
|
|
|
(16.1 |
) |
(16.1 |
) |
16.1 |
|
-100.0 |
% |
|||||
Equity income in joint venture |
|
0.8 |
|
0.7 |
|
|
|
0.7 |
|
0.1 |
|
11.4 |
% |
|||||
Interest income |
|
6.2 |
|
12.2 |
|
1.1 |
|
13.3 |
|
(7.1 |
) |
-53.6 |
% |
|||||
Interest expense |
|
(9.9 |
) |
(9.4 |
) |
(5.3 |
) |
(14.7 |
) |
4.8 |
|
-32.8 |
% |
|||||
Loss before income taxes |
|
(41.0 |
) |
(35.1 |
) |
(62.5 |
) |
(97.6 |
) |
56.6 |
|
-58.0 |
% |
|||||
Provision (benefit) for income taxes |
|
0.5 |
|
(2.7 |
) |
(40.5 |
) |
(43.2 |
) |
43.7 |
|
-101.2 |
% |
|||||
Net loss |
|
$ |
(41.5 |
) |
$ |
(32.4 |
) |
$ |
(22.0 |
) |
$ |
(54.4 |
) |
$ |
12.9 |
|
-23.7 |
% |
22
Same Site Comparisons. A travel center is included in the following same site comparisons if it was continuously operated by us, our predecessor or the prior owner of the Petro sites from January 1, 2007 through September 30, 2008 or, in the case of rent revenues and royalty revenues, by a franchisee of ours, our predecessor, or the prior owner of Petro for that same period. Travel centers are not excluded from the same site comparisons as a result of expansions in their size or in the services offered.
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
(gallons and dollars in millions) |
|
Company |
|
Combined |
|
$ |
|
% |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Number of company operated travel centers |
|
182 |
|
182 |
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Fuel sales volume (gallons) (1) |
|
1,518.6 |
|
1,793.6 |
|
(275.0 |
) |
-15.3 |
% |
|||
Fuel margin(1) |
|
$ |
188.2 |
|
$ |
156.8 |
|
$ |
31.5 |
|
20.1 |
% |
Total non-fuel revenues (1) |
|
$ |
900.9 |
|
$ |
933.1 |
|
$ |
(32.2 |
) |
-3.5 |
% |
Operating expenses (1), (2) |
|
$ |
470.8 |
|
$ |
468.3 |
|
$ |
2.5 |
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|||
Number of franchisee operated travel centers |
|
46 |
|
46 |
|
|
|
|
|
|||
Rent and royalty revenues |
|
$ |
10.8 |
|
$ |
11.2 |
|
$ |
(0.4 |
) |
-3.0 |
% |
(1) |
Includes fuel volume, fuel margin, revenues and expenses of company operated travel centers only. |
(2) |
Excludes real estate rent expense, Petro integration expenses, legal settlement expense and previously deferred maintenance costs which were expensed under GAAP. |
Revenues. Revenues for the nine months ended September 30, 2008, were $6,343.4 million, which represented an increase from the nine months ended September 30, 2007, of $1,983.9 million, or 45.5%, that is primarily attributable to the Petro Acquisition and increases in fuel prices.
Fuel revenues were 85.4% of total revenues for the nine months ended September 30, 2008, as compared to 81.5% for the same period in 2007. Fuel revenue for the nine months ended September 30, 2008, increased by $1,864.4 million, or 52.5%, as compared to the same period in 2007. This increase was principally the result of sites added in 2007, including the Petro sites, and increases in fuel sales prices.
The table below shows the changes in fuel revenues between periods that resulted from price and volume changes:
23
|
|
Gallons |
|
Fuel |
|
|
(gallons and dollars in millions) |
|
Sold |
|
Revenues |
|
|
|
|
|
|
|
|
|
Results for nine months ended September 30, 2007 |
|
1,609.3 |
|
$ |
3,551.1 |
|
|
|
|
|
|
|
|
Increase due to petroleum products price change |
|
|
|
1,782.0 |
|
|
Increase (decrease) due to same site volume change |
|
(211.7 |
) |
(468.7 |
) |
|
Increase due to Petro sites added |
|
221.5 |
|
602.0 |
|
|
Increase due to other net company operated sites added since January 1, 2007 |
|
21.6 |
|
47.7 |
|
|
Decrease due to wholesale fuel business sales volume variations |
|
(45.8 |
) |
(98.6 |
) |
|
Net increase (decrease) from prior year period |
|
(14.4 |
) |
1,864.4 |
|
|
|
|
|
|
|
|
|
Results for nine months ended September 30, 2008 |
|
1,594.9 |
|