10-Q 1 l13356ae10vq.txt TRAVELCENTERS OF AMERICA, INC. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ---------------------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2005 Commission file number 333-52442 ---------------------------------- TRAVELCENTERS OF AMERICA, INC. (Exact name of Registrant as specified in its charter) DELAWARE 36-3856519 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 24601 Center Ridge Road, Suite 200 Westlake, OH 44145-5639 (Address of principal executive offices, including zip code) (440) 808-9100 (Telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [X] As of April 30, 2005, there were outstanding 6,937,003 shares of our common stock, par value $0.00001 per share. The outstanding shares of our common stock were issued in transactions not involving a public offering. As a result, there is no public market for our common stock. TRAVELCENTERS OF AMERICA, INC. This Quarterly Report on Form 10-Q contains historical information and forward-looking statements. Statements looking forward in time are included in this Form 10-Q pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. They involve known and unknown risks and uncertainties that may cause our actual results to differ from future performance suggested herein. In the context of forward-looking information provided in this Form 10-Q and in other reports, please refer to the discussion of risk factors detailed in, as well as the other information contained in, our filings with the Securities and Exchange Commission.

INDEX PAGE NO. ----- -------- PART I. FINANCIAL INFORMATION Item 1. Unaudited Consolidated Balance Sheet as of December 31, ~~2003~~2004 and ~~September~~March 3031, ~~2004~~2005.............................................. 2 Unaudited Consolidated Statement of Operations and Comprehensive Income for the three months ~~and nine months~~ ended ~~September~~March 3031, ~~2003~~2004 and ~~2004~~2005................................................... 3 Unaudited Consolidated Statement of Cash Flows for the ~~nine~~three months ended ~~September~~March 3031, ~~2003~~2004 and ~~2004~~2005............................ 4 Unaudited Consolidated Statement of Nonredeemable Stockholders' Equity for the ~~nine~~three months ended ~~September~~March 3031, ~~2003~~2004 and ~~2004~~2005................................. ~~5 Selected Notes to Unaudited Consolidated Financial Statements~~.................. 5 Selected Notes to Unaudited Consolidated Financial Statements...~~.............................~~ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 2219 Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................................... 3327 Item 4. Controls and Procedures......................................... 3327 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................... 3328 Item 62. ~~Exhibits~~Unregistered Sales of Equity Securities and ~~Reports~~Use onof ~~Form~~Proceeds..... ~~8-K~~28 Item 6. Exhibits........................................................ 3328 SIGNATURE........................................................................... 3429

1 TRAVELCENTERS OF AMERICA, INC. UNAUDITED CONSOLIDATED BALANCE SHEET

DECEMBER 31, ~~SEPTEMBER~~MARCH 3031, ~~2003~~ 2004 2005 ------------ --------- ASSETS (IN THOUSANDS OF DOLLARS) ~~ASSETS~~ Current assets: Cash and cash equivalents..........................................................~~....................~~ $ 1545,~~005~~846 $ 3233,~~360~~054 Accounts receivable (less allowance for doubtful accounts of $1,~~707~~606 for ~~2003~~2004 and $1,~~366~~691 for ~~2004~~2005)............................................................~~...~~ 4261,~~987~~484 6380,~~767~~399 Inventories........................................................................ 6375,~~981~~907 6680,~~325~~023 Deferred income taxes.............................................................. 36,~~823~~952 36,~~871~~952 Other current assets............................................................... 68,~~962~~347 7,~~735~~377 ---------- ---------- Total current assets.......................................................... ~~132~~198,~~758~~536 ~~174~~207,~~058~~805 Property and equipment, net........................................................... ~~438~~604,~~133~~359 ~~434~~603,~~315~~412 Goodwill.............................................................................. 2548,~~584~~898 2549,~~905~~641 Deferred financing costs, net......................................................... 2428,~~012~~289 2127,~~162~~199 Deferred income taxes................................................................. 144,~~519~~363 85,~~025~~268 Other noncurrent assets............................................................... 1513,~~561~~284 1213,~~634~~019 ---------- ---------- Total assets.................................................................. $ ~~650~~897,~~567~~729 $ ~~676~~906,~~099~~344 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt............................................... $ ~~3,354~~198 $ 31,~~132~~388 Accounts payable................................................................... 5988,754 91113,~~435~~459 Other accrued liabilities.......................................................... 5061,~~020~~800 6072,~~022~~364 ---------- ---------- Total current liabilities..................................................... ~~113~~150,~~128~~752 ~~154~~187,~~589~~211 Commitments and contingencies......................................................... - - Long-term debt (net of unamortized discount).......................................... ~~502~~682,~~033~~892 ~~465~~657,~~779~~110 Deferred income taxes................................................................. 21,~~137~~156 21,~~198~~010 Other noncurrent liabilities.......................................................... 823,~~318~~212 1622,~~321~~532 ---------- ---------- ~~625~~858,~~616~~012 ~~638~~867,~~887~~863 Redeemable equity..................................................................... 1,~~909~~864 21,~~133~~902 Nonredeemable stockholders' equity: Common stock and other nonredeemable stockholders' equity..........................~~.............~~ 216,~~919~~868 216,~~639~~815 Accumulated deficit................................................................ (~~193~~179,~~877~~015) (~~181~~180,~~560~~236) ---------- ---------- Total nonredeemable stockholders' equity......................................~~.............~~ 2337,~~042~~853 3536,~~079~~665 ---------- ---------- Total liabilities, redeemable equity and nonredeemable stockholders' equity... $ ~~650~~897,~~567~~729 $ ~~676~~906,~~099~~344 ========== ==========

The accompanying notes are an integral part of these consolidated financial statements. 2 TRAVELCENTERS OF AMERICA, INC. UNAUDITED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME

THREE MONTHS ENDED ~~NINE~~MARCH ~~MONTHS ENDED SEPTEMBER 30~~31, ~~SEPTEMBER 30,~~ -------------------------~~----~~ ~~----------------------------- 2003~~ 2004 ~~2003~~2005 ~~2004~~ ---------~~---~~ ---------~~---~~ ~~------------ ------------~~ (IN THOUSANDS OF DOLLARS ~~EXCEPT PER SHARE AMOUNTS~~) Revenues: Fuel............................................................ $ ~~373~~397,~~842~~411 $ ~~506~~641,~~401~~021 ~~$ 1,148,291 $ 1,359,176 Nonfuel~~Non-fuel........................................................ ~~179~~159,~~097~~304 ~~190~~187,~~437~~956 ~~491,540 530,248~~ Rent and royalties.............................................. 32,~~154~~638 2,~~719~~477 ~~10,169 8,069~~ ---------~~---~~ ---------~~---~~ ~~------------ ------------~~ Total revenues............................................ ~~556~~559,~~093~~353 ~~699~~831,~~557~~454 ~~1,650,000 1,897,493~~ Cost of goods sold (excluding depreciation): Fuel............................................................ ~~346~~375,~~582~~827 ~~483~~619,~~031~~679 ~~1,066,219 1,288,553 Nonfuel~~Non-fuel........................................................ 7464,~~484~~384 7775,~~958~~645 ~~202,694 216,571~~ ---------~~---~~ ---------~~---~~ ~~------------ ------------~~ Total cost of goods sold (excluding depreciation).........~~...........~~ ~~421~~440,~~066~~211 ~~560~~695,~~989~~324 ~~1,268,913 1,505,124~~ ---------~~---~~ ---------~~---~~ ~~------------ ------------~~ Gross profit (excluding depreciation).............................. ~~135~~119,~~027~~142 ~~138~~136,~~568~~130 ~~381,087 392,369~~ Operating expenses................................................. 9186,~~330~~036 9198,~~570~~804 ~~260,680 267,389~~ Selling, general and administrative expenses....................... 10,~~089~~405 10,~~417~~627 ~~30,395~~Transition ~~31,124~~expense................................................. - 324 Depreciation and amortization expense.............................. 1514,~~342~~077 1315,~~971~~273 ~~44,541 43,945~~ (Gain) loss on asset sales......................................... ~~(10)~~12 (~~1,689~~186) ~~(304) (1,678)~~ ---------~~---~~ ---------~~---~~ ~~------------ ------------~~ Income from operations............................................. 188,~~276~~612 2411,~~299~~288 ~~45,775 51,589~~ Equity in earnings of affiliate.............. ~~224 116 847 194 Gain on sale of investment~~...................... -79 - ~~- 1,491~~ Interest and other financial costs, net............................ (11,~~213~~477) (1113,~~084~~235) ~~(34,502) (33,816)~~ ---------~~---~~ ---------~~---~~ ~~------------~~(Loss) ~~------------ Income~~ before income taxes ~~and the cumulative effect a of change in accounting principle~~......................................... 7(2,~~287~~786) 13(1,~~331~~947) ~~12,120~~Benefit ~~19,458 Provision~~ for income taxes................... ~~2,558 4,888 4,408 7,141 ------------ ------------ ------------ ------------ Income before the cumulative effect of a change in accounting principle~~........................ ~~4,729 8,443 7,712 12,317 Cumulative effect of a change in accounting principle, net of related taxes~~ (~~Note 2~~1,014).. ~~- -~~ (~~253~~726) - --------~~----~~ ---------~~---~~ ~~------------ ------------~~ Net ~~income~~(loss)......................................................... 4(1,~~729~~772) 8(1,~~443~~221) ~~7,459 12,317~~ Other comprehensive income (expense), net of tax (Note 34): Foreign currency translation adjustments....................... 7(52) ~~279~~(53) ~~625 121~~ ---------~~---~~ ---------~~---~~ ~~------------ ------------~~ Comprehensive income (loss)........................................ $ 4(1,~~736~~824) $ 8(1,~~722~~274) ~~$ 8,084 $ 12,438~~ =========~~===~~ =========~~=== ============ ============~~

The accompanying notes are an integral part of these consolidated financial statements. 3 TRAVELCENTERS OF AMERICA, INC. UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ------------------------~~------~~ ~~2003~~ 2004 2005 --------~~---~~ --------~~---~~ (IN THOUSANDS OF DOLLARS) CASH FLOWS FROM OPERATING ACTIVITIES: Net ~~income~~(loss).....................................................................~~...~~ $ 7(1,~~459~~772) $ 12(1,~~317~~221) Adjustments to reconcile net ~~income~~loss to net cash provided by operating activities: ~~Cumulative effect of a change in accounting principle.......................... 253 -~~ Depreciation and amortization expense.......................................~~...~~ 4414,~~533~~077 4315,~~945~~273 Amortization of deferred financing costs....................................~~...~~ ~~2,540~~921 21,~~850~~090 Deferred income tax provision...............................................~~...~~ 3(1,~~785~~194) 6(1,~~464~~036) Provision for doubtful accounts.............................................~~...~~ ~~750~~150 25100 (Gain) loss on ~~asset~~ sales of property and equipment..............................~~............................~~ ~~(304)~~12 (~~3,169~~186) Changes in assets and liabilities, adjusted for the effects of business acquisitions: Accounts receivable......................................................... (810,~~676~~307) (2119,~~657~~344) Inventories................................................................. ~~4,641~~(970) (13,~~802~~785) Other current assets........................................................ ~~2,149~~626 ~~(771)~~974 Accounts payable and other accrued liabilities.............................. 1831,~~761~~425 3736,~~225~~402 Other, net..................................................................~~...~~ 741 (~~1,200~~29) ~~2,601~~ --------~~---~~ --------~~---~~ Net cash provided by operating activities................................... 7433,~~691~~709 7828,~~028~~238 --------~~---~~ --------~~---~~ CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisitions.......................................................... ~~(9,035)~~- (~~588~~935) Proceeds from asset sales...................................................... ~~1,866~~- ~~11,755~~641 Capital expenditures........................................................... (3211,~~057~~003) (3713,~~623~~829) --------~~---~~ --------~~---~~ Net cash used in investing activities....................................... (3911,~~226~~003) (2614,~~456~~123) --------~~---~~ --------~~---~~ CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in checks drawn in excess of bank balances................. (42,321) 3(1,~~653~~894) Revolving loan borrowings (repayments), net.................................... (155,~~500~~600) (1325,~~600~~000) Long-term debt repayments...................................................... (~~13,851~~837) (~~24,132~~49) Other.......................................................................... ~~(252)~~- ~~(158)~~38 --------~~---~~ --------~~---~~ Net cash provided by (used in) financing activities.........................~~............~~ (298,~~607~~758) (3426,~~237~~905) --------~~---~~ --------~~---~~ Effect of exchange rate changes on cash..................................... ~~202~~(3) 20(2) --------~~---~~ --------~~---~~ Net increase (decrease) in cash........................................... 613,~~060~~945 17(12,~~355~~792) Cash at the beginning of the period...............................................~~...~~ ~~14,047~~ 15,005 45,846 --------~~---~~ --------~~---~~ Cash at the end of the period.....................................................~~...~~ $ 2028,~~107~~950 $ 3233,~~360~~054 ========~~===~~ ========~~===~~

The accompanying notes are an integral part of these consolidated financial statements. 4 TRAVELCENTERS OF AMERICA, INC. UNAUDITED CONSOLIDATED STATEMENT OF NONREDEEMABLE STOCKHOLDERS' EQUITY

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, -------------------------~~-----~~ ~~2003~~ 2004 2005 ----------- ----------- (IN THOUSANDS OF DOLLARS) COMMON STOCK: Balance at beginning and end of period....................................~~........~~ $ 3 $ 3 =========== =========== ADDITIONAL PAID-IN CAPITAL: Balance at beginning ofand period.................................................... $ 217,290 $ 216,112 Accretion of redeemable equity................................................ (219) (401) ----------- ----------- Balance at end of period....................................~~......................~~ $ ~~217~~216,~~071~~112 $ 215,~~711~~743 =========== =========== ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): Balance at beginning of period............................................~~........~~ $ -804 $ ~~804~~1,122 Foreign currency translation adjustments, net of tax..................~~........~~ ~~625~~(52) ~~121~~(53) ----------- ----------- Balance at end of period..................................................~~.......~~ $ ~~625~~752 $ ~~925~~1,069 =========== =========== ACCUMULATED DEFICIT: Balance at beginning of period............................................~~........~~ $ (~~202~~193,~~768~~877) $ (~~193~~179,~~877~~015) Net ~~income~~loss...........................................................~~.........~~ 7(1,~~459~~772) 12(1,~~317~~221) ----------- ----------- Balance at end of period..................................................~~........~~ $ (195,~~309~~649) $ (~~181~~180,~~560~~236) =========== ===========

The accompanying notes are an integral part of these consolidated financial statements. 5 TRAVELCENTERS OF AMERICA, INC. SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS DESCRIPTION AND SUMMARY OF OPERATING STRUCTURE We are a holding company which, through our wholly owned subsidiaries, owns, operates and franchises travel centers along the United States interstate highway system and in Canada to serve long-haul trucking fleets and their drivers, independent truck drivers and general motorists. At March 31, 2005, our geographically diverse nationwide network of full-service travel centers consisted of 159 sites located in 40 states and the province of Ontario, Canada. Our operations are conducted through three distinct types of travel centers: - sites operated by us, which we refer to as company-operated sites; - sites owned by us and leased to independent lessee-franchisees, which we refer to as leased sites; and - sites owned and operated by independent franchisees, which we refer to as franchisee-owned sites. At March 31, 2005, our network consisted of 138 company-operated sites, 11 leased sites and 10 franchisee-owned sites. During the three-month period ended March 31, 2005, we converted one leased site to a company-operated site. Our travel centers are located at key points along the U.S. interstate highway system and in Canada, typically on 20- to 25-acre sites. Operating under the "TravelCenters of America" and "TA" brand names, our nationwide network provides our customers with diesel fuel and gasoline as well as non-fuel products and services such as truck repair and maintenance services, full-service restaurants, fast food restaurants, travel and convenience stores with a selection of over 4,000 items and other driver amenities. We also collect rents and franchise royalties from the franchisees who operate the leased sites and franchisee-owner sites and, as a franchisor, assist our franchisees in providing service to long-haul trucking fleets and their drivers, independent truck drivers and general motorists. The consolidated financial statements include the accounts of TravelCenters of America, Inc. and its wholly owned subsidiaries, TA Operating Corporation and TA Franchise Systems Inc., as well as TA Licensing, Inc., TA Travel, L.L.C., 3073000 Nova Scotia Company, TravelCentres Canada Inc., and TravelCentres Canada Limited Partnership, which are all direct or indirect wholly owned subsidiaries of TA Operating Corporation. Intercompany accounts and transactions have been eliminated. With only one of our 159 travel centers located in Canada, the amounts of revenues and long-lived assets located in Canada are not material. The accompanying unaudited, consolidated financial statements as of and for the quarters ended March 31, 2004 and 2005 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, these statements should be read in conjunction with our audited financial statements as of and for the year ended December 31, 2004. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, all of which were of a normal recurring nature, necessary to state fairly, in all material respects, our consolidated financial position at March 31, 2005, and our results of operations, changes in nonredeemable stockholders' equity and cash flows for the three-month periods ended March 31, 2004 and 2005, and are not necessarily indicative of the results to be expected for the full year. 2. RECENTLY ISSUED ACCOUNTING STANDARDS FAS 123R. In December 2004, the FASB issued a revision of FAS 123, "Share-Based Payment" (FAS 123R). FAS 123R requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. The cost to be recognized will be measured based on the fair value of the equity or liability instruments issued. The scope of FAS 123R includes a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. FAS 123R replaces FAS 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." As originally issued in 1995, FAS 123 established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that statement permitted entities the option of continuing to apply the guidance of APB 25 as long as the footnotes to the financial statements disclosed what net income would have been had the preferable fair-value-based method been used. At that time, we determined to continue to apply the guidance of APB 25 and make 6 TRAVELCENTERS OF AMERICA, INC. SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS the required disclosures in our financial statement footnotes. Accordingly, we will be required to change our method of accounting for stock compensation costs. We will be required to adopt FAS 123R as of January 1, 2006. FAS 123R applies only to those awards granted or which become vested after the required effective date. We expect that the adoption of FAS 123R in the first quarter of 2006 will have no material effect on our results of operations, financial condition or cash flows. 3. ACQUISITION On December 1, 2004, we acquired from Rip Griffin Truck Service Center, Inc. the assets related to eleven travel centers located in seven states, primarily in the southwestern region of the United States. The acquisition was completed to strengthen our presence in the southwestern United States and included the land, buildings, equipment, inventories and certain prepaid assets at the eleven travel centers. The results from these eleven sites were included in our consolidated financial statements from December 1, 2004. The following unaudited pro forma information presents our results of operations as if the acquisition of the Rip Griffin sites had taken place on January 1, 2004.

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, 2004 --------------------------- ~~2003 2004 ----------- -----------~~ (IN THOUSANDS OF DOLLARS) ~~Balance~~Total ~~at January 1~~revenue............................................................... $ ~~589~~596,173 $Gross ~~663 Liabilities incurred~~profit............................................................... 11$ -130,456 ~~Liabilities~~Income ~~settled................................................................~~ (6loss) ~~(17)~~from ~~Accretion~~continuing ~~expense~~operations...................................~~...............................~~ 58$ 62(1,499) ~~Revisions~~Net ~~to estimates~~income............................................................. ~~- - ----------- ----------- Balance at September 30~~....~~........................................................~~ $ ~~652 $ 708 =========== ===========~~(1,499)

THREE MONTHS ENDED ~~NINE~~MARCH ~~MONTHS ENDED SEPTEMBER 30~~31, ~~SEPTEMBER 30,~~ ------------------------ -~~-----------------------~~ ~~2003~~ 2004 ~~2003~~2005 ~~2004~~ --------- --~~-------~~ --------- --~~-------~~ (IN THOUSANDS OF DOLLARS) Related to gain or loss on foreign currency translation adjustments........ $ (319) $ 93(17) ~~$ 253 $ 46~~ --------- -~~--------~~ --------- -~~--------~~ Total.................................................................. $ (319) $ 93(17) ~~$ 253 $ 46~~ ========= =~~========~~ ========= =~~========~~

5. INVENTORIES Inventories consisted of the following:

DECEMBER 31, ~~SEPTEMBER~~MARCH 3031, ~~2003~~ 2004 2005 ------------ ------------ (IN THOUSANDS OF DOLLARS) ~~Nonfuel~~Non-fuel merchandise....................................................... $ 5765,~~881~~663 $ 5868,~~271~~500 Petroleum products......................................................... 610,~~100~~244 811,~~054~~523 ------------ ------------ Total inventories...................................................... $ 6375,~~981~~907 $ 6680,~~325~~023 ============ ============

7 TRAVELCENTERS OF AMERICA, INC. SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 6. GOODWILL AND INTANGIBLE ASSETS For the three-month period ended March 31, 2005, we recorded goodwill of $743,000 in connection with converting a leased site to a company-operated site. The changes in the carrying amount of goodwill for the three months ended March 31, 2004 and 2005 were as follows:

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, --------------------------- ~~2003~~ 2004 2005 ----------- ----------- (IN THOUSANDS OF DOLLARS) Balance as of beginning of period................................... $ 2325,~~585~~584 $ 2548,~~584~~898 Goodwill recorded during the period................................. ~~967~~- ~~321~~743 ----------- ----------- Balance as of end of period......................................... $ 2425,~~552~~584 $ 2549,~~905~~641 =========== ===========

The net carrying amount of intangible assets is included within other noncurrent assets in our consolidated balance sheet. Intangible assets, net consisted of the following:

DECEMBER 31, ~~SEPTEMBER~~MARCH 3031, ~~2003~~ 2004 2005 ------------ ------------ (IN THOUSANDS OF DOLLARS) Amortizable intangible assets: Leasehold interest........................................... $ 1,724 $ 1,724 Other........................................................ 1,~~015~~396 1,~~015~~396 ------------ ------------ Total amortizable intangible assets...................... 23,~~739~~120 23,~~739~~120 Less - accumulated amortization.............................. 2,~~334~~421 2,~~475~~474 ------------ ------------ Net carrying value of amortizable intangible assets...... ~~405~~699 ~~264~~646 Net carrying value of trademarks.................................... 1,398 1,398 ------------ ------------ Intangible assets, net................................... $ 12,~~803~~097 $ 12,~~662~~044 ============ ============

Total amortization expense for our amortizable intangible assets for the three-month periods ended March 31, 2004 and 2005 was $47,000 and $53,000, respectively. The estimated aggregate amortization expense for our amortizable intangible assets for the year ending December 31, 2005 and each of the four succeeding fiscal years are $130,000 for 2005 and $60,000 for each of 2006, 2007, 2008 and 2009. 7. STOCK-BASED EMPLOYEE COMPENSATION We account for our stock-based employee compensation plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. For granted options that vest over time, no compensation expense is reflected in net income, as all of those options had an exercise price equal to or greater than the market value of the underlying common stock at the date of grant. For granted options that vest based on attaining certain measures of performance, compensation expense is recognized when it becomes probable that the performance triggers for such options will be achieved. The following table illustrates the effect on net (loss) if we had applied the fair value recognition provisions of FAS No. 123 to stock-based employee compensation. 8 TRAVELCENTERS OF AMERICA, INC. SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED ~~NINE~~MARCH ~~MONTHS ENDED SEPTEMBER 30~~31, ~~SEPTEMBER 30,~~ ------------------------- ~~------------------------- 2003~~ 2004 ~~2003~~2005 ~~2004~~ ---------- ---------- ~~---------- ----------~~ (IN THOUSANDS OF DOLLARS) Net ~~income~~(loss), as reported......................................................... $ 4(1,~~729~~772) $ 8(1,~~443~~221) ~~$ 7,459 $ 12,317~~ Add back - Stock-based employee compensation expense, net of related tax effects, included in net ~~income~~(loss) as reported.................................~~.............~~ - -7 ~~- -~~ Deduct - Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects..............~~......~~ (~~171) (~~168) (~~498~~166) ~~(502)~~ ---------- ---------- ~~---------- ----------~~ Pro forma net ~~income~~(loss)............................................................ $ 4(1,~~558~~940) $ 8(1,~~275~~380) ~~$ 6,961 $ 11,815~~ ========== =========~~= ========== ==========~~

The fair value of these options used to calculate the pro forma compensation expense amounts was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: a risk-free interest rate of 5.5%, a dividend yield of 0.0%, a volatility factor of 0.0001%, and an expected life of the options of ten years. 8. COMMITMENTS AND CONTINGENCIES Guarantees In the normal course of business we periodically enter into agreements that incorporate indemnification provisions. While the maximum amount to which we may be exposed under such agreements cannot be estimated, it is the opinion of management that any potential indemnification is not expected to have a material adverse effect on our consolidated financial position or result of operations. We also offer a warranty of our workmanship in our truck maintenance and repair shops, but the annual warranty expense and corresponding liability are immaterial. Environmental Matters Our operations and properties are extensively regulated through environmental laws and regulations ("Environmental Laws") that (i) govern operations that may have adverse environmental effects, such as discharges to air, soil and water, as well as the management of petroleum products and other hazardous substances ("Hazardous Substances"), or (ii) impose liability for the costs of cleaning up sites affected by, and for damages resulting from, disposal or other releases of Hazardous Substances. We own and use underground storage tanks and aboveground storage tanks to store petroleum products and waste at our facilities. We must comply with requirements of Environmental Laws regarding tank construction, integrity testing, leak detection and monitoring, overfill and spill control, release reporting, financial assurance and corrective action in case of a release from a storage tank into the environment. At some locations, we must also comply with Environmental Laws relating to vapor recovery and discharges to water. We believe that all of our travel centers are in material compliance with applicable requirements of Environmental Laws. While the costs of compliance for these matters have not had a material adverse impact on us, it is impossible to predict accurately the ultimate effect changing laws and regulations may have on us in the future. We have received notices of alleged violations of Environmental Laws, or are aware of the need to undertake corrective actions to comply with Environmental Laws, at company-owned travel centers in a number of jurisdictions. We do not expect that any financial penalties associated with these alleged violations, or compliance costs incurred in connection with these violations or corrective actions, will be material to our results of operations or financial condition. We are conducting investigatory and/or remedial actions with respect to releases of Hazardous Substances at a number of our sites. While we cannot precisely estimate the ultimate costs we will incur in connection with the investigation and remediation of these properties, based on our current knowledge, we do not expect that the costs to be incurred at these properties, individually or in the aggregate, will be material to our financial condition, results of operations or liquidity. 9 TRAVELCENTERS OF AMERICA, INC. SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS While the matters discussed above are, to the best of our knowledge, the only proceedings for which we are currently exposed to potential liability, we cannot be certain that additional contamination does not exist at these or additional network properties, or that material liability will not be imposed in the future. If additional environmental problems arise or are discovered, or if additional environmental requirements are imposed by government agencies, increased environmental compliance or remediation expenditures may be required, and this could have a material adverse effect on us. We have obtained insurance of up to $35,000,000 for known environmental liabilities and up to $40,000,000 for unknown environmental liabilities, subject, in each case, to certain limitations and deductibles. While it is not possible to quantify with certainty the environmental exposure, in our opinion, the potential liability, beyond that considered in the reserve we have recorded, for all environmental proceedings, based on information known to date, will not have a material adverse effect on our financial condition, results of operations or liquidity. At March 31, 2005, we had a reserve for environmental matters of $13,681,000, 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, leaving an estimated net amount of $4,202,000 to be funded from future operating cash flows. The following table sets forth the various amounts recorded in our consolidated balance sheet as either current or noncurrent assets or liabilities.

~~NINE~~AS ~~MONTHS~~OF ~~ENDED~~MARCH ~~SEPTEMBER 30~~31, 2005 ------------- ~~2003 2004~~ ---- -------- (IN THOUSANDS OF DOLLARS) ~~Revolving~~Gross ~~loan~~liability ~~borrowings~~for environmental matters: Included in the accrued liabilities balance.............................~~...........~~ $ ~~370~~5,~~600~~739 $Included ~~264,300~~in ~~Revolving~~the ~~loan~~noncurrent ~~repayments~~liabilities balance..........................~~..............~~ ~~(386~~7,~~100)~~942 ~~(277,900)~~ ------------- ~~-------------~~Total ~~Revolving~~recorded ~~loan borrowings (repayments), net~~liabilities........................................... ~~$ (15~~13,~~500)~~681 $Less ~~(13,600)~~- ~~=============~~expected ~~=============~~recoveries ~~Cash~~of ~~paid~~future ~~during~~expenditures: Included in the ~~period~~accounts ~~for:~~receivable ~~Interest~~balance............................. 2,191 Included in the other noncurrent assets balance.......................... ~~$ 22~~2,~~593~~018 $Less-cash ~~24,064~~in ~~Income~~escrow ~~taxes~~account ~~(net~~included ofin ~~refunds)~~other noncurrent assets............... 5,270 ------------- Net environmental costs to be funded by future operating cash flows.....~~..............~~ $ ~~635 $ 1~~4,~~065~~202 =============

The following table sets forth the estimated gross amount of the cash outlays related to the matters for which we have accrued the environmental reserve. These cash expenditure amounts do not reflect any amounts for the expected recoveries as we cannot accurately predict the timing of those cash receipts. These estimated future cash disbursements are subject to change based on, among other things, changes in the underlying remediation activities and changes in the regulatory environment.

~~THREE~~YEAR ~~MONTHS~~ENDING ~~ENDED~~ESTIMATED ~~NINE~~GROSS ~~MONTHS~~DECEMBER ~~ENDED SEPTEMBER 30~~31, ~~SEPTEMBER~~FUTURE ~~30,~~EXPENDITURES ------------- ------------- ~~2003 2004 2003 2004~~ ---- ---- ---- ~~----~~ (IN THOUSANDS OF DOLLARS) ~~Interest~~The ~~and~~remainder ~~other financial costs consists~~ of ~~the following: Cash interest expense~~2005......................................................... $ ~~(10~~4,~~008)~~968 $2006.......................................................................... (93,~~854)~~080 ~~$ (30,921) $ (29,931) Cash interest income~~2007.......................................................................... 242,405 ~~176 66 221 Amortization of discount on debt~~2008.......................................................................... ~~(360) (430) (~~1,~~107)~~723 ~~(1,256) Amortization of deferred financing costs~~2009.......................................................................... ~~(869) (976) (2~~1,~~540)~~419 ~~(2,850) ------------ ------------ ------------ ------------ Interest and other financial costs, net~~Thereafter.................................................................... $86 ~~(11,213)~~------------- $ ~~(11~~13,~~084)~~681 ~~$ (34,502) $ (33,816)~~ ============ =~~=========== ============ ============~~

10 TRAVELCENTERS OF AMERICA, INC. SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Pending Litigation We are involved from time to time in various legal and administrative proceedings and threatened legal and administrative proceedings incidental to the ordinary course of our business. We believe that we are not now involved in any litigation, individually, or in the aggregate, which could have a material adverse affect on our business, financial condition, results of operations or cash flows. 9. SUPPLEMENTAL CASH FLOW INFORMATION

~~DECEMBER~~THREE MONTHS ENDED MARCH 31, ~~2003~~ -------------------------~~--------------------------------------------~~ ~~PARENT~~2004 ~~GUARANTOR~~2005 ~~NONGUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED~~ ------- ---~~---------~~ ------------ ~~------------ ------------~~ (IN THOUSANDS OF DOLLARS) ~~ASSETS~~Revolving ~~Current~~loan ~~assets: Cash~~ borrowings................................................. $ ~~- $ 14~~94,~~746~~100 $ ~~259 $ - $ 15~~35,~~005~~300 ~~Accounts~~Revolving ~~receivable,~~loan ~~net~~ repayments........................... ~~- 43,489 1,056 (1,558) 42,987 Inventories~~ ......................~~..................~~ ~~- 63~~(99,~~771~~700) ~~210 - 63,981 Deferred income taxes .............................. - 3,820 3 - 3,823 Other current assets ............................... 620 6,598 4~~ (~~260~~60,300) ~~6,962~~ --------- -~~-----------~~ ------------ ~~------------~~Revolving ~~------------~~loan ~~Total~~borrowings ~~current assets ......................... 620 132,424 1,532~~ (~~1,818~~repayments) ~~132~~,~~758~~ ~~Property and equipment,~~ net ............................ ~~- 431,470 6,663 - 438,133 Goodwill~~ .~~..............................................~~ -$ ~~25,584 - - 25,584 Deferred financing costs, net .......................... 24,012 - - - 24,012 Deferred income taxes .................................. 21,002~~ (65,~~612~~600) 129 - 14,519 Other noncurrent assets ................................ 896 18,949 - (4,284) 15,561 Investment in subsidiaries ............................. 266,844 1,702 - (268,546) - --------- ------------ ------------ ------------ ------------ Total assets ................................. $ ~~313,374 $ 603,517 $ 8,324 $~~ (~~274~~25,~~648~~000) ~~$ 650,567~~ ========= =~~===========~~ ============ ~~============~~Cash ~~============~~paid ~~LIABILITIES~~during ~~AND~~the ~~STOCKHOLDERS'~~period ~~EQUITY Current liabilities~~for: ~~Current maturities of long-term debt~~ Interest............... ~~$ 3,165 $ 189 $ - $ - $ 3,354 Accounts payable~~ ................................... ~~- 59,524 854 (624) 59,754 Other accrued liabilities~~ ..............~~............~~ ~~2,686~~$ 475,~~037~~480 ~~1,491~~$ ~~(1,194) 50,020 --------- ------------ ------------ ------------ ------------ Total current liabilities ....................~~ 5,~~851~~449 ~~106,750~~Income ~~2,345~~taxes (~~1,818) 113,128 Long-term debt (~~net of ~~unamortized discount~~refunds) ........... ~~499,417 2,616 4,284 (4,284) 502,033 Deferred income taxes~~ .................................. -$ ~~2,137~~269 -$ -538 ~~2,137~~Inventory ~~Intercompany~~received ~~payable~~in ~~(receivable)~~liquidation ~~......................~~of ~~(217,296)~~trade ~~222,964~~accounts ~~(5,668) - - Other noncurrent liabilities~~ receivable............~~...............~~ -$ ~~8,318~~ - - 8,318 --------- ------------ ------------ ------------ ------------ Total liabilities ............................ 287,972 342,785 961 (6,102) 625,616 Redeemable equity ...................................... 1,909 - - - 1,909 Nonredeemable stockholders' equity: Common stock and other nonredeemable stockholders' equity............................................. 217,370 186,155 2,125 (188,731) 216,919 Retained earnings (deficit) ....................... (193,877) 74,577 5,238 (79,815) (193,877) --------- ------------ ------------ ------------ ------------ Total nonredeemable stockholders' equity ..... 23,493 260,732 7,363 (268,546) 23,042 --------- ------------ ------------ ------------ ------------ Total liabilities, redeemable equity and nonredeemable stockholders' equity ........ $ ~~313,374 $ 603,517 $ 8,~~324 ~~$ (274,648) $ 650,567 ========= ============ ============ ============ ============~~

10. OTHER INFORMATION Interest and other financial costs consisted of the following:

~~SEPTEMBER~~THREE ~~30,~~MONTHS ~~2004~~ENDED MARCH 31, -------------------------~~---------------------------------------------~~ ~~PARENT~~2004 ~~GUARANTOR~~2005 ~~NONGUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED~~ ------- ----~~--------~~ ------------ ~~------------ ------------~~ (IN THOUSANDS OF DOLLARS) ~~ASSETS Current assets:~~ Cash interest expense......................................... ~~$ - $ 31,926 $ 434 $ - $ 32,360 Accounts receivable, net~~ ............~~.........~~ -$ ~~65,240 996~~ (210,~~469~~175) ~~63,767~~$ ~~Inventories .................................. - 65,942 383 - 66,325 Deferred income taxes ........................ - 3,821 50 - 3,871 Other current assets ......................... 715 7,536 12~~ (~~528) 7~~11,~~735 --------- ------------ ------------ ------------ ------------ Total current assets ................... 715 174,465 1,875 (2,997~~762) ~~174,058~~Cash ~~Property~~interest and equipment, net ...................... - 426,931 7,384 - 434,315 Goodwill ......................................... - 25,905 - - 25,905 Deferred financing costs, net .................... 21,162 - - - 21,162 Deferred income ~~taxes~~ ............................ ~~15,836 (7,944) 133 - 8,025 Other noncurrent assets~~ .......................... ~~824~~23 ~~16,212~~74 -Amortization (4,402) 12,634 Investment in subsidiaries ....................... 290,958 1,576 - (292,534) - --------- ------------ ------------ ------------ ------------ Total assets ........................... $ 329,495 $ 637,145 $ 9,392 $ (299,933) $ 676,099 ========= ============ ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of ~~long-term~~discount ~~debt~~on debt......... ~~$ 2,943 $ 189 $ - $ - $ 3,132 Accounts payable~~ ............................. ~~- 91,135 1,733 (1,433) 91,435 Other accrued liabilities~~ ....~~................~~ ~~7,622 52,361 1,603~~ (~~1,564~~404) ~~60,022 --------- ------------ ------------ ------------ ------------ Total current liabilities .............. 10,565 143,685 3,336~~ (~~2,997~~457) ~~154,589~~Amortization ~~Long-term debt (net~~ of ~~unamortized~~deferred ~~discount)~~financing costs..... ~~463,218 2,561 4,402 (4,402) 465,779 Deferred income taxes~~ ............................ ~~- 2,198 - - 2,198 Intercompany payable (receivable)~~ .~~...............~~ (~~181,830~~921) ~~187,354~~ (51,~~524~~090) - - ~~Other noncurrent liabilities .....................~~ - ~~16,321~~ - - ~~16,321~~ -----~~----~~ ------------ ~~------------~~Interest ------------ ------------ Total liabilities ...................... 291,953 352,119 2,214 (7,399) 638,887 Redeemable equity ................................ 2,133 - - - 2,133 Nonredeemable stockholders' equity: Common stock and other ~~stockholders'~~financial ~~equity~~costs, net...................... ~~216,969 186,227 2,175 (188,732) 216,639 Retained earnings (accumulated deficit)~~ .............~~........~~ ~~(181,560)~~$ ~~98,799 5,003~~ (~~103~~11,~~802~~477) (181,560) --------- ------------ ------------ ------------ ------------ Total nonredeemable stockholders' equity 35,409 285,026 7,178 (292,534) 35,079 --------- ------------ ------------ ------------ ------------ Total liabilities, redeemable equity and nonredeemable stockholders' equity .. $ ~~329,495 $ 637,145 $ 9,392 $~~ (~~299~~13,~~933~~235) ~~$ 676,099~~ ========= =~~===========~~ ==========~~== ============ ============~~

11. RELATED PARTY TRANSACTIONS Certain members of our senior management have purchased common stock pursuant to management subscription agreements. As a result of such purchases, we have notes and related interest receivable from the management stockholders totaling $1,514,000 and $1,571,000 at December 31, 2004 and March 31, 2005, respectively. Until April 2004, we owned a 21.5% voting interest in Simons Petroleum, Inc. During the three-month period ended March 31, 2004, diesel fuel provided by Simons accounted for $63,406,000 of our cost of goods sold and we made sales of diesel fuel to Simons in the amount of $494,000. We also lease a travel center from Simons and the rent expense related to this site for the three-month period ended March 31, 2004 was $102,000. 11 TRAVELCENTERS OF AMERICA, INC. SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 12. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES The following schedules set forth our condensed consolidating balance sheet schedules as of December 31, 2004 and March 31, 2005 and our condensed consolidating statement of operations schedules and condensed consolidating statement of cash flows schedules for the three-month periods ended March 31, 2004 and 2005. In the following schedules, "Parent Company" refers to the unconsolidated balances of TravelCenters of America, Inc., "Guarantor Subsidiaries" refers to the consolidated balances of TA Operating Corporation and its domestic subsidiaries, but excluding its three Canadian subsidiaries, and "Nonguarantor Subsidiaries" refers to the combined balances of TA Franchise Systems Inc. and our three Canadian subsidiaries. "Eliminations" represent the adjustments necessary to (a) eliminate intercompany transactions and (b) eliminate investments in subsidiaries. The Guarantor Subsidiaries (TA Operating Corporation, TA Licensing, Inc., and TA Travel, L.L.C.), are direct or indirect wholly-owned subsidiaries of ours and have fully and unconditionally, jointly and severally, guaranteed the indebtedness of TravelCenters of America, Inc., which consists of the Senior Credit Facility and the Senior Subordinated Notes due 2009. 12 CONDENSED CONSOLIDATING BALANCE SHEET SCHEDULES:

~~THREE~~DECEMBER ~~MONTHS ENDED SEPTEMBER 30~~31, ~~2003~~2004 -----------------------------------------------------------------~~-----------~~ PARENT GUARANTOR NONGUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ ------------ (IN THOUSANDS OF DOLLARS) ~~Revenues~~ASSETS Current assets: ~~Fuel~~Cash and cash equivalents.................. $ - $ 45,109 $ 737 $ - $ 45,846 Accounts receivable, net...................~~...~~ $ - ~~$ 370~~61,~~724~~178 ~~$ 3~~1,~~118~~305 $(999) ~~- $ 373~~61,~~842~~484 ~~Nonfuel~~Inventories................................ - 75,426 481 - 75,907 Deferred income taxes...................... - ~~178~~6,~~200~~939 ~~897~~13 - ~~179~~6,~~097~~952 ~~Rent~~Other ~~and~~current ~~royalties~~assets.......................~~...~~ -778 27,~~832~~602 ~~1,399~~(3) (~~1,077~~30) 38,~~154~~347 ---------~~----~~ ---------~~----~~ ---------~~----~~ ---------~~----~~ --------- Total current assets.................. 778 196,254 2,533 (1,029) 198,536 Property and equipment, net................... - 594,709 9,650 --- ~~Total~~604,359 ~~revenues~~Goodwill...................................... - ~~551~~48,~~756~~898 5- - 48,~~414~~898 (1Deferred financing costs,~~077)~~ ~~556~~net................. 28,~~093~~289 ~~Cost~~- of- ~~goods~~- ~~sold~~28,289 ~~(excluding~~Deferred ~~depreciation~~income taxes......................... 17,642 (13,419) 140 - 4,363 Other noncurrent assets....................... 817 19,250 - ~~417~~(6,~~685~~783) 13,284 Investment in subsidiaries.................... 298,103 3,~~381~~439 - ~~421~~(301,~~066~~542) - ---------~~---~~ ---------~~----~~ ---------~~----~~ ---------~~----~~ ---------~~----~~ ~~Gross~~Total ~~profit (excluding depreciation)~~assets.......................... -$ ~~134~~345,~~071~~629 2$ 849,~~033~~131 $ 12,323 $(1309,~~077~~354) ~~135~~$ 897,~~027~~729 ~~Operating~~========= ~~expenses~~========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt....... $ - $ 198 $ - $ - $ 198 Accounts payable........................... - 9088,~~780~~202 ~~1,627~~662 (~~1,077~~110) 9188,~~330~~754 ~~Selling,~~Other ~~general~~accrued ~~and administrative expenses~~liabilities..................~~...~~ ~~284~~(991) 962,~~529~~499 ~~276~~1,210 -(918) 1061,~~089~~800 ~~Depreciation~~--------- ~~and~~--------- ~~amortization~~--------- ~~expense~~--------- --------- Total current liabilities............. -(991) 15150,~~209~~899 ~~133~~1,872 (1,028) 150,752 Long-term 15debt (net of unamortized discount).. 680,~~342~~360 2,532 6,783 (~~Gain~~6,783) on682,892 ~~asset~~Deferred ~~sales~~income taxes........................... - ~~(10)~~1,156 - - 1,156 Intercompany payable (10receivable)............. (373,589) 379,179 (5,590) - - Other noncurrent liabilities.................. - 23,212 - - 23,212 --------- ---------~~----~~ ---------~~----~~ ---------~~----~~ ---------~~----~~ ~~Income~~Total ~~(loss) from operations~~liabilities..................... ~~(284)~~305,780 18556,~~563~~978 (3,065 (7,811) ~~- 18~~858,~~276~~012 ~~Equity~~Redeemable ~~income (loss)~~equity............................. 81,~~829~~864 ~~117~~- - (8- 1,~~722)~~864 ~~224~~Nonredeemable ~~Interest~~stockholders' equity: Common stock and other ~~financial~~nonredeemable ~~costs,~~stockholders' ~~net~~equity....................... 217,000 186,284 4,348 (5190,~~976~~764) (5216,~~164~~868 Retained earnings (deficit)................ (73179,015) -105,869 4,910 (11110,~~213~~779) (179,015) ---------~~----~~ ---------~~----~~ ---------~~----~~ ---------~~----~~ ---------~~----~~ ~~Income~~Total ~~(loss)~~nonredeemable ~~before~~stockholders' ~~income taxes~~equity............... ~~2,569 13,516 (76) (8,722) 7,287 Provision (benefit) for income taxes~~.............. (237,~~160)~~985 4292,~~707~~153 119,258 -(301,543) 237,~~558~~853 ---------~~----~~ ---------~~----~~ ---------~~----~~ ---------~~----~~ ---------~~----~~ ~~Net~~Total ~~income~~liabilities, ~~(loss)~~redeemable equity and nonredeemable stockholders' equity............................... $ 4345,~~729~~629 $ 8849,~~809~~131 $ ~~(87)~~12,323 $ (8309,~~722~~354) $ 4897,729 =========~~====~~ =========~~====~~ =========~~====~~ =========~~====~~ =========~~====~~

~~THREE~~MARCH ~~MONTHS ENDED SEPTEMBER 30~~31, ~~2004~~2005 -----------------------------------------------------------------~~-----------~~ PARENT GUARANTOR NONGUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ ------------ (IN THOUSANDS OF DOLLARS) ~~Revenues~~ASSETS Current assets: ~~Fuel~~Cash and cash equivalents.............~~...........................~~ $ - $ ~~501~~32,~~036~~364 $ ~~5,365~~690 $ - $ ~~506~~33,~~401~~054 ~~Nonfuel~~Accounts receivable, net.............. - 80,969 1,222 (1,792) 80,399 Inventories........................... - ~~189~~79,~~350~~557 ~~1,087~~466 - ~~190~~80,~~437~~023 ~~Rent~~Deferred ~~and~~income ~~royalties~~taxes................. - 6,940 12 - 6,952 Other current assets.................. -520 26,~~459~~942 ~~1,296~~62 (~~1,036~~147) 27,~~719~~377 ---------~~---~~ ---------~~---~~ ---------~~---~~ ---------~~----~~ --------- Total current assets............. 520 206,772 2,452 (1,939) 207,805 Property and equipment, net.............. - 593,927 9,440 -- ~~Total~~603,412 ~~revenues~~Goodwill................................. - ~~692~~49,~~845~~641 7- - 49,~~748~~641 (1Deferred financing costs,~~036)~~ ~~699~~net............ 27,~~557~~199 ~~Cost~~- of- ~~goods~~- ~~sold~~27,199 ~~(excluding~~Deferred ~~depreciation~~income taxes.................... 18,442 (13,358) 184 - 5,268 Other noncurrent assets.................. 798 18,962 - ~~555~~(6,~~323~~741) 513,~~666~~019 Investment in subsidiaries............... 301,056 3,375 - ~~560~~(304,~~989~~431) - ----------- ---------~~---~~ ---------~~---~~ ---------~~---~~ ---------~~---~~ ~~Gross~~Total ~~profit (excluding depreciation)~~assets..................... -$ ~~137~~348,~~522~~015 2$ 859,~~082~~364 $ 12,076 $(1313,~~036~~111) ~~138~~$ 906,~~568~~344 ~~Operating~~========= ~~expenses~~========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt.. $ 1,188 $ 200 $ - $ - $ 1,388 Accounts payable...................... - 113,321 470 (332) 113,459 Other accrued liabilities............. -2,338 9069,~~913~~698 1,~~693~~935 (1,~~036~~607) 9172,~~570~~364 ~~Selling,~~--------- ~~general~~--------- ~~and~~--------- ~~administrative~~--------- ~~expenses~~--------- Total current liabilities........ ~~339~~3,526 9183,~~786~~219 ~~292~~2,405 10(1,~~417~~939) ~~Depreciation~~187,211 ~~and~~Long-term ~~amortization~~debt ~~expense~~(net of unamortized discount)............................. -654,601 132,~~834~~509 ~~137 - 13~~6,~~971~~741 (~~Gain~~6,741) on657,110 ~~asset~~Deferred ~~sales~~income taxes.................... - 1,010 - - 1,010 Intercompany payable (receivable)........ -(348,778) 355,207 (16,~~689~~429) - - (1Other noncurrent liabilities............. - 22,~~689)~~532 - - 22,532 ---------- ---------~~---~~ ---------~~---~~ ---------~~---~~ ---------~~---~~ ~~Income~~Total ~~(loss) from operations~~liabilities................~~...~~ ~~(339)~~309,349 24564,~~678~~477 2,717 (408,680) ~~- 24~~867,~~299~~863 ~~Equity~~Redeemable ~~income (loss)~~equity........................~~....~~ 121,~~285~~902 40- - ~~(12~~- 1,~~209)~~902 ~~116~~Nonredeemable ~~Interest~~stockholders' equity: Common stock and other ~~financial~~nonredeemable ~~costs~~stockholders' equity 217,000 ~~net~~186,258 4,321 (190,764) 216,815 Retained earnings (accumulated deficit)............. (5180,~~780~~236) (108,629 5,~~227)~~038 (77113,667) - (11180,~~084~~236) ---------~~---~~ ---------~~---~~ ---------~~---~~ ---------~~---~~ ---------~~---~~ ~~Income~~Total ~~(loss)~~nonredeemable ~~before~~stockholders' ~~income taxes~~equity............... ~~6,166 19,491 (117) (12,209) 13,331 Provision (benefit) for income taxes~~.........~~...~~ (236,~~277)~~764 7294,~~182~~887 9,359 (17304,431) ~~- 4~~36,~~888~~579 ---------~~---~~ ---------~~---~~ ---------~~---~~ ---------~~---~~ ---------~~---~~ ~~Net~~Total ~~income~~liabilities, ~~(loss)~~redeemable equity and nonredeemable stockholders' equity..........~~.....................~~ $ 8348,~~443~~015 $ 12859,~~309~~364 $ ~~(100)~~12,076 $ (12313,~~209~~111) $ 8906,~~443~~344 =========~~===~~ =========~~===~~ =========~~===~~ =========~~===~~ =========~~===~~

14 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS SCHEDULES:

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ~~2003~~2004 -----------------------------------------------------------------~~---~~ PARENT GUARANTOR NONGUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------- ------------ ------------ (IN THOUSANDS OF DOLLARS) Revenues: Fuel....................................~~...~~ $ - $1 393,~~140,635~~356 $ 74,~~656~~055 $ - $1 397,~~148,291~~411 ~~Nonfuel~~Non-fuel................................~~....~~ - ~~489~~158,~~165~~459 ~~2,375~~845 - ~~491~~159,~~540~~304 Rent and royalties......................~~...~~ - 92,~~072~~339 41,~~239~~173 (~~3,142~~874) 102,~~169~~638 ---------- ---------- ---------- ---------- ---------- Total revenues..........................~~...~~ - 1554,~~638,872~~154 146,~~270~~073 (~~3,142~~874) 1559,~~650,000~~353 Cost of goods sold (excluding depreciation)~~...~~ - 1435,~~260,629~~970 84,~~284~~241 - 1440,~~268,913~~211 ---------- ---------- ---------- ---------- ---------- Gross profit (excluding depreciation)......~~...~~ - ~~378~~118,~~243~~184 51,~~986~~832 (~~3,142~~874) ~~381~~119,~~087~~142 Operating expenses.........................~~...~~ - ~~259~~85,~~182~~498 41,~~640~~412 (~~3,142~~874) ~~260~~86,~~680~~036 Selling, general and administrative expenses................ ~~685~~317 289,~~943~~777 ~~767~~311 - 3010,~~395~~405 Depreciation and amortization expense......~~...~~ - 4413,~~212~~940 ~~329~~137 - 4414,~~541~~077 ~~(Gain)~~Loss on asset sales......................... - ~~(304)~~12 - - ~~(304)~~12 ---------- ---------- ---------- ---------- ---------- Income (loss) from operations..............~~...~~ (~~685~~317) 468,~~210~~957 ~~250~~(28) - 458,~~775~~612 Equity income (loss).......................~~...~~ 192,~~694~~308 ~~615~~56 - (192,~~462~~285) ~~847~~79 Interest and other financial costs, net....~~...~~ (176,~~852~~098) (165,~~458~~304) (~~192~~75) - (3411,~~502~~477) ---------- ---------- ---------- ---------- ---------- Income (loss) before income taxes ~~and the cumulative effect of a change in accounting principle~~..........~~.............~~ 1(4,~~157~~107) 303,~~367~~709 58(103) (192,~~462~~285) 12(2,~~120~~786) Provision (benefit) for income taxes.......~~...~~ (62,~~302~~335) 101,~~611~~350 ~~99 - 4,408 ---------- ---------- ---------- ---------- ---------- Income~~ (~~loss~~29) ~~before~~- ~~the cumulative effect of a change in accounting principle........ 7,459 19,756~~ (~~41) (19~~1,~~462~~014) ~~7,712 Cumulative effect of a change in accounting principle, net of related taxes.........~~ - ~~(253)~~ - - ~~(253)~~ ------~~----~~ ---------- ---------- ---------- ---------- Net income (loss)..........................~~...~~ $ 7(1,~~459~~772) $ 192,~~503~~359 $ (4174) $ (192,~~462~~285) $ 7(1,~~459~~772) ========== ========== ========== ========== ==========

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ~~2004~~2005 -----------------------------------------------------------------~~-----~~ PARENT GUARANTOR NONGUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ ------------ (IN THOUSANDS OF DOLLARS) Revenues: Fuel....................................~~...~~ $ - $ 1634,~~345,116~~719 $ 146,~~060~~302 $ - $ 1641,~~359,176~~021 ~~Nonfuel~~Non-fuel................................~~....~~ - ~~527~~186,~~420~~742 21,~~828~~214 - ~~530~~187,~~248~~956 Rent and royalties......................~~...~~ - 71,~~256~~889 31,~~714~~160 (~~2,901~~572) 82,~~069~~477 --------- ----------- --------- --------- ----------- Total revenues..........................~~...~~ - 1823,~~879,792~~350 208,~~602~~676 (~~2,901~~572) 1831,~~897,493~~454 Cost of goods sold (excluding depreciation)~~...~~ - 1688,~~490,368~~734 146,~~756~~590 - 1695,~~505,124~~324 --------- ----------- --------- --------- ----------- Gross profit (excluding depreciation)......~~...~~ - ~~389~~134,~~424~~616 52,~~846~~086 (~~2,901~~572) ~~392~~136,~~369~~130 Operating expenses.........................~~...~~ - ~~265~~98,~~679~~056 41,~~611~~320 (~~2,901~~572) ~~267~~98,~~389~~804 Selling, general and administrative expenses................ ~~988~~338 299,~~233~~993 ~~903~~296 - 3110,~~124~~627 Transition expense......................... - 324 - - 324 Depreciation and amortization expense......~~...~~ - 4315,~~538~~126 ~~407~~147 - 4315,~~945~~273 (Gain) on asset sales......................~~...~~ - (~~1,678~~186) - - (~~1,678~~186) --------- ----------- --------- --------- ----------- Income (loss) from operations..............~~...~~ (~~988~~338) 5211,~~652~~303 ~~(75)~~323 - 5111,~~589~~288 Equity income (loss).......................~~...~~ 242,~~114~~952 ~~67 -~~ (~~23,987~~64) ~~194 Gain on sale of investment....................~~ - (12,~~491~~888) - ~~- (1,491)~~ Interest and other financial costs, net....~~...~~ (176,~~708~~318) (156,~~883~~797) (~~225~~120) - (3313,~~816~~235) --------- ----------- --------- --------- ----------- Income (loss) before income taxes..........~~...~~ 5(3,~~418~~704) 384,~~327~~442 203 (~~300~~2,888) (231,~~987~~947) ~~19,458~~ Provision (benefit) for income taxes.......~~...~~ (62,~~899~~483) 141,~~105~~682 ~~(65)~~75 - ~~7,141~~(726) --------- ----------- --------- --------- ----------- Net income (loss)..........................~~...~~ $ 12(1,~~317~~221) $ 242,~~222~~760 $ ~~(235)~~128 $ (232,~~987~~888) $ 12(1,~~317~~221) ========= =========== ========= ========= ===========

16 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW SCHEDULES:

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ~~2003~~2004 -----------------------------------------------------------------~~---~~ PARENT GUARANTOR NONGUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ ------------ (IN THOUSANDS OF DOLLARS) CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES ................... $ ~~906~~(440) $ 7234,~~080~~115 $ ~~(111)~~34 $ ~~1,816~~- $ 7433,~~691~~709 ---------- --------~~---~~ ---------- ---------- --------~~---~~ CASH FLOWS FROM INVESTING ACTIVITIES: ~~Business acquisitions.................. - (3,768) (5,267) - (9,035) Proceeds from asset sales.............. - 1,866 - - 1,866~~ Capital expenditures ................... - (3111,~~833~~003) ~~(224)~~- - (3211,~~057~~003) ---------- --------~~---~~ ---------- ---------- --------~~---~~ Net cash used in investing activities ........................ - (3311,~~735~~003) ~~(5,491)~~- - (3911,~~226~~003) ---------- --------~~---~~ ---------- ---------- --------~~---~~ CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in checks drawn in excess of bank balances ............. - (42,321) - - (42,321) Revolving loan borrowings (repayments), net ................... (155,~~500~~600) - - - (155,~~500~~600) Long-term debt repayments .............. (~~13,717~~791) (~~134~~46) - - (~~13,851~~837) ~~Other.................................. (252) - 1,816 (1,816) (252)~~ Intercompany advances .................. 286,~~563~~831 (327,~~250~~065) ~~3,687~~234 - - ---------- --------~~---~~ ---------- ---------- --------~~---~~ Net cash provided by (used in) financing activities .............. ~~(906)~~440 (329,~~388~~432) ~~5,503~~234 ~~(1,816)~~- (298,~~607~~758) ---------- --------~~---~~ ---------- ---------- --------~~---~~ Effect of exchange rate changes on cash .............................. - - ~~202~~(3) - ~~202~~(3) ---------- --------~~---~~ ---------- ---------- --------~~---~~ Net increase (decrease) in cash and cash equivalents ................ - 513,~~957~~680 ~~103~~265 - 613,~~060~~945 Cash and cash equivalents at the beginning of the period .............. - 14,~~047~~746 -259 - 1415,~~047~~005 ---------- --------~~---~~ ---------- ---------- --------~~---~~ Cash and cash equivalents at the end of the period ........................... $ - $ 2028,~~004~~426 $ ~~103~~524 $ - $ 2028,~~107~~950 ========== ========~~===~~ ========== ========== ========~~===~~

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ~~2004~~2005 ----------------------------------------------------------------- PARENT GUARANTOR NONGUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ ------------ (IN THOUSANDS OF DOLLARS) CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES................... $ ~~2,283~~151 $ 7427,~~782~~292 $ ~~963~~795 $ - $ 7828,~~028~~238 ---------- ---------- ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisitions.................. - (~~588~~935) - - (~~588~~935) Proceeds from asset sales.............. - ~~11,755~~641 - - ~~11,755~~641 Capital expenditures................... - (3613,~~671~~829) ~~(952)~~- - (3713,~~623~~829) ---------- ---------- ---------- ---------- ---------- Net cash used in investing activities........................ - (2514,~~504~~123) ~~(952)~~- - (2614,~~456~~123) ---------- ---------- ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in checks drawn in excess of bank balances............. - 3(1,~~653~~894) - - 3(1,~~653~~894) Revolving loan borrowings (repayments), net................... (1325,~~600~~000) - - - (1325,~~600~~000) Long-term debt repayments.............. ~~(23,991)~~- (~~141~~49) - - (~~24,132~~49) Other.................................. ~~(158)~~38 - - - ~~(158)~~38 Intercompany advances.................. 3524,~~466~~811 (3523,~~610~~971) ~~144~~(840) - - ---------- ---------- ---------- ---------- ---------- Net cash provided by (used in) financing activities.............. (~~2,283~~189) (3225,~~098~~914) ~~144~~(840) - (3426,~~237~~943) ---------- ---------- ---------- ---------- ---------- Effect of exchange rate changes on cash............................. - - 20(2) - 20(2) ---------- ---------- ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents................. - ~~17,180 175~~ - 17(12,~~355~~792) Cash and cash equivalents at the beginning of the period............... - 1445,~~746~~109 ~~259~~737 - 1545,~~005~~846 ---------- ---------- ---------- ---------- ---------- Cash and cash equivalents at the end of the period............................ $ - $ 3132,~~926~~364 $ ~~434~~690 $ - $ 3233,~~360~~054 ========== ========== ========== ========== ==========

18 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the unaudited consolidated financial statements and selected notes to unaudited consolidated financial statements included herein, and the audited financial statements and the Management's Discussion and Analysis included with our Form 10-K for the year ended December 31, 2004. Our results of operations for a particular quarter may not be indicative of results expected during the other quarters or for the entire year. CRITICAL ACCOUNTING POLICIES We have no material changes to the disclosure on this matter made in our annual report on Form 10-K for the year ended December 31, 2004. OVERVIEW We are a holding company which, through our wholly owned subsidiaries, owns, operates and franchises travel centers along the United States interstate highway system to serve long-haul trucking fleets and their drivers, independent truck drivers and general motorists. Our network is the largest nationwide, full-service travel center network in the United States. At March 31, 2005, our geographically diverse network consisted of 159 sites located in 40 states and the province of Ontario, Canada. Our operations are conducted through three distinct types of travel centers: - sites operated by us, which we refer to as company-operated sites; - sites owned by us and leased to independent lessee-franchisees, which we refer to as leased sites; and - sites owned and operated by independent franchisees, which we refer to as franchisee-owned sites. Our travel centers are located at key points along the U.S. interstate highway system, typically on 20- to 25-acres sites. Most of our network properties were developed more than 20 years ago when prime real estate locations along the interstate highway system were more readily available than they are today, making a network such as ours difficult to replicate. Operating under the "TravelCenters of America" and "TA" brand names, our nationwide network provides an advantage to long-haul trucking fleets by enabling them to route their trucks within a single network from coast to coast. One of the primary strengths of our business is the diversity of our revenue sources. We have a broad range of product and service offerings, including diesel fuel and gasoline, truck repair and maintenance services, full-service restaurants, more than 20 different brands of fast food restaurants, travel and convenience stores and other driver amenities. The non-fuel products and services we offer to our customers complement our fuel business and provide us a means to increase our revenues and gross profit despite price pressure on fuel as a result of competition and volatile crude oil and petroleum product prices. For the three-month periods ended March 31, 2004 and 2005, our revenues and gross profit were composed as follows: 19

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ------------------~~------~~ ~~2003~~ 2004 2005 -----~~----~~ -----~~----~~ Revenues: Fuel ............................................~~...~~ 6971.60% 7177.61% Non-fuel ........................................~~...~~ 2928.85% 2822.06% Rent and royalties ..............................~~...~~ 0.65% 0.43% -----~~---~~ -----~~---~~ Total revenues ............................~~...~~ 100.0% 100.0% =====~~===~~ =====~~===~~ Gross profit (excluding depreciation): Fuel ............................................~~...~~ 2118.51% 1815.07% Non-fuel ........................................~~...~~ 7579.87% 8082.05% Rent and royalties ..............................~~...~~ 2.72% 21.08% -----~~---~~ -----~~---~~ Total gross profit (excluding depreciation).. 100.0% 100.0% =====~~===~~ =====~~===~~

COMPOSITION OF OUR NETWORK The changes in the number of sites within our network and in their method of operation (company-operated, leased or franchisee-owned) are significant factors influencing the changes in our results of operations. The following table summarizes the changes in the composition of our network from December 31, 2003 through March 31, 2005:

COMPANY- FRANCHISEE- OPERATED LEASED OWNED TOTAL SITES SITES SITES SITES -------- ------ ------ ----- ----- Number of sites at December 31, ~~2002~~2003 .................... ~~122~~126 2014 10 ~~152~~150 ~~January~~2004 -First ~~September~~Quarter ~~2003~~ Activity: ~~New~~No ~~sites~~activity .........................................~~...~~ 2 - - ~~2 Sales of sites....................................... (2)~~ - - ~~(2) Conversions of leased sites to company~~-~~operated sites 4 (4)~~ - - ---- ----- ----- ~~-----~~ Number of sites at ~~September~~March 3031, ~~2003~~2004 ...................... 126 1614 10 ~~152~~150 ~~October~~April - December ~~2003~~2004 Activity: ~~Sales~~New of sites ........................................... ~~(1)~~12 - - ~~(1)~~12 ~~Closed~~Sales of sites ......................................~~...~~ (12) - - (12) Conversions of leased sites to company-operated sites ............................ 2 (2) - - ---- ----- ----- ----- Number of sites at December 31, ~~2003~~2004 .................... ~~126~~138 1412 10 ~~150~~160 ~~2004~~2005 Activity: Sales of sites ....................................... (1) - - (1) ~~Conversions~~Conversion of leased sites to company-operated sites 21 (21) - - ---- ----- ----- ----- Number of sites at ~~September~~March 3031, ~~2004~~2005 ...................... ~~127~~138 1211 10 ~~149~~159 ==== ===== ===== =====

During 2004, we entered into a franchise agreement with a franchisee under which we expect to add one franchisee-owned location to our network in the second quarter of 2005. RESULTS OF OPERATIONS SAME-SITE RESULTS COMPARISONS As part of our discussion and analysis of operating results we refer to increases and/or decreases in results on a same-site basis. For purposes of these comparisons, we include a site in the same-site comparisons only for the period for which it was open for business under the same method of operation (company-operated, leased or franchisee-owned) in both years being compared. Sites are not excluded from the same-site comparisons as a result of expansions in the square footage of the sites or in the amenities offered at the sites. 20 For purposes of the following discussion, the sites acquired from Rip Griffin were treated as same-sites and the actual results of those sites for the current year and prior year (under Rip Griffin's ownership) periods were included in calculating the same-site growth statistics. RELEVANCE OF FUEL REVENUES Due to the market pricing of commodity fuel products and the pricing arrangements we have with our fuel customers, fuel revenue is not a reliable metric for analyzing our relative results from period to period. As a result solely of changes in crude oil and refined products market prices, our fuel revenue balances may increase or decrease significantly, in both absolute amounts and on a percentage basis, without a comparable change in fuel sales volumes or in gross margin per gallon. QUARTER ENDED MARCH 31, 2005 COMPARED TO QUARTER ENDED MARCH 31, 2004 Revenues. Our consolidated revenues for the three-month period ended March 31, 2005 were $831.5 million, which represents an increase from the three-month period ended March 31, 2004 of $272.1 million, or 48.6%, that is primarily attributable to an increase in fuel revenue but also resulted from increased non-fuel revenues, both of which factors were affected by the acquistion of eleven travel centers from Rip Griffin Truck Service Center, Inc. on December 1, 2004. Fuel revenue for the three-month period ended March 31, 2005 increased by $243.6 million, or 61.3%, as compared to the three-month period ended March 31, 2004. The increase was attributable principally to increased average selling prices for both diesel fuel and gasoline, but also to increased levels of diesel fuel and gasoline sales volumes. Average diesel fuel and gasoline sales prices for the three-month period ended March 31, 2005 increased by 41.0% and 22.4%, respectively, as compared to the three-month period ended March 31, 2004, reflecting increases in commodity prices that were attributable to higher crude oil costs that were primarily due to increased worldwide demand and the expectations of continuing growth in demand. Diesel fuel and gasoline sales volumes for the three-month period ended March 31, 2005 increased 17.3% and 8.5%, respectively, as compared to the three-month period ended March 31, 2004. For the three-month period ended March 31, 2005, we sold 382.9 million gallons of diesel fuel and 44.2 million gallons of gasoline, as compared to 326.3 million gallons of diesel fuel and 40.8 million gallons of gasoline for the three-month period ended March 31, 2004. The diesel fuel sales volume increase of 56.6 million gallons primarily resulted from a net increase in sales volumes at sites we added to or eliminated from our network during 2004 and 2005, particularly the 11 sites acquired from Rip Griffin in December 2004, an increase in same-site diesel fuel sales volumes, and a 7.0 million gallon increase in wholesale diesel fuel sales volume. The gasoline sales volume increase of 3.5 million gallons was primarily attributable to a net increase in sales volumes at company-operated sites we added to or eliminated from our network during 2004 and 2005, particularly the 11 sites acquired from Rip Griffin in December 2004, and an increase in same-site gasoline sales volumes. For the three-month period ended March 31, 2005 as compared to the same period in the prior year, same-site diesel fuel sales volumes increased by 10.1% and same-site gasoline sales volumes increased by 2.3%. We believe the same-site diesel fuel sales volume increase resulted from an improved freight market in 2005 and our retail diesel fuel pricing in response to intense price competition, which factors were somewhat offset by an increase in the level of freight carried by train instead of truck and an increase in trucking fleets' self-fueling at their own terminals due to the wide fluctuations in, and high levels of, diesel prices in 2005. We believe the same-site increase in gasoline sales volume resulted primarily from increased general motorist visits to our sites as a result of our more aggressive retail gasoline pricing program as well as site improvements made as part of our capital investment program. However, we believe that the same-site gasoline sales volume growth rate was somewhat reduced by the historically high levels of retail gasoline prices and the effect such price levels have on general motorist interstate travel in particular. Non-fuel revenues for the three-month period ended March 31, 2005 of $188.0 million reflected an increase of $28.7 million, or 18.0%, as compared to the three-month period ended March 31, 2004. The increase was primarily attributable to the net increase in sales at the company-operated sites we added to or eliminated from our network during 2004 and 2005, particularly the 11 sites acquired from Rip Griffin in December 2004. For the three-month period ended March 31, 2005 as compared to the same period in the prior year, same-site non-fuel revenues increased by 7.3%. We believe the same-site increase reflected increased customer traffic resulting, in part, from the significant capital improvements that we have made in the network under our capital investment program to upgrade our travel centers, an improved freight market and also from our fuel pricing strategy. 21 Rent and royalty revenues for the three-month period ended March 31, 2005 reflected a $0.2 million, or 6.1%, decrease as compared to the three-month period ended March 31, 2004. This decrease was attributable to the rent and royalty revenue lost as a result of the conversions of three leased sites to company-operated sites during 2004 and 2005. This decrease was partially offset by a 4.5% increase in same-site royalty revenue and a 4.9% increase in same-site rent revenue. Gross Profit (excluding depreciation). Our gross profit for the three-month period ended March 31, 2005 was $136.1 million, compared to $119.1 million for the three-month period ended March 31, 2004, an increase of $17.0 million, or 14.3%. The increase in our gross profit was primarily due to the increases in diesel fuel, gasoline, and non-fuel sales volumes that was partially offset by a decrease in fuel margin per gallon and decreased rent and royalty revenue, as discussed above. Operating and Selling, General and Administrative Expenses. Operating expenses included the direct expenses of company-operated sites and the ownership costs of leased sites. Selling, general and administrative expenses included corporate overhead and administrative costs. Our operating expenses increased by $12.8 million, or 14.8%, to $98.8 million for the three-month period ended March 31, 2005 compared to $86.0 million for the three-month period ended March 31, 2004. This increase was primarily attributable to a net increase resulting from company-operated sites we added to our network or eliminated, particularly the 11 sites acquired from Rip Griffin in December 2004. On a same-site basis, operating expenses as a percentage of non-fuel revenues for 2005 were 52.2%, compared to 54.2% for the three-month period ended March 31, 2004, reflecting the results of our cost-cutting measures at our sites and an increased level of non-fuel sales relative to our fixed costs. Our selling, general and administrative expenses for the three-month period ended March 31, 2005 were $10.6 million, which reflected a $0.2 million, or 2.1%, increase from the three-month period ended March 31, 2004 that was primarily attributable to an increase in personnel costs that was partially attributable to the Rip Griffin acquisition. Transition Expense. Transition expense included the costs incurred in converting the travel centers acquired from Rip Griffin to our operating model and standards. In the three-month period ended March 31, 2005, we incurred $0.3 million of such costs, primarily consisting of site training and deferred maintenance expenses. We expect to incur a total of approximately $1.3 million of transition expenses during 2005 in connection with these sites. Depreciation and Amortization Expense. Depreciation and amortization expense for the three-month period ended March 31, 2005 was $15.3 million, compared to $14.1 million for the three-month period ended March 31, 2004, an increase of $1.2 million, or 8.5%, that was primarily due to the increase in our level of depreciable assets as a result of acquiring the Rip Griffin sites and terminating our master lease agreement, both of which occurred in December 2004. (Gain) loss on asset sales. For the three-month period ended March 31, 2005, the gain on asset sales of $0.2 million primarily was generated from the sale of one company-operated site. Income from Operations. We generated income from operations of $11.3 million for the three-month period ended March 31, 2005, compared to income from operations of $8.6 million for the three-month period ended March 31, 2004. This increase of $2.7 million, or 31.1%, as compared to the 2004 period was primarily attributable to the increased levels of fuel sales volumes, non-fuel revenues and non-fuel gross margin, all due largely to the acquisition of sites from Rip Griffin, which was partially offset by the decreased level of fuel margins per gallon. Interest and Other Financial Costs -- Net. Interest and other financial costs, net, for the three-month period ended March 31, 2005 increased by $1.8 million, or 15.3%, compared to the three-month period ended March 31, 2004. This increase primarily resulted from both an increased level of indebtedness during 2005 as compared to 2004, as a result of the 2004 Refinancing, and also rising interest rates throughout 2004 and 2005. The effects of these factors was partially offset by the decrease in our interest rate spreads as a result of the 2004 Refinancing. 22 Income Taxes. Our effective income tax rates for the three-month periods ended March 31, 2005 and 2004 were 37.3% and 36.4%, respectively. These rates differed from the federal statutory rate due primarily to state and foreign income taxes and certain nondeductible expenses, partially offset by the benefit of certain tax credits. RIP GRIFFIN ACQUISITION - PRO FORMA INFORMATION On December 1, 2004, we acquired from Rip Griffin Truck Service Center, Inc. the assets related to eleven travel centers. The results from these eleven sites were included in our results from that date. The following table presents our pro forma results of operations as if the acquisition of the Rip Griffin sites had taken place on January 1, 2004 and provides a comparison of these amounts to our actual results of operations as previously reported.

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, 2004 ------------------------~~------~~ ~~2003~~AS ~~2004~~REPORTED PRO FORMA ------------- ---------~~----~~ (IN ~~THOUSANDS~~MILLIONS OF DOLLARS,) ~~EXCEPT~~Total ~~RATIOS Net income~~revenue..................................~~........................................~~ $ ~~7,459~~559.4 $ ~~12,317 Adjustments to reconcile net income to Adjusted EBITDA: Cumulative effect of a change in accounting principle, net of related taxes~~596.~~.....~~2 ~~253~~Gross ~~- Provision (benefit) for income taxes~~profit...................................~~..........~~ ~~4,408~~$ ~~7,141 Interest and other financial costs, net~~119.~~.........................................~~1 ~~34,502~~$ ~~33,816 Depreciation and amortization expense~~130.~~...........................................~~7 ~~44,541~~Income ~~43,945 Other non-cash charges~~ (~~credits~~loss), ~~net............................................~~from ~~628~~continuing ~~412 ------------- ------------- Adjusted EBITDA~~operations.......~~..............................................................~~ $ ~~91,791 $ 97,631 ============= ============= Adjusted EBITDA for trailing 12-month ratio measurement period~~(1.~~.....................~~8) $ ~~120,557 $ 127,760 ============= ============= Interest expense coverage ratio: Actual ratio at period end~~(1.~~...................................................... 2.85x~~ 3~~.13x~~) ~~Required~~Net ~~ratio at period end (no less than)~~income...................................... $ (1.~~80x~~8) ~~2.00x Minimum amount of Adjusted EBITDA to meet required ratio.........................~~ $ ~~76,018 $ 81,624 Leverage ratio: Actual ratio at period end~~(1.~~......................................................~~ 3~~.99x 3.44x Required ratio at period end (no greater than~~)~~................................... 4.65x 4.15x Minimum amount of Adjusted EBITDA to meet required ratio......................... $ 103,558 $ 105,795~~

These pro forma results of operations have been prepared for comparative purposes only and do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on January 1, 2004, or that may result in the future. LIQUIDITY AND CAPITAL RESOURCES OVERVIEW Our principal liquidity requirements are to meet our working capital and capital expenditure needs, including expenditures for acquisitions and expansion, and to service the payments of principal and interest on outstanding indebtedness. Our principal source of liquidity to meet these requirements is operating cash flows. The revolving credit facility under the 2004 Credit Agreement provides us a secondary source of liquidity, primarily to better match the timing of cash expenditures to the timing of our cash receipts primarily due to effects of changes in petroleum product prices, the uneven level of capital expenditures throughout the year and the timing of debt and interest payments. The primary risks we face with respect to the expected levels of operating cash flows are a decrease in the demand of our customers for our products and services, increases in crude oil and/or petroleum product prices and increases in interest rates. It is reasonably likely that interest rates and petroleum product prices will continue to rise during the remainder of 2005 from levels that existed during 2004 and the first three months of 2005, possibly to levels greater than that contemplated in our expectations. If the economy stagnates or worsens, our customers could be adversely affected, which could further intensify competition within our industry and reduce the level of cash we could generate from our operations. A one-percentage point increase in interest rates increases our annual cash outlays by approximately $4.8 million. A significant increase in diesel fuel and gasoline prices increases our cash investment in working capital and can also have a depressing effect on our sales volumes and fuel margins per gallon. The primary risk we face with respect to the expected availability of borrowing under our revolving credit facility are the limitations imposed upon us by the covenants contained in the 2004 Credit Agreement. Should our level of sales volume or interest rate and petroleum products price levels vary adversely and very significantly from expectations, it is possible that we would need to reduce our capital expenditures or be effectively barred from further revolving credit facility borrowings in order to maintain compliance with our debt covenants, in the absence of a debt covenant waiver or an amendment to the related agreement. We were in compliance with all of our debt covenants throughout the first three months of 2005 and as of March 31, 2005, and we expect to remain in compliance with all of our debt covenants throughout 2005. See "Adjusted EBITDA and Debt Covenant Compliance" below for further discussion. 23 We anticipate that we will be able to fund our 2005 working capital requirements and capital expenditures primarily from funds generated from operations, supplemented, to the extent necessary, from borrowings under our revolving credit facility. Our long-term liquidity requirements, including capital expenditures, are expected to be financed by a combination of internally generated funds, borrowings and other sources of external financing as needed. Our ability to fund our capital investment requirements, interest and principal payment obligations and working capital requirements and to comply with all of the financial covenants under our debt agreements depends on our future operations, performance and cash flow. These are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond our control. The expected level of capital expenditures, including business acquisitions but net of proceeds from asset sales, for 2005 is approximately $80 million. The 2005 capital investment plan is largely composed of growth-related projects such as expanding our truck repair and maintenance facilities, site re-image projects, adding QSRs, upgrading retail stores and restaurants, and building one new prototype travel center. The plan also includes approximately $9 million of transition capital expenditures primarily to rebrand and re-image the Rip Griffin sites acquired in December 2004. Given our forecasted level of cash flows from operations for 2005 and our planned level of capital expenditures, we expect that during the remainder of 2005 we will make our remaining scheduled debt repayments of $0.2 million and we also anticipate that we will have no net borrowings under our revolving credit facilities. We also expect to refinance our Senior Subordinated Notes due 2009 no later than November 2005, at which time they are callable at 106.375% of their face value. HISTORICAL CASH FLOWS Net cash provided by operating activities was $28.2 million for the first quarter of 2005, compared to $33.7 million for the same period in the prior year. This $5.5 million decrease in cash provided by operations was primarily attributable to a $7.0 million increase in the amount of cash invested in net working capital that was somewhat offset by an increase in our profitability. The investment in working capital resulted primarily from the significant increases in diesel fuel and gasoline prices since December 31, 2004, which resulted in our accounts receivable and inventories balances increasing more than our current liabilities balances. Net cash used in investing activities was $14.1 million for the first quarter of 2005, as compared to $11.0 million for the first quarter of 2004. The level of capital expenditures in the first quarter of 2005 was $2.8 million greater than that in the first quarter of 2004. The increase in cash used in investing activities also resulted from a lack of business acquisitions or asset sales during 2004, as compared to the net expenditure of $0.3 million in these areas in the first quarter of 2005, which was related to the conversion of one leased site to a company-operated site and the sale of one-company-operated site. We expect cash used in investing activities for the year ending December 31, 2005 to total $80.1 million, as compared to $235.2 million for the year ended December 31, 2004. The decrease from 2004 is due to the Rip Griffin acquisition and master lease facility termination that were completed during 2004. Net cash used in financing activities was $26.9 million during the first quarter of 2005, as compared to $8.8 million of cash used in financing activities for the first quarter of 2004. During the first quarter of 2005, we made net repayments of revolving credit facility indebtedness of $25.0 million and reduced the amount of outstanding checks in excess of funds on deposit by $1.9 million. In the first quarter of 2004, we made net repayments of revolving credit facility indebtedness of $5.6 million, made scheduled debt repayments of $0.8 million and reduced the amount of outstanding checks in excess of funds on deposit by $2.3 million. The total amount of our scheduled debt repayments for 2005 is $0.2 million. ADJUSTED EBITDA AND DEBT COVENANT COMPLIANCE Adjusted EBITDA, as used here, is based on the definition for "EBITDA" in our bank debt agreement and consists of net income plus the sum of (a) income taxes, (b) interest expense, net, (c) depreciation, amortization and other noncash charges, (d) transition expense, (e) extraordinary losses and cumulative effects of accounting changes and (f) the costs of the merger and recapitalization transactions. We have included this information concerning Adjusted EBITDA because Adjusted EBITDA is a primary component for calculating the financial ratio covenants in our debt agreements. We also use Adjusted EBITDA as a basis for determining bonus payments to our corporate and site-level management employees and as a key component in the formula for calculating the fair value of our redeemable common stock and stock options. Adjusted EBITDA should not be considered in isolation from, or as a 24 substitute for, net income, income from operations, cash flows from operating activities or other consolidated income or cash flow statement data prepared in accordance with generally accepted accounting principles. While the non-GAAP measures "EBITDA" and "Adjusted EBITDA" are frequently used by other companies as measures of operations and/or ability to meet debt service requirements, Adjusted EBITDA as we use the term is not necessarily comparable to similarly titled captions of other companies due to differences in methods of calculation. We consider our Senior Credit Facility to be a material agreement. A majority of our outstanding indebtedness has been borrowed under the Senior Credit Facility. Further, the Senior Credit Facility requires us to maintain compliance with a variety of affirmative and negative covenants which primarily act to limit the types of business activities we can undertake; limits the amounts we can spend for items such as capital expenditures, dividends and distributions, investments, operating leases, etc.; and limits the amount of additional indebtedness we can incur and the liens that can be placed on our assets. We have maintained compliance with all of these covenants for all periods presented and expect to remain in compliance with all of the debt covenants to which we are subject through the remainder of 2005. Of the many debt covenants to which we are subject, there are two primary financial ratio covenants against which our quarterly results are compared. These two key debt covenant financial ratios are (a) an interest expense coverage ratio and (b) a leverage ratio. The interest expense coverage ratio is calculated by dividing Adjusted EBITDA for the trailing four quarters by interest expense (excluding the interest expense related to the amortization of debt discount and deferred financing costs) for the trailing four quarters. The leverage ratio is calculated by dividing net debt by Adjusted EBITDA for the trailing four quarters. Net debt is calculated by subtracting from total debt the cash balance in excess of $2.5 million. Failure to meet either of the financial ratio debt covenants could result in the lenders under our Senior Credit Facility declaring our indebtedness under the Senior Credit Facility immediately due and payable. However, the more likely consequence would be the negotiation of a waiver and/or amendment of the covenants, which is reasonably likely to require us to pay a significant amount of fees to the lenders and legal counsel and to further limit our ability to make cash disbursements, such as for capital expenditures. The following table sets forth the calculation of Adjusted EBITDA and information related to the debt covenant financial ratios.

(1) The 2004 Credit Agreement specifies amounts to be added to our actual Adjusted EBITDA amounts in order to determine pro forma Adjusted EBITDA amounts to be used in the leverage ratio covenant tests during 2005 in order to adjust for the historical results of the sites acquired from Rip Griffin and the termination of our master lease agreement, each of which transaction was funded through the 2004 Refinancing. The pro forma Adjusted EBITDA amount used in this calculation for the twelve-month period ended March 31, 2005 was $151,921,000. 25 DESCRIPTION OF INDEBTEDNESS We have no material changes to the disclosure on this matter made in our annual report on Form 10-K for the year ended December 31, 2004, except that at March 31, 2005, we had no outstanding revolving credit facility borrowings and had issued letters of credit of $32.0 million, leaving $93.0 million of our $125 million revolving credit facility available for borrowings. OFF-BALANCE SHEET ARRANGEMENTS We have no material changes to the disclosure on this matter made in our annual report on Form 10-K for the year ended December 31, 2004. SUMMARY OF CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS We have no material changes to the disclosure on this matter made in our annual report on Form 10-K for the year ended December 31, 2004. ENVIRONMENTAL MATTERS We own and operate underground storage tanks and aboveground storage tanks at company-operated sites and leased sites that must comply with Environmental Laws. We have estimated the current ranges of remediation costs at currently active sites and what we believe will be our ultimate share for those costs and, as of March 31, 2005, we had a reserve of $13.7 million for unindemnified environmental matters for which we are responsible, a receivable for estimated recoveries of these estimated future expenditures of $4.2 million and $5.3 million of cash in an escrow account to fund certain of these estimated expenditures, leaving an estimated net amount of $4.2 million to be funded from future operating cash flows. We estimate that the gross cash outlays related to the matters for which we have accrued this reserve will be approximately $5.0 million in the remainder of 2005; $3.1 million in 2006; $2.4 million in 2007; $1.7 million in 2008; $1.4 million in 2009 and $0.1 million thereafter. These cash expenditure amounts do not reflect any amounts for the expected recoveries as we cannot accurately predict the timing of those cash receipts. Under the environmental agreement entered into as part of the acquisition of the BP network, BP is required to provide indemnification for, and conduct remediation of, certain pre-closing environmental conditions. We have obtained insurance of up to $35.0 million for known and up to $40.0 million for unknown environmental liabilities, subject, in each case, to certain limitations. While it is not possible to quantify with certainty our environmental exposure, we believe that the potential liability, beyond that considered in the reserve, for all environmental proceedings, based on information known to date, will not have a material adverse effect on our financial condition, results of operations or our liquidity. For further discussion of environmental matters, see the footnotes to the unaudited consolidated financial statements included elsewhere in this quarterly report RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS FAS 123R. In December 2004, the FASB issued a revision of FAS 123, "Share-Based Payment" (FAS 123R). FAS 123R requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. The cost to be recognized will be measured based on the fair value of the equity or liability instruments issued. The scope of FAS 123R includes a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. FAS 123R replaces FAS 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." As originally issued in 1995, FAS 123 established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that statement permitted entities the option of continuing to apply the guidance of APB 25 as long as the footnotes to the financial statements disclosed what net income would have been had the preferable fair-value-based method been used. At that time, we determined to continue to apply the guidance of APB 25 and make the required disclosures in our financial statement footnotes. Accordingly, we will be required to change our method of accounting for stock compensation costs. We will be required to adopt FAS 123R as of January 1, 2006. FAS 123R applies only to those awards granted or which become vested after the required effective date. We expect that the adoption of FAS 123R in the first quarter of 2006 will have no material effect on our results of operations, financial condition or cash flows. 26 FORWARD-LOOKING STATEMENTS This quarterly report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our future prospects, developments and business strategies. The statements contained in this quarterly report that are not statements of historical fact may include forward-looking statements that involve a number of risks and uncertainties. We have used the words "may," "will," "expect," "anticipate," "believe," "estimate," "plan," "intend" and similar expressions in this quarterly report to identify forward-looking statements. These forward-looking statements are made based on our expectations and beliefs concerning future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by forward-looking statements. The following factors are among those that could cause our actual results to differ materially from the forward-looking statements: - competition from other travel center and truck stop operators, including additional or improved services or facilities of competitors, and from the potential commercialization of state-owned interstate rest areas; - the economic condition of the trucking industry, which in turn is dependent on general economic factors; - increased environmental regulation; - changes in governmental regulations; - changes in interest rates; - diesel fuel and gasoline pricing; - availability of diesel fuel and gasoline supply; - ability to refinance our Senior Subordinated Notes due 2009; - success of new business ventures, including the risks that the Rip Griffin sites acquired and any other businesses or investments that we have acquired or may acquire may not be successfully integrated into our current business operations or may require a greater than expected level of transition expenditures to be integrated; and - availability of sufficient qualified personnel to staff company-operated sites. All of our forward-looking statements should be considered in light of these factors and all other risks discussed from time to time in our filings with the Securities and Exchange Commission. We do not undertake to update our forward-looking statements or risk factors to reflect future events or circumstances. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have no material changes to the disclosure on this matter made in our annual report on Form 10-K for the year ended December 31, 2004. ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer, together with other members of our management, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of the end of the period covered by this quarterly report on Form 10-Q. (b) Changes in internal controls. There were no changes in our internal controls over financial reporting that occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 27 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are involved from time to time in various legal and administrative proceedings and threatened legal and administrative proceedings incidental to the ordinary course of our business. We believe that we are not now involved in any litigation, individually, or in the aggregate, which could have a material adverse affect on our business, financial condition, results of operations or cash flows. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS During the three-month period ended March 31, 2005, we sold or issued the unregistered securities described below. The following transaction did not involve any public offering. The sale was made in reliance on Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), Rule 701 promulgated under the Securities Act and/or Regulation D promulgated under the Securities Act. This sale was made without general solicitation or advertising. The recipient in such transaction represented his intention to acquire the securities for investment only and not with a view to sell or for sale in connection with any distribution thereof. We sold the following: - We sold to a management employee 2,434 shares of our common stock at $31.75 per share. The proceeds from this sale were used for general corporate purposes. ITEM 6. EXHIBITS

28 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRAVELCENTERS OF AMERICA, INC. (Registrant) Date: May 16, 2005 By: /s/ James W. George -------------------------------------- Name: James W. George Title: Executive Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer) 29

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