| | | | | | | | | | | | | | | | * | | | | | | * | | | | | | * | | | | | | * | | | | | | | Credit Agreement, dated as of December 13, 2019, by and between Andrew J. Rebholz and14, 2020 among TravelCenters of America Inc., Citibank, N.A., as administrative agent, Delaware Trust Company, as collateral agent, and The RMR Group LLCthe lenders from time to time party thereto (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on December 16, 2019) | | | | | * | | | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amended and Restated Shareholders Agreement, dated as of May 21, 2012, by and among Affiliates Insurance Company, Five Star Senior Living Inc. (f/k/a Five Star Quality Care, Inc.), Service Properties Trust (f/k/a Hospitality Properties Trust), ABP Trust (as successor to The RMR Group LLC f/k/a REIT Management & Research LLC), Diversified Healthcare Trust (f/k/a Senior Housing Properties Trust), TravelCenters of America Inc., Office Properties Income Trust (f/k/a Government Properties Income Trust) and Industrial Logistics Properties Trust (as successor to Select Income REIT) (Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012, filed on August 7, 2012) | | | | | | | | | | | | | | | | 101.INS | | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | | | |
| | | | | | | | | 101.SCH | | | XBRL Taxonomy Extension Schema Document (filed herewith) | | | | | 101.CAL | | | XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith) | | | | | 101.DEF | | | XBRL Taxonomy Extension Definition Linkbase Document (filed herewith) | | | | | 101.LAB | | | XBRL Taxonomy Extension Label Linkbase Document (filed herewith) | | | | | 101.PRE | | | XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith) | | | | | 104 | | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
* Management contract or compensatory plan or arrangement. † Confidential treatment has been granted as to certain portions of this Exhibit.
Item 16. Form 10-K Summary None.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of TravelCenters of America Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of TravelCenters of America Inc. (the Company) as of December 31, 20192021 and 2018,2020, the related consolidated statements of operations and comprehensive income (loss), cash flows and stockholders'stockholders’ equity for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192021 and 2018,2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control -— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated February 25, 202023, 2022, expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting. Adoption of New Accounting Standard
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method for accounting for leases effective January 1, 2019 due to the adoption of ASC 842, Leases.
Basis for Opinion These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’sCompany's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Audit Committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Fixed Asset and Right of Use Asset Impairment Assessment As described in Note 1 to the financial statements, the Company reviews definite lived assets for indicators of impairment during each reporting period. The Company recognizes impairment charges when (i) the carrying value of a long lived asset or asset group to be held and used in the business is not recoverable and exceeds its fair value and (ii) when the carrying value of a long lived asset or asset group to be disposed of exceeds the estimated fair value of the asset less the estimated cost to sell the asset. Management’s estimates of fair value are based on estimates of likely market participant assumptions, including their current expectations for projected fuel sales volume, nonfuel revenues, fuel and nonfuel gross margins, site level operating expense and real estate rent expense. If the business climate deteriorates, the Company’s actual results may not be consistent with these assumptions and estimates. The discount rate is used to measure the present value of projected future cash flows and is set at a rate the Company believes is likely to be used by a market participant using a weighted average cost of capital method that considers market and industry data as well as management's specific risk factors. The weighted average cost of capital is management’s estimate of the overall after tax rate of return required by equity and debt holders of a business enterprise. Management uses a number of assumptions and methods in preparing the valuations underlying impairment tests, including estimates of future cash flows and discount rates and in some instances may obtain third party appraisals. Management
performs an impairment analysis for substantially all property and equipment and operating lease assets at the individual site level because that is the lowest level of asset and liability groupings for which the cash flows are largely independent of the cash flows of other assets and liabilities. We identified the evaluation of potential indicators of impairment for fixed assets and right of use assets as a critical audit matter because management’s review of definite lived assets for indicators of impairment and measurement of the fair value of long lived assets or asset groups requires a high degree of auditor judgment when evaluating the significant assumptions described above and increased audit effort. Our audit procedures related to the Company’s evaluation of fixed asset and right of use asset impairment assessment included the following, among others: •We obtained an understanding of the relevant controls related to fixed asset and right of use asset impairment assessment and tested such controls for design and operating effectiveness, including management review controls over the significant assumptions noted above. •We tested management’s process for reviewing definite lived assets for indicators of impairment, including: ◦Evaluating the reasonableness of management’s model for identifying impairment indicators, which included comparing expectations for projected fuel sales volume, nonfuel revenues, fuel and nonfuel gross margins, site level operating expense and real estate rent expense to actuals, and testing the model for mathematical accuracy and completeness of inputs by agreeing allocated values by asset group to supporting source documents. ◦Evaluating the reasonableness of management identified external conditions, including industry and market data, impacting each asset group’s profitability by comparing them to published third party data. ◦Evaluating the reasonableness of financial trends for growth or decline in results, by comparing the profitability measures to historical results of the asset group. •For locations where indicators of impairment were identified, we evaluated management’s test of recoverability, which included: ◦Obtaining an understanding of management’s process for developing undiscounted expected future cash flows for long-lived assets and evaluating the reasonableness of the future cash flow model. ◦Testing the completeness and accuracy of the data used by management. ◦Evaluating the reasonableness of management’s significant assumptions, including revenue and profitability forecasts by comparing them to historical results of the asset group. •For locations that the Company utilized a third party appraiser to measure an impairment loss, we evaluated the appraisals with assistance of our real estate valuation specialists. These procedures included evaluating the reasonableness of the market comparables obtained by independently evaluating the third party data. Realizability of Deferred Tax Assets As described in Note 10 of the financial statements, at December 31, 2021, the Company had deferred tax assets of $147 million, net of valuation allowance of $2 million. Deferred tax assets are reduced by a valuation allowance when it is more likely than not the deferred tax asset will not be realized. Management applied significant judgment in considering the relative impact of negative and positive evidence to determine whether sufficient future taxable income will be generated to support the realization of the existing deferred tax assets prior to expiration. We identified the Company’s realizability of deferred tax assets as a critical audit matter because auditing management’s assumptions required significant audit effort and the significant assumptions include a high degree of auditor judgment and subjectivity. Our audit procedures related to the Company’s realizability of deferred tax assets included the following, among others: •We obtained an understanding of the relevant controls related to deferred tax assets and tested such controls for design and operating effectiveness, including management review controls over the evaluation and application of the effects of changes in the tax law, management’s projections, and the identification of sources of future taxable income and available tax planning strategies.
•We assessed management’s probabilities of the potential effects of both negative and positive factors by performing the following: ◦We evaluated the assumptions used by the Company to develop projections of future taxable income and tested the completeness and accuracy of the underlying data used in the projections. ◦We compared the projections of future taxable income with other forecasted financial information prepared by the Company and also evaluated the impact of changes to significant assumptions on future taxable income to evaluate the recoverability of deferred tax assets resulting from changes in assumptions. ◦We considered the feasibility of tax planning strategies and involved our tax professionals to assist in evaluating the application of tax law, including any changes in the tax law, and the Company’s consideration of the sources of future taxable income.
We have served as the Company's auditor since 2014.
Cleveland, Ohio February 25, 2020
23, 2022
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of TravelCenters of America Inc. Opinion on the Internal Control Over Financial Reporting We have audited TravelCenters of America Inc.'s (the Company) internal control over financial reporting as of December 31, 2019,2021, based on criteria established inInternal Control -— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2021, based on criteria established inInternal Control -— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20192021 and 2018, and2020, the related consolidated statements of operations and comprehensive income (loss), cash flows and stockholders’ equity of the Company for the years then ended, and the related notes to the consolidated financial statements and our report dated February 25, 202023, 2022, expressed an unqualified opinion. Basis for Opinion The Company’sCompany's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’sManagement's Report on Assessment of Internal Control over Financial Reporting in Item 9A. Our responsibility is to express an opinion on the Company’sCompany's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Cleveland, Ohio February 25, 2020
23, 2022
| | | | | | | | | | | | | December 31, | | 2021 | | 2020 | Assets: | | | | Current assets: | | | | Cash and cash equivalents | $ | 536,002 | | | $ | 483,151 | | Accounts receivable (net of allowance for doubtful accounts of $1,003 and $1,016 as of December 31, 2021 and 2020, respectively) | 111,392 | | | 94,429 | | Inventory | 191,843 | | | 172,830 | | Other current assets | 37,947 | | | 35,506 | | Total current assets | 877,184 | | | 785,916 | | | | | | Property and equipment, net | 831,427 | | | 801,789 | | Operating lease assets | 1,659,526 | | | 1,734,883 | | Goodwill | 22,213 | | | 22,213 | | Intangible assets, net | 10,934 | | | 11,529 | | Other noncurrent assets | 107,217 | | | 87,530 | | Total assets | $ | 3,508,501 | | | $ | 3,443,860 | | | | | | Liabilities and Stockholders' Equity: | | | | Current liabilities: | | | | Accounts payable | $ | 206,420 | | | $ | 158,075 | | Current operating lease liabilities | 118,005 | | | 111,255 | | Other current liabilities | 194,853 | | | 175,867 | | Total current liabilities | 519,278 | | | 445,197 | | | | | | Long term debt, net | 524,781 | | | 525,397 | | Noncurrent operating lease liabilities | 1,655,359 | | | 1,763,166 | | Other noncurrent liabilities | 106,230 | | | 69,121 | | Total liabilities | 2,805,648 | | | 2,802,881 | | | | | | Stockholders' equity: | | | | Common stock, $0.001 par value, 216,000 and 216,000 shares of common stock authorized as of December 31, 2021 and 2020, respectively, and 14,839 and 14,574 shares of common stock issued and outstanding as of December 31, 2021 and 2020, respectively | 14 | | | 14 | | Additional paid-in capital | 785,597 | | | 781,841 | | Accumulated other comprehensive loss | (198) | | | (205) | | Accumulated deficit | (82,560) | | | (141,084) | | Total TA stockholders' equity | 702,853 | | | 640,566 | | Noncontrolling interest | — | | | 413 | | Total stockholders' equity | 702,853 | | | 640,979 | | Total liabilities and stockholders' equity | $ | 3,508,501 | | | $ | 3,443,860 | |
The accompanying notes are an integral part of these consolidated financial statements.
TravelCenters of America Inc. Consolidated Balance Sheets (in thousands, except par value amount) | | | | | | | | | | | | | December 31, | | | | 2019 | | 2018 | Assets: | | | | Current assets: | | | | Cash and cash equivalents | $ | 17,206 | | | $ | 314,387 | | Accounts receivable (net of allowance for doubtful accounts of $1,083 and $959 as of December 31, 2019 and 2018, respectively) | 173,496 | | | 97,449 | | Inventory | 196,611 | | | 196,721 | | Other current assets | 32,456 | | | 35,119 | | Total current assets | 419,769 | | | 643,676 | | | | | | Property and equipment, net | 868,503 | | | 628,537 | | Operating lease assets | 1,817,998 | | | — | | Goodwill | 25,259 | | | 25,259 | | Intangible assets, net | 20,707 | | | 22,887 | | Other noncurrent assets | 78,659 | | | 121,749 | | Total assets | $ | 3,230,895 | | | $ | 1,442,108 | | | | | | Liabilities and Stockholders' Equity: | | | | Current liabilities: | | | | Accounts payable | $ | 147,440 | | | $ | 120,914 | | Current operating lease liabilities | 104,070 | | | — | | Current SVC Leases liabilities | — | | | 42,109 | | Other current liabilities | 138,455 | | | 125,668 | | Total current liabilities | 389,965 | | | 288,691 | | | | | | Long term debt, net | 329,321 | | | 320,528 | | Noncurrent operating lease liabilities | 1,880,188 | | | — | | Noncurrent SVC Leases liabilities | — | | | 353,756 | | Other noncurrent liabilities | 58,885 | | | 28,741 | | Total liabilities | 2,658,359 | | | 991,716 | | | | | | Stockholders' equity: | | | | Common stock, $0.001 par value, 16,000 and 8,674 shares of common stock authorized as of December 31, 2019 and 2018, respectively, and 8,307 and 8,080 shares of common stock issued and outstanding as of December 31, 2019 and 2018, respectively | 8 | | | 8 | | Additional paid-in capital | 698,402 | | | 695,307 | | Accumulated other comprehensive (loss) income | (172) | | | 355 | | Accumulated deficit | (127,185) | | | (246,773) | | Total TA stockholders' equity | 571,053 | | | 448,897 | | Noncontrolling interest | 1,483 | | | 1,495 | | Total stockholders' equity | 572,536 | | | 450,392 | | Total liabilities and stockholders' equity | $ | 3,230,895 | | | $ | 1,442,108 | |
| | | | | | | | | | | | | Year Ended December 31, | | 2021 | | 2020 | Revenues: | | | | Fuel | $ | 5,374,695 | | | $ | 3,084,323 | | Nonfuel | 1,946,732 | | | 1,747,418 | | Rent and royalties from franchisees | 15,417 | | | 14,296 | | Total revenues | 7,336,844 | | | 4,846,037 | | | | | | Cost of goods sold (excluding depreciation): | | | | Fuel | 4,981,903 | | | 2,750,971 | | Nonfuel | 771,292 | | | 685,391 | | Total cost of goods sold | 5,753,195 | | | 3,436,362 | | | | | | Site level operating expense | 955,385 | | | 870,329 | | Selling, general and administrative expense | 155,355 | | | 145,038 | | Real estate rent expense | 255,627 | | | 255,743 | | Depreciation and amortization expense | 96,507 | | | 127,789 | | Other operating income, net | (2,275) | | | — | | | | | | Income from operations | 123,050 | | | 10,776 | | | | | | Interest expense, net | 46,786 | | | 30,479 | | Other expense, net | 810 | | | 1,379 | | Income (loss) before income taxes | 75,454 | | | (21,082) | | (Provision) benefit for income taxes | (17,263) | | | 6,178 | | Net income (loss) | 58,191 | | | (14,904) | | Less: net (loss) for noncontrolling interest | (333) | | | (1,005) | | Net income (loss) attributable to common stockholders | $ | 58,524 | | | $ | (13,899) | | | | | | Other comprehensive income (loss), net of taxes: | | | | Foreign currency income (loss), net of taxes of $6 and $26, respectively | $ | 7 | | | $ | (33) | | Other comprehensive income (loss) attributable to common stockholders | 7 | | | (33) | | | | | | Comprehensive income (loss) attributable to common stockholders | $ | 58,531 | | | $ | (13,932) | | | | | | Net income (loss) per share of common stock attributable to common stockholders: | | | | Basic and diluted | $ | 4.01 | | | $ | (1.23) | |
The accompanying notes are an integral part of these consolidated financial statements.
TravelCenters of America Inc. Consolidated Statements of Operations and Comprehensive Income (Loss) (in thousands, except per share amounts) | | | | | | | | | | | | | Year Ended December 31, | | | | 2019 | | 2018 | Revenues: | | | | Fuel | $ | 4,247,069 | | | $ | 4,395,731 | | Nonfuel | 1,856,147 | | | 1,820,341 | | Rent and royalties from franchisees | 14,143 | | | 16,143 | | Total revenues | 6,117,359 | | | 6,232,215 | | | | | | Cost of goods sold (excluding depreciation): | | | | Fuel | 3,868,351 | | | 4,075,704 | | Nonfuel | 726,418 | | | 710,465 | | Total cost of goods sold | 4,594,769 | | | 4,786,169 | | | | | | Site level operating expense | 943,810 | | | 914,730 | | Selling, general and administrative expense | 155,474 | | | 137,945 | | Real estate rent expense | 257,762 | | | 283,476 | | Depreciation and amortization expense | 100,260 | | | 83,179 | | | | | | Income from operations | 65,284 | | | 26,716 | | | | | | Interest expense, net | 28,356 | | | 29,003 | | Other (income) expense, net | (880) | | | 2,060 | | Income (loss) before income taxes and discontinued operations | 37,808 | | | (4,347) | | (Provision) benefit for income taxes | (4,339) | | | 1,574 | | Income (loss) from continuing operations | 33,469 | | | (2,773) | | Loss from discontinued operations, net of taxes | — | | | (117,631) | | Net income (loss) | 33,469 | | | (120,404) | | Less: net income for noncontrolling interest | 124 | | | 149 | | Net income (loss) attributable to common stockholders | $ | 33,345 | | | $ | (120,553) | | | | | | Other comprehensive loss, net of taxes: | | | | Foreign currency gain (loss), net of taxes of $61 and $(104), respectively | $ | 46 | | | $ | (156) | | Interest in equity investee's unrealized losses on investments | (573) | | | (69) | | Other comprehensive loss attributable to common stockholders | (527) | | | (225) | | | | | | Comprehensive income (loss) attributable to common stockholders | $ | 32,818 | | | $ | (120,778) | | | | | | Net income (loss) per share of common stock attributable to common stockholders: | | | | Basic and diluted from continuing operations | $ | 4.12 | | | $ | (0.37) | | Basic and diluted from discontinued operations | — | | | (14.72) | | Basic and diluted | 4.12 | | | (15.09) | |
| | | | | | | | | | | | | Year Ended December 31, | | 2021 | | 2020 | Cash flows from operating activities: | | | | Net income (loss) | $ | 58,191 | | | $ | (14,904) | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | Noncash rent credits, net | (22,880) | | | (21,486) | | Depreciation and amortization expense | 96,507 | | | 127,789 | | Gain on sale of assets | (2,275) | | | — | | Deferred income taxes | 16,949 | | | (5,418) | | Changes in operating assets and liabilities: | | | | Accounts receivable | (17,060) | | | 78,328 | | Inventory | (19,011) | | | 23,460 | | Other assets | (8,016) | | | (1,514) | | Accounts payable and other liabilities | 42,925 | | | 46,952 | | Other, net | 9,131 | | | 11,201 | | Net cash provided by operating activities | 154,461 | | | 244,408 | | | | | | Cash flows from investing activities: | | | | Capital expenditures | (104,852) | | | (54,386) | | Proceeds from other asset sales | 11,526 | | | 1,873 | | Investment in equity investee | (1,350) | | | (2,928) | | Other | 762 | | | 286 | | Net cash used in investing activities | (93,914) | | | (55,155) | | | | | | Cash flows from financing activities: | | | | Net proceeds from underwritten equity offering | — | | | 79,980 | | Net proceeds from Term Loan Facility | — | | | 191,516 | | West Greenwich Loan borrowings | — | | | 16,600 | | Payments on West Greenwich Loan | (664) | | | — | | Payments on Term Loan | (2,000) | | | — | | Payments on Revolving Credit Facility | — | | | (7,900) | | Acquisition of stock from employees | (1,994) | | | (1,750) | | Other, net | (3,048) | | | (1,805) | | Net cash (used in) provided by financing activities | (7,706) | | | 276,641 | | | | | | Effect of exchange rate changes on cash | 10 | | | 51 | | Net increase in cash and cash equivalents | 52,851 | | | 465,945 | | Cash and cash equivalents at the beginning of the year | 483,151 | | | 17,206 | | Cash and cash equivalents at the end of the year | $ | 536,002 | | | $ | 483,151 | | | | | | Supplemental disclosure of cash flow information: | | | | Lease modification (operating to finance lease) | $ | 28,201 | | | $ | — | | Interest paid (including rent classified as interest and net of capitalized interest) | 44,249 | | | 28,039 | | Income taxes paid (refunded) | 682 | | | (1,210) | |
The accompanying notes are an integral part of these consolidated financial statements.
TravelCenters of America Inc. Consolidated Statements of Cash Flows (in thousands) | | | | | | | | | | | | | Year Ended December 31, | | | | 2019 | | 2018 | Cash flows from operating activities: | | | | Net income (loss) | $ | 33,469 | | | $ | (120,404) | | Less: loss from discontinued operations, net of taxes | — | | | (117,631) | | Income (loss) from continuing operations | 33,469 | | | (2,773) | | Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities of continuing operations: | | | | Noncash rent credits, net | (21,406) | | | (14,799) | | Depreciation and amortization expense | 100,260 | | | 83,179 | | Deferred income tax provision | 5,710 | | | 403 | | Changes in operating assets and liabilities, net of effects of business acquisitions: | | | | Accounts receivable | (76,636) | | | 27,340 | | Inventory | 154 | | | (9,102) | | Other assets | 5,152 | | | 1,384 | | Accounts payable and other liabilities | 26,698 | | | (31,932) | | Other, net | 9,066 | | | 19,558 | | Net cash provided by operating activities of continuing operations | 82,467 | | | 73,258 | | Net cash provided by operating activities of discontinued operations | — | | | 8,348 | | Net cash provided by operating activities | 82,467 | | | 81,606 | | | | | | Cash flows from investing activities: | | | | Proceeds from sale of convenience stores business, net | — | | | 310,496 | | Proceeds from asset sales to SVC | — | | | 55,829 | | Proceeds from other asset sales | 2,919 | | | — | | Acquisition of travel centers from SVC | (309,637) | | | — | | Distribution from equity investee | 5,756 | | | — | | Capital expenditures | (83,955) | | | (144,781) | | Acquisitions of businesses, net of cash acquired | — | | | (10,482) | | Investment in equity investee | (1,500) | | | (2,859) | | Net cash (used in) provided by investing activities of continuing operations | (386,417) | | | 208,203 | | Net cash used in investing activities of discontinued operations | — | | | (8,904) | | Net cash (used in) provided by investing activities | (386,417) | | | 199,299 | | | | | | Cash flows from financing activities: | | | | Proceeds from sale leaseback transactions with SVC | — | | | 517 | | Sale leaseback financing obligation payments | — | | | (971) | | Acquisition of treasury stock from employees | (346) | | | (1,744) | | Distributions to noncontrolling interest | (136) | | | (101) | | Revolving Credit Facility borrowings | 7,900 | | | — | | Other, net | (745) | | | (103) | | Net cash provided by (used in) financing activities | 6,673 | | | (2,402) | | | | | | Effect of exchange rate changes on cash | 96 | | | (198) | | Net (decrease) increase in cash and cash equivalents | (297,181) | | | 278,305 | | Cash and cash equivalents at the beginning of the year | 314,387 | | | 36,082 | | Cash and cash equivalents at the end of the year | $ | 17,206 | | | $ | 314,387 | | | | | | Supplemental disclosure of cash flow information: | | | | Interest paid (including rent classified as interest and net of capitalized interest) | $ | 27,819 | | | $ | 29,250 | | Income taxes refunded | (1,670) | | | (228) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of Shares of Common Stock | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Total TA Stockholders' Equity | | Noncontrolling Interest | | Total Stockholders' Equity | December 31, 2019 | 8,307 | | | $ | 8 | | | $ | 698,402 | | | $ | (172) | | | $ | (127,185) | | | $ | 571,053 | | | $ | 1,483 | | | $ | 572,536 | | Grants under share award plan and stock based compensation, net | 167 | | | — | | | 3,465 | | | — | | | — | | | 3,465 | | | — | | | 3,465 | | Proceeds from underwritten public equity offering | 6,100 | | | 6 | | | 79,974 | | | — | | | — | | | 79,980 | | | — | | | 79,980 | | Distributions to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | (65) | | | (65) | | Other comprehensive loss, net of taxes | — | | | — | | | — | | | (33) | | | — | | | (33) | | | — | | | (33) | | Net loss | — | | | — | | | — | | | — | | | (13,899) | | | (13,899) | | | (1,005) | | | (14,904) | | December 31, 2020 | 14,574 | | | 14 | | | 781,841 | | | (205) | | | (141,084) | | | 640,566 | | | 413 | | | 640,979 | | Grants under share award plan and stock based compensation, net | 265 | | | — | | | 3,756 | | | — | | | — | | | 3,756 | | | — | | | 3,756 | | Distributions to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | (80) | | | (80) | | Other comprehensive income, net of taxes | — | | | — | | | — | | | 7 | | | — | | | 7 | | | — | | | 7 | | Net income (loss) | — | | | — | | | — | | | — | | | 58,524 | | | 58,524 | | | (333) | | | 58,191 | | December 31, 2021 | 14,839 | | | $ | 14 | | | $ | 785,597 | | | $ | (198) | | | $ | (82,560) | | | $ | 702,853 | | | $ | — | | | $ | 702,853 | |
The accompanying notes are an integral part of these consolidated financial statements.
TravelCenters of America Inc. Consolidated Statements of Stockholders' Equity (in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of Shares of Common Stock | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Treasury Stock | | Total TA Stockholders' Equity | | Noncontrolling Interest | | Total Stockholders' Equity | December 31, 2017 | 7,997 | | | $ | 8 | | | $ | 690,680 | | | $ | 580 | | | $ | (126,220) | | | $ | — | | | $ | 565,048 | | | $ | 1,447 | | | $ | 566,495 | | Grants under share award plan and stock based compensation, net | 83 | | | — | | | 4,627 | | | — | | | — | | | (1,744) | | | 2,883 | | | — | | | 2,883 | | Retirement of treasury stock | — | | | — | | | — | | | — | | | — | | | 1,744 | | | 1,744 | | | — | | | 1,744 | | Distributions to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (101) | | | (101) | | Other comprehensive loss, net of taxes | — | | | — | | | — | | | (225) | | | — | | | — | | | (225) | | | — | | | (225) | | Net (loss) income | — | | | — | | | — | | | — | | | (120,553) | | | — | | | (120,553) | | | 149 | | | (120,404) | | December 31, 2018 | 8,080 | | | 8 | | | 695,307 | | | 355 | | | (246,773) | | | — | | | 448,897 | | | 1,495 | | | 450,392 | | Grants under share award plan and stock based compensation, net | 227 | | | — | | | 3,095 | | | — | | | — | | | (346) | | | 2,749 | | | — | | | 2,749 | | Retirement of treasury stock | — | | | — | | | — | | | — | | | — | | | 346 | | | 346 | | | — | | | 346 | | Distributions to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (136) | | | (136) | | Other comprehensive loss, net of taxes | — | | | — | | | — | | | (527) | | | — | | | — | | | (527) | | | — | | | (527) | | Cumulative effect of adoption of ASC 842, net of taxes | — | | | — | | | — | | | | — | | | 86,243 | | | — | | | 86,243 | | | — | | | 86,243�� | | Net income | — | | | — | | | — | | | — | | | 33,345 | | | — | | | 33,345 | | | 124 | | | 33,469 | | December 31, 2019 | 8,307 | | | $ | 8 | | | $ | 698,402 | | | $ | (172) | | | $ | (127,185) | | | $ | — | | | $ | 571,053 | | | $ | 1,483 | | | $ | 572,536 | |
The accompanying notes are an integral part of these consolidated financial statements.
TravelCenters of America Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except par value and per share amounts)
1.Summary of Significant Accounting Policies General Information and Basis of Presentation TravelCenters of America Inc., which we refer to as the Company or we, us and our, is a Maryland corporation. Prior to August 1, 2019, we were organized as a Delaware limited liability company. On August 1, 2019, in conjunction with our conversion from a Delaware limited liability company to a Maryland corporation, we assigned a $0.001 par value per share to our common stock and the excess over the par value has been classified as additional paid-in capital in our consolidated balance sheets. In addition, on August 1, 2019, we completed a reverse stock split of our outstanding shares of common stock pursuant to which every five shares of our issued and outstanding common stock were exchanged for one share of our common stock. The common stock information included within the financial statements and the notes thereto has been retrospectively adjusted to reflect the par value and the reverse stock split for all periods and dates presented. See Note 10 for more information about our reverse stock split. As of December 31, 2019, we operatedWe operate or franchised 306franchise 280 travel centers, standalone truck service facilities and a standalone restaurants.restaurant. Our customers include trucking fleets and their drivers, independent truck drivers, highway and local motorists and casual diners. We also collect rents, royalties and other fees from our tenants and franchisees.
As of December 31, 2019,2021, our business included 261276 travel centers in 44 states in the United States and the province of Ontario, Canada, primarily along the U.S. interstate highway system, operated primarily under the "TravelCenters of America," "TA," "TA Express," "Petro Stopping Centers" and "Petro" brand names. Of our 261these travel centers, at December 31, 2019, we owned 51, we leased 181, we operated 2 for a joint venture in which we owned a noncontrolling interest and 2742 were owned or leased from others by our franchisees. We operated 232 of our travel centers and franchisees operated 2944 travel centers, including 2 we leased to franchisees. Our travel centers offer a broad range of products and services, including diesel fuel and gasoline, as well as nonfuel products and services such as a wide range of truck repair and maintenance services, diesel exhaust fluid, full service restaurants, or FSRs, quick service restaurants, or QSRs and various customer amenities. As of December 31, 2019,2021, our business included 23 standalone truck service facilities operated under the "TA Truck Service" brand name. Of our 2these standalone truck service facilities, we leased 12 and owned 1. Our standalone truck service facilities offer extensive maintenance and emergency repair and roadside services to large trucks. As of December 31, 2019,2021, our business included 431 standalone restaurants in 12 states in the United States operated primarily under the "Quaker Steak & Lube," or QSL, brand name. Of our 43 standalone restaurants at December 31, 2019, we operated 16 restaurants (6 we owned, 9 we leased and 1restaurant that we operated for a joint venture in which we owned a noncontrolling interest)interest. On April 21, 2021, we completed the sale of our Quaker Steak & Lube, or QSL, business for $5,000 excluding costs to sell and 27 were owned or leased from others and operated bycertain closing adjustments. See Note 3 of this Annual Report for more information about the sale of our franchisees.QSL business. We manage our business as 1 segment. We make specific disclosures concerning fuel and nonfuel products and services because it facilitatesthey facilitate our discussion of trends and operational initiatives within our business and industry. We have a single travel center located in a foreign country, Canada, that we do not consider material to our operations. On December 5, 2018, we sold 225 convenience stores, 1 standalone restaurant and certain related assets, or our convenience stores business. As a result, the results of our convenience stores business are reported as discontinued operations for the year ended December 31, 2018, in our consolidated statements of operations and comprehensive income (loss). See Note 4 for more information about our discontinued operations.
Our consolidated financial statements include the accounts of TravelCenters of America Inc. and its subsidiaries. All intercompany transactions and balances have been eliminated. We use the equity method of accounting for investments in entities whenwhere we control up to 50% of the investee's voting stock and have the ability to significantly influence, but not control, the investee's operating and financial policies, typically when we own 20% to 50% of the investee's voting stock.policies. See Note 1211 for more information about our equity investments. The preparation of financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The COVID-19 pandemic has, and economic conditions occasionally in the past have, significantly altered the seasonal aspects of our business, and they may have similar impacts in the future. Significant Accounting Policies Revenue Recognition. Revenues consist of fuel revenues, nonfuel revenues and rents and royalties from franchisees. See Note 2 for more information about our revenues. Cash and Cash Equivalents. We consider highly liquid investments with original maturities of three months or less on the date of purchase to be cash equivalents, the majority of which are held at major commercial banks. Certain cash account balances exceed Federal Deposit Insurance Corporation insurance limits of $250 per account and, as a result, there is a concentration of credit risk related to amounts in excess of the insurance limits. We regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk in cash and cash equivalents.
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
Significant Accounting Policies
Revenue Recognition. Revenues consist of fuel revenues, nonfuel revenues and rent and royalties from franchisees. See Note 2 for more information about our revenues.
Accounts Receivable and Allowance for Doubtful Accounts. We record trade accounts receivable at the invoiced amount and those amounts do not bear interest. The recorded allowance for doubtful accounts is our best estimate of the amount of probable losses in our existing accounts receivable. We base the allowance on historical payment patterns, aging of accounts receivable, periodic review of customers' financial condition and actual write off history. We charge off account balances against the allowance when we believe it is probable the receivable will not be collected. As of December 31, 2019, our accounts receivable balance included $70,229 related to the federal biodiesel blenders' tax credit that the U.S. government retroactively reinstated in 2019 for 2018 and 2019.
Inventory. We state our inventory at the lower of cost or net realizable value. We determine cost principally on the weighted average cost method. We maintain reserves for the estimated amounts of obsolete and excess inventory. These estimates are based on unit sales histories and on hand inventory quantities, known market trends for inventory items and assumptions regarding factors such as future inventory needs, our ability and the related cost to return items to our suppliers and our ability to sell inventory at a discount when necessary. Property and Equipment. We record property and equipment as a result of business combinations based on their fair values as of the date of the acquisition. We record all other property and equipment at cost. We depreciate our property and equipment on a straight line basis generally over the following estimated useful lives of the assets: | | | | | | Buildings and site improvements | 10 to 40 years | Machinery and equipment | 3 to 15 years | Furniture and fixtures | 5 to 1020 years |
We depreciate leasehold improvements over the shorter of the lives shown above or the remaining term of the underlying lease. Goodwill and Intangible Assets. In a business combination we are required to record assets and liabilities acquired, including those intangible assets that arise from contractual or other legal rights or are otherwise capable of being separated or divided from the acquired entity, based on the fair values of the acquired assets and liabilities. Any excess of acquisition cost over the fair value of the acquired net identifiable assets is recognized as goodwill. We amortize the recorded costs of intangible assets with finite lives on a straight line basis over their estimated lives, principally the terms of the related contractual agreements. See Note 65 for more information about our goodwill and intangible assets. Impairment. We review definite lived assets for potential indicators of impairment during each reporting period. We recognize impairment charges when (i) the carrying value of a long lived asset or asset group to be held and used in the business is not recoverable and exceeds its fair value and (ii) when the carrying value of a long lived asset or asset group to be disposed of exceeds the estimated fair value of the asset less the estimated cost to sell the asset. Our estimates of fair value are based on our estimates of likely market participant assumptions, including our current expectations for projected fuel sales volume, nonfuel revenues, fuel and nonfuel gross margins, site level operating expense and real estate rent expense. If the business climate deteriorates, our actual results may not be consistent with these assumptions and estimates. The discount rate is used to measure the present value of projected future cash flows and is set at a rate we believe is likely to be used by a market participant using a weighted average cost of capital method that considers market and industry data as well as our specific risk factors. The weighted average cost of capital is our estimate of the overall after tax rate of return required by equity and debt holders of a business enterprise. We use a number of assumptions and methods in preparing valuations underlying the impairment tests including estimates of future cash flows and discount rates, and in some instances we may obtain third party appraisals. We recognize impairment charges in the period during which the circumstances surrounding an asset or asset group to be held and used have changed such that the carrying value is no longer recoverable, or during which a commitment to a plan to dispose of the asset or asset group is made. We perform our impairment analysis for substantially all of our property and equipment and operating lease assets at the individual site level because that is the lowest level of asset and liability groupings for which the cash flows are largely independent of the cash flows of other assets and liabilities. During 2019, based In March 2020, COVID-19 was declared a pandemic by the World Health Organization, and the U.S. Health and Human Services Secretary declared a public health emergency in the United States in response to the outbreak. The impact of the COVID-19 pandemic on our evaluationoperations was included in our analyses. The ultimate adverse impact of certain low performing ownedthe COVID-19 pandemic or a similar health crisis is highly uncertain. We are continuing to closely monitor the impact of the pandemic on all aspects of our business and leased standalone restaurants, we incurred impairment charges of $2,369intend to our property and equipment and $579respond to our operating lease assets.developments accordingly.
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
During 2021 and 2020, based on our evaluation of certain low performing owned and leased standalone restaurants, we incurred impairment charges of $650 and $6,574, respectively, to our property and equipment, which was included in depreciation and amortization expense and $1,262, to our operating lease assets during 2020, which was included in real estate expense in our consolidated statement of operations and comprehensive income (loss). We assess intangible assets with definite lives for impairment annually or whenever events or changes in circumstances warrant a revision to the remaining period of amortization. Definite lived intangible assets primarily include our agreements with franchisees. For 2019,2021, definite lived intangible assets were assessed using a qualitative analysis that was performed by assessing certain trends and factors, including actual sales, collection of royalties from franchisees and any changes in the manner in which the assets were used that could impact the values of the assets. During 2019,2021 and 2020, we did not record any impairment charges related to, or recognize a revision to the remaining period of amortization of, our definite lived intangible assets. We evaluate goodwill and indefinite lived intangible assets for impairment annually, or whenever events or changes in circumstances indicate the carrying amount may not be recoverable, using either a quantitative or qualitative analysis. Indefinite lived intangible assets consisted of trademarks and their fair value was determined using a relief from royalty method. We subject goodwill and indefinite lived intangible assets to further evaluation and recognize impairment charges when events and circumstances indicate the carrying value of the goodwill or indefinite lived intangible asset exceeds the fair market value of the asset. Goodwill is tested for impairment at the reporting unit level annually as of July 31, or more frequently if the circumstances warrant. We have 1 reporting unit, travel centers, due to the sale of our QSL business in April 2021. As of July 31, 2021, we evaluated our travel centers reporting unit for impairment using a qualitative analysis which included evaluating financial trends, industry and market conditions and assessing the reasonableness of the assumptions used in the most recent quantitative analysis, including comparing actual results to the projections used in the quantitative analysis. Based on the assessment performed, we concluded that it is not more likely than not that the fair value of the travel centers reporting unit was less than its carrying amount. Annual impairment testing for the travel centers reporting unit for 2020 was performed using a quantitative analysis under which the fair value of our reporting unit was estimated using both an income approach and a market approach. Based on our analysis in 2020, we concluded that goodwill for our travel centers reporting unit was not impaired. During 2020, we performed an impairment assessment of the goodwill in our QSL reporting unit using the same quantitative analysis approach that we historically followed for our goodwill impairment assessments. Based on our analysis, during the second quarter of 2020, we recorded a goodwill impairment charge of $3,046, which was recognized in depreciation and amortization expense in our consolidated statement of operations and comprehensive income (loss) related to our QSL reporting unit prior to its disposal. We evaluate indefinite lived intangible assets for impairment as of November 30, or more frequently if the circumstances warrant. During 2019,2021 and 2020, indefinite lived intangible assets were assessed using a qualitative analysis that was performed by assessing certain trends and factors, including actual sales and operating profit margins, discount rates, industry data and other relevant qualitative factors. These trends and factors were compared to, and based on, the assumptions used in the most recent quantitative assessment. During 2019,2021 and 2020, we did not record any impairment charges related to our indefinite lived intangible assets. We evaluate goodwill for impairment at the reporting unit level as of July 31, or more frequently if the circumstances warrant. We have 2 reporting units, which included our travel centers business and our QSL business, as of December 31, 2019. With respect to goodwill, if we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a goodwill impairment test to measure the amount of impairment to be recognized, if any.
As of July 31, 2019, our annual goodwill impairment test for the travel centers and QSL reporting units was performed using a qualitative analysis, which included evaluating financial trends and industry and market conditions and assessing the reasonableness of the assumptions used in the most recent quantitative analysis, including comparing actual results to the projections used in the quantitative analysis. Based on our analyses, we concluded that as of July 31, 2019, our goodwill in those reporting units was not impaired.
Stock Based Employee Compensation. We have historically granted awards of our shares of common stock under our share award plans. Stock awards issued to our Directors vest immediately. Stock awards made to others vest in five or 10 equal annual installments beginning on the date of the award. Compensation expense related to stock awards is determined based on the market value of our shares of common stock on the date of the award with the aggregate value of the shares of common stock awarded amortized to expense over the period of time over which the stock based payments vest. We recognize forfeited stock awards as they occur. We include stock based compensation expense in selling, general and administrative expense in our consolidated statements of operations and comprehensive income (loss).
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
Environmental Remediation. We record remediation charges and penalties when the obligation to remediate is probable and the amount of associated costs are reasonably determinable. We include remediation expense within site level operating expense in our consolidated statements of operations and comprehensive income (loss). Generally, the timing of remediation expense recognition coincides with completion of a feasibility study or the commitment to a formal plan of action. Accrued liabilities related to environmental matters are recorded on an undiscounted basis because of the uncertainty associated with the timing of the related future payments. In our consolidated balance sheets, the accrual for environmental matters is included in other noncurrent liabilities, with the amount estimated to be expended within the subsequent 12 months included in other current liabilities. We recognize a receivable for estimated future environmental costs that we may be reimbursed for within other noncurrent assets in our consolidated balance sheets. See Note 14 for more information on our estimated future environmental costs.
Software as a Service Agreements. We subscribe to software agreements, commonly referred to as Software as a Service agreements or cloud-based applications, as an alternative in some cases to developing or licensing internal-use software. We capitalize the implementation costs for these subscription services and amortize to expense over the terms of the respective contracts. On the consolidated balance sheets, the remaining unamortized implementation costs are recorded within other current assets and other noncurrent assets. We record the subscription fees and amortized implementation costs to either selling, general and administrative expense or site level operating expense (depending on the nature of the application) in our consolidated statements of operations and comprehensive income (loss).
Self Insurance Accruals. For insurance programs for which we pay deductibles and for which we are partially self insured up to certain stop loss amounts, we establish accruals for both estimated losses on known claims and potential claims incurred but not reported, based on claims histories and using actuarial methods. In our consolidated balance sheets, the accrual for self- insurance costs is included in other noncurrent liabilities, with the amount estimated to be expended within the subsequent 12 months included in other current liabilities.
TravelCenters of America Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except par value and per share amounts)
Asset Retirement Obligations. We recognize the future costs for our obligations related to the removal of our underground storage tanks and certain improvements we own at leased properties over the estimated useful lives of each asset requiring removal. We record a liability for the fair value of an asset retirement obligation with a corresponding increase to the carrying value of the related long lived asset at the time such an asset is installed. We base the estimated liability on our historical experiences in removing these assets, their estimated useful lives, external estimates as to the cost to remove the assets in the future and regulatory or contractual requirements. The liability is a discounted liability using a credit adjusted risk free rate. Our asset retirement obligations at December 31, 20192021 and 2018,2020, were $5,160$6,211 and $2,478,$5,752, respectively, and are presented in other noncurrent liabilities in our consolidated balance sheets. Leasing Transactions. Leasing transactions are a material part of our business. We have lease agreements covering many of our properties, as well as various equipment, with the most significant leases being our 5 leases with Service Properties Trust, (formerly known as Hospitality Properties Trust), or SVC. We recognize operating lease assets and liabilities for all leases with an initial term greater than 12 months. Leases with an initial term of 12 months or less are not recognized in our consolidated balance sheets. Our operating lease liabilities represent the present value of our unpaid lease payments. The discount rate used to derive the present value of unpaid lease payments is based on the rates implicit in our leases with SVC and our incremental borrowing rate for all other leases. Certain of our leases include renewal options, and certain of our leases include escalation clauses and purchase options. Renewal periods are included in calculating our operating lease assets and liabilities when they are reasonably certain. We evaluate the potential inclusion of renewal periods on a case by case basis, based on terms of the applicable renewal option, the availability of comparable replacement property and our ability to bear the exit costs associated with the termination of the lease, among other things. We recognize rent under operating leases without scheduled rent increases as an expense over the lease term as it becomes payable. Certain operating leases specify scheduled rent increases over the lease term or other lease payments that are not scheduled evenly throughout the lease term. We recognize the effects of those scheduled rent increases in rent expense over the lease term on an average, or straight line, basis, which reduces our operating lease assets. The rent payments resulting from our sales to SVC of improvements to the properties we lease from SVC are contingent rent. We recognize the expense related to this contingent rent evenly throughout the remaining lease term beginning on the dates of the related sales to SVC. See Note 98 for more information about our leases with SVC and our accounting for them.
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
Income Taxes. We establish deferred income tax assets and liabilities to reflect the future tax consequences of differences between the tax basis and financial statement basis of assets and liabilities. We reduce the measurement of deferred tax assets, if necessary, by a valuation allowance when it is more likely than not that the deferred tax asset will not be realized. We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. We evaluate and adjust these tax positions based on changing facts and circumstances. For tax positions meeting the more likely than not threshold, the amount we recognize in the financial statements is the largest benefit that we estimate has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. See Note 1110 for more information about our income taxes. Reclassifications. Certain prior year amounts have been reclassified to be consistent with the current year presentation within our consolidated financial statements. Recently Issued Accounting Pronouncements In February 2016,The following table summarizes recent accounting standard updates, or ASU, issued by the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update 2016-02, Leases, or ASU 2016-02, which established a comprehensive lease standard under GAAP for virtually all industries. In August 2018, the FASB issued Accounting Standards Update 2018-11, Targeted Improvements to ASC 842, or ASU 2018-11, which allowed companies to adopt the standard using the modified retrospective transition method. ASU 2016-02 and 2018-11 are collectively referred to as ASC 842. ASC 842 requires lessees to apply a dual approach, classifying leases as either finance or operating leases. This classification determines whether the lease expense is recognized basedthat could have an impact on the effective interest method or on a straight line basis over the term of the lease. A lessee is also required to recognize a right of use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. We adopted ASC 842 on January 1, 2019, using the modified retrospective transition method, and elected to not restate prior year comparative periods. We elected to adopt the package of practical expedients; accordingly, we retained the lease classification and initial direct costs for any leases that existed prior to adoption and we did not revisit whether any existing or expired contracts contain leases. See Note 9 for more information about the impact of ASC 842.our consolidated financial statements.
| | | | | | | | | | | | | | | Standard | Description | Effective Date | Effect on the Consolidated Financial Statements | Recently Adopted Standards | | | | ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes | This update eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. | January 1, 2021 | The implementation of this update did not have a material impact on our consolidated financial statements. | Recently Issued Standards | | | | ASU 2021-10 - Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance | This update aims to provide increased transparency by requiring business entities to disclose information about certain types of government assistance they receive in the notes to the financial statements. | January 1, 2022 | We are currently assessing whether this update will have a material impact on our consolidated financial statements. | | | | | | ASU 2021-01 - Reference Rate Reform (Topic 848) Scope | This update clarifies that certain optional expedients and exceptions for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. | January 1, 2023 | We are currently assessing whether this update will have a material impact on our consolidated financial statements. | | | | | | ASU 2020-04 - Reference Rate Reform (Topic 848) Facilitation of the effects of Reference Rate Reform of Financial Reporting | This update provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. | January 1, 2023 | We are currently assessing whether this update will have a material impact on our consolidated financial statements. |
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
In June 2018, the FASB issued Accounting Standards Update 2018-07, Compensation - Stock Compensation, or ASU 2018-07, which aligns the accounting for stock based payments to nonemployees with the accounting for stock based payments to employees. We adopted ASU 2018-07 on January 1, 2019, using the modified retrospective transition method, which had no impact on our prior year comparative period. Historically, compensation expense related to stock awards granted to nonemployees was determined based on the vesting date fair value. Under ASU 2018-07, compensation expense relating to all stock awards is now measured at the grant date fair value and amortized to expense over the period of time over which the stock based payments vest. Upon adoption of ASU 2018-07, stock awards to nonemployees were remeasured using the adoption date fair value, or the market value of our shares of common stock as of January 1, 2019. We include stock based compensation expense in selling, general and administrative expense in our consolidated statements of operations and comprehensive income (loss).
In August 2018, the FASB issued Accounting Standards Update 2018-15, Intangibles - Goodwill and Other - Internal-Use Software, which aligns the accounting for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software. The capitalized implementation costs are to be amortized over the term of the contract. The new standard is required for annual periods beginning after December 15, 2019, including interim periods therein. Early adoption is permitted. We adopted this standard on January 1, 2020, using the prospective transition method. The implementation of this update will not cause a material change to our consolidated financial statements.
2. Revenues We recognize revenues based on the consideration specified in the contract with the customer, excludingnet of any sales incentives (such as customer loyalty programs and customer rebates) and excluding amounts collected on behalf of third parties (such as sales and excise taxes). The majority of our revenues are generated at the point of sale in our retail locations. Revenues consist of fuel revenues, nonfuel revenues and rentrents and royalties from franchisees. Fuel Revenues. We recognize fuel revenues and the related costs at the time of sale to customers at our company operated locations. We sell diesel fuel and gasoline to our customers at prices that we establish daily or are indexed to market prices and reset daily. We sell diesel fuel under pricing arrangements with certain customers. For the year ended December 31, 2019,2021, approximately 86.4%89.9% of our diesel fuel volume was sold at discounts to posted prices under pricing arrangements with our fleet customers, some of which include rebates payable to the customer after the end of the period. Nonfuel Revenues. We recognize nonfuel revenues and the related costs at the time of sale to customers at our company operated locations. We sell a variety of nonfuel products and services at stated retail prices in our travel centers and standalone restaurants, as well as through our RoadSquad®TA Truck Service Emergency Roadside Assistance®, TechOn-Site®TA Truck Service Mobile Maintenance®, and TA Commercial Tire Network™ programs. Truck repair and maintenance goods or services may be sold at discounted prices under pricing arrangements with certain customers, some of which include rebates payable to the customer after the end of the period. Rent and Royalties from Franchisees Revenues. We recognize franchise royalties and advertising fees from franchisees as revenue monthly based on the franchisees' sales data reported to us. Royalty revenues are contractual as a percentage of the franchisees' revenues and advertising fees are contractual as either a percentage of the franchisees' revenues or as a fixed amount. When we enter into a new franchise agreement or a renewal term with an existing franchisee, the franchisee is required to pay an initial or renewal franchise fee. Initial and renewal franchise fees are recognized as revenue on a straight line basis over the term of the respective franchise agreements. For those travel centers that we lease to a franchisee, we recognize rent revenues on a straight line basis based on the current contractual rent amount. These leases include rent escalations that are contingent on future events, namely inflation or our investing in capital improvements at these travel centers. Because the rent increases related to these factors are contingent upon future events, we recognize the related rent revenues after such events have occurred. See Note 98 for more information about the travel centers we leased to franchisees.
TravelCenters of America Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except par value and per share amounts)
Other. Sales incentives and other promotional activities that we recognize as a reduction to revenues include, but are not limited to, the following: •Customer Loyalty Programs. We offer travel center trucking customers and casual restaurant diners the option to participate in our customer loyalty programs. Our customer loyalty programs provide customers with the right to earn loyalty awards on qualifying purchases that can be used for discounts on future purchases of goods or services. We apply a relative standalone selling price approach to our outstanding loyalty awards whereby a portion of each sale attributable to the loyalty awards earned is deferred and will be recognized as revenue in the category in which the loyalty awards are redeemed upon the redemption or expiration of the loyalty awards. Significant judgment is required to determine the standalone selling price for loyalty awards. Assumptions used in determining the standalone selling price include the historic redemption rate and the use of a weighted average selling price for fuel to calculate the revenues attributable to the customer loyalty awards. •Customer Discounts and Rebates. We enter into agreements with certain customers in which we agree to provide discounts on fuel and/or truck service purchases, some of which are structured as rebates payable to the customer after the end of the period. We recognize the cost of discounts against, and in the same period as, the revenues that generated the discounts earned. •Gift Cards. We sell branded gift cards. Sales proceeds are recognized as a contract liability; the liability is reduced and revenue is recognized when the gift card subsequently is redeemed for goods or services. Unredeemed gift card balances are recognized as revenues when the possibility of redemption becomes remote.
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
Disaggregation of Revenues
We disaggregate our revenues based on the type of good or service provided to the customer, or by fuel revenues and nonfuel revenues, in our consolidated statements of operations and comprehensive income (loss). Nonfuel revenues disaggregated by type of good or service for the years ended December 31, 20192021 and 2018,2020, were as follows: | | | | | | | | | | | | | Year Ended December 31, | | | | 2019 | | 2018 | Nonfuel revenues: | | | | Store and retail services | $ | 756,854 | | | $ | 732,220 | | Truck service | 674,203 | | | 671,385 | | Restaurant | 425,090 | | | 416,736 | | Total nonfuel revenues | $ | 1,856,147 | | | $ | 1,820,341 | |
TravelCenters of America Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except par value and per share amounts)
| | | | | | | | | | | | | Year Ended December 31, | | 2021 | | 2020 | Nonfuel revenues: | | | | Truck service | $ | 747,079 | | | $ | 670,847 | | Store and retail services | 751,097 | | | 660,921 | | Restaurant | 310,718 | | | 308,525 | | Diesel exhaust fluid | 137,838 | | | 107,125 | | Total nonfuel revenues | $ | 1,946,732 | | | $ | 1,747,418 | |
Contract Liabilities Our contract liabilities, which are presented in our consolidated balance sheets in other current and other noncurrent liabilities, primarily include deferred revenues related to our customer loyalty programs, gift cards, rebates payable to customers and other deferred revenues. The following table shows the changes in our contract liabilities between periods. | | | | | | | | | | | | | | | | | | | Customer Loyalty Programs | | Other | | Total | December 31, 2017 | $ | 15,165 | | | $ | 4,681 | | | $ | 19,846 | | Increases due to unsatisfied performance obligations arising during the period | 81,517 | | | 10,083 | | | 91,600 | | Revenues recognized from satisfying performance obligations during the period | (74,548) | | | (10,064) | | | (84,612) | | Other | (6,644) | | | (1,230) | | | (7,874) | | December 31, 2018 | 15,490 | | | 3,470 | | | 18,960 | | Increases due to unsatisfied performance obligations arising during the period | 103,228 | | | 12,982 | | | 116,210 | | Revenues recognized from satisfying performance obligations during the period | (90,462) | | | (10,519) | | | (100,981) | | Other | (10,263) | | | (1,111) | | | (11,374) | | December 31, 2019 | $ | 17,993 | | | $ | 4,822 | | | $ | 22,815 | |
| | | | | | | | | | | | | | | | | | | Customer Loyalty Programs | | Deferred Franchise Fees and Other | | Total | December 31, 2020 | $ | 22,821 | | | $ | 7,145 | | | $ | 29,966 | | Increases due to unsatisfied performance obligations arising during the period | 127,425 | | | 12,679 | | | 140,104 | | Revenues recognized from satisfied performance obligations during the period | (126,363) | | | (11,181) | | | (137,544) | | Other | 2,237 | | | (2,487) | | | (250) | | December 31, 2021 | $ | 26,120 | | | $ | 6,156 | | | $ | 32,276 | |
As of December 31, 2019,2021, we expect the unsatisfied performance obligations relating to our customer loyalty programs will generally be satisfied within 12 months. As of December 31, 2019,2021, the deferred initial and renewal franchise fee revenue expected to be recognized in future periods ranges between $119$507 and $176$595 for each of the years 20202022 through 2024.2026.
3. Acquisitions 2019 Acquisitions. In January 2019, we entered into agreements, or the Transaction Agreements, with SVC pursuant to which, among other things, we purchased 20 travel centers for $309,637, which amount includes $1,437 of transaction related costs. These acquisitions were accounted for as asset acquisitions that resulted in the derecognition of certain operating lease assets and liabilities for a net recognized aggregate cost basis of the acquired assets of $284,902. See Note 9 for more information about the Transaction Agreements and our leases with SVC and Note 14 for more information about our relationship with SVC.
As of December 31, 2019, we had entered into an agreement to acquire 1 parcel of land for $1,358, which we expect to account for as an asset acquisition. We expect to complete this acquisition by the end of the second quarter of 2020, but this purchase is subject to conditions and may not occur, may be delayed or the terms may change.
2018 Acquisitions. During the year ended December 31, 2018, we acquired a travel center from 1 of our franchisees for a purchase price of $10,482, and we accounted for this transaction as a business combination, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their respective fair values as of the date of acquisition. We have included the results of the acquired business in our consolidated financial statements from the date of acquisition. The pro forma impact of this acquisition, including the respective results of operations from the beginning of the periods presented, is not material to our consolidated financial statements.
During the year ended December 31, 2018, we acquired a tire retread facility for $2,805 and also acquired certain assets from 2 former franchisees, who previously leased from us travel centers we now operate, upon the termination of the related lease and franchise agreements for an aggregate purchase price of $5,202. These acquisitions were accounted for as asset acquisitions.
TravelCenters of America Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except par value and per share amounts)
4. Discontinued OperationsDisposition Activity
On December 5, 2018,April 21, 2021, we completed the sale of our convenience storesQSL business for an aggregate sales price of $330,609. We received net proceeds from this sale of $319,853 after transaction related costs of $9,650 and cash sold of $1,106. Upon the classification of the assets and related liabilities as held for sale, we determined that the carrying value of the convenience stores business exceeded the agreed sales price less$5,000, excluding costs to sell resultingand certain closing adjustments. We did not treat the sale of QSL as a discontinued operation, as we concluded that its effect was not material and did not represent a strategic shift in our business. As of the date of sale, our QSL business included 41 standalone restaurants in 11 states in the United States operated primarily under the QSL brand name. During the second quarter of 2021, we recognized a $606 loss on disposalthe sale of $79,623 recognizedQSL, which was included in the year ended December 31, 2018. The following table presents the resultsother operating income, net, in our consolidated statements of operations forand comprehensive income (loss). Impairment charges relating to our discontinued operations forQSL net asset disposal group, primarily resulting from the year ended December 31, 2018.
| | | | | | | Year Ended December 31, 2018 | Revenues | $ | 742,160 | | Cost of goods sold (excluding depreciation) | 610,524 | | Site level operating expense | 103,037 | | Selling, general and administrative expense | 9,443 | | Real estate rent expense | 2,206 | | Depreciation and amortization expense | 20,418 | | Impairment of goodwill | 69,340 | | Loss from discontinued operations before income taxes | (72,808) | | Benefit for income taxes | 14,789 | | Loss from discontinued operations, net of taxes | (58,019) | | Loss on disposal | (79,623) | | Benefit for income taxes | 20,011 | | Loss from discontinued operations | $ | (117,631) | |
5. Propertychange in fair value of underlying assets sold, cumulatively totaled $14,365, which included $650 and Equipment
Property and equipment, net as of December 31, 2019 and 2018, consisted of the following:
| | | | | | | | | | | | | December 31, | | | | 2019 | | 2018 | Machinery, equipment and furniture | $ | 533,380 | | | $ | 459,892 | | Land and improvements | 316,751 | | | 177,322 | | Buildings and improvements | 307,433 | | | 197,866 | | Leasehold improvements | 271,451 | | | 242,469 | | Construction in progress | 24,678 | | | 65,855 | | Property and equipment, at cost | 1,453,693 | | | 1,143,404 | | Less: accumulated depreciation and amortization | 585,190 | | | 514,867 | | Property and equipment, net | $ | 868,503 | | | $ | 628,537 | |
Total depreciation expense for$13,715 recognized during the years ended December 31, 20192021 and 2018, was $97,2322020 , respectively, and $80,938, respectively, whichwere included impairment charges of $2,369 for the year ended December 31, 2019, related to certain standalone restaurants.
TravelCenters of America Inc.
Notes to Consolidated Financial Statements
(dollarsin depreciation and shares in thousands, except par value and per share amounts)
The following table shows the amounts of property and equipment owned by SVC but recognized in property and equipment, netamortization expense in our consolidated balance sheets,statements of operations and included within the balances shown in the table above, as a result of the required accounting for the assets funded by SVC under the deferred tenant improvements allowance and as of December 31, 2018, for the assets that did not qualify for sale leaseback accounting. Upon adoption of ASC 842, these failed sale leasebacks were reclassified as operating leases and are included in operating lease assets in our consolidated balance sheet as of December 31, 2019. See Note 9 for more information about our leases with SVC.
| | | | | | | | | | | | | December 31, | | | | 2019 | | 2018 | Leasehold improvements | $ | 101,316 | | | $ | 114,195 | | Land and improvements | — | | | 14,945 | | Buildings and improvements | — | | | 9,943 | | Machinery, equipment and furniture | — | | | 3,282 | | Property and equipment, at cost | 101,316 | | | 142,365 | | Less: accumulated depreciation and amortization | 81,915 | | | 96,266 | | Property and equipment, net | $ | 19,401 | | | $ | 46,099 | |
At December 31, 2019, our property and equipment balance included $37,425 of improvements of the type that we historically requested that SVC purchase for an increase in annual minimum rent; however, we may elect not to sell some of those improvements and SVC is not obligated to purchase these improvements.
6. Goodwill and Intangible Assets
Intangible Assets
Intangible assets, net, as of December 31, 2019 and 2018, consisted of the following:
| | | | | | | | | | | | | | | | | | | December 31, 2019 | | | | | | Cost | | Accumulated Amortization | | Net | Amortizable intangible assets: | | | | | | Agreements with franchisees | $ | 21,145 | | | $ | (13,350) | | | $ | 7,795 | | Leasehold interests | 2,094 | | | (2,094) | | | — | | Other | 3,913 | | | (3,318) | | | 595 | | Total amortizable intangible assets | 27,152 | | | (18,762) | | | 8,390 | | Carrying value of trademarks (indefinite lives) | 12,317 | | | — | | | 12,317 | | Intangible assets, net | $ | 39,469 | | | $ | (18,762) | | | $ | 20,707 | |
comprehensive income (loss).
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
| | | | | | | | | | | | | | | | | | | December 31, 2018 | | | | | | Cost | | Accumulated Amortization | | Net | Amortizable intangible assets: | | | | | | Agreements with franchisees | $ | 21,645 | | | $ | (12,308) | | | $ | 9,337 | | Leasehold interests | 2,754 | | | (2,183) | | | 571 | | Other | 3,913 | | | (3,251) | | | 662 | | Total amortizable intangible assets | 28,312 | | | (17,742) | | | 10,570 | | Carrying value of trademarks (indefinite lives) | 12,317 | | | — | | | 12,317 | | Intangible assets, net | $ | 40,629 | | | $ | (17,742) | | | $ | 22,887 | |
4. Property and Equipment Property and equipment, net as of December 31, 2021 and 2020, consisted of the following: | | | | | | | | | | | | | December 31, | | 2021 | | 2020 | Machinery, equipment and furniture | $ | 530,642 | | | $ | 531,755 | | Land and improvements | 319,314 | | | 315,906 | | Leasehold improvements | 342,952 | | | 296,396 | | Buildings and improvements | 299,936 | | | 295,588 | | Construction in progress | 60,590 | | | 14,391 | | Property and equipment, at cost | 1,553,434 | | | 1,454,036 | | Less: accumulated depreciation and amortization | 722,007 | | | 652,247 | | Property and equipment, net | $ | 831,427 | | | $ | 801,789 | |
Total amortizationdepreciation expense for amortizable intangible assets for the years ended December 31, 20192021 and 2018,2020, was $1,609$91,044 and $2,452, respectively. We amortize our amortizable intangible assets over a weighted average period$103,178, respectively, which included impairment charges of approximately nine years. The aggregate amortization expense$650 and $6,574 for our amortizable intangible assets as ofthe years ended December 31, 2019, for each2021 and 2020, related to our QSL business.
The following table shows the amounts of property and equipment owned by SVC but recognized in operating lease assets in our consolidated balance sheets. | | | | | | | | | | | | | December 31, | | 2021 | | 2020 | Leasehold improvements | $ | 99,411 | | | $ | 100,419 | | Property and equipment, at cost | 99,411 | | | 100,419 | | Less: accumulated depreciation and amortization | 83,819 | | | 82,919 | | Property and equipment, net | $ | 15,592 | | | $ | 17,500 | |
At December 31, 2021, our property and equipment, net balance included $94,484 of improvements of the next five years is: | | | | | | | Total | 2020 | $ | 1,152 | | 2021 | 1,068 | | 2022 | 961 | | 2023 | 863 | | 2024 | 848 | |
Goodwill
Astype that we historically requested that SVC purchase for an increase in annual minimum rent; however, we may elect not to sell some of December 31, 2019, all ofthose improvements and SVC is not obligated to purchase those improvements. See Note 8 for more information about our goodwill balance is deductible for tax purposes. Goodwill by reporting unit was as follows:
| | | | | | | | | | | | | December 31, | | | | 2019 | | 2018 | Travel centers business | $ | 22,213 | | | $ | 22,213 | | QSL business | 3,046 | | | 3,046 | | Total goodwill | $ | 25,259 | | | $ | 25,259 | |
7. Other Current Liabilities
Other current liabilities as of December 31, 2019 and 2018, consisted of the following:
| | | | | | | | | | | | | December 31, | | | | 2019 | | 2018 | Taxes payable, other than income taxes | $ | 52,320 | | | $ | 42,985 | | Accrued wages and benefits | 21,416 | | | 19,830 | | Customer loyalty program accruals | 17,993 | | | 15,490 | | Self insurance program accruals, current portion | 13,509 | | | 14,623 | | Accrued capital expenditures | 4,721 | | | 7,742 | | Other | 28,496 | | | 24,998 | | Total other current liabilities | $ | 138,455 | | | $ | 125,668 | |
leases with SVC.
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
5. Goodwill and Intangible Assets 8.Intangible Assets
Intangible assets, net, as of December 31, 2021 and 2020, consisted of the following: | | | | | | | | | | | | | | | | | | | December 31, 2021 | | Cost | | Accumulated Amortization | | Net | Amortizable intangible assets: | | | | | | Agreements with franchisees | $ | 15,215 | | | $ | (12,650) | | | $ | 2,565 | | Leasehold interests | 2,094 | | | (2,094) | | | — | | Other | 3,913 | | | (3,451) | | | 462 | | Total amortizable intangible assets | 21,222 | | | (18,195) | | | 3,027 | | Carrying value of trademarks (indefinite lives) | 7,907 | | | — | | | 7,907 | | Intangible assets, net | $ | 29,129 | | | $ | (18,195) | | | $ | 10,934 | |
| | | | | | | | | | | | | | | | | | | December 31, 2020 | | Cost | | Accumulated Amortization | | Net | Amortizable intangible assets: | | | | | | Agreements with franchisees | $ | 17,134 | | | $ | (14,039) | | | $ | 3,095 | | Leasehold interests | 2,094 | | | (2,094) | | | — | | Other | 3,913 | | | (3,386) | | | 527 | | Total amortizable intangible assets | 23,141 | | | (19,519) | | | 3,622 | | Carrying value of trademarks (indefinite lives) | 7,907 | | | — | | | 7,907 | | Intangible assets, net | $ | 31,048 | | | $ | (19,519) | | | $ | 11,529 | |
Total amortization expense for amortizable intangible assets for the years ended December 31, 2021 and 2020, was $595 and $1,547, respectively. We amortize our amortizable intangible assets over a weighted average period of approximately eight years. The aggregate amortization expense for our amortizable intangible assets as of December 31, 2021, for each of the next five years is: | | | | | | | Total | 2022 | $ | 490 | | 2023 | 391 | | 2024 | 391 | | 2025 | 375 | | 2026 | 322 | |
Goodwill The goodwill balance as of December 31, 2021 and 2020 was $22,213, all of which relates to our travel centers reporting unit. As of December 31, 2021, all of our goodwill balance is deductible for tax purposes.
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
6. Other Current Liabilities Other current liabilities as of December 31, 2021 and 2020, consisted of the following: | | | | | | | | | | | | | December 31, | | 2021 | | 2020 | Taxes payable, other than income taxes | $ | 55,029 | | | $ | 56,028 | | Accrued wages and benefits(1) | 39,493 | | | 46,390 | | Customer loyalty program accruals | 26,120 | | | 22,821 | | Self insurance program accruals, current portion | 15,870 | | | 15,415 | | Accrued capital expenditures | 24,825 | | | 5,243 | | Current portion of long term debt | 2,849 | | | 2,849 | | Other | 30,667 | | | 27,121 | | Total other current liabilities | $ | 194,853 | | | $ | 175,867 | |
(1) As of December 31, 2021, pursuant to the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, which includes provisions allowing the deferral of the employer portion of social security taxes incurred during parts of 2020, accrued wages and benefits included $11,670 of deferred employer social security payments.
7. Long Term Debt Long term debt, net of discount and deferred financing costs, as of December 31, 20192021 and 2018,2020, consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | | Interest Rate | | Maturity Date | | December 31, | | | | | | | | 2019 | | 2018 | 2028 Senior Notes | 8.25% | | | January 15, 2028 | | $ | 110,000 | | | $ | 110,000 | | 2029 Senior Notes | 8.00% | | | December 15, 2029 | | 120,000 | | | 120,000 | | 2030 Senior Notes | 8.00% | | | October 15, 2030 | | 100,000 | | | 100,000 | | Revolving Credit Facility | 5.00% | | | July 19, 2024 | | 7,900 | | | — | | Other long term debt | 6.06% | | | March 31, 2027 | | 982 | | | 1,086 | | Deferred financing costs | | | | | (9,561) | | | (10,558) | | Total long term debt, net | | | | | $ | 329,321 | | | $ | 320,528 | |
| | | | | | | | | | | | | | | | | December 31, | | | 2021 | | 2020 | 8.25% 2028 Senior Notes | | $ | 108,021 | | | $ | 107,693 | | 8.00% 2029 Senior Notes | | 117,063 | | | 116,694 | | 8.00% 2030 Senior Notes | | 97,353 | | | 97,052 | | 7.00% Term Loan Facility | | 189,274 | | | 190,113 | | 3.85% West Greenwich Loan | | 15,125 | | | 15,758 | | Other | | 794 | | | 936 | | Total long term debt | | $ | 527,630 | | | $ | 528,246 | | Less current portion | | 2,849 | | | 2,849 | | Total long term debt, net | | $ | 524,781 | | | $ | 525,397 | |
Senior Notes Our $110,000 2028 Senior Notes were issued in January 2013 and require us to pay interest quarterly in arrears on January 15, April 15, July 15 and October 15 of each year. No principal payments are required prior to the maturity date. The 2028 Senior Notes mature on January 15, 2028. We may, at our option, at any time redeem some or all of the 2028 Senior Notes by paying 100% of the principal amount of the 2028 Senior Notes to be redeemed plus accrued but unpaid interest, if any, to, but not including, the redemption date. Our $120,000 2029 Senior Notes were issued in December 2014 and require us to pay interest quarterly in arrears on February 28, May 31, August 31 and November 30 of each year. No principal payments are required prior to the maturity date. The 2029 Senior Notes mature on December 15, 2029. We may, at our option, at any time redeem some or all of the 2029 Senior Notes by paying 100% of the principal amount of the 2029 Senior Notes to be redeemed plus accrued but unpaid interest, if any, to, but not including, the redemption date.
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
Our $100,000 2030 Senior Notes were issued in October 2015 and require us to pay interest quarterly in arrears on January 15, April 15, July 15 and October 15 of each year. No principal payments are required prior to the maturity date. The 2030 Senior Notes mature on October 15, 2030. We may, at our option, at any time redeem some or all of the 2030 Senior Notes by paying 100% of the principal amount of the 2030 Senior Notes to be redeemed plus accrued but unpaid interest, if any, to, but not including, the redemption date. We refer to the 2028 Senior Notes, 2029 Senior Notes and 2030 Senior Notes collectively as our Senior Notes, which are our senior unsecured obligations. The indenture governing our Senior Notes does not limit the amount of indebtedness we may incur. We may issue additional debt from time to time. Our Senior Notes are presented in our consolidated balance sheets as long term debt, net of deferred financing costs. We estimate that, the fair values of our 2028 Senior Notes, 2029 Senior Notes and 2030 Senior Notes were $112,332, $121,200 and $102,000, respectively, based on their respective closingtrading prices on The Nasdaq Stock Market LLC, or the Nasdaq, (a Level 12 input), the aggregate fair value of our Senior Notes was $348,880 on December 31, 2019.2021. Term Loan Facility On December 14, 2020, we entered into a $200,000 Term Loan Facility, or the Term Loan Facility, which is secured by a pledge of all the equity interests of substantially all of our wholly owned subsidiaries, a pledge, subject to the prior interest of the lenders under our Credit Facility, of substantially all of our other assets and the assets of such wholly owned subsidiaries and mortgages on certain of our fee owned real properties. We used the net proceeds of $190,062 from our Term Loan Facility for general business purposes, including the funding of deferred capital expenditures, updates to key information technology infrastructure and growth initiatives consistent with our Transformation Plan. Interest on amounts outstanding under the Term Loan Facility are calculated at LIBOR, with a LIBOR floor of 100 basis points, plus 600 basis points and the Term Loan Facility matures on December 14, 2027. Our Term Loan Facility requires periodic interest payments based on the interest period selected and quarterly principal payments of $500, or 1.0% of the original principal amount annually. In addition, beginning with the year ended December 31, 2021 and for each twelve month period thereafter (each considered an “Excess Cash Flow Period”, as defined), we are required to calculate Excess Cash Flow, as defined, and prepay an amount equal to Excess Cash Flow less other defined adjustments. The prepayment, as calculated, is due 95 days after the end of the respective Excess Cash Flow Period. There was no required prepayment due as of December 31, 2021. Remaining principal amounts outstanding under the Term Loan Facility may be prepaid beginning on December 14, 2022.
West Greenwich Loan On February 7, 2020, we entered into a 10 year term loan for $16,600 with The Washington Trust Company, or the West Greenwich Loan. The West Greenwich Loan is secured by a mortgage encumbering our travel center located in West Greenwich, Rhode Island. The interest rate is fixed at 3.85% for five years based on the 5 year Federal Home Loan Bank rate plus 198 basis points, and will reset thereafter. The West Greenwich Loan requires us to make principal and interest payments monthly. The proceeds from the West Greenwich Loan were used for general business purposes. We may, at our option with 60 days prior written notice, repay the loan in full prior to the end of the 10 year term plus, if repaid prior to February 7, 2023, a nominal penalty. Revolving Credit Facility On July 19, 2019,December 14, 2020, we and certain of our subsidiaries as borrowers or guarantors, entered into an amendment or the Amendment, to our amendedAmended and restated loanRestated Loan and security agreement,Security Agreement, or the Credit Facility, dated October 25, 2011, with Wells Fargo Capital Finance, LLC, as administrative agent for various lenders. The Amendment, among other things: (i) extended the maturitya group of the Credit Facility from December 19, 2019, tocommercial banks that matures on July 19, 2024; (ii) reduced the applicable margins on borrowings and standby letter of credit fees by 25 basis points and on commercial letter of credit fees by 12.5 basis points; (iii) made certain adjustments to the limitations on investments, dividends and stock repurchases under the Credit Facility in a manner favorable to us; (iv) reduced the sublimit for issuance of letters of credit under the Credit Facility from $170,000 to $125,000; and (v) made certain adjustments to the borrowing base calculation in a manner we believe to be favorable to us.
TravelCenters of America Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except par value and per share amounts)
2024. Under the Credit Facility, a maximum of $200,000 may be drawn, repaid and redrawn until maturity. The availability of thethis maximum amount is subject to limits based on qualified collateral. Subject to available collateral and lender participation, the maximum amount of this Credit Facility may be increased to $300,000. The Credit Facility may be used for general business purposes and allows for the issuance of letters of credit. Generally, no principal payments are due until maturity. Under the terms of the Credit Facility, interest is payable on outstanding borrowings at a rate based on, at our option, LIBOR or a base rate, plus a premium (which premium is subject to adjustment based upon facility availability, utilization and other matters). As of December 31, 2019, the applicable margin was 1.25% for LIBOR borrowings and standby letter of credit fees, 0.25% for Base Rate borrowings and 0.625% for commercial letter of credit fees, in each case subject to adjustment based on facility availability, utilization and other matters. As of December 31, 2019, the unused line fee was 0.25% per annum, subject to adjustment according to the average daily principal amount of unused commitments under the Credit Facility.
The Credit Facility requires us to maintain certain levels of collateral, limits our ability to incur debt and liens, restricts us from making certain investments and paying dividends and other distributions, requires us to maintain a minimum fixed charge ratio under certain circumstances and contains other customary covenants and conditions. The Credit Facility provides for the acceleration of principal and interest payments upon an event of default including, but not limited to, failure to pay interest or other amounts due, a change in control of us, as defined in the Credit Facility, and our default under certain contracts, including our leases with SVC and our business management agreement with The RMR Group LLC, or RMR. Our Credit Facility is secured by substantially all of our cash, accounts receivable, inventory, equipment and intangible assets. The amount available to us is determined by reference to a borrowing base calculation based on eligible collateral. At December 31, 2019,2021, based on our qualified collateral, a total of $111,017$104,703 was available to us for loans and letters of credit under the Credit Facility. At December 31, 2019,2021, there were $7,900 ofno borrowings under the Credit Facility $31 of accrued interest and outstanding fees and $18,141$14,128 of letters of credit issued under that facility, securing certain insurance, fuel tax and other obligations. The outstanding loans, accrued interest and outstanding fees and letters of credit reducewhich reduced the amount available for borrowing under the Credit Facility, leaving $84,945$90,575 available for our use as of that date.
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
IHOP Secured Advance Note On October 28, 2019, we entered into a multi unit franchise agreement with IHOP Franchisor LLC, or IHOP, in which we agreed to rebrand and convert up to 94certain of our full service restaurants to IHOP restaurants over the next 5 years, or the IHOP Agreement. Concurrent with entering into the IHOP Agreement, we entered into a Secured Advance Note with IHOP, or the IHOP Note, pursuant to which we can borrow up to $10,000 in connection with the costs to convert our full service restaurants to IHOP restaurants. AtAs of December 31, 2019,2021 and 2020, there were 0no loans outstanding under the IHOP Note. West Greenwich Term LoanDebt Maturities
On February 7, 2020, we entered into a 10 year term loan for $16,600 with The Washington Trust Company, oraggregate maturities of the West Greenwich Loan. The West Greenwich Loan is secured by a mortgage encumbering 1 of our travel centers. The interest rate is fixed at 3.85% forrequired principal payments due during the next five years based on the 5 year Federal Home Loan Bank rate plus 198 basis points, and will reset thereafter. The West Greenwich Loan requires us to make principalthereafter under all our outstanding consolidated debt as of December 31, 2021, are as follows: | | | | | | | Principal Payments | 2022 | $ | 2,855 | | 2023 | 2,821 | | 2024 | 2,829 | | 2025 | 2,837 | | 2026 | 2,814 | | Thereafter | 530,020 | | Total(1) | $ | 544,176 | |
(1)Total consolidated debt outstanding as of December 31, 2021, net of unamortized discounts and interest payments monthly. We plan to use the proceeds from the West Greenwich Loan for general business purposes. We may, at our option with 60 days prior written notice, at any time repay the loan in full, at a nominal penalty within the first three years, prior to the end of the 10 year term.deferred financing costs totaling $16,546, was $527,630. Discount and Deferred Financing Costs TheAs of December 31, 2021 and 2020, the unamortized balance of our deferred financing costs were $9,561 and $10,558 for our Senior Notes and $671 and $216 forrelated to our Credit Facility at December 31, 2019were $876 and 2018,$1,010, respectively, net of accumulated amortization of $5,420$1,632 and $4,422,$1,297, respectively, and $1,136 and $904, respectively. During the year ended December 31, 2019, we capitalized $688 of the costs related to the Amendment of our Credit Facility and we recognized expense of $47 to write off previously capitalized fees when we amended our Credit Facility. The deferred financing costs for our Senior Notes are presented as a reduction of long term debt, net and the deferred financing costs for our Credit Facility are presented in other noncurrent assets in our consolidated balance sheets. During the years ended December 31, 2021 and 2020, we capitalized costs incurred related to the amendments of our Credit Facility of $201 and $500, respectively.
As of December 31, 2021 and 2020, unamortized discount and debt issuance costs for our Term Loan Facility, Senior Notes and West Greenwich Loan totaled $16,546 and $18,736, respectively, net of accumulated amortization of $8,691 and $6,501, respectively, and are presented in our consolidated balance sheets as a reduction of long term debt, net. During the year ended December 31, 2020, we recorded a $8,484 discount and capitalized $1,454 of financing costs in connection with our Term Loan Facility, and capitalized $318 of financing costs in connection with our West Greenwich Loan. We estimate we will recognize future amortization of discount and deferred financing costs of $1,149$2,614 in 2020, $1,1462022, $2,697 in each of the years 2021, 20222023, $2,619 in 2024, $2,536 in 2025, and 2023 and $1,075$2,642 in 2024. 2026. We recognized interest expense from the amortization of discount and deferred financing costs of $1,183$2,521 and $1,221$1,242 for the years ended December 31, 20192021 and 2018,2020, respectively.
TravelCenters of America Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except par value and per share amounts)
9.8. Leasing Transactions
On January 1, 2019, we adopted ASC 842 using the modified retrospective transition method and elected not to restate prior year comparative periods. We elected to adopt the package of practical expedients; accordingly, we retained the lease classification and initial direct costs for any leases that existed prior to adoption and we did not revisit whether any existing or expired contracts contain leases.
On the date we adopted ASC 842, we recognized operating lease assets of $1,785,866 and operating lease liabilities of $1,996,957. We also recognized an adjustment to our beginning accumulated deficit of $86,243, net of taxes, consisting of (i) the previously recognized deferred gain on sale leaseback transactions of $113,712, (ii) the previously recognized liability for certain failed sale leaseback transactions recognized as financings of $1,591 and (iii) the related tax effect of $29,060.
As a Lessee We have lease agreements covering many of our properties, as well as various equipment, with the most significant leases being our 5 leases with SVC, which are further described below. Certain of our leases include renewal options, and certain leases include escalation clauses and purchase options. Renewal periods are included in calculating our operating lease assets and liabilities when they are reasonably certain. Leases with an initial term of 12 months or less are not recognized in our consolidated balance sheets. As of December 31, 2019, all of our leases were classified as operating leases. Certain of our operating leases provide for variable lease costs, which primarily include percentage rent and our obligation for the estimated cost of removing underground storage tanks under the SVC Leases (as defined below).
Our lease costs are included in various balances in our consolidated statements of operations and comprehensive income (loss), as shown in the following table. For the year ended December 31, 2019, our lease costs consisted of the following:
| | | | | | | | | | | | | Classification in our Consolidated Statements of Operations and Comprehensive Income (Loss) | | | Year Ended December 31, 2019 | Operating lease costs: SVC Leases | Real estate rent expense | | $ | 240,328 | | Operating lease costs: other | Real estate rent expense | | 11,082 | | Variable lease costs: SVC Leases | Real estate rent expense | | 5,203 | | Variable lease costs: other | Real estate rent expense | | 1,149 | | Total real estate rent expense | | | 257,762 | | Operating lease costs: equipment and other | Site level operating expense and selling, general
and administrative expense
| | 3,088 | | Short-term lease costs | Site level operating expense and selling, general
and administrative expense
| | 2,869 | | Sublease income | Nonfuel revenues | | (2,180) | | Net lease costs | | | $ | 261,539 | |
During the year ended December 31, 2019, we recognized impairment charges of $579 to our operating lease assets relating to certain standalone restaurants, which are included in real estate rent expense in our consolidated statement of operations and comprehensive income (loss).
TravelCenters of America Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except par value and per share amounts)
Maturities of our operating lease liabilities that had remaining noncancelable lease terms in excess of one year as of December 31, 2019, were as follows:
| | | | | | | | | | | | | | | | | | | SVC Leases(1) | | Other | | Total | Years ended December 31: | | | | | | 2020 | $ | 271,336 | | | $ | 6,548 | | | $ | 277,884 | | 2021 | 270,799 | | | 5,555 | | | 276,354 | | 2022 | 268,936 | | | 4,439 | | | 273,375 | | 2023 | 255,344 | | | 3,107 | | | 258,451 | | 2024 | 251,150 | | | 1,813 | | | 252,963 | | Thereafter | 2,034,504 | | | 7,724 | | | 2,042,228 | | Total operating lease payments | 3,352,069 | | | 29,186 | | | 3,381,255 | | Less: present value discount(2) | (1,391,435) | | | (5,562) | | | (1,396,997) | | Present value of operating lease liabilities | $ | 1,960,634 | | | $ | 23,624 | | | $ | 1,984,258 | |
(1) Includes rent for properties we sublease from SVC and pay directly to SVC's landlords.
(2) The discount rate used to derive the present value of unpaid lease payments is based on the rates implicit in the SVC Leases and our incremental borrowing rate for all other leases.
The weighted average remaining lease term as of December 31, 2019, was approximately 13 years. Our weighted average discount rate as of December 31, 2019, was 9.1%.
During the year ended December 31, 2019, we paid $279,168 for amounts that had been included in the measurement of our operating lease liabilities.
As of December 31, 2019, our operating lease assets and liabilities consisted of the following:
| | | | | | | | | | | | | | | | | | | SVC Leases | | Other | | Total | Operating lease assets | $ | 1,796,406 | | | $ | 21,592 | | | $ | 1,817,998 | | Current operating lease liabilities | 98,574 | | | 5,496 | | | 104,070 | | Noncurrent operating lease liabilities | 1,862,060 | | | 18,128 | | | 1,880,188 | |
As previously disclosed in our 2018 Annual Report and under the previous lease accounting standard, future minimum lease payments required under leases that had remaining noncancelable lease terms in excess of one year as of December 31, 2018, were as follows (included herein are the full payments then due under the SVC Leases, including the amount attributed to the lease of those sites that were accounted for as a financing as of December 31, 2018, in our consolidated balance sheet as reflected in the sale leaseback financing obligations):
| | | | | | | Total | Years ended December 31: | | 2019 | $ | 302,855 | | 2020 | 301,220 | | 2021 | 299,393 | | 2022 | 296,551 | | 2023 | 295,534 | | Thereafter | 1,980,078 | | Total | $ | 3,475,631 | |
The amounts in the table above are as of December 31, 2018, and do not reflect the $43,148 annual minimum rent reduction resulting from the Transaction Agreements entered into in January 2019, as further described below.
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
Leasing Agreements with SVC. As of December 31, 2019,2021, our SVC Leases (as defined below), the leases covering our other properties, and most of our equipment leases, were classified as operating leases and certain of our other equipment leases and one ground lease pursuant to one SVC Lease were classified as finance leases. Finance lease assets were included in other noncurrent assets, with the corresponding current and noncurrent finance lease liabilities included in other current liabilities and other noncurrent liabilities, respectively, in our consolidated balance sheets.
Leasing Agreements with SVC As of December 31, 2021, we leased from SVC a total of 179 properties under 5 leases, 4 of which weleases. We refer to as the TA Leases and 1 of which we refer to as the Petro Lease, and which we refer tothese 5 leases collectively as the SVC Leases. In January 2019, we entered into the Transaction Agreements, pursuant to which: •We purchased 20 travel center properties from SVC, which we previously leased from SVC, for a total acquisition cost of $309,637, including $1,437 of transaction related costs.
•Upon completing these transactions, these travel centers were removed from theThe SVC Leases expire between 2029 and 2035, subject to our annual minimum rent dueright to SVC was reduced by $43,148.
•The term of each SVC Lease was extended by three years.
•Commencing on April 1, 2019, we began to pay SVC 16 quarterly installments of approximately $4,404 each (an aggregate of $70,458) to fully satisfy and discharge our $150,000 deferred rent obligation to SVC that otherwise would have become due in 5 installments between 2024 and 2030. We paid to SVC $13,211 in respect of such obligation during the year ended December 31, 2019.
•Commencing with the year ending December 31, 2020, we will be obligated to pay to SVC an additional amount of percentage rent equal to one-half percent (0.5%) of the excess of our annual nonfuel revenues at leased sites over the nonfuel revenues for each respective site for the year ending December 31, 2019.
•Certain of the 179 travel center properties that we continue to lease from SVC were reallocated among the SVC Leases.
As a result of the Transaction Agreements, our operating lease assets and liabilities each increased by $23,673 and our asset retirement obligations increased by $2,420. In addition, the purchase of the 20 travel center properties resulted in the derecognition of certain operating lease assets and liabilities. See Note 3 for more information about these acquisitions.
The number of properties leased, the terms, the annual minimum rent and the deferred rent balances owed by us under the SVC Leases, as of December 31, 2019, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | Number of Properties | | Initial Term End Date(1) | | Annual Minimum Rent as of December 31, 2019 | | Deferred Rent(2) | TA Lease 1 | 36 | | | December 31, 2032 | | $ | 49,707 | | | $ | 15,148 | | TA Lease 2 | 36 | | | December 31, 2031 | | 44,077 | | | 14,068 | | TA Lease 3 | 35 | | | December 31, 2029 | | 42,409 | | | 13,870 | | TA Lease 4 | 37 | | | December 31, 2033 | | 46,067 | | | 14,161 | | Petro Lease | 35 | | | June 30, 2035 | | 61,654 | | | — | | Total | 179 | | | | | $ | 243,914 | | | $ | 57,247 | |
(1) extend those leases. We have 2 renewal options of 15 years each under each of the SVC Leases.
(2) Commencing April 1, 2019, we began to pay SVC $70,458 in 16 equal quarterly installments of $4,404 each for deferred rent we owe SVC. Under our rent deferral agreement with SVC, deferred rent shall be accelerated and interest shall begin to accrue thereon at 1.0% per month on the deferred rent amounts if certain events occur, including: our default under the SVC Leases; a change of control of us, as defined in the rent deferral agreement; or our declaration or payment of a dividend or other distribution in respect of our common stock. The total amount of deferred rent outstanding as of December 31, 2019, was $57,247.
On October 14, 2019, we and SVC amended the SVC Leases, pursuant to which, among other things, certain of the 179 travel center properties that we lease from SVC were reallocated among the SVC Leases. We accounted for this amendment as a lease modification. As a result, our operating lease assets and liabilities each increased by $33,816. The amendments did not have a material impact on our real estate rent expense.
TravelCenters of America Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except par value and per share amounts)
The SVC Leases are "triple net" leases that require us to pay all costs incurred in the operation of the leased properties, including costs related to personnel, utilities, inventory acquisition and provision of services to customers, insurance, real estate and personal property taxes, environmental related expenses, underground storage tank removal costs and ground lease payments at those properties at which SVC leases the property and subleases it to us. We also are required generally to indemnify SVC for certain environmental matters and for liabilities that arise during the terms of the leases from ownership or operation of the leased properties and, at lease expiration, we are required to pay an amount equal to an estimate of the cost of removing underground storage tanks on the leased properties. The SVC Leases require us to maintain the leased properties, including structural and non-structural components. On March 9, 2021, we and SVC amended 1 of the SVC Leases to reflect the renewal of a third party ground lease at 1 of the 179 travel center properties that we lease from SVC. This ground lease, which was previously accounted for as an operating lease, is now accounted for as a finance lease. As a result of this ground lease modification, we recorded $28,201 in other noncurrent assets, $1,158 in other current liabilities and $27,046 in other noncurrent liabilities on our consolidated balance sheets in the first quarter of 2021. We recognized total real estate rent expense under the SVC Leases of $245,531$253,202 and $273,012$250,446 for the years ended December 31, 20192021 and 2018, respectively, under the SVC Leases. In addition to the payment of annual minimum2020, respectively. Included in these rent the SVC Leases provide for payment to SVC ofexpense amounts are percentage rent calculated at 3.0%payable of $7,085 and $2,764 for 2021 and 2020, respectively, which are based on a percentage of the increaseincreases in total nonfuel revenues at each leased property over base year levels, (the base year is 2012deferred rent of $17,615 for 35 properties, 2015 for 138 properties, 2017 for 2 properties, 2019 for 3 properties2021 and 2020, rent for 1 property). The percentageproperties we sublease from SVC of $8,111 and $7,923 for 2021 and 2020, respectively, and adjustments to record minimum annual rent amounts dueon a straight line basis over the terms of the leases and estimated future payments by us for the years endedcost of removing underground storage tanks on a straight line basis. As of December 31, 20192021, the estimated future payments related to these underground storage tanks were $25,569 and 2018, were $4,075 and $3,591, respectively. As noted above, pursuant to the Transaction Agreements, we are obligated to pay additional percentagerecorded in other noncurrent liabilities on our consolidated balance sheets. The remaining balance of our deferred rent commencing with the year endedobligations was $22,018 as of December 31, 2020.2021 and will be fully paid by January 31, 2023.
UnderAs of December 31, 2021, our aggregate annual minimum rent payable to SVC under the SVC Leases was $243,914. Pursuant to the SVC Leases, we may request that SVC purchase approved amounts of renovations,qualifying capital improvements and equipmentwe make at the leased propertiestravel centers in return for increases in ourincreased annual minimum rent according to the following formula: the annual minimum rent will be increased by an amount equal to the amount paid by SVC multiplied by the greater of (i) 8.5% or (ii) a benchmark U.S. Treasury interest rate plus 3.5%. During the year ended December 31, 2018, we sold to SVC $56,346 of improvements we made to properties leased from SVC; as a result, pursuant to the terms of the SVC Leases, our annual minimum rent payable to SVC increased by $4,789. During the year ended December 31, 2019, werent. We did not sell to SVC any improvements we made to properties leased from SVC. AtSVC during the years ended December 31, 2019, our property2021 and equipment balance included $37,425 of improvements of the type that we historically requested that SVC purchase for an increase in annual minimum rent; however, we may elect not to sell some of those improvements and SVC is not obligated to purchase these improvements.2020.
As permitted by the SVC Leases, we sublease a portion of certain travel centers to third parties to operate other retail operations. These subleases are classified as operating leases. We recognized sublease rental income of $2,180$1,940 and $2,294$2,064 for the years ended December 31, 20192021 and 2018,2020, respectively. Lease Costs Our lease costs are included in various balances in our consolidated statements of operations and comprehensive income (loss), as shown in the following table. For the years ended December 31, 2021 and 2020, our lease costs consisted of the following, and for SVC leases shown below, include amounts for properties we sublease from SVC:
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
| | | | | | | | | | | | | | | | | | | Classification in our Consolidated Statements of Operations and Comprehensive Income (Loss) | | Year Ended December 31, | | | 2021 | | 2020 | Operating lease costs: SVC Leases | Real estate rent expense | | $ | 244,101 | | | $ | 245,922 | | Operating lease costs: other | Real estate rent expense | | 1,884 | | | 4,669 | | Variable lease costs: SVC Leases | Real estate rent expense | | 9,101 | | | 4,524 | | Variable lease costs: other | Real estate rent expense | | 541 | | | 628 | | Total real estate rent expense | | | 255,627 | | | 255,743 | | Operating lease costs: Equipment and other | Site level operating expense and selling, general and administrative expense | | 2,999 | | | 3,649 | | Financing lease costs - Equipment and other | Site level operating expense | | 198 | | | — | | Short-term lease costs | Site level operating expense and selling, general and administrative expense | | 699 | | | 1,826 | | Amortization of finance lease assets: SVC Leases | Depreciation and amortization expense | | 1,843 | | | — | | Amortization of finance lease assets: other | Depreciation and amortization expense | | 1,912 | | | 246 | | Interest on finance lease liabilities: SVC Leases | Interest expense, net | | 1,018 | | | — | | Interest on finance lease liabilities: other | Interest expense, net | | 476 | | | 99 | | Sublease income | Nonfuel revenues | | (1,940) | | | (2,064) | | Net lease costs | | | $ | 262,832 | | | $ | 259,499 | |
During the year ended December 31, 2020, we recognized an impairment charge of $1,262 relating to our operating lease assets with respect to our QSL business, which is included in real estate rent expense in our consolidated statements of operations and comprehensive income (loss).
Lease Assets and Liabilities
As of December 31, 2021 and 2020, our operating lease assets and liabilities consisted of the following, and for SVC leases shown below, include amounts for properties we sublease from SVC:
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
The following table summarizes the various amounts related to the SVC Leases that are included in our consolidated balance sheet as of December 31, 2018. | | | | | | | | | | | | | December 31, | | 2021 | | 2020 | Operating lease assets: | | | | SVC Leases | $ | 1,649,142 | | | $ | 1,724,428 | | Other | 10,384 | | | 10,455 | | Total operating lease assets | $ | 1,659,526 | | | $ | 1,734,883 | | | | | | Current operating lease liabilities: | | | | SVC Leases | $ | 114,372 | | | $ | 106,788 | | Other | 3,633 | | | 4,467 | | Total current operating lease liabilities | $ | 118,005 | | | $ | 111,255 | | | | | | Noncurrent operating lease liabilities: | | | | SVC Leases | $ | 1,648,112 | | | $ | 1,756,449 | | Other | 7,247 | | | 6,717 | | Total noncurrent operating lease liabilities | $ | 1,655,359 | | | $ | 1,763,166 | |
| | | | | | | December 31,
2018 | Current SVC Leases liabilities: | | Accrued rent | $ | 24,721 | | Sale leaseback financing obligations(1)
| 1,032 | | Straight line rent accrual(2)
| 2,458 | | Deferred gain(3)
| 10,128 | | Deferred tenant improvements allowance(4)
| 3,770 | | Total current SVC Leases liabilities | $ | 42,109 | | | | Noncurrent SVC Leases liabilities: | | | Deferred rent obligation(5)
| $ | 150,000 | | Sale leaseback financing obligations(1)
| 22,365 | | Straight line rent accrual(2)
| 46,431 | | Deferred gain(3)
| 100,913 | | Deferred tenant improvements allowance(4)
| 34,047 | | Total noncurrent SVC Leases liabilities | $ | 353,756 | |
(1) Sale Leaseback Financing Obligations.As of December 31, 2018, the assets related to 2 travel centers we leased from SVC were reflected in2021 and 2020, our consolidated balance sheet, as were the related financing obligations. This accounting was required primarily because, at the time of the inception of the prior leases with SVC, more than a minor portion of these 2 travel centers was subleased to third parties. Upon adoption of ASC 842, these failed sale leasebacks were reclassified as operating leases, which resulted in a gain that was recognized in our beginning accumulated deficit as of January 1, 2019. See above for more information about the impact of adopting ASC 842.
(2) Straight Line Rent Accrual. As of December 31, 2018, the straight line rent accrual included the accrued rent expense from 2007 to 2012 for stated increases in our annual minimum rent due under our then existing TA Lease. The TA Leases we entered into in connection with a transaction agreement we entered into with SVC in 2015 contain no stated rent payment increases. Prior to the adoption of ASC 842, we amortized this accrual on a straight line basis over the current terms of the TA Leases as a reduction of real estate rent expense. The straight line rent accrual also included our obligation for the estimated cost of removing underground storage tanks at properties leased from SVC at the end of the related lease; we recognized these obligations on a straight line basis over the term of the related leases as additional real estate rent expense. As of January 1, 2019, the straight line rent accrual was reclassified as a reduction to our operatingfinance lease assets and the obligation for the estimated cost of removal of underground storage tanks was reclassified to other noncurrent liabilities. As of December 31, 2019, our obligation for the estimated cost of removal of underground storage tanks was $22,216.
(3) Deferred Gain. The deferred gain primarily included $145,462 of gains from the sales of travel centers and certain other assets to SVC during 2015 and 2016. Prior to the adoption of ASC 842, we amortized the deferred gains on a straight line basis over the termsliabilities consisted of the relatedfollowing and for SVC leases as a reduction of real estate rent expense. Upon adoption of ASC 842, we recognized the unamortized deferred gain of $85,053, net of taxes, in our beginning accumulated deficit as of January 1, 2019. See aboveshown below, include amounts for more information about the impact of adopting ASC 842.
(4) Deferred Tenant Improvements Allowance. SVC funded certain capital projects at the properties we lease under the SVC Leases without an increase in rent payable by us. In connection with SVC's initial capital commitment, we recognized a liability for rent deemed to be related to this capital commitment as a deferred tenant improvements allowance. Prior to the adoption of ASC 842, we amortized the deferred tenant improvements allowance on a straight line basis over the terms of the SVC Leases as a reduction of real estate rent expense. Upon the adoption of ASC 842, the unamortized balance of the deferred tenant improvements allowance was reclassified as a reduction to our operating lease assets as of January 1, 2019.sublease from SVC:
| | | | | | | | | | | | | December 31, | | 2021 | | 2020 | Finance lease assets: | | | | SVC Leases | $ | 26,542 | | | $ | — | | Other | 15,781 | | | 5,224 | | Total finance lease assets | $ | 42,323 | | | $ | 5,224 | | | | | | Current finance lease liabilities: | | | | SVC Leases | $ | 1,517 | | | $ | — | | Other | 2,814 | | | 684 | | Total current finance lease liabilities | $ | 4,331 | | | $ | 684 | | | | | | Noncurrent finance lease liabilities: | | | | SVC Leases | $ | 25,974 | | | $ | — | | Other | 13,240 | | | 4,579 | | Total noncurrent finance lease liabilities | $ | 39,214 | | | $ | 4,579 | |
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
(5) Lease Maturities and Other Information
Deferred Rent Obligation
. Pursuant to a rent deferral agreement with SVC, we previously deferredMaturities of our operating lease liabilities that had remaining noncancelable lease terms in excess of one year as of December 31, 2010, a total2021, were as follows: | | | | | | | | | | | | | | | | | | | SVC Leases(1) | | Other | | Total | Years ended December 31: | | | | | | 2022 | $ | 269,042 | | | $ | 3,938 | | | $ | 272,980 | | 2023 | 255,469 | | | 2,601 | | | 258,070 | | 2024 | 251,295 | | | 1,463 | | | 252,758 | | 2025 | 251,283 | | | 1,334 | | | 252,617 | | 2026 | 251,278 | | | 995 | | | 252,273 | | Thereafter | 1,538,649 | | | 2,488 | | | 1,541,137 | | Total operating lease payments | 2,817,016 | | | 12,819 | | | 2,829,835 | | Less: present value discount(2) | (1,054,532) | | | (1,939) | | | (1,056,471) | | Present value of operating lease liabilities | $ | 1,762,484 | | | $ | 10,880 | | | $ | 1,773,364 | |
(1) Includes rent for properties we sublease from SVC. (2) The discount rate used to derive the present value of $150,000 of rent payable tounpaid lease payments is based on the rates implicit in the SVC which remained outstandingLeases and our incremental borrowing rate for all other leases. The weighted average remaining lease term for our operating leases as of December 31, 2018,2021 and 2020, was approximately 11 and 12 years, respectively. Our weighted average discount rate for our operating leases as of December 31, 2021 and 2020, was approximately 9.1%.
During the years ended December 31, 2021 and 2020, we paid $278,506 and $277,229, respectively, for amounts that had been due in 5 installments between 2024 and 2030. Upon the adoption of ASC 842, these future lease payments were included in our calculationthe measurement of our operating lease assets andliabilities. Maturities of the finance lease liabilities andrelated to the deferred rent obligation was reclassified as a reduction to our operatingamended ground lease assets as of January 1, 2019. In January 2019, as describednoted above and pursuant to theother finance leases that had remaining noncancelable lease terms in excess of the Transaction Agreements, our deferred rent obligation was reduced to $70,458, payable in 16 equal quarterly installments commencing on April 1, 2019, and our operating lease assets and liabilities were remeasured using these revised payment amounts. The total amount of deferred rent outstandingone year as of December 31, 2019,2021, were as follows: | | | | | | | | | | | | | | | | | | | SVC Lease (1) | | Other | | Total | Years ended December 31: | | | | | | 2022 | $ | 2,591 | | | $ | 3,274 | | | $ | 5,865 | | 2023 | 2,656 | | | 3,262 | | | 5,918 | | 2024 | 2,722 | | | 2,820 | | | 5,542 | | 2025 | 2,790 | | | 2,576 | | | 5,366 | | 2026 | 2,860 | | | 2,576 | | | 5,436 | | Thereafter | 22,127 | | | 3,179 | | | 25,306 | | Total finance lease payments | 35,746 | | 17,687 | | | 53,433 | | Less: present value discount(2) | (8,255) | | | (1,633) | | | (9,888) | | Present value of finance lease liabilities | $ | 27,491 | | $ | 16,054 | | | $ | 43,545 | |
(1) Includes rent for properties we sublease from SVC. (2) The discount rate used to derive the present value of unpaid lease payments is based on our incremental borrowing rate.
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
The weighted average remaining lease term for our finance leases as of December 31, 2021 and 2020, was $57,247.approximately 10 and 7 years, respectively. Our weighted average discount rate for our finance leases as of December 31, 2021 and 2020, was approximately 4.3% and 5.9%, respectively. During the years ended December 31, 2021 and 2020, we paid $3,982 and $244, respectively, for amounts that had been included in the measurement of our finance lease liabilities. As a Lessor As of December 31, 2019,2021, we leased 2 travel centers to franchisees. These 2 lease agreements expire in June 2022. These leases include rent escalations that are contingent on future events, namely inflation or our investing in capital improvements at these travel centers. During the year ended December 31, 2018, we leased 4 travel centers to franchisees, 2 of which expired prior to December 31, 2018. Rent revenues from these operating leases totaled $2,293$2,359 and $3,052$2,312 for the years ended December 31, 20192021 and 2018,2020, respectively. Future minimum lease payments due to us for the 2 leased sites under these operating leases as of December 31, 2019,2021, were $2,287 for each of the years 2020 and 2021 and $1,144$1,190 for 2022. See above for information regarding certain travel centers that we leased from SVC infor which we sublease a portion of the travel centers to third parties to operate other retail operations. We also lease portions of owned properties to third parties to operate other retail operations.
10.9. Stockholders' Equity
On August 1, 2019, in conjunction with our conversion from a Delaware limited liability company to a Maryland corporation, we increased our authorized shares of common stock from 8,674 shares to 16,000 shares. In addition, we completed a reverse stock split of our outstanding shares of common stock pursuant to which every five shares of our issued and outstanding common stock were exchanged for one share of our common stock. No fractional shares were issued in the reverse stock split. Instead, fractional shares that otherwise would have resulted from the reverse stock split were purchased by us at the closing price of our common stock on July 31, 2019. The common stock information included within this Annual Report has been retrospectively adjusted to reflect this reverse stock split for all dates and periods presented.
Share Award Plans On May 19, 2016, our stockholders approved the TravelCenters of America LLC 2016 Equity Compensation Plan, and in 2019, the plan was amended and restated to reflect our conversion to a Maryland corporation and our reverse stock split effective August 1, 2019, which are collectively2019. In June 2021, the plan was amended and restated to increase the number of shares authorized for issuance by 900. The plan as amended, is referred to as the 2016 Plan. Under the terms of the 2016 Plan, 8602,185 shares of common stock have been authorized for issuance under the terms of the 2016 Plan. The 2016 Plan replaced the Amended and Restated TravelCenters of America LLC 2007 Equity Compensation Plan, or the 2007 Plan. NaNNo additional awards will be made under the 2007 Plan and the shares of common stock previously registered for offer and sale under the 2007 Plan but not yet issued were deregistered, although shares of common stock awarded under the 2007 Plan that had not yet vested have continued and will continue, to vest in accordance with, and subject to, the terms of the related awards. We refer to the 2007 Plan and 2016 Plan collectively as the Share Award Plans. We awarded a total of 270319 and 175254 shares of common stock under the 2016 Plan during the years ended December 31, 20192021 and 2018,2020, respectively, with aggregate market values of $2,647$14,901 and $3,867,$7,476, respectively, based on the closing prices of our shares of common stock on the Nasdaq on the dates of the awards. During the years ended December 31, 20192021 and 2018,2020, we recognized total stock based compensation expense of $3,441$5,750 and $6,371,$5,215, respectively. During the years ended December 31, 20192021 and 2018,2020, the vesting date fair value of shares of common stock that vested was $1,754$8,832 and $5,147,$6,965, respectively.
TravelCenters of America Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except par value and per share amounts)
The weighted average grant date fair value of shares of common stock awarded during the years ended December 31, 20192021 and 2018,2020, was $9.78$46.69 and $22.07,$29.44, per share of common stock, respectively. Shares of common stock issued to Directors in that capacity vested immediately and the related stock based compensation expense was recognized on the date of the award. Shares of common stock issued to others in a non-Director capacity vest in five or ten equal annual installments beginning on the date of the award. The related stock based compensation expense was determined based on the market value of our shares of common stock on the date of the award with the aggregate value of the awarded shares of common stock expensed over the period of time over which the stock based payments vest. As of December 31, 2019, 882021, 854 shares of common stock remained available for issuance under the 2016 Plan. As of December 31, 2019,2021, there was a total of $5,293$16,449 of stock based compensation expense related to unvested shares of common stock that will be expensed over a weighted average remaining service period of approximately threefive years. The following table sets forth the number and weighted average grant date fair value of unvested shares of common stock and shares of common stock awarded under the Share Award Plans for the yearyears ended December 31, 2019.2021 and 2020. | | | | | | | | | | | | | Number of Shares of Common Stock | | Weighted Average Grant Date Fair Value Per Share of Common Stock | Unvested shares of common stock as of December 31, 2019 | 412 | | | $ | 18.03 | | Granted | 254 | | | 29.44 | | Vested | (314) | | | 21.92 | | Forfeited/canceled | (3) | | | 17.39 | | Unvested shares of common stock as of December 31, 2020 | 349 | | | 22.83 | | Granted | 319 | | | 46.69 | | Vested | (189) | | | 29.26 | | Forfeited/canceled | (11) | | | 27.18 | | Unvested shares of common stock as of December 31, 2021 | 468 | | | 36.41 | |
| | | | | | | | | | | | | Number of Shares of Common Stock | | Weighted Average Grant Date Fair Value Per Share of Common Stock | Unvested shares of common stock as of December 31, 2018 | 316 | | | $ | 27.44 | | Granted | 270 | | | 9.78 | | Vested | (168) | | | 22.15 | | Forfeited/canceled | (6) | | | 26.57 | | Unvested shares of common stock as of December 31, 2019 | 412 | | | 18.03 | |
Treasury Stock Repurchases
Certain recipients of stock awards may elect to have us withhold the number of their vesting shares of common stock with a fair market value sufficient to fund the required tax withholding obligations with respect to their stock awardsawards. The shares that are withheld for tax obligations are not reissued and during the year ended December 31, 2019, we acquired fractional shares of common stock that resulted from the reverse stock split on August 1, 2019.are recorded in additional paid-in capital in our consolidated balance sheets. For the years ended December 31, 20192021 and 2018,2020, we acquired through this share withholding process 43 and the reverse stock split 37 and 8984 shares of common stock, respectively, with an aggregate value of $346$1,994 and $1,744,$1,750, respectively. During the years ended December 31, 2019 and 2018, we retired 37 and 89 shares of treasury stock, $0.001 par value, respectively, with a carrying value of $346 and $1,744, respectively, that reduced our shares of common stock outstanding.
Net Income (Loss) Per Share of Common Stock from Continuing Operations Attributable to Common Stockholders We calculate basic earnings per share of common stock by dividing net income (loss) from continuing operations available to common stockholders for the period by the weighted average shares of common stock outstanding during the period. The net income (loss) from continuing operations attributable to participating securities is deducted from our net income (loss) from continuing operations attributable to common stockholders to determine the net income (loss) from continuing operations available to common stockholders. We calculate diluted earnings per share of common stock by adjusting weighted average outstanding shares of common stock, assuming conversion of all potentially dilutive stock securities, using the treasury stock method; but we had 0no dilutive stock securities outstanding as of December 31, 2019,2021, nor at any time during the two year period then ended. Unvested shares of common stock issued under our Share Award Plans are deemed participating securities because they participate equally in earnings and losses with all of our other shares of common stock.
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
The following table presents a reconciliation of net income (loss) from continuing operationsattributable to common stockholders to net income (loss) from continuing operations available to common stockholders and the related earnings per share of common stock. | | | | | | | | | | | | | Year Ended December 31, | | 2021 | | 2020 | Net income (loss) attributable to common stockholders | $ | 58,524 | | | $ | (13,899) | | Less: net income (loss) attributable to participating securities | 1,349 | | | (422) | | Net income (loss) available to common stockholders | $ | 57,175 | | | $ | (13,477) | | | | | | Weighted average shares of common stock(1) | 14,252 | | | 10,961 | | | | | | Basic and diluted net income (loss) per share of common stock attributable to common stockholders | $ | 4.01 | | | $ | (1.23) | |
| | | | | | | | | | | | | Year Ended December 31, | | | | 2019 | | 2018 | Income (loss) from continuing operations | $ | 33,469 | | | $ | (2,773) | | Less: net income for noncontrolling interest | 124 | | | 149 | | Income (loss) from continuing operations attributable to common stockholders | 33,345 | | | (2,922) | | Less: income (loss) from continuing operations attributable to participating securities | 1,301 | | | (125) | | Income (loss) from continuing operations available to common stockholders | $ | 32,044 | | | $ | (2,797) | | | | | | Weighted average shares of common stock(1) | 7,783 | | | 7,649 | | | | | | Basic and diluted income (loss) per share of common stock from continuing operations attributable to common stockholders | $ | 4.12 | | | $ | (0.37) | |
(1) Reflects the retrospective adjustment related to the reverse stock split completed on August 1, 2019, and excludesExcludes unvested shares of common stock awarded under our Share Award Plans, which shares of common stock are considered participating securities because they participate equally in earnings and losses with all of our other shares of common stock. The weighted average number of unvested shares of common stock outstanding was 316336 and 341344 for the years ended December 31, 20192021 and 2018,2020, respectively. Underwritten Public Equity Offering
On July 6, 2020, we received net proceeds of $79,980, after $296 of offering costs and $5,124 of underwriting discounts and commissions, from the sale and issuance of 6,100 shares of our common stock in an underwritten public equity offering. We used the net proceeds from this offering to fund deferred maintenance and other capital expenditures necessary to enhance property conditions and implement growth initiatives, for working capital and for general corporate purposes. 11.
10. Income Taxes We had a tax provision of $4,339$17,263 for the year ended December 31, 2019,2021, and a tax benefit of $1,574$6,178 for the year ended December 31, 2018.2020. Effective Tax Rate Reconciliation | | | | | | | | | | | | | Year Ended December 31, | | | | 2019 | | 2018 | U.S. federal statutory rate applied to income (loss) before income taxes and discontinued operations | $ | (7,940) | | | $ | 994 | | State income taxes, net of federal benefit | 635 | | | (2,957) | | Benefit of tax credits | 4,020 | | | 3,977 | | Provision to return adjustments | (31) | | | 560 | | Nondeductible executive compensation | (109) | | | (210) | | Other nondeductible expenses | (530) | | | (430) | | Other, net | (384) | | | (360) | | Total (provision) benefit for income taxes | $ | (4,339) | | | $ | 1,574 | |
| | | | | | | | | | | | | Year Ended December 31, | | 2021 | | 2020 | U.S. federal income tax (provision) benefit using statutory rate | $ | (15,915) | | | $ | 4,427 | | State income tax (provision) benefit, net of federal impact | (3,204) | | | 651 | | Benefit of tax credits | 2,783 | | | 2,090 | | Nondeductible executive compensation | (841) | | | (1,011) | | Other, net | (86) | | | 21 | | Total (provision) benefit for income taxes | $ | (17,263) | | | $ | 6,178 | |
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
Components of the (Provision) Benefit For Income Taxes | | | | | | | | | | | | | Year Ended December 31, | | 2021 | | 2020 | Current tax (provision) benefit: | | | | Federal | $ | — | | | $ | 912 | | State | (310) | | | (152) | | Foreign | (4) | | | — | | Total current tax (provision) benefit | (314) | | | 760 | | Deferred tax (provision) benefit: | | | | Federal | (13,990) | | | 4,443 | | State | (2,959) | | | 975 | | Total deferred tax (provision) benefit | (16,949) | | | 5,418 | | Total (provision) benefit for income taxes | $ | (17,263) | | | $ | 6,178 | |
| | | | | | | | | | | | | Year Ended December 31, | | | | 2019 | | 2018 | Current tax benefit: | | | | Federal | $ | 1,019 | | | $ | 1,737 | | State | 352 | | | 240 | | Total current tax benefit | 1,371 | | | 1,977 | | Deferred tax provision: | | | | | | Federal | (6,163) | | | 3,581 | | State | 453 | | | (3,984) | | Total deferred tax provision | (5,710) | | | (403) | | Total (provision) benefit for income taxes | $ | (4,339) | | | $ | 1,574 | |
Components of Deferred Tax Assets and Liabilities | | | | | | | | | | | | | December 31, | | 2021 | | 2020 | Deferred tax assets: | | | | Tax loss carryforwards | $ | 48,847 | | | $ | 57,748 | | Tax credit carryforwards | 40,940 | | | 37,539 | | Leasing arrangements | 29,519 | | | 30,983 | | Reserves | 25,587 | | | 26,828 | | Asset retirement obligations | 1,618 | | | 1,425 | | Other | 2,226 | | | 160 | | Total deferred tax assets before valuation allowance | 148,737 | | | 154,683 | | Valuation allowance | (2,099) | | | (1,386) | | Total deferred tax assets | 146,638 | | | 153,297 | | | | | | Deferred tax liabilities: | | | | Property and equipment | (110,039) | | | (102,461) | | Goodwill and intangible assets | (1,887) | | | (1,410) | | Other | (2,242) | | | — | | Total deferred tax liabilities | (114,168) | | | (103,871) | | | | | | Net deferred tax assets | $ | 32,470 | | | $ | 49,426 | |
| | | | | | | | | | | | | December 31, | | | | 2019 | | 2018 | Deferred tax assets: | | | | | | Tax loss carryforwards | $ | 63,185 | | | $ | 76,250 | | Tax credit carryforwards | 35,624 | | | 31,377 | | Leasing arrangements | 32,007 | | | 55,929 | | Reserves | 18,204 | | | 16,186 | | Asset retirement obligations | 1,278 | | | 625 | | Other | 704 | | | 488 | | Total deferred tax assets before valuation allowance | 151,002 | | | 180,855 | | Valuation allowance | (1,209) | | | (1,310) | | Total deferred tax assets | 149,793 | | | 179,545 | | | | | | Deferred tax liabilities: | | | | | | Property and equipment | (102,051) | | | (97,306) | | Goodwill and intangible assets | (3,708) | | | (3,374) | | Total deferred tax liabilities | (105,759) | | | (100,680) | | | | | | Net deferred tax assets | $ | 44,034 | | | $ | 78,865 | |
At December 31, 2021, we had carryforwards for federal net operating losses, state net operating losses and federal tax credits of $201,245, $142,667 and $40,940, respectively. Although not anticipated, $6,941 and $121,674 of the federal net operating losses are scheduled to expire in 2036 and 2037, respectively, if unused. We anticipate $3,957 of the state net operating losses will expire in 2022; if not utilized, a portion of the state net operating losses may need to be written off; however, a valuation allowance of $273 has been recorded relating to these losses. Federal tax credit carryforwards related to the Foreign Tax Credit of $330 may expire between 2022 and 2024 if unused. We have a valuation allowance against these credits as we do not expect to be able to utilize them before expiration. As of December 31, 20192021 and 2018,2020, we had a total valuation allowance of $1,209$2,099 and $1,310,$1,386, respectively, related to foreign credit carryforwards, state net operating losses and deferred tax assets in foreign jurisdictions due to the uncertainty of their realization. At December 31, 2019, we had carryforwards for federal net operating losses, state net operating losses and federal tax credits of $264,143, $183,561 and $35,624, respectively. Although not anticipated, $3,600 of the federal net operating losses are scheduled to expire in 2030 if unused. We anticipate $81 of the state net operating losses will expire in 2020 and $50 will expire in 2021; if not utilized, a portion of the state net operating losses may need to be written off; however, a valuation allowance relating to these losses has been recorded. Although not anticipated, the remaining state net operating losses are scheduled to begin to expire in 2022 if unused. Federal tax credit carryforwards of $434 may expire between 2021 and 2024 if unused, with the remainder expected to be utilized prior to their expiration beginning in 2030. The net deferred tax assets presented in the table above are included in other noncurrent assets in our consolidated balance sheets.
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
The net deferred tax assets presented in the table above are included in other noncurrent assets in our consolidated balance sheets. Our U.S. federal income tax returns are subject to tax examinations for the years ended December 31, 2010 and December 31, 2016,2018, through the current period. Our state and Canadian income tax returns are generally subject to examination for the tax years ended December 31, 2015,2017, through the current period. To the extent we have tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted by the taxing authorities to the extent the carryforwards are utilized in a subsequent year.
12.11. Equity Investments
As of December 31, 20192021 and 2018,2020, our investment in equity affiliates, which is presented in our consolidated balance sheets in other noncurrent assets, and our proportional share of our investees' net income (loss), which is included in other (income) expense, net in our consolidated statements of operations and comprehensive income (loss), were as follows: | | | | | | | | | | | | | | | | | | | PTP | | Other(1) | | Total | Investment balance: | | | | | | As of December 31, 2021 | $ | 23,604 | | | $ | 1,052 | | | $ | 24,656 | | As of December 31, 2020 | 24,115 | | | 3,610 | | | 27,725 | | | | | | | | Income (loss) from equity investments: | | | | | | Year ended December 31, 2021 | $ | 3,088 | | | $ | (3,895) | | | $ | (807) | | Year ended December 31, 2020 | 3,598 | | | (4,986) | | | (1,388) | |
| | | | | | | | | | | | | | | | | | | PTP | | Other(1) | | Total | Investment balance: | | | | | | As of December 31, 2019 | $ | 24,517 | | | $ | 5,983 | | | $ | 30,500 | | As of December 31, 2018 | 21,260 | | | 18,805 | | | 40,065 | | | | | | | | Income (loss) from equity investments: | | | | | | Year ended December 31, 2019 | $ | 5,657 | | | $ | (4,750) | | | $ | 907 | | Year ended December 31, 2018 | 3,652 | | | (5,679) | | | (2,027) | |
(1) Includes our investments in Affiliates Insurance Company, or AIC, and QuikQ LLC, or QuikQ. Petro Travel Plaza Holdings LLC Petro Travel Plaza Holdings LLC, or PTP, is a joint venture between us and Tejon Development Corporation that owns 2 travel centers, 3 convenience stores and 1 standalone restaurant in California. We own a 40.0% interest in PTP and we receive a management fee from PTP to operate these locations. We recognized management fee income of $849$1,639 and $1,562$1,506 for the years ended December 31, 20192021 and 2018,2020, respectively, which is included in nonfuel revenues in our consolidated statements of operations and comprehensive income (loss). QuikQ LLC QuikQ, an independent full-service fuel payment solutions provider, is a joint venture between us and Love's Travel Stops and& Country Stores, Inc. On April 30, 2021, we reduced our ownership in Epona, LLC, owner of QuikQ, is an independent full-service fuel payment solutions provider. We ownfrom 50% to less than 50%, for which a 50.0% interestpre-tax loss of $1,826 was recognized in QuikQ.other expense, net in our consolidated statements of operations and comprehensive income (loss) during the year ended December 31, 2021. The investment will continue to be accounted for under the equity method. Affiliates Insurance Company We, SVC and 5 other companies to which RMR provides management services each currently own 14.3% of AIC, an Indiana insurance company. Although we own less than 20% of AIC, we use the equity method to account for this investment because we believe that we have significant influence over AIC because a majority of our Directors, and one of our employees, are also directors of AIC.
AIC is in the process of dissolving. In connection with itsthe dissolution of AIC on February 13, 2020, we and each ofreceived the other AIC shareholders received afinal capital distribution of $9,000 in December 2019.2021 of $12. See Note 13 for more information regarding our prior investment in AIC.
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
Summarized Financial Information The following table sets forth summarized financial information of our equity investments and does not represent the amounts we have included in our consolidated statements of operations and comprehensive income (loss) in connection with our equity investments. | | | | | | | | | | | | | Year Ended December 31, | | 2021 | | 2020 | Total revenues | $ | 141,796 | | | $ | 89,800 | | Cost of goods sold (excluding depreciation) | 102,857 | | | 56,667 | | Income from operations | 112 | | | 358 | | Net (loss) income | (208) | | | 9 | |
| | | | | | | | | | | | | Year Ended December 31, | | | | 2019 | | 2018 | Total revenues | $ | 126,750 | | | $ | 125,448 | | Cost of goods sold (excluding depreciation) | 80,579 | | | 87,189 | | Income from operations | 9,259 | | | 2,742 | | Net income | 7,206 | | | 1,363 | |
Fair Value
It is not practicable to estimate the fair value of our equity investments because of the lack of quoted market prices and the inability to estimate current fair value without incurring excessive costs. However, management believes that the carrying amounts of our equity investments at December 31, 2019,2021, were not impaired given these companies' overall financial condition and earnings trends.
13.12. Business Management Agreement with RMR
We have a business management agreement with RMR to provide management services to us, which relates to various aspects of our business generally, including but not limited to, services related to compliance with various laws and rules applicable to our status as a publicly traded company, advice and supervision with respect to our travel centers, site selection for properties on which new travel centers may be developed, identification of, and purchase negotiation for, travel center properties and companies, accounting and financial reporting, capital markets and financing activities, investor relations and general oversight of our daily business activities, including legal matters, human resources, insurance programs, management information systems and the like. See Note 1413 for more information regarding our relationship, agreements and transactions with RMR. Under our business management agreement, we pay RMR an annual business management fee equal to 0.6% of the sum of our fuel gross margin (which is our fuel revenues less our fuel cost of goods sold) plus our total nonfuel revenues. The fee is payable monthly and totaled $13,409$14,037 and $14,570$12,485 for the years ended December 31, 20192021 and 2018,2020, respectively. These amounts are included in selling, general and administrative expense and loss from discontinued operations, net of taxes in our consolidated statements of operations and comprehensive income (loss). The current term of our business management agreement with RMR ends on December 31, 2020,2022, and automatically renews for successive one year terms unless we or RMR gives notice of non-renewal before the end of an applicable term. RMR may terminate the business management agreement upon 120 days' written notice, and we may terminate upon 60 days' written notice, subject to approval by a majority vote of our Independent Directors. If we terminate or do not renew the business management agreement other than for cause, as defined, we are obligated to pay RMR a termination fee equal to 2.875 times the annual base management fee and the annual internal audit services expense, which amounts are based on averages during the 24 consecutive calendar months prior to the date of notice of termination or nonrenewal.
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
We are also generally responsible for all of our expenses and certain expenses incurred or arranged by RMR on our behalf. RMR also provides internal audit services to us in return forand we pay to RMR our share of the total internal audit costs incurred by RMR for us and other publicly owned companies to which RMR or its subsidiaries provide management services, which amounts are subject to approval by our Compensation Committee. Our Audit Committee appoints our Director of Internal Audit and our Compensation Committee approves our portion of RMR's internal audit costs.Audit. The amounts recognized as expense for RMR internal audit costs allocated to us were $284$255 and $236$281 for the years ended December 31, 20192021 and 2018,2020, respectively. These amounts are included in selling, general and administrative expense in our consolidated statements of operations and comprehensive income (loss) and are in addition to the business management fees paid to RMR.
TravelCenters of America Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except par value and per share amounts)
Pursuant to our business management agreement, RMR may from time to time negotiate on our behalf with certain third party vendors and suppliers for the procurement of services to us. As part of this arrangement, we may enter agreements with RMR and other companies to which RMR provides management services for the purpose of obtaining more favorable terms from such vendors and suppliers. RMR has agreed to provide certain transition services to us for 120 days following termination by us or notice of termination by RMR.
14.13. Related Party Transactions
We have relationships and historical and continuing transactions with SVC, RMR ABP Trust, Adam D. Portnoy and others related to them, including other companies to which RMR or its subsidiaries provide management services and some of which have directors, trustees or officers who are also our Directors or officers. RMR is a majority owned subsidiary of The RMR Group Inc. The Chair of our Board of Directors and 1 of our Managing Directors, Adam D. Portnoy, as the sole trustee of ABP Trust, is the controlling shareholder of The RMR Group Inc. and is a managing director and the president and chief executive officer of The RMR Group Inc. and an officer and employee of RMR. Jonathan M. Pertchik, our other Managing Director and Chief Executive Officer, also serves as an officer and employee of RMR. Certain of our other officers and SVC's officers also serve as officers and employees of RMR. Some of our Independent Directors also serve as independent trustees or independent directors of other public companies to which RMR or its subsidiaries provide management services. Mr. Portnoy serves as chair of the board and as a managing director or managing trustee of these public companies. Other officers of RMR, including certain of our officers, serve as managing trustees, managing directors or officers of certain of these companies. As of December 31, 2021, Mr. Portnoy beneficially owned 659 shares of our common stock (including indirectly through RMR), representing approximately 4.4% of our outstanding shares of common stock. This amount includes 219 shares of our common stock that RMR purchased in our underwritten public equity offering in July 2020 at the public offering price of $14 per share and 105 shares of our common stock that RMR purchased from our former Managing Director and Chief Executive Officer, Andrew J. Rebholz, in September 2020, pursuant to a right of first refusal granted to RMR in connection with Mr. Rebholz's retirement. Relationship with SVC We are SVC's largest tenant and SVC is our principal landlord and our second largest stockholder and asstockholder. As of December 31, 2019,2021, SVC owned 6841,185 shares of our common stock, representing approximately 8.2%8.0% of our outstanding shares of common stock. RMR provides management services to both us and SVC and Adam D. Portnoy, the Chairstock, which amount includes 501 shares of our Boardcommon stock that SVC purchased in our underwritten public equity offering in July 2020 at the public offering price of Directors and 1 of our Managing Directors, also serves as the chair of the boards of trustees or boards of directors of several of the other public companies to which RMR provides management services and as a managing trustee or managing director of all these companies, including serving as the chair of the board of trustees and as a managing trustee of SVC.$14 per share. Ethan S. Bornstein, Adam D.Mr. Portnoy's brother-in-law, isserved as an executive officer of SVC.SVC until he resigned on December 31, 2020, in connection with his retirement. See Note 98 for more information about our lease agreements and transactions with SVC.
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
Spin-Off Transaction Agreement. In connection with our spin-off from SVC in 2007, we entered a transaction agreement with SVC and RMR, pursuant to which we granted SVC a right of first refusal to purchase, lease, mortgage or otherwise finance any interest we own in a travel center before we sell, lease, mortgage or otherwise finance that travel center to or with another party, and we granted SVC and any other company to which RMR provides management services a right of first refusal to acquire or finance any real estate of the types in which SVC or such other companies invest before we do. We also agreed that for so long as we are a tenant of SVC we will not permit: the acquisition by any person or group of beneficial ownership of 9.8% or more of the voting shares or the power to direct the management and policies of us or any of our subsidiary tenants or guarantors under the SVC Leases; the sale of a material part of our assets or of any such tenant or guarantor; or the cessation of certain of our Directors to continue to constitute a majority of our Board of Directors or any such tenant or guarantor. Also, we agreed not to take any action that might reasonably be expected to have a material adverse impact on SVC's ability to qualify as a real estate investment trust and to indemnify SVC for any liabilities it may incur relating to our assets and business. Lease Arrangements. As of December 31, 2019, we leased from SVC a total of 179 properties under the SVC Leases. We have also engaged in other transactions with SVC, including in connection with the Transaction Agreements. See Notes 3 and 9 for more information about our relationship, agreements and transactions with SVC.
Our Manager, RMR RMR provides certain services we require to operate our business. We have a business management agreement with RMR to provide management services to us, which relates to various aspects of our business generally. See Note 1312 for more information about our business management agreement with RMR. Adam D.RMR also provides management services to SVC, and Mr. Portnoy is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of The RMR Group Inc.,also serves as a managing directortrustee and chair of the president and chief executive officerboard of The RMR Group Inc. and an officer and employeetrustees of RMR. Both of our Managing Directors and our Chief Executive Officer, President and Chief Operating Officer, Executive Vice President, Chief Financial Officer and Treasurer, Executive Vice President and General Counsel, and Secretary are officers and employees of RMR. The RMR Group Inc. is the managing member of RMR. As of December 31, 2019, RMR owned 299 shares of our common stock, representing approximately 3.6% of our outstanding shares of common stock. See Note 13 for more information about our relationship with RMR.
TravelCenters of America Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except par value and per share amounts)
SVC.Stock Awards to RMR Employees. We award shares of common stock to certain employees of RMR who are not also Directors, officers or employees of ours. During the years ended December 31, 20192021 and 2018,2020, we awarded to such persons a total of 2029 and 1016 of our shares of common stock valued at $184$1,403 and $228,$519, in aggregate, respectively, based upon the closing prices of our shares of common stock on the Nasdaq on the dates the awards were made. These share awards to RMR employees are in addition to the fees we paid to RMR and the stock awards to our Directors, officers and employees (some of whom are also officers and employees of RMR). See Note 109 for more information regarding our stock awards and activity as well as certain stock purchases we made in connection with stock award recipients satisfying tax withholding obligations on vesting stock awards. Relationship with AIC We,Until its dissolution on February 13, 2020, we, ABP Trust, SVC and 54 other companies to which RMR provides management services each currently own 14.3% ofowned AIC an Indiana insurance company.in equal portions.
We and the other AIC shareholders historically participated in a combined property insurance program arranged and reinsured in part by AIC. The policies under that program expired onAIC until June 30, 2019, and we and the other AIC shareholders elected not to renew the AIC property insurance program; we have instead purchased standalone property insurance coverage with unrelated third party insurance providers. We paid aggregate premiums, including taxes and fees, of $2,502 and $1,721, respectively, in connection with this insurance program for the policy years ended June 30, 2019 and 2018, respectively.2019. Our investment in AIC had a carrying value of $298 and $8,632$12 as of December 31, 2019 and 2018, respectively. These amounts are2020. This amount is included in other noncurrent assets in our consolidated balance sheets. We recognized income of $575 and $516$0 related to our investment in AIC for the years ended December 31, 2019 and 2018, respectively, and $664 during the year ended December 31, 2019, related to previously unrealized gains and losses on securities held for sale, which amounts are included in other (income) expense, net in our consolidated statements of operations and comprehensive income (loss). Our other comprehensive loss attributable to common stockholders includes our proportional share of unrealized gains and losses on securities held for sale, which are owned by AIC, of $91 and $69 for the years ended December 31, 2019 and 2018, respectively. Our other comprehensive loss attributable to common stockholders for the year ended December 31, 2019, also includes the reclassification to other (income) expense, net of the $664 previously unrealized gains and losses on securities held for sale. RMR historically provided management and administrative services to AIC for a fee equal to 3.0% of the total premiums paid for insurance arranged by AIC. As a result of the property insurance program having been discontinued, AIC has not occurred fees payable to RMR since that time.
AIC is in the process of dissolving. See Note 12 for more information regarding our investment in AIC.
Directors' and Officers' Liability Insurance
We, The RMR Group Inc., RMR and certain companies to which RMR or its subsidiaries provide management services, including SVC, participate in a combined directors' and officers' liability insurance policy. The current combined policy expires in September 2020. We paid aggregate premiumsreceived the final capital distribution in December 2021 of $122$12.
Retirement and $157 in the years ended December 31, 2019 and 2018, respectively, for these policies. Executive Officer RetirementsSeparation Arrangements
In December 2019, we and RMR entered into a retirement agreement with our former Managing Director and Chief Executive Officer, Andrew J.Mr. Rebholz. Pursuant to his retirement agreement, Mr. Rebholz will continuecontinued to serve, through June 30, 2020, as a non-executive employee in order to assist in transitioning his duties and responsibilities to his successor. Under Mr. Rebholz’sRebholz's retirement agreement, consistent with past practice, we will continue to paypaid Mr. Rebholz his current annual base salary of $300 until June 30, 2020, and we paid Mr. Rebholz a cash bonus in respect of 2019 in the amount of $1,000 in December 2019. Subject to the satisfaction of certain other conditions, after his retirement on June 30, 2020, we will make2019, and an additional cash payment to Mr. Rebholz in the amount of $1,000 in June 2020, and we fully accelerateaccelerated the vesting of any of our unvested shares of our common stock previously awarded to Mr. Rebholz. In February 2020, we and RMR entered into a separation agreement with our former Executive Vice President, Chief Financial Officer and Treasurer, William E. Myers. Pursuant to his separation agreement, in 2020, we paid Mr. Myers $300 and fully accelerated the vesting of any unvested shares of our common stock previously awarded to Mr. Myers.
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
PursuantSale of Property
In May 2021, we sold a property located in Mesquite, Texas to his retirement agreement, Mr. Rebholz granted usIndustrial Logistics Properties Trust, or our nomineeILPT, for a first rightsales price of refusal in the event he determines to sell any$2,200, excluding selling costs of our shares of common stock that he owns, pursuant to which we may elect during a specified period to purchase those shares of common stock at the average closing price per share of common stock for the 10 trading days preceding the date of his written notice to us of his intent to sell. In the event that we decline to exercise our purchase right,$15. RMR may elect to purchase such shares of common stock at the price offered to us. Mr. Rebholz also agreed that, as long as he owns our shares of common stock, he will vote those shares of common stock at stockholders’ meetings in favor of nominees for director and proposals recommended by the Board. Mr. Rebholz’s retirement agreement contains other terms and conditions, including cooperation, confidentiality, non-solicitation, non-competition and other covenants, and a waiver and release. Mr. Rebholz’s retirement agreement also contains certain terms relating to RMR and other companies to which RMR or its affiliate provides management services.
In November 2017, we entered intoservices to ILPT and Mr. Portnoy serves as the chair of the board of trustees and as a retirement agreement with our then Managing Director, President and Chief Executive Officer, Thomas M. O’Brien. Mr. O’Brien resigned those positionsmanaging trustee of ILPT. The gain on December 31, 2017, and he remained a non-executive employeesale of ours until June 30, 2018,assets of $1,504 was included in accordance with his retirement agreement. Duringother operating expense (income), net for the year ended December 31, 2018, we accelerated the vesting of previously granted stock awards and made an additional cash payment to Mr. O'Brien resulting in additional compensation expense of $3,571.2021.
15.14. Contingencies
Environmental Contingencies Extensive environmental laws regulate our operations and properties. These laws may require us to investigate and clean up hazardous substances, including petroleum or natural gas products, released at our owned and leased properties. Governmental entities or third parties may hold us liable for property damage and personal injuries, and for investigation, remediation and monitoring costs incurred in connection with any contamination and regulatory compliance at our locations. We use both underground storage tanks and above ground storage tanks to store petroleum products, natural gas and other hazardous substances at our locations. We must comply with environmental laws regarding tank construction, integrity testing, leak detection and monitoring, overfill and spill control, release reporting and financial assurance for corrective action in the event of a release. At some locations we must also comply with environmental laws relative to vapor recovery or discharges to water. Under the terms of the SVC Leases, we generally have agreed to indemnify SVC for any environmental liabilities related to properties that we lease from SVC and we are required to pay all environmental related expenses incurred in the operation of the leased properties. We have entered into certain other arrangements in which we have agreed to indemnify third parties for environmental liabilities and expenses resulting from our operations. From time to time we have received, and in the future likely will receive, notices of alleged violations of environmental laws or otherwise have become or will become aware of the need to undertake corrective actions to comply with environmental laws at our locations. Investigatory and remedial actions were, and regularly are, undertaken with respect to releases of hazardous substances at our locations. In some cases we have received, and may receive in the future, contributions to partially offset our environmental costs from insurers, from state funds established for environmental clean up associated with the sale of petroleum products or from indemnitors who agreed to fund certain environmental related costs at locations purchased from those indemnitors. To the extent we incur material amounts for environmental matters for which we do not receive or expect to receive insurance or other third party reimbursement and for which we have not previously recorded a liability, our operating results may be materially adversely affected. In addition, to the extent we fail to comply with environmental laws and regulations, or we become subject to costs and requirements not similarly experienced by our competitors, our competitive position may be harmed. At December 31, 2019,2021, we had an accrued liability of $2,441$3,229 for environmental matters as well as a receivable for expected recoveries of certain of these estimated future expenditures of $574,$606, resulting in an estimated net amount of $1,867$2,623 that we expect to fund in the future. We cannot precisely know the ultimate costs we may incur in connection with currently known environmental related violations, corrective actions, investigation and remediation; however, we do not expect the costs for such matters to be material, individually or in the aggregate, to our financial position or results of operations.
TravelCenters of America Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except par value and per share amounts)
We currently have insurance of up to $20,000 per incident and up to $20,000 in the aggregate for certain environmental liabilities, subject, in each case, to certain limitations and deductibles, whichdeductibles. Our current insurance policy expires in June 2021. However,2024 and we can provide no assurance that we will be able to maintain similar environmental insurance coverage in the future on acceptable terms. We cannot predict the ultimate effect changing circumstances and changing environmental laws may have on us in the future or the ultimate outcome of matters currently pending. We cannot be certain that contamination presently unknown to us does not exist at our sites, or that a material liability will not be imposed on us in the future. If we discover additional environmental issues, or if government agencies impose additional environmental requirements, increased environmental compliance or remediation expenditures may be required, which could have a material adverse effect on us.
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
Legal Proceedings We are routinely involved in various legal and administrative proceedings incidental to the ordinary course of business, including commercial disputes, employment related claims, wage and hour claims, premises liability claims and tax audits among others. We do not expect that any litigation or administrative proceedings in which we are presently involved, or of which we are aware, will have a material adverse effect on our business, financial condition, results of operations or cash flows. On April 5, 2019, 2 plaintiffs filed a class action complaint against us in Ohio state court alleging that certain credit
15. Inventory Inventory as of December 31, 2021 and debit card receipts printed by us included more information than permitted by the Fair and Accurate Credit Transactions Act. The complaint did not seek any actual damages, but plaintiffs sought statutory damages for the individual plaintiffs and members2020, consisted of the class, as well as declaratory relief, punitive damages, attorneys' fees and costs. In June 2019, we filed a motion to dismiss. On July 5, 2019, plaintiffs filed an amended complaint, which added a request for injunctive relief and on August 2, 2019, we filed a renewed motion to dismiss. After briefing by the parties, on November 13, 2019, the Ohio state court granted our motion and entered a judgment dismissing the case.following: | | | | | | | | | | | | | December 31, | | 2021 | | 2020 | Nonfuel products | $ | 146,313 | | | $ | 143,440 | | Fuel products | 45,530 | | | 29,390 | | Total inventory | $ | 191,843 | | | $ | 172,830 | |
16. InventoryReorganization Plan Inventory atOn April 30, 2020, we committed to and initiated a reorganization plan, or the Reorganization Plan, to improve the efficiency of our operations. As part of the Reorganization Plan, we reduced our headcount and eliminated certain positions. For the year ended December 31, 20192020, we recognized Reorganization Plan costs of $4,288, which are comprised primarily of severance, outplacement services, stock based compensation expense associated with the accelerated vesting of previously granted stock awards for certain employees and 2018, consistedfees for recruitment of the following:
| | | | | | | | | | | | | December 31, | | | | 2019 | | 2018 | Nonfuel products | $ | 161,560 | | | $ | 163,302 | | Fuel products | 35,051 | | | 33,419 | | Total inventory | $ | 196,611 | | | $ | 196,721 | |
certain executive positions. These Reorganization Plan costs are recorded as selling, general and administrative expense in our consolidated statement of operations and comprehensive income (loss). As of December 31, 2021, there were no remaining payments outstanding.
TravelCenters of America Inc. Notes to Consolidated Financial Statements (dollars and shares in thousands, except par value and per share amounts)
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. | | | | | | | | | | | | | Date: | February 25, 202023, 2022 | | By: | | /s/ William E. MyersPeter J. Crage | | | | | | | | Name: | William E. MyersPeter J. Crage | | | | | | | Title: | Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. | | | | | | | | | | | | | | | Signature | | Title | | Date | | | | | | /s/ Jonathan M. Pertchik | | Managing Director and Chief Executive Officer (Principal Executive Officer) | | February 25, 202023, 2022 | Jonathan M. Pertchik | | | | | | | | | | /s/ William E. MyersPeter J. Crage | | Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) | | February 25, 202023, 2022 | William E. MyersPeter J. Crage | | | | | | | | /s/ Michael J. Barton | | Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) | | February 23, 2022 | Michael J. Barton | | | | | | | | /s/ Adam D. Portnoy | | Managing Director | | February 25, 202023, 2022 | Adam D. Portnoy | | | | | | | | | | /s/ Barbara D. Gilmore | | Independent Director | | February 25, 202023, 2022 | Barbara D. Gilmore | | | | | | | | | | /s/ Lisa Harris Jones | | Independent Director | | February 25, 202023, 2022 | Lisa Harris Jones | | | | | | | | | | /s/ Joseph L. Morea | | Independent Director | | February 25, 202023, 2022 | Joseph L. Morea | | | | | | | | /s/ Rajan Penkar | | Independent Director | | February 23, 2022 | Rajan Penkar | | | | | | | | /s/ Elena Poptodorova | | Independent Director | | February 23, 2022 | Elena Poptodorova | | |
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