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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

OR

o       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-33274

TRAVELCENTERS OF AMERICA LLC

(Exact name of registrant as specified in its charter)

24601 Center Ridge Road, Suite 200, Westlake, OH 44145-5639

(Address of Principal Executive Offices)

(440) 808-9100

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o  No x

Number of Common Shares outstanding at May 5, 2011:18,016,196 common shares.

TRAVELCENTERS OF AMERICA LLC

FORM 10-Q

March 31, 2011

INDEX

As used herein the terms “we”, “us”, “our” and “TA” include TravelCenters of America LLC and its consolidated subsidiaries unless otherwise expressly stated or the context otherwise requires.

Part I.  Financial Information

Item 1.  Financial Statements

TravelCenters of America LLC

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share data)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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TravelCenters of America LLC

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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TravelCenters of America LLC

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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TravelCenters of America LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(in thousands, except share and per share amounts)

1.                                      Basis of Presentation, Business Description and Organization

TravelCenters of America LLC, which we refer to as the Company or we, us and our, operates and franchises travel centers under the “TravelCenters of America,” “TA” and “Petro” brands primarily along the U.S. interstate highway system.  Our customers include long haul trucking fleets and their drivers, independent truck drivers and motorists.

Our travel centers typically include over 20 acres of land and provide our customers with diesel fuel and gasoline as well as nonfuel products and services such as truck repair and maintenance services, full service restaurants, quick service restaurants, travel and convenience stores and other driver amenities.  We also collect rents and franchise royalties from our franchisees.

At March 31, 2011, our business included 229 travel centers in 41 states and in Canada, 166 of which were operated under the “Travel Centers of America” or “TA” brand names and 63 of which were operated under the “Petro” brand name.  We operated 188 of these travel centers, which we refer to as Company operated sites, and our franchisees operated 41 of these travel centers, including 10 travel centers which our franchisees sublease from us and 31 travel centers which our franchisees own or lease from other lessors.  We lease 145 of our TA branded sites and 40 of our Petro branded sites under leases with subsidiaries of Hospitality Properties Trust, or HPT, which we refer to as the TA Lease and Petro Lease, respectively, and which we refer to collectively as the HPT Leases.  See Note 5 for a further description of the HPT Leases.

The accompanying condensed consolidated financial statements are unaudited.  These unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, applicable for interim financial statements.  Therefore, the disclosures do not include all the information necessary for complete financial statements in accordance with GAAP.  These unaudited interim financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2010, or our Annual Report.  In the opinion of our management, all adjustments, which include only normal recurring adjustments, considered necessary for a fair presentation have been included.  While our revenues are modestly seasonal, the quarterly variations in our operating results may reflect greater seasonal differences because our rent and certain other costs do not vary seasonally.  For this and other reasons, our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.  We have reclassified certain prior year amounts to be consistent with the current year presentation.

2.                                      Earnings Per Share

Unvested shares issued under our share award plan are deemed participating securities because they participate equally in earnings with all of our other common shares.  The following table presents the weighted average common shares and weighted average unvested common shares included as participating securities.

(1)  Includes only vested shares granted under our share award plan and excludes the unvested shares granted under that plan.

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TravelCenters of America LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(in thousands, except share and per share amounts)

3.                                      Other Comprehensive Income (Loss)

The following table summarizes the components of other comprehensive income (loss):

4.                                      Inventories

Inventories consisted of the following:

5.                                      Related Party Transactions

Relationship with HPT

We were created as a separate public company in 2007 as a result of our spin off from HPT.  HPT is our largest shareholder, owning 1,540,000 of our shares (8.5% of our outstanding shares at March 31, 2011).  One of our Managing Directors is also a Managing Trustee of HPT.  Reit Management & Research LLC, or RMR, provides management services to both us and HPT, and our President, Chief Executive Officer and Managing Director and our Executive Vice President, Chief Financial Officer and Treasurer are also officers of RMR; our other Managing Director is the Chairman and majority owner of RMR; and our Independent Directors also serve as Independent Directors or Independent Trustees of other companies managed by RMR.

The following table summarizes the various amounts related to our HPT Leases that are reflected in our operating results and a reconciliation of those amounts to our consolidated financial statements:

(1)  Includes rent paid directly to HPT’s landlord under leases for properties we sublease from HPT.

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TravelCenters of America LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(in thousands, except share and per share amounts)

The following table summarizes the various amounts related to our HPT Leases that are included in our balance sheets.

(1)                                     Sale/leaseback Financing Obligation.  GAAP governing the transactions related to our entering the TA Lease required us to recognize in our consolidated balance sheet the leased assets at thirteen of the travel centers previously owned by our predecessor that we now lease from HPT because we sublease more than a minor portion of those travel centers to third parties, and one travel center did not qualify for operating lease treatment for other reasons.  Accordingly, we recorded the leased assets at these travel centers at an amount equal to HPT’s recorded initial carrying amounts, which were equal to their fair values, and recognized an equal amount of liability that is presented as sale/leaseback financing obligation in our consolidated balance sheet.  We recognize a portion of the total rent payments to HPT related to these assets as a reduction of the sale/leaseback financing obligation and a portion as interest expense in our consolidated statements of operations.  We determined the allocation of these rent payments to the liability and to interest expense using the effective interest method.

(2)                                     Deferred Rent Obligation.  Under the original terms of our rent deferral agreement with HPT, which we entered with HPT in 2008, we had the option to defer up to $5,000 of rent payable to HPT each month through December 31, 2010, and all deferred rent obligation not previously paid (and related interest thereon) was contractually due no later than July 1, 2011.  Through December 31, 2010, we had deferred a total of $150,000.  In January 2011, the deferral agreement was amended and, among other things, the payment date of the deferred rent obligation was revised so that $107,085 is now due in December 2022 and $42,915 is now due in June 2024.

(3)                                 Straight Line Rent Accrual.  The TA Lease includes scheduled rent increases over the lease term, as do certain of the leases for properties we sublease from HPT but pay the rent directly to HPT’s landlord.  We recognize the effects of those scheduled rent increases in rent expense over the lease term on a straight line basis, with offsetting entries to this accrual balance.

(4)                                     Deferred Tenant Improvements Allowance.  In connection with the commitment by HPT to fund up to $125,000 of capital projects at the sites we lease under the TA Lease without an increase in rent payable by us, we recognized a liability for the deferred rent related to this tenant improvements allowance.  This deferred tenant improvements allowance was initially recorded at an amount equal to the leasehold improvements receivable we recognized for the discounted value of the then expected future amounts to be received from HPT, based upon our expected timing at that time of receipt of those tenant improvements funding payments.  We amortize the deferred tenant improvements allowance on a straight line basis over the term of the TA Lease as a reduction to rent expense.

On August 11, 2008, we entered a rent deferral agreement with HPT.  During 2010, under the terms of the deferral agreement we deferred $5,000 of rent payments to HPT each month and paid interest to HPT monthly in arrears at the rate of 1% per month.  As

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TravelCenters of America LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(in thousands, except share and per share amounts)

of December 31, 2010, we had deferred an aggregate of $150,000 of rent payable to HPT.  During the first quarter of 2010 we recognized $2,850 of interest expense on the deferred rent obligation, $1,850 of which was paid to HPT during the 2010 first quarter.

In January 2011, we and HPT entered an Amendment Agreement that amended the TA Lease, the Petro Lease and our rent deferral agreement with HPT.  This agreement provided for the following:

·                  The minimum annual rent payable by us to HPT under the TA Lease was reduced effective January 1, 2011, by approximately $29,983, so that rent was reduced to $135,139 per year until February 1, 2012, when it will increase to $140,139 per year through the end of the lease term in December 2022.

·                  A $5,000 increase in annual minimum rent payable by us to HPT under the TA Lease that was scheduled to begin on February 1, 2011 was eliminated.

·                  The minimum annual rent payable by us to HPT under the Petro Lease was reduced effective January 1, 2011, by approximately $12,017, so that the annual rent was reduced to $54,160 through the end of the lease term in June 2024.

·                  The due date for the $150,000 of rent we had deferred as of December 31, 2010, was extended from July 1, 2011, so that $107,085 is due and payable on December 31, 2022, and the remaining $42,915 is due and payable on June 30, 2024.  Interest ceased to accrue on the deferred rent obligation effective January 1, 2011.  The full amount of the deferred rent obligation shall be due and begin to accrue interest if certain events provided in the Amendment Agreement occur, including a change of control of us.

·                  Subject to court approval of a settlement of the derivative action described in Note 6, HPT will waive payment of the first $2,500 of percentage rent that may become due under the Petro Lease.

·                  Except as amended, the HPT Leases and the provisions of the rent deferral agreement remain in effect.

Under the TA Lease, we received funding from HPT for certain tenant improvements we made to properties owned by HPT with no increase in our rent payable to HPT.  All improvements funded by HPT under this tenant improvements allowance are owned by HPT.  The amount of such funding originally was limited to $125,000 with no more than $25,000 of funding permitted in any one year.  On May 12, 2008, we and HPT amended the TA Lease.  This lease amendment permitted us to request funding from HPT for qualified improvements which we have made or may make to the travel centers leased from HPT under the TA Lease on an expedited basis.  During the three months ended March 31, 2010, we received funding of $1,796 from HPT for qualifying tenant improvements.  As of September 30, 2010, we had received all of the $125,000 tenant improvements allowance available under our lease from HPT without an increase in rent payments.  Portions of this amount were discounted pursuant to the terms of the lease because we elected to receive those funds on an accelerated basis.

Relationship with RMR

Under our business management and shared services agreement, we pay RMR an annual business management fee equal to 0.6% of the sum of our gross fuel margin (which is our fuel sales revenues less our cost of fuel sales) plus our total nonfuel revenues.  The fee is payable monthly based on the prior month’s margin and revenues.  This fee totaled $2,019 and $1,925 for the three months ended March 31, 2011 and 2010, respectively.  We are also generally responsible for all of our expenses and certain expenses incurred by RMR on our behalf.

Relationship with AIC

We, RMR, HPT and four other companies to which RMR provides management services each currently own approximately 14.29% of Affiliates Insurance Company, or AIC, an Indiana insurance company.  All of our Directors and nearly all of the trustees and directors of the other shareholders of AIC currently serve on the board of directors of AIC.  RMR, in addition to being a shareholder, provides management and administrative services to AIC pursuant to a management and administrative services agreement with AIC.  As of March 31, 2011, we have invested $5,233 in AIC since its formation in November 2008.  We may invest additional amounts in AIC in the future if the expansion of this insurance business requires additional capital, but we are not obligated to do so.  During the first quarter of 2011 and 2010, we recognized income and losses of $35 and $28, respectively, related to this investment.  We may invest additional amounts in AIC in the future if the expansion of this insurance business requires additional capital, but we are not obligated to do so.

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TravelCenters of America LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(in thousands, except share and per share amounts)

In 2010, AIC designed a combination property insurance program for us and other AIC shareholders in which AIC participated as a reinsurer.  Our total annual premium for this insurance was $2,308, of which $577 was recognized in expense during the three months ended March 31, 2011; this program was not in effect in the comparable 2010 period.  We are currently investigating the possibilities to expand our insurance relationships with AIC to include other types of insurance. By participating in this insurance business with RMR and the other companies to which RMR provides management services, we expect that we may benefit financially by possibly reducing insurance expenses or by realizing our pro-rata share of any profits of this insurance business.

Relationship with PTP

We own a 40% interest in Petro Travel Plaza Holdings LLC, or PTP, and operate the two travel centers PTP owns for which we receive management and accounting fees.  Tejon Development Corporation, or Tejon, the 60% owner of PTP, is an unrelated party.  During the three months ended March 31, 2011 and 2010, we recognized management and accounting fee income of $200 and $163, respectively, earned in connection with our operation of PTP’s travel centers.  The carrying value of our investment in PTP as of March 31, 2011 and December 31, 2010, was $17,326 and $17,542, respectively.  At March 31, 2011 and December 31, 2010 we had a net payable to PTP of $972 and $353, respectively.  During the three months ended March 31, 2011 we recognized losses of $214 as our share of PTP’s net loss for that period and during the three months ended March 31, 2010, we recognized income of $105 as our share of PTP’s net income for that period.

6.                                      Commitments and Contingencies

Contingencies

As of March 31, 2011, we were committed to acquire seven operating travel centers for approximately $30,000.  We expect these purchases to close during the second quarter of 2011.

Guarantees

In the normal course of our business we periodically enter into agreements that contain guarantees or indemnification provisions.  While we cannot estimate the maximum amount to which we may be exposed under such agreements, we do not believe that any potential guaranty or indemnification will have a material adverse effect on our consolidated financial position or results of operations.

We offer a warranty of our workmanship in our truck service facilities, but we believe the annual warranty expense and corresponding liability are not material to us.

Environmental Matters

Extensive environmental laws regulate our operations and properties.  These laws may require us to investigate and clean up hazardous substances, including petroleum 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.  We use both underground storage tanks and above ground storage tanks to store petroleum products and waste at our travel centers.  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 our leases, we generally have agreed to indemnify HPT for any environmental liabilities related to travel centers that we lease from HPT and we are required to pay all environmental related expenses incurred in the operation of the travel centers.

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 travel centers.  Investigatory and remedial actions were, and regularly are, undertaken with respect to releases of hazardous substances at our travel centers.  In some cases contributions were, and may be, received by us to partially offset 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 travel centers purchased from those indemnitors.  To the extent we incur material amounts for environmental matters for which we do not receive insurance or other third party reimbursement or for which we have not previously recorded a reserve, our operating results may be materially adversely affected and our obligations to fund these amounts could materially impact our liquidity.  In addition, to the extent we fail to comply with environmental laws and regulations,

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TravelCenters of America LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(in thousands, except share and per share amounts)

or we become subject to costs and requirements not similarly experienced by our competitors, our competitive position may be harmed.

At March 31, 2011, we had a gross accrued liability of $7,363 for environmental matters as well as a receivable for expected recoveries of certain of these estimated future expenditures of $3,404, resulting in an estimated net amount of $3,959 that we expect to need to fund from future cash flows.  We do not have a reserve for unknown current or potential future environmental matters.  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.  We cannot precisely know the ultimate costs we will incur in connection with currently known or future potential environmental related violations, corrective actions, investigation and remediation; however, based on our current knowledge we do not expect that our net costs for such matters to be incurred at our travel centers, individually or in the aggregate, would be material to our financial condition or results of operations.

We have insurance of up to $35,000 for environmental liabilities at certain of our travel centers that were known at the time the policies were issued, and up to $60,000 for environmental liabilities not known by us at the time the policies were issued, subject, in each case, to certain limitations and deductibles.  However, as noted above, we can provide no assurance that:

·                  we or a prior owner, operator or occupant of our travel centers did not create a material environmental condition not known to us at this time;

·                  future uses or circumstances (including changes in applicable environmental laws and regulations) will not result in the imposition of additional environmental liability upon us;

·                  we will be able to maintain similar environmental insurance coverage in the future on acceptable terms; or

·                 future environmental laws or regulations, including those regarding climate change, will not require us to expend significant amounts.

While the costs of our environmental compliance in the past have not had a material adverse impact on us, it is impossible to predict the ultimate effect changing circumstances and changing environmental laws may have on us in the future.  We cannot be certain that additional contamination presently unknown to us does not exist at our sites, or that material liability will not be imposed on us in the future.  If we discover additional environmental problems, 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.  In addition, legislation and regulation regarding climate change, including greenhouse gas emissions, and other environmental matters may be adopted or administered and enforced differently in the future, which could require us to expend significant amounts.  For instance, federal and state governmental requirements addressing emissions from trucks and other motor vehicles, such as the U.S. Environmental Protection Agency’s gasoline and diesel sulfur control requirements that limit the concentration of sulfur in motor gasoline and diesel fuel, could negatively impact our business.  Further, legislation and regulations that limit carbon emissions also may cause our energy costs at our travel centers to increase.

Legal Proceedings

On February 1, 2008, a purported holder of our shares, Alan R. Kahn filed a purported derivative action in the Delaware Court of Chancery on behalf of us against members of our Board of Directors, HPT and RMR.  This action alleges that our Directors breached their fiduciary duties in connection with our acquisition in 2007 of Petro Stopping Centers, L.P., or the Petro Acquisition, and our entering into the Petro Lease, and seeks an award of unspecified damages and other relief.  This action also appears to allege that RMR and HPT aided and abetted our Directors.  Under our limited liability company agreement and agreements with RMR and HPT, we are liable to indemnify our Directors, HPT and RMR for liabilities, costs and expenses incurred by them in connection with this litigation.  On May 6, 2008, we moved to dismiss this complaint.  On June 20, 2008, the plaintiff filed an amended complaint making additional allegations regarding the members of our Board of Directors and withdrawing his request for reformation of the Petro Lease.  On July 2, 2008, we moved to dismiss the amended complaint.  On October 30, 2008, Mr. Kahn’s claims against RMR were voluntarily dismissed.  On December 11, 2008, our motion to dismiss the amended complaint was denied and a previously imposed stay of discovery was lifted.  On January 21, 2009, HPT sent a letter to the plaintiff demanding arbitration of his claims pursuant to the terms of the Petro Lease.  On January 31, 2011, we and HPT entered into the Amendment Agreement, which amended our leases and rent deferral agreement with HPT.  Counsel for Mr. Kahn participated in the negotiation of certain aspects of that agreement.  In connection with those negotiations, the parties involved in the litigation agreed to settle the lawsuit.  Specifically, in

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TravelCenters of America LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(in thousands, except share and per share amounts)

exchange for settling the litigation, HPT agreed to waive payment of the first $2,500 of percentage rent that becomes due under the Petro Lease.  The settlement is subject to approval by the Delaware Court of Chancery.  The Delaware Court of Chancery has scheduled a hearing to consider the proposed settlement for June 28, 2011.  We have recorded an accrual of $675 for the estimated amount of fees we may pay to Mr. Kahn’s attorney if the settlement is approved.  Litigation and a court approval process sometimes produce unexpected results.  We can provide no assurance that the required court approval will be obtained or that this settlement will be concluded.

In July 2008, Riverside County in the State of California filed litigation against us in the Superior Court of California for Riverside County, seeking civil penalties and injunctive relief for alleged past violations of various state laws and regulations relating to management of underground storage tanks.  In April 2009, the California Attorney General intervened in the action.  The California Attorney General’s complaint repeats many of the allegations made by Riverside County and adds allegations of past violations of state laws and regulations governing the management of hazardous wastes.  The complaints by the Attorney General and the Riverside County District Attorney do not identify the amount of civil penalties sought.  The Attorney General and the District Attorney recently filed a consolidated complaint in which they combined the allegations of their previous separate complaints into a single complaint and added as an additional defendant HPT TA Properties Trust, which is a subsidiary of HPT and a landlord under the TA Lease.  Under the TA Lease, we are liable to indemnify HPT TA Properties Trust for any liabilities, costs and expenses it incurs in connection with this litigation.  The consolidated complaint does not change the substance of the claims alleged against us.  We disagree with these allegations and intend to defend these lawsuits.  The court has scheduled the case for a trial beginning on November 7, 2011.

In May 2010, the California Attorney General filed a separate litigation against us, HPT TA Properties Trust, PTP and affiliates of Tejon in the Superior Court of California for Alameda County containing allegations of violations of underground storage tank laws and regulations at various facilities in Kern and Merced counties.  On July 26, 2010, the California Attorney General voluntarily dismissed this litigation against us and the other named defendants, and on September 2, 2010, refiled its complaint against the same defendants in the Superior Court of California for Merced County.  The complaint does not identify the amount of civil penalties sought.  Under the TA Lease and our agreements with Tejon, we are liable to indemnify HPT TA Properties Trust and Tejon for any liabilities, costs and expenses they incur in connection with this litigation.  We disagree with the Attorney General’s allegations and intend to defend this lawsuit.  The parties are presently engaged in discovery and the court has not yet set a date for a trial.

Beginning in December 2006, a series of class action lawsuits was filed against numerous companies in the petroleum industry, including our predecessor and our subsidiaries, in U.S. district courts in over 20 states.  Major petroleum refineries and retailers have been named as defendants in one or more of these lawsuits.  The plaintiffs in the lawsuits generally allege that they are retail purchasers who purchased motor fuel at temperature greater than 60 degrees Fahrenheit at the time of sale.  One theory alleges that the plaintiffs purchased smaller amounts of motor fuel than the amount for which defendants charged them because the defendants measured the amount of motor fuel they delivered by volumes which, at higher temperatures, contain less energy.  A second theory alleges that fuel taxes are calculated in temperature adjusted 60 degree gallons and are collected by governmental agencies from suppliers and wholesalers, who are reimbursed in the amount of the tax by the defendant retailers before the fuel is sold to consumers.  These “tax” cases allege that, when the fuel is subsequently sold to consumers at temperatures above 60 degrees, the retailers sell a greater volume of fuel than the amount on which they paid tax, and therefore reap unjust benefit because the customers pay more tax than the retailer pays.  We believe that there are substantial factual and legal defenses to the theories alleged in these so called “hot fuel” lawsuits.  The “temperature” cases seek nonmonetary relief in the form of an order requiring the defendants to install temperature correcting equipment on their retail fuel pumps and monetary relief in the form of damages, but the plaintiffs have not quantified the damages they seek.  The “tax” cases also seek monetary relief.  Plaintiffs have proposed a formula (which we dispute) to measure these damages as the difference between the amount of fuel excise taxes paid by defendants and the amount collected by defendants on motor fuel sales.  Plaintiffs have taken the position in filings with the Court that under this approach, our damages for an eight-year period for one state would be approximately $10,700.  We deny liability and disagree with the plaintiff’s positions.  All of these cases have been consolidated in the U.S. District Court for the District of Kansas pursuant to multi-district litigation procedures.  On May 28, 2010, that Court ruled that, with respect to two cases originally filed in the U.S. District Court for the District of Kansas, it would grant plaintiffs’ motion to certify a class of plaintiffs seeking injunctive relief (implementation of fuel temperature equipment and/or posting of notices regarding the effect of temperature on fuel), and that it would defer plaintiffs’ motion to certify a class with respect to damages.  A TA entity was named in one of those two Kansas cases, but the Court ruled that the named plaintiffs were not sufficient to represent a class as to TA, and as a result, there has been no class certified as to TA.  The U.S. Court of Appeals for the Tenth Circuit has denied a request for interlocutory review of the Court’s class certification decision, and the litigation in the Kansas cases is proceeding.  The U.S. District Court for the District of Kansas has not issued a decision on class certification with respect to the remaining cases that have been consolidated in the multi-district litigation and discovery in those cases is ongoing. 

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TravelCenters of America LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(in thousands, except share and per share amounts)

Because these various motions are pending, we cannot estimate our ultimate exposure to loss or liability, if any, related to these lawsuits.  However, the continued cost of litigating these cases could be significant.

On April 6, 2009, five independent truck stop owners, who are plaintiffs in a purported class action suit against Comdata Network, Inc., or Comdata, in the U.S. District Court for the Eastern District of Pennsylvania, filed a motion to amend their complaint to add us as a defendant, which was allowed on March 25, 2010.  The amended complaint also added as defendants Ceridian Corporation, Pilot Travel Centers LLC and Love’s Travel Stops & Country Stores, Inc.  Comdata markets fuel cards which are used for payments by trucking companies at truck stops.  The amended complaint alleged antitrust violations arising out of Comdata’s contractual relationships with truck stops in connection with its fuel cards.  The plaintiffs have sought unspecified damages and injunctive relief.  On March 24, 2011, the Court dismissed the claims against TA in the amended complaint, but granted plaintiffs leave to file a new amended complaint. Four independent truck stop owners, as plaintiffs, filed a new amended complaint on April 21, 2011, repleading their claims.  We intend to renew our motion to dismiss the new amended complaint with prejudice.  We believe that there are substantial factual and legal defenses to the plaintiffs’ claims against us, but that the costs to defend this case could be significant.

In addition to the legal proceedings referenced above, we are involved from time to time in various other legal and administrative proceedings, including tax audits, and threatened legal and administrative proceedings incidental to the ordinary course of our business, none of which we expect, individually or in the aggregate, to have a material adverse effect on our business, financial condition, results of operations or cash flows.

7.                                      Income Taxes

Because of our history of operating losses, we do not currently recognize the benefit of all of our deferred tax assets, including tax loss carry forwards, that may be used to offset future taxable income.  We will, however, continue to assess our ability to generate sufficient taxable income during future periods in which our deferred tax assets may be realized.  If and when we believe it is more likely than not that we will recover our deferred tax assets, we will reverse the valuation allowance as an income tax benefit in our consolidated statement of operations, which will affect our results of operations.  As a result of certain trading in our shares during 2007, our 2007 federal net operating loss of $50,270 and other tax credit carry forwards are generally not available to us for the purpose of offsetting future taxable income because of certain Internal Revenue Code, or IRC, provisions regarding changes in ownership of our common shares.  As of December 31, 2010, we had an unrestricted federal net operating loss carry forward of approximately $168,233.  IRC provisions do not currently restrict our ability to utilize the federal net operating loss and other tax credit carry forwards generated after 2007, but these carry forwards could become subject to limitation based on changes in ownership of our common shares.  Our net operating loss carry forwards will begin to expire in 2027.

Our effective tax rate for the three months ended March 31, 2011 and 2010, differed from the amounts expected to be calculated at the statutory rate primarily due to recognition of a valuation allowance related to our operating losses as a result of the uncertainty regarding future taxable income.  Additionally, our income tax provision represents certain minimum state income taxes and the recognition of deferred tax liabilities related to the tax amortization of indefinite lived intangible assets that cannot be used to reduce existing deferred tax assets.

8.                                      Other Information

Interest expense consisted of the following:

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview (dollars in thousands)

The following discussion should be read in conjunction with the financial statements included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2010, or our Annual Report.

Our revenues and income are subject to potentially material changes as a result of the market prices of diesel fuel and gasoline, as well as the availability of these products.  These factors are subject to the worldwide petroleum products supply chain, which historically has incurred price and supply volatility and, in some cases, shocks as a result of, among other things, severe weather, terrorism, political crises, wars and other military actions and variations in demand, which are often the result of changes in the macroeconomic environment.  During the first quarter of 2011, the political unrest in Northern Africa and the Middle East led to increased prices and volatility for petroleum products such as diesel fuel and gasoline.  Over the past few years there has been significant volatility in the cost of fuel.  During 2010, fuel prices generally declined during the second and third quarters, then rose during the fourth quarter and those increases continued during the first quarter of 2011.  Additionally, fuel prices were more volatile during the first three months of 2011 than during the comparable period of 2010.  We expect that these significant changes in our costs for these products can largely be passed on to our customers, but often there are delays in passing on price changes that can affect our fuel gross margins.  Although other factors have an effect, fuel gross margins per gallon tend to be lower during periods of rising fuel prices and higher during periods of falling fuel prices.  Also, fuel price increases and volatility can have negative effects on our sales and profitability and increase our working capital requirements.  We expect that the fuel markets will continue to be volatile for the foreseeable future.

The trucking industry is the primary customer for our goods and services.  Freight and trucking demand in the U.S. generally reflects the level of commercial activity in the U.S. economy.  The condition of the U.S. economy generally, and the financial condition and activity of the trucking industry in the U.S. specifically, impacted our financial results during the first quarters of 2010 and 2011 and we expect that they will continue to impact our financial results in future periods.  While the U.S. economy recently has shown signs of growing, recent economic activity is still below pre-recession levels and the strength and sustainability of any economic recovery is uncertain.  If the U.S. economy continues to operate as it has over the past few years or if it worsens, our financial results may not improve and may decline, resulting in our experiencing losses from our operations.  Also, our operating results are typically at their lowest in the first quarter of the year because freight movement by professional truck drivers and motorist travel are at their lowest levels of the year during the winter months and certain of our expenses are fixed.

The following charts compare our fuel sales volumes, both in total and on a same site basis, for the periods indicated.

(1)  Includes volumes sold by TA’s predecessor prior to January 31, 2007, and excludes volumes sold at Petro sites prior to the May 30, 2007 acquisition by TA.

(2)  Includes travel centers that were continuously operated by TA, by its predecessor (prior to January 31, 2007) or by the previous owner of the Petro sites (prior to the acquisition by TA on May 30, 2007) during the periods presented.

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On January 31, 2011, we entered into an amendment to our leases and rent deferral agreement with HPT that is further described below under “Related Party Transaction” and that reduced our payments to HPT, as well as the associated expenses, for both rent and interest on our deferred rent obligation.

There can be no assurance that industry conditions will not deteriorate or that any one or more of the risks identified under the section “Risk Factors,” “Warning Regarding Forward Looking Statements” or elsewhere in our Annual Report, under “Warning Regarding Forward Looking Statements” or elsewhere in this Quarterly Report on Form 10-Q, or some other unidentified risk will not manifest itself in a manner which is material and adverse to our results of operations, cash flow or financial position.

Number of Travel Center Sites

The following table summarizes the changes in the number of travel center sites (company operated, franchisee leased and operated or franchisee owned and operated) from December 31, 2009 through March 31, 2011:

We acquired one travel center during the first quarter of 2011 that we expect to open for business as a company operated site during the second quarter of 2011.  In addition, during the second quarter of 2011 we expect to acquire seven operating travel centers and to operate those sites as company operated sites.  Subsequent to March 31, 2011, we agreed to franchise a travel center in Virginia.  We expect our new franchisee will be rebranded as a Petro Stopping Center during the second quarter of 2011.

Relevance of Fuel Revenues

Due to volatile pricing of fuel products and our pricing to fuel customers, we believe that fuel revenue is not a reliable metric for analyzing our results of operations from period to period.  As a result solely of changes in fuel prices, our fuel revenue may materially increase or decrease, in both absolute amounts and on a percentage basis, without a comparable change in fuel sales volumes or in fuel gross margin per gallon.  We consider fuel volumes and fuel gross margin to be better measures of comparative performance than fuel revenues.  However, fuel pricing and revenues can impact our working capital requirements; see “Liquidity and Capital Resources” below.

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Results of Operations (dollars in thousands)

Three months ended March 31, 2011 compared to March 31, 2010

The following table summarizes our results for the three month periods ended March 31, 2011 and 2010.

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Same Site Comparisons. As part of the discussion and analysis of our operating results we refer to increases and decreases in results on a same site basis.  For purposes of these comparisons, we include a travel center in the following same site comparisons only if we or a franchisee continuously operated it from January 1, 2010, through March 31, 2011.  We do not exclude travel centers from the same site comparisons as a result of expansions in their size or changes in the services offered.

(1)                  Includes fuel volume, gross margin, revenues and expenses of company operated travel centers only.

(2)                  Excludes real estate rent expense.

Revenues.  Revenues for the three month period ended March 31, 2011, were $1,782,114, which represented an increase from the quarter ended March 31, 2010, of $398,495, or 28.8%, primarily related to an increase in fuel revenue.

Fuel revenues were 83.8% of total revenues for the quarter ended March 31, 2011, compared to 80.8% for the same period in 2010.  Fuel revenues for the quarter ended March 31, 2011, were $1,493,286, an increase of $374,717, or 33.5%, compared to the same period in 2010.  This increase was principally the result of increases in fuel prices and was partially offset by decreased fuel sales volume.  The table below shows the changes in fuel revenues between periods that resulted from price and volume changes:

On a same site basis for our company operated sites, fuel sales volume decreased by 6,704 gallons, or 1.4%, during the three months ended March 31, 2011, compared to the same period in 2010.  We believe our same site fuel volume results were negatively impacted by severe weather across the nation during the first quarter of 2011 as compared to the first quarter of 2010, with severe storms affecting significant portions of the country and resulting in lost days of shipping activity (one calendar day represents approximately 1.1% of the quarter).  Also, we did not pursue lower margin business as aggressively in the first quarter of 2011 as we had in the first quarter of 2010, which negatively affected the same site volume results between years.

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Nonfuel revenues were 16.0% of total revenues for the quarter ended March 31, 2011, compared to 18.9% for the same period in 2010.  Nonfuel revenues for the three months ended March 31, 2011, were $285,378, an increase of $23,619, or 9.0%, compared to the same period in 2010.  The change between years primarily resulted from an increase in unit sales at those sites we operated continuously during both periods combined with price increases reflecting rising purchase costs.  On a same site basis for our company operated sites, nonfuel revenues increased by $23,967, or 9.2% during the three months ended March 31, 2011, compared to the same period in 2010.  We believe the same site nonfuel revenue increase reflects increased customer spending as the U.S. economy improved, as well as the price increases we have instituted to reflect increased prices we paid for non fuel purchases.

Rent and royalty revenues for the three months ended March 31, 2011, were $3,450, an increase of $159, or 4.8%, compared to the same period in 2010.  Rent and royalties increased as a result of increased nonfuel revenues at our franchisee locations and as a result of scheduled increases in rents at the ten franchisee operated locations we sublease to our franchisees. These increases were partially offset by the effect of the termination of four franchise sites in January 2010 and one franchise site in December 2010.

Cost of goods sold (excluding depreciation). Cost of goods sold for the three months ended March 31, 2011, was $1,552,631, an increase of $373,991, or 31.7%, compared to the same period in 2010.  Fuel cost of goods sold for the quarter ended March 31, 2011, of $1,432,408 increased by $364,072, or 34.1%, compared to the same period in 2010.  This increase in fuel cost of goods sold primarily resulted from the increase in fuel prices and was partially offset by a decline in fuel sales volumes.

Nonfuel cost of goods sold for the three months ended March 31, 2011, was $120,223, an increase of $9,919, or 9.0%, compared to the same period in 2010.  Nonfuel cost of goods sold increased due to the nonfuel sales increases noted above, combined with increases in product unit costs.  Nonfuel gross margin for the three months ended March 31, 2011, was $165,155, compared to $151,455 during the same period of 2010.  Nonfuel gross margin was 57.9% of nonfuel revenues during the first quarters of 2011 and 2010.

Site level operating expenses.  Site level operating expenses for the three months ended March 31, 2011, were $163,578, an increase of $11,034, or 7.2%, compared to the same period in 2010.  This increase in site level operating expenses was primarily attributable to labor and related costs, which principally increased to support the increases in our nonfuel sales.  We also experienced increases in costs to maintain our operating locations and increases in credit card transaction fees as a result of rising fuel sales prices and an increase in rates charged by Comdata that became effective during the first quarter of 2011.

On a same site basis for our company operated sites, site level operating expenses increased by $11,025, or 7.3%, for the three months ended March 31, 2011, compared to the same period in 2010 and site level operating expenses as a percentage of nonfuel revenues for the quarter ended March 31, 2011, were 57.3%, compared to 58.3% for the same period in 2010.  The decrease in operating expenses as a percentage of nonfuel revenues primarily was because certain of our expenses are fixed in nature, or otherwise do not vary directly with sales, so that increases in our revenues did not result in corresponding increases in those site level operating expenses.

Selling, general and administrative expenses.  Selling, general and administrative expenses for the three months ended March 31, 2011, were $21,202, an increase of $1,874, or 9.7%, compared to the same period in 2010.  This increase primarily resulted from increases in legal expenses and personnel costs, including recognition of share based compensation expense that increased based on the increase in our share price.

Real estate rent expense.  Rent expense for the three months ended March 31, 2011, was $47,310, a decrease of $11,228 compared to the same period in 2010.  This decrease resulted from the Amendment Agreement we entered with HPT in January 2011, that reduced our rent payments to HPT by $10,500 quarterly effective January 1, 2011.  In addition, the amount of rent we accrued in order to recognize expense under the TA Lease on a straight line basis over the term of the lease decreased by $1,871 as a result of the rent reductions.

Depreciation and amortization expense.  Depreciation and amortization expense for the three months ended March 31, 2011, was $11,715, an increase of $1,321, or 12.7%, compared to the same period in 2010 that primarily resulted from depreciating an increased level of assets.

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Interest income and expense.  Interest income and expense consisted of the following: