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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
Commission file number 333-87371
PETRO STOPPING CENTERS HOLDINGS, L.P.
(Exact name of the registrant as specified in its charter)
DELAWARE 74-2922482
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6080 Surety Dr.
El Paso, Texas 79905
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (915) 779-4711
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 __
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PETRO STOPPING CENTERS HOLDINGS, L.P.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, JUNE 30,
2001 2002
------------ ---------
ASSETS
Current assets:
Cash and cash equivalents $ 3,933 $ 15,136
Trade accounts receivable, net 3,909 6,067
Inventories, net 24,741 25,291
Other current assets 1,144 1,062
Due from affiliates 2,420 3,379
------------ ---------
Total current assets 36,147 50,935
Property and equipment, net 230,564 223,839
Deferred debt issuance costs, net 11,607 10,576
Other assets 12,171 12,475
Goodwill 31,881 31,881
------------ ---------
Total assets $ 322,370 $ 329,706
============ =========
LIABILITIES AND PARTNERS' DEFICIT AND COMPREHENSIVE LOSS
Current liabilities:
Current portion of long-term debt $ 14,640 $ 21,150
Trade accounts payable 8,157 5,406
Accrued expenses and other liabilities 25,526 27,037
Due to affiliates 17,529 29,075
------------ ---------
Total current liabilities 65,852 82,668
Long-term debt, excluding current portion 258,668 254,093
------------ ---------
Total liabilities 324,520 336,761
------------ ---------
Commitments and contingencies
Mandatorily redeemable preferred partnership interests 36,802 38,588
Contingently redeemable warrants 4,400 4,900
Partners' deficit and comprehensive loss:
General partners' (1,326) (1,405)
Limited partners' (41,324) (48,284)
Negative capital accounts of minority partners in consolidated
subsidiaries (538) (529)
Accumulated other comprehensive loss (164) (325)
------------ ---------
Total partners' deficit and comprehensive loss (43,352) (50,543)
------------ ---------
Total liabilities and partners' deficit and comprehensive loss $ 322,370 $ 329,706
============ =========
See accompanying notes to unaudited consolidated financial statements.
1
PETRO STOPPING CENTERS HOLDINGS, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2002 2001 2002
--------- --------- --------- ---------
Net revenues:
Fuel (including motor fuel taxes) $ 181,115 $ 168,875 $ 364,998 $ 322,966
Non-fuel 57,563 60,275 109,894 114,824
--------- --------- --------- ---------
Total net revenues 238,678 229,150 474,892 437,790
Costs and expenses:
Cost of sales
Fuel (including motor fuel taxes) 170,500 158,786 344,710 304,140
Non-fuel 24,130 24,905 46,180 47,134
Operating expenses 29,210 29,058 57,397 57,218
General and administrative 5,071 4,591 9,649 8,640
Depreciation and amortization 4,906 4,110 9,899 8,673
--------- --------- --------- ---------
Total costs and expenses 233,817 221,450 467,835 425,805
--------- --------- --------- ---------
Operating income 4,861 7,700 7,057 11,985
Equity in income (loss) of affiliate 51 101 (43) 127
Interest income 71 22 132 32
Interest expense, net (9,127) (8,451) (17,554) (16,870)
--------- --------- --------- ---------
Loss before minority interest (4,144) (628) (10,408) (4,726)
Minority interest in income (loss) of
consolidated subsidiaries (5) 13 (21) 9
--------- --------- --------- ---------
Net loss (4,139) (641) (10,387) (4,735)
Accrual of preferred return on mandatorily
redeemable preferred partnership interests (810) (902) (1,604) (1,786)
--------- --------- --------- ---------
Net loss applicable to common partners $ (4,949) $ (1,543) $ (11,991) $ (6,521)
========= ========= ========= =========
See accompanying notes to unaudited consolidated financial statements.
2
PETRO STOPPING CENTERS HOLDINGS, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT AND
COMPREHENSIVE LOSS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(IN THOUSANDS)
NEGATIVE
CAPITAL
ACCOUNTS OF
MINORITY ACCUMULATED
GENERAL LIMITED PARTNERS IN OTHER TOTAL
PARTNERS' PARTNERS' CONSOLIDATED COMPREHENSIVE PARTNERS'
DEFICIT DEFICIT SUBSIDIARIES LOSS DEFICIT
--------- --------- ------------ ------------- ---------
Balances, December 31, 2001 $ (1,326) $ (41,324) $ (538) $ (164) $ (43,352)
Net loss (53) (4,691) 9 - (4,735)
Unrealized loss on cash flow hedging derivative:
Unrealized holding loss arising during the period (340) (340)
Less: reclassification adjustment for loss
realized in net loss 179 179
------------- ---------
Net change in unrealized loss (161) (161)
---------
Comprehensive loss (4,896)
---------
Accrual of preferred return on mandatorily
redeemable preferred partnership interests (20) (1,766) - - (1,786)
Partners' minimum tax distributions - (9) - - (9)
Valuation adjustment of contingently redeemable
warrants (6) (494) - - (500)
--------- --------- ------------ ------------- ---------
Balances, June 30, 2002 $ (1,405) $ (48,284) $ (529) $ (325) $ (50,543)
========= ========= ============ ============= =========
See accompanying notes to unaudited consolidated financial statements.
3
PETRO STOPPING CENTERS HOLDINGS, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
2001 2002
--------- --------
Cash flows from operating activities:
Net loss $ (10,387) $ (4,735)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Minority interest in income (loss) of consolidated subsidiaries (21) 9
Depreciation and amortization 9,899 8,673
Deferred debt issuance cost amortization and accretion of original
issue discount 6,570 7,082
Bad debt expense 145 108
Equity in (income) loss of affiliate 43 (127)
Increase (decrease) from changes in:
Trade accounts receivable 1,911 (2,266)
Inventories (129) (550)
Other current assets 359 82
Due from affiliates 54 (959)
Due to affiliates (1,539) 11,546
Trade accounts payable 997 (2,751)
Accrued expenses and other liabilities 1,469 1,278
--------- --------
Net cash provided by operating activities 9,371 17,390
--------- --------
Cash flows from investing activities:
Purchases of property and equipment (14,892) (1,917)
(Increase) decrease in other assets, net 1,349 (146)
--------- --------
Net cash used in investing activities (13,543) (2,063)
--------- --------
Cash flows from financing activities:
Repayments of bank debt (8,000) (15,500)
Proceeds from bank debt 17,500 18,500
Repayments of long-term debt and capital lease (763) (7,115)
Partners' minimum tax distributions (2) (9)
Payment of debt issuance and modification costs (1,073) -
--------- --------
Net cash provided by (used in) financing activities 7,662 (4,124)
--------- --------
Net increase in cash and cash equivalents 3,490 11,203
Cash and cash equivalents, beginning of period 8,909 3,933
--------- --------
Cash and cash equivalents, end of period $ 12,399 $ 15,136
========= ========
- -------------------------------------------------------------------------------------------------------
Supplemental cash flow information -
Interest paid during the period, net of capitalized interest of $73 and $0
in 2001 and 2002 $ 10,723 $ 9,594
Non-cash activities -
Preferred return on mandatorily redeemable preferred partnership interests 1,604 1,786
Increase (decrease) in valuation of contingently redeemable warrants (5,300) 500
Net increase in unrealized loss on cash flow hedging derivative - 161
See accompanying notes to unaudited consolidated financial statements.
4
PETRO STOPPING CENTERS HOLDINGS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements, which
include the accounts of Petro Stopping Centers Holdings, L.P. and its
subsidiaries (the "Company"), have been prepared in accordance with the
instructions to Form 10-Q and, therefore, certain financial information has been
condensed and certain footnote disclosures have been omitted. Such information
and disclosures are normally included in financial statements prepared in
accordance with generally accepted accounting principles.
These unaudited condensed consolidated financial statements should be
read in conjunction with the financial statements and notes thereto in the
Annual Report of the Company on Form 10-K for the year ended December 31, 2001
("2001 Form 10-K"). Capitalized terms used in this report and not defined herein
have the meanings ascribed to such terms in the 2001 Form 10-K. In the opinion
of management of the Company, the accompanying unaudited consolidated financial
statements contain all adjustments necessary to present fairly the financial
position of the Company at December 31, 2001 and June 30, 2002, the results of
operations for the three and six months ended June 30, 2001 and June 30, 2002,
changes in partners' deficit and comprehensive loss for the six months ended
June 30, 2002, and cash flows for the six months ended June 30, 2001 and June
30, 2002. The results of operations for the three and six months ended June 30,
2002 are not necessarily indicative of the results to be expected for the full
calendar year.
The Company's fuel revenues and related cost of sales include a
significant amount of federal and state motor fuel taxes. Such taxes were $56.3
million and $60.3 million for the three months ended June 30, 2001 and June 30,
2002, respectively, and $114.1 million and $121.1 million for the six months
ended June 30, 2001 and June 30, 2002, respectively.
(2) SIGNIFICANT ACCOUNTING POLICIES
Goodwill and Other Intangible Assets
On January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142"). SFAS No. 142 requires that goodwill no longer be amortized, but instead
be tested for impairment at least annually. As a result, the Company ceased
amortization of its goodwill and did not recognize approximately $908,000 of
goodwill amortization expense that would have been recognized in the six months
ended June 30, 2002 under the previous accounting method. Of the Company's $31.8
million of goodwill, $18.1 million and $13.7 million relate to its
company-operated and franchise truck stops reporting units, respectively. Since
the Company does not have publicly traded equity securities, management
determined that a reasonable method to calculate the fair value of its
company-operated and franchise truck stops reporting units would be in a manner
similar to that provided in its equity incentive plan to determine an
approximation of the market price of the Company's partnership interests, as
described in Note 11 to Notes to Consolidated Financial Statements included in
the Company's 2001 Form 10-K. Based on the Company's analysis, as of January 1,
2002, no goodwill impairment exists for either the company-operated or franchise
truck stops reporting units.
The following is a summary of our net loss before minority interest,
adjusted for goodwill amortization recognized:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2002 2001 2002
--------- ------ --------- --------
(IN THOUSANDS) (IN THOUSANDS)
Reported net loss before minority interest $ (4,144) $ (628) $ (10,408) $ (4,726)
Add back: Goodwill amortization 454 - 908 -
--------- ------ --------- --------
Adjusted net loss before minority interest $ (3,690) $ (628) $ (9,500) $ (4,726)
========= ====== ========= ========
(continued)
5
PETRO STOPPING CENTERS HOLDINGS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
At January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 141, "Business Combinations," and SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets". The
implementation of these standards did not have an impact on the Company's
financial position or results of operations.
Reclassifications
Certain prior period amounts have been reclassified to conform to the
current year presentation.
(3) SEGMENTS
The Company has two reportable operating segments, company-operated
truck stops and franchise truck stop operations.
The Company through its subsidiary, Petro Stopping Centers, L.P. (the
"Operating Partnership"), operates 35 multi-service truck stops in the United
States. The Operating Partnership's facilities, which are known as "Petro
Stopping Centers(R)," offer a broad range of products, services, and amenities,
including diesel fuel, gasoline, home-style restaurants, truck preventive
maintenance centers, and retail merchandise stores primarily to professional
truck drivers and other highway motorists. The Company has aggregated the
Operating Partnership's company-operated truck stops into one reportable
operating segment based on the distribution of products and services under one
common site facility, classified as a multi-service truck stop. During the three
months ended June 30, 2001 and June 30, 2002, the revenues generated from the
Operating Partnership's company-operated truck stops were $237.2 million and
$227.9 million, respectively, and $472.1 million and $435.5 million for the six
months ended June 30, 2001 and June 30, 2002, respectively.
As of June 30, 2002, the Company, through the Operating Partnership, is
franchisor to 21 Petro Stopping Center locations. The Company collects royalties
and fees in exchange for the use of the Operating Partnership's tradenames and
trademarks and for certain services provided to the franchisees. Franchise fees
are based generally upon a percentage of the franchisee's sales. During the
three months ended June 30, 2001 and June 30, 2002, the revenues generated from
the Operating Partnership's franchise truck stop operations were $1.5 million
and $1.3 million, respectively, and $2.8 million and $2.3 million for the six
months ended June 30, 2001 and June 30, 2002, respectively. Franchise operations
revenues, which include initial franchise fees and other revenue types, are
combined in net revenues reported on the accompanying unaudited consolidated
statements of operations. The Company does not allocate any expenses in
measuring this segment's profit and loss, nor does it believe there are any
significant commitments or obligations resulting from these franchise
agreements.
(4) LONG-TERM DEBT
The Company's senior credit facility, requires quarterly prepayments of
principal based on excess cash flow as defined therein. During the second
quarter of 2002, a $414,000 prepayment was made on the term loan B. The current
portion of long-term debt reflects management's estimate of expected prepayments
due in the next twelve months based on such excess cash flow definition.
(5) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143"). SFAS No. 143 provides accounting guidance for
retirement obligations, for which there is a legal obligation to settle,
associated with tangible long-lived assets. SFAS No. 143 requires that asset
retirement costs be capitalized as part of the cost of the related long-lived
asset and such costs should be allocated to expense by using a systematic and
rational method. The statement requires that the initial measurement of the
asset retirement obligation be recorded at fair value and also the use of an
allocation approach for subsequent changes in the measurement of the liability.
Upon adoption of SFAS No. 143, an entity will use a cumulative-effect approach
to recognize transition amounts for any existing asset retirement obligation
liability, asset retirement costs and accumulated depreciation. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002. Management has not yet
assessed the impact of adopting SFAS No. 143 on the Company's financial
statements.
(continued)
6
PETRO STOPPING CENTERS HOLDINGS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In April 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections"
("SFAS No. 145"). SFAS No. 145 updates, clarifies, and simplifies existing
accounting pronouncements. SFAS No. 145 no longer requires the gains and losses
from extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of any related income tax effect. SFAS No. 145 requires
that certain lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. Adoption of SFAS No. 145 is required effective
January 1, 2003. Management has determined that upon adoption of SFAS No. 145,
the amount shown as an extraordinary item in 1999 will be included as a
component of loss before extraordinary item.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained in this Item 2 updates, and should be read in
conjunction with, the information set forth in Part II, Item 7 of our 2001 Form
10-K.
Certain sections of this Form 10-Q, including "Management's Discussion
and Analysis of Financial Condition and Results of Operations," contain various
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 which represent our expectations or beliefs concerning
future events that involve risks and uncertainties. All statements, other than
statements of historical facts included in this Form 10-Q, may be considered
forward-looking statements. We caution that these statements are further
qualified by important factors, some of which we have little or no control over,
that could cause actual results to differ materially from those in the
forward-looking statements. Such factors include without limitation, general
economic change, legislative regulation, and market change.
The forward-looking statements are included in, without limitation,
"--Critical Accounting Policies," "--Transactions with Related-Parties,"
"--Network Development," "--Liquidity and Capital Resources," "--Results of
Operations," and "--Recently Issued Accounting Pronouncements". In addition, in
the preparation of the financial statements, we make various estimates and
assumptions that are by their nature forward-looking statements.
REPORTING FORMAT
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"), requires us
to identify and report certain information on our reportable operating segments.
We have two reportable operating segments under SFAS No. 131, company-operated
truck stops and franchise truck stop operations.
We, through our subsidiary Petro Stopping Centers, L.P. (the "Operating
Partnership"), operate 35 multi-service truck stops in the United States. The
Operating Partnership's facilities, which are known as "Petro Stopping
Centers(R)," offer a broad range of products, services, and amenities, including
diesel fuel, gasoline, home-style restaurants, truck preventive maintenance
centers, and retail merchandise stores primarily to professional truck drivers
and other highway motorists. We have aggregated our Operating Partnership's
company-operated truck stops into one reportable operating segment based on the
distribution of products and services under one common site facility, classified
as a multi-service truck stop. During the three months ended June 30, 2001 and
June 30, 2002, the revenues generated from the Operating Partnership's
company-operated truck stops were $237.2 million and $227.9 million,
respectively, and $472.1 million and $435.5 million for the six months ended
June 30, 2001 and June 30, 2002, respectively.
As of June 30, 2002, we are, through our Operating Partnership, a
franchisor to 21 Petro Stopping Center locations. We collect royalties and fees
in exchange for the use of our Operating Partnership's tradenames and trademarks
and for certain services provided to the franchisees. Franchise fees are based
generally upon a percentage of the franchisee's sales. During the three months
ended June 30, 2001 and June 30, 2002, the revenues generated from the Operating
Partnership's franchise truck stop operations were $1.5 million and $1.3
million, respectively, and $2.8 million and $2.3 million for the six months
ended June 30, 2001 and June 30, 2002, respectively. Franchise operations
revenues, which include initial franchise fees and other revenue types, are
combined in net revenues reported on the accompanying unaudited consolidated
statements of operations. We do not allocate any expenses in measuring this
segment's profit and loss, nor do we believe there are any significant
commitments or obligations resulting from these franchise agreements.
8
The following table sets forth our total consolidated revenues by major
source:
SUMMARY OF SOURCES OF REVENUES
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------------- -----------------------------------------
2001 2002 2001 2002
------------------- ------------------ -------------------- ------------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
Fuel $ 181,115 75.9% $ 168,875 73.7% $ 364,998 76.8% $ 322,966 73.8%
Non-Fuel (excluding restaurant) 41,786 17.5% 44,126 19.3% 79,655 16.8% 83,072 19.0%
Restaurant 15,777 6.6% 16,149 7.0% 30,239 6.4% 31,752 7.2%
--------- ----- --------- ----- ---------- ------- --------- -----
Total Net Revenues $ 238,678 100.0% $ 229,150 100.0% $ 474,892 100.0% $ 437,790 100.0%
========= ===== ========= ===== ========== ======= ========= =====
Our fuel revenues and related cost of sales include a significant amount
of federal and state motor fuel taxes. Such taxes were $56.3 million and $60.3
million for the three months ended June 30, 2001 and June 30, 2002,
respectively, and $114.1 million and $121.1 for the six months ended June 30,
2001 and June 30, 2002, respectively.
On January 1, 2002, we adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS
No. 142 requires that goodwill no longer be amortized, but instead be tested for
impairment at least annually. As a result, we ceased amortization of our
goodwill and did not recognize approximately $908,000 of goodwill amortization
expense that would have been recognized in the six months ended June 30, 2002
under the previous accounting method. Of our $31.8 million of goodwill, $18.1
million and $13.7 million relate to our company-operated and franchise truck
stops reporting units, respectively. Since we do not have publicly traded equity
securities, we have determined that a reasonable method to calculate the fair
value of our company-operated and franchise truck stops reporting units would be
in a manner similar to that provided in our equity incentive plan to determine
an approximation of our market price of our partnership interests, as described
in Note 11 to Notes to Consolidated Financial Statements included in our 2001
Form 10-K. Based on our analysis, as of January 1, 2002, no goodwill impairment
exists for either our company-operated or franchise truck stops reporting units.
The following is a summary of our net loss before minority interest,
adjusted for goodwill amortization recognized:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2002 2001 2002
-------- ------- ----------- --------
(IN THOUSANDS) (IN THOUSANDS)
Reported net loss before minority interest $ (4,144) $ (628) $ (10,408) $ (4,726)
Add back: Goodwill amortization 454 - 908 -
-------- ------- ----------- --------
Adjusted net loss before minority interest $ (3,690) $ (628) $ (9,500) $ (4,726)
======== ======= =========== ========
No provision for income taxes is reflected in the accompanying unaudited
financial statements because we are a partnership for which taxable income and
tax deductions are passed through to the individual partners.
CRITICAL ACCOUNTING POLICIES
The preparation of our financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
that affect our reported amounts of assets and liabilities, revenues and
expenses, and related disclosures of contingent assets and liabilities in our
unaudited consolidated financial statements and accompanying notes. The U.S.
Securities and Exchange Commission has defined a company's critical accounting
policies as the ones that are most important to the portrayal of the company's
financial condition and results of operations, and which require the company to
make its most difficult and subjective judgments, often as a result of the need
to make estimates about matters that are inherently uncertain. Based on this
definition, we have identified our critical accounting policies as including
those addressed below. We also have other key accounting policies that involve
the use of estimates,
9
judgments and assumptions. See Note 2 to Notes to Consolidated Financial
Statements included in our 2001 Form 10-K for additional discussion of these
accounting policies. We believe that our estimates and assumptions are
reasonable, based upon information presently available, however, actual results
may differ from these estimates under different assumptions or conditions.
Partial Self-Insurance
We are partially self-insured, paying our own employment practices,
general liability, workers' compensation, and group health benefit claims, up to
stop-loss amounts ranging from $50,000 to $250,000 on a per-occurrence basis.
Provisions established under these partial self-insurance programs are made for
both estimated losses on known claims and claims incurred but not reported,
based on claims history.
Loyalty Program
We utilize estimates in accounting for our Petro Passport loyalty
program. We record a liability for the estimated redemption of Petro points
based upon our estimates about the future redemption rate of Petro points
outstanding. A change to these estimates could have an impact on our liability
in the year of the change as well as in future years.
The Emerging Issues Task Force of the Financial Accounting Standards
Board is currently reviewing the accounting for volume-based sales incentive
offers that would apply to programs such as ours, but has not yet reached a
consensus. The issuance of new accounting standards could have an impact on our
liability in the year of the change as well as in future years.
TRANSACTIONS WITH RELATED-PARTIES
Our related-party transactions are described in our 2001 Form 10-K under
Item 13, "Certain Relationships and Related Transactions". We believe that such
transactions with related-parties are on terms comparable to those that could be
obtained in arms-length transactions.
Our most significant related-party transactions are the two ten-year
supply agreements with ExxonMobil entered into in July 1999. Under the terms of
one of these agreements, ExxonMobil will supply the company-operated Petro
Stopping Centers' diesel fuel and gasoline requirements in those markets in
which Mobil branded diesel fuel and gasoline is available for sale, and under
the other of these agreements, we purchase lubricants, based upon minimum
purchase commitments at the prices set forth in the agreement.
NETWORK DEVELOPMENT
The following table sets forth the development of our Operating
Partnership's Petro Stopping Centers network since 1998:
AS OF JUNE 30,
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Company-operated 28 29 32 35 35
Franchise operation 21 22 23 23 21
---- ---- ---- ---- ----
Total Petro Stopping Centers 49 51 55 58 56
==== ==== ==== ==== ====
10
The following table sets forth information on currently existing Petro
Stopping Centers opened from June 30, 1998 through June 30, 2002, all but two of
which are full-sized facilities.
LOCATION DATE OPENED
-------- -----------
Company-operated:
Wheeler Ridge, California June 1999
Jackson, Mississippi November 1999
Mebane, North Carolina April 2000
Glendale, Kentucky June 2000
Carlisle, Pennsylvania September 2000
Los Banos, California November 2000
North Las Vegas, Nevada January 2001
Franchise operation:
Racine, Wisconsin December 1999
Oak Grove, Missouri April 2001
Glade Spring, Virginia October 2001
Greensburg, Indiana June 2002
In August 2002, we entered into operating leases and took over the
operation of an existing truck stop in Fremont, Indiana.
Effective June 7, 2002, the franchise rights with respect to the Monee,
Illinois franchise operation were transferred and assigned to the Gas City,
Ltd., an unrelated entity.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002 our principal sources of liquidity were:
. $18.9 million in available borrowing capacity under the revolving
credit portion of our senior credit facility; and
. Cash flows from operations of $9.4 million and $17.4 million for the
six months ended June 30, 2001 and June 30, 2002, respectively. The
increase in cash flows was primarily due to fluctuations in the timing
of payments for fuel to Mobil Diesel Supply Corporation, a wholly
owned subsidiary of ExxonMobil, higher operating income, and
variations in the timing of payments for trade accounts payable,
offset by the timing of receipts related to trade receivables.
At June 30, 2002, our senior credit facility consisted of a $60.0
million revolving credit facility and a term loan B with an original principal
amount of $40.0 million. At June 30, 2002, we had approximately $6.8 million in
standby letters of credit, approximately $32.8 million in additional borrowings
outstanding under our revolving credit facility, and $37.6 million outstanding
under the term loan B. We have been making principal payments on the term loan B
on a quarterly basis since September 30, 2000. The first sixteen quarterly
payments due are $250,000 each. In addition to the scheduled quarterly payments,
we are also required to make quarterly prepayments of principal based on excess
cash flow as defined in our senior credit facility. During the second quarter of
2002, a $414,000 prepayment was made on the term loan B. The current portion of
long-term debt reflects our estimate of expected prepayments due in the next
twelve months based on such excess cash flow definition.
Under our senior credit facility, the principal amount outstanding on
our revolving credit facility up to $35.0 million automatically converted at
July 23, 2002 to a term loan A. The outstanding balance under the term loan A
will be due in eight equal quarterly installments. Following this conversion,
$25.0 million is available on a revolving basis until maturity at July 23, 2004.
Interest on drawn funds is paid quarterly at 2.0% above the bank's base rate or
3.5% over the Eurodollar rate (the rate is determined at the time of borrowing,
at our option). Commitment fees of 0.5% of undrawn funds are paid quarterly. At
conversion, we had approximately $29.3 million in borrowings outstanding under
our revolving credit facility resulting in future quarterly installments of
11
approximately $3.7 million beginning in September 2002.
Any funds drawn on our senior credit facility are secured by
substantially all of the Operating Partnership's assets and the guarantees of
Petro, Inc. and each of our subsidiaries.
Accrual of dividends on mandatorily preferred partnership interests
amounted to $1.8 million for the six months ended June 30, 2002. The dividends
are only payable in cash if permitted by our then existing debt instruments.
The following is a summary of our contractual cash obligations as of
June 30, 2002:
CONTRACTUAL LESS THAN AFTER
CASH OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS 5 YEARS
---------------- --------- --------- --------- --------- --------
(IN THOUSANDS)
Long-term debt (including
unamortized discounts) $ 318,756 $ 21,150 $ 40,150 $ 144,086 $ 113,370
Operating leases 30,502 4,400 5,767 2,530 17,805
Mandatorily redeemable preferred
partnership interests 72,143 - - - 72,143
Contingently redeemable warrants 4,900 - 4,900 - -
--------- --------- --------- --------- ---------
Total $ 426,301 $ 25,550 $ 50,817 $ 146,616 $ 203,318
========= ========= ========= ========= =========
On June 3, 2002, all of our Operating Partnership's 12 1/2% Senior Notes
for $6.2 million plus accrued interest matured and were retired.
We had negative working capital of $29.7 million and $31.7 million at
December 31, 2001 and June 30, 2002, respectively. Negative working capital is
normal in the truck stop industry since diesel fuel inventory turns every two to
six days, but payment for such fuel purchases can generally be made over a
longer period of time. Approximately 87.3% of our sales are cash sales (or the
equivalent in the case of sales paid for on credit, which are funded on a daily
basis by third-party billing companies).
Capital expenditures totaled $1.9 million for the six months ended June
30, 2002. All such funds were spent on existing Petro Stopping Centers.
We currently expect to invest approximately $5.7 million during the
remainder of 2002 on capital expenditures related to regular capital maintenance
and improvement projects. These capital outlays will be funded through
borrowings under our senior credit facility and internally generated cash.
We are partially self-insured, paying our own employment practices,
general liability, workers' compensation, and group health benefit claims, up to
stop-loss amounts ranging from $50,000 to $250,000 on a per occurrence basis.
During the six months ended June 30, 2002, we paid approximately $4.0 million on
claims related to these partial self-insurance programs. Provisions established
under these partial self-insurance programs are made for both estimated losses
on known claims and claims incurred but not reported, based on claims history.
For the six months ended June 30, 2002, aggregated provisions amounted to
approximately $4.2 million. At June 30, 2002, the aggregated accrual amounted to
approximately $7.3 million, which we believe is adequate to cover both reported
and incurred but not reported claims.
As of June 30, 2002, we revalued our Warrants to $4.9 million and the
change in the fair value was allocated on a pro rata basis to the general and
limited partners. Since we do not have publicly traded equity securities, the
value of the Warrants was estimated utilizing a method similar to the one
provided in our equity incentive plan to determine an approximation of our
market price of our partnership interests, as described in Note 11 to Notes to
Consolidated Financial Statements included in our 2001 Form 10-K.
Based on the foregoing, we believe that internally generated funds,
together with amounts available under our senior credit facility, will be
sufficient to satisfy our cash requirements for operations and debt retirement
through 2002 and the foreseeable future thereafter; provided however, that our
ability to satisfy such obligations and maintain covenant compliance is
dependent upon a number of factors, some of which are
12
beyond our control, including economic, capital market, and competitive
conditions.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001
Overview. During the first six months of 2002, in spite of an uncertain
economy, we continue to improve our performance over the prior year period due
to an increase in customer traffic and our continuing focus on improving the
efficiencies of our operations. Our net revenues fell due to reduced fuel
revenues as a result of a decrease in our average retail-selling price,
partially offset by an increase in our volume of fuel gallons sold. Our net
revenues of $437.8 million decreased 7.8% in the first six months of 2002 from
$474.9 million in the first six months of 2001. On a comparable unit basis, net
revenues decreased by 8.7% to $426.1 million from $466.5 million in the prior
year period, again due to a decrease in our average retail-selling price,
partially offset by an increase in our volume of fuel gallons sold. A Petro
Stopping Center is considered a comparable unit as to a particular period in the
current year if it was open during the same period of the prior year. Operating
expenses decreased 0.3% to $57.2 million from $57.4 million in the prior year,
despite increases in employee-related costs. General and administrative expenses
decreased 10.5% to $8.6 million compared to $9.6 million in the prior year
primarily due to lower employee-related costs.
Fuel. Revenues decreased 11.5% to $323.0 million in the first six months
of 2002 compared to $365.0 million in the first six months of 2001. Fuel
revenues fell due to a 15.4% decrease in our average retail-selling price
stemming from lower fuel costs compared to the prior year period, offset by a
4.6% or 12.3 million gallon increase in fuel volumes. Gross profits decreased by
7.2% to $18.8 million in the first six months of 2002 compared to $20.3 million
in the prior year period due to lower cents per gallon margin. On a comparable
unit basis, fuel revenues fell 12.4% due to a 15.6% decrease in our average
retail-selling price, offset by a 3.7% increase in fuel volumes compared to the
prior year period. Gross profits decreased by 8.7% or $1.7 million in the first
six months of 2002 compared to the prior year period. We believe the increase in
volume is due to an increase in the demand for diesel fuel and a corresponding
increase in related customer traffic at our sites as a result of continued
increases in freight shipments seen in the first six months of 2002.
Non-Fuel (excluding restaurant). Revenues increased 4.3% to $83.1
million in the first six months of 2002 from $79.7 million in the first six
months of 2001. The increase in non-fuel revenues is primarily due to a 5.6% or
$4.1 million increase in general merchandise sales at our retail stores and
increased sales at our lube facilities. Gross profits increased 6.3% to $44.8
million in the first six months of 2002 from $42.2 million in the first six
months of 2001. On a comparable unit basis, non-fuel revenues increased 3.6% or
$2.8 million compared to the prior year period and gross profits increased 5.7%
or $2.4 million compared to the prior year period. We believe these increases
are due to an increase in customer traffic at our sites associated with
continued increases in freight shipments seen in the first six months of 2002,
in addition to inventory management improvements.
Restaurant. Revenues increased 5.0% to $31.8 million in the first six
months of 2002 compared to $30.2 million in the first six months of 2001, due to
an increase of 6.3% in our average ticket. Gross profits in the restaurants
improved by 6.1% or $1.3 million. On a comparable unit basis, restaurant
revenues increased 4.6% or $1.4 million compared to the prior year period, while
gross profits increased by 5.8% or $1.2 million. We believe these improvements
are due to an increase in our average ticket compared to the prior year period.
Costs and Expenses. Total costs and expenses decreased 9.0% to $425.8
million in the first six months of 2002 compared to $467.8 million in the first
six months of 2001. Cost of sales decreased $39.6 million or 10.1% from the
prior year period primarily due to lower fuel costs in the current year.
Operating expenses decreased 0.3% or $178,000 to $57.2 million compared to the
prior year period, despite increases in employee-related costs. On a comparable
unit basis, total costs and expenses decreased 9.7% or $44.5 million compared to
the prior year period. On a comparable unit basis, cost of sales decreased $42.2
million or 11.0% from the prior year period due to lower fuel costs partially
offset by higher fuel volumes. On a comparable unit basis, operating expenses
were consistent with the prior year period. General and administrative expenses
decreased 10.5% to $8.6 million compared to $9.6 million in the prior year
period primarily due to lower employee-related costs.
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Equity in Income (Loss) of Affiliate. We recognized $127,000 of income
related to our investment in the Wheeler Ridge facility in Southern California
compared to a $43,000 loss in the first six months of 2001, due to improved
operating results at the facility.
Interest Expense, net. Interest expense, net, decreased 3.9% or $684,000
to $16.9 million in the first six months of 2002 compared to the prior year
period, due primarily to the decrease in both our borrowings and interest rates
in the current year, offset by increased accretion on the 15% Notes issued in
July 1999.
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001
Overview. During the second quarter of 2002, our improved performance
compared to the prior year quarter reflected both a continued increase in
customer traffic and our continuing emphasis on improving the efficiencies of
our operations. Our net revenues fell due to reduced fuel revenues as a result
of a decrease in our average retail-selling price, partially offset by an
increase in our volume of fuel gallons sold. Our net revenues of $229.2 million
decreased 4.0% in the second quarter of 2002 from $238.7 million in the second
quarter of 2001. On a comparable unit basis, net revenues decreased by 4.7% to
$222.6 million from $233.5 million in the prior year quarter, again due to a
decrease in our average retail-selling price, also partially offset by an
increase in our volume of fuel gallons sold. A Petro Stopping Center is
considered a comparable unit as to a particular period in the current year if it
was open during the same period of the prior year. Operating expenses decreased
0.5% to $29.1 million from $29.2 million in the prior year quarter. General and
administrative expenses decreased 9.5% to $4.6 million compared to $5.1 million
in the prior year quarter primarily due to lower employee-related costs.
Fuel. Revenues decreased 6.8% to $168.9 million in the second quarter of
2002 compared to $181.1 million in the second quarter of 2001. Fuel revenues
fell due to an 11.8% decrease in our average retail-selling price stemming from
lower fuel costs compared to the prior year quarter, offset by a 5.7% or 7.4
million gallon increase in fuel volumes. Gross profits decreased by 4.9% to
$10.1 million in the second quarter of 2002 compared to $10.6 million in the
prior year quarter due to lower cents per gallon margin. On a comparable unit
basis, fuel revenues fell 7.5% due to an 11.8% decrease in our average
retail-selling price, offset by a 4.9% increase in fuel volumes compared to the
prior year quarter. Gross profits decreased by 6.2% or $641,000 and in the
second quarter of 2002 compared to the prior year quarter. We believe the
increase in volume is due to an increase in the demand for diesel fuel and a
corresponding increase in related customer traffic at our sites as a result of
continued increases in freight shipments seen in the second quarter of 2002.
Non-Fuel (excluding restaurant). Revenues increased 5.6% to $44.1
million in the second quarter of 2002 from $41.8 million in the second quarter
of 2001. The increase in non-fuel revenues is primarily due to a 7.1% or $2.7
million increase in general merchandise sales at our retail stores and increased
sales at our lube facilities. Gross profits increased 7.0% to $23.7 million in
the second quarter of 2002 from $22.1 million in the second quarter of 2001. On
a comparable unit basis, non-fuel revenues increased 5.0% or $2.0 million
compared to the prior year quarter and gross profits increased 6.3% or $1.4
million compared to the prior year quarter. We believe these increases are due
to increases in customer traffic at our sites associated with continued
increases in freight shipments seen in the second quarter of 2002, in addition
to inventory management improvements.
Restaurant. Revenues increased 2.4% to $16.1 million in the second
quarter of 2002 compared to $15.8 million in the second quarter of 2001, due to
an increase of 6.0% in our average ticket. Gross profits in the restaurants
improved by 3.5% or $394,000. On a comparable unit basis, restaurant revenues
increased 2.1% or $326,000 compared to the prior year quarter, while gross
profits increased by 3.3% or $363,000. We believe these improvements are due to
increases in our average ticket compared to the prior year quarter.
Costs and Expenses. Total costs and expenses decreased 5.3% to $221.5
million in the second quarter of 2002 compared to $233.8 million in the second
quarter of 2001. Cost of sales decreased $10.9 million or 5.6% from the prior
year quarter primarily due to lower fuel costs in the current year. Operating
expenses decreased 0.5% or $152,000 to $29.1 million compared to the prior year
quarter. On a comparable unit basis, total costs and expenses decreased 5.9% or
$13.5 million compared to the prior year quarter. On a comparable unit basis,
cost of sales decreased $12.0 million or 6.3% from the prior year quarter due to
lower fuel costs partially offset by higher fuel volumes. On a comparable unit
basis, operating expenses decreased 0.6% or
14
$160,000 to $28.2 million compared to the prior year quarter. General and
administrative expenses decreased 9.5% to $4.6 million compared to $5.1 million
in the prior year quarter primarily due to lower employee-related costs.
Equity in Income (Loss) of Affiliate. We recognized $101,000 of income
related to our investment in the Wheeler Ridge facility in Southern California
compared to $51,000 of income in the second quarter of 2001, due to improved
operating results at the facility.
Interest Expense, net. Interest expense, net, decreased 7.4% or $676,000
to $8.5 million in the second quarter of 2002 compared to the prior year
quarter, due primarily to the decrease in both our borrowings and interest rates
in the current year, offset by increased accretion on the 15% Notes issued in
July 1999.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143"). SFAS No. 143 provides accounting guidance for
retirement obligations, for which there is a legal obligation to settle,
associated with tangible long-lived assets. SFAS No. 143 requires that asset
retirement costs be capitalized as part of the cost of the related long-lived
asset and such costs should be allocated to expense by using a systematic and
rational method. The statement requires that the initial measurement of the
asset retirement obligation be recorded at fair value and also the use of an
allocation approach for subsequent changes in the measurement of the liability.
Upon adoption of SFAS No. 143, an entity will use a cumulative-effect approach
to recognize transition amounts for any existing asset retirement obligation
liability, asset retirement costs and accumulated depreciation. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002. We have not yet
assessed the impact of adopting SFAS No. 143 on our financial statements.
In April 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections"
("SFAS No. 145"). SFAS No. 145 updates, clarifies, and simplifies existing
accounting pronouncements. SFAS No. 145 no longer requires the gains and losses
from extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of any related income tax effect. SFAS No. 145 requires
that certain lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. Adoption of SFAS No. 145 is required effective
January 1, 2003. We have determined that upon adoption of SFAS No. 145, the
amount shown as an extraordinary item in 1999 will be included as a component of
loss before extraordinary item.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk due to changes in commodity prices and
interest rates. For a complete discussion of our market risks and our market
risk sensitive assets and liabilities, please refer to Item 7A, "Quantitative
and Qualitative Disclosures about Market Risk," included in our 2001 Form 10-K.
At June 30, 2002, we were party to an interest rate swap agreement which
is a cash flow hedge and qualifies for the shortcut method under the Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". Under this agreement, we pay a fixed rate
of 3.86% in exchange for a floating rate based on LIBOR on the notional amount
as determined in three-month intervals. For the three-month interval ending June
30, 2002, the notional amount was $19.1 million. The transaction effectively
changes a portion of our interest rate exposure from a floating rate to a fixed
rate basis. For the six months ended June 30, 2002, the effect of the swap was
to increase the rate we were required to pay by 1.9%, which resulted in
additional interest expense of approximately $179,000. As of June 30, 2002, the
interest rate swap had a negative fair value of $325,000 which has been recorded
in other liabilities and accumulated other comprehensive loss.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are party to various ordinary litigation incidental to our business
for which estimates of losses have been accrued, when appropriate. In our
opinion, such proceedings will not have a material adverse effect on our
financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Incorporated herein by reference is a list of Exhibits contained in the
Exhibit Index on page 18 of this Quarterly Report.
(b) Reports on Form 8-K
None
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PETRO STOPPING CENTERS HOLDINGS, L.P.
(Registrant)
Date: August 13, 2002 By: /s/ J.A. Cardwell, Sr.
----------------------
J.A. Cardwell, Sr.
President and Director
(On behalf of the Registrant and as
Registrant's Principal Executive
Officer)
17
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
3.1 (aa) Certificate of Limited Partnership of Petro Stopping
Centers Holdings, L.P.
3.2 (aa) Limited Partnership Agreement of Petro Stopping Centers
Holdings, L.P., dated July 23, 1999.
10.35* Lease agreement, dated August 12, 2002, between Quadland
Corporation and Petro Stopping Centers, L.P.
10.36* Equipment lease, dated August 12, 2002, between Tewel
Corporation and Petro Stopping Centers, L.P.
- ----------
(aa) Incorporated by reference to Petro Stopping Centers Holdings, L.P.'s
Registration Statement on Form S-4 (Registration No. 333-87371), filed on
September 17, 1999.
*Filed herewith.
18