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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 1-13018
PETRO STOPPING CENTERS, L.P.
(Exact name of the registrant as specified in its charter)
DELAWARE 74-2628339
(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, L.P.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, JUNE 30,
2001 2002
------------ ---------
ASSETS
Current assets:
Cash and cash equivalents $ 3,680 $ 14,908
Trade accounts receivable, net 3,909 6,067
Inventories, net 24,741 25,291
Other current assets 1,144 1,062
Due from affiliates 2,794 3,774
------------ ---------
Total current assets 36,268 51,102
Property and equipment, net 224,172 217,659
Deferred debt issuance costs, net 7,623 6,811
Other assets 12,202 12,516
------------ ---------
Total assets $ 280,265 $ 288,088
============ =========
LIABILITIES AND PARTNERS' CAPITAL 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 27,001
Due to affiliates 17,529 29,075
------------ ---------
Total current liabilities 65,852 82,632
Long-term debt, excluding current portion 194,357 183,775
------------ ---------
Total liabilities 260,209 266,407
------------ ---------
Commitments and contingencies
Partners' capital (deficit) and comprehensive loss:
General partners' (250) (246)
Limited partners' 20,470 22,252
Accumulated other comprehensive loss (164) (325)
------------ ---------
Total partners' capital and comprehensive loss 20,056 21,681
------------ ---------
Total liabilities and partners' capital and comprehensive loss $ 280,265 $ 288,088
============ =========
See accompanying notes to unaudited consolidated financial statements.
1
PETRO STOPPING CENTERS, 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 5,025 4,545 9,578 8,556
Depreciation and amortization 4,347 4,003 8,780 8,461
--------- --------- --------- ---------
Total costs and expenses 233,212 221,297 466,645 425,509
--------- --------- --------- ---------
Operating income 5,466 7,853 8,247 12,281
Equity in income (loss) of affiliate 51 101 (43) 127
Interest income 68 20 126 30
Interest expense, net (6,484) (5,293) (12,359) (10,643)
--------- --------- --------- ---------
Net income (loss) $ (899) $ 2,681 $ (4,029) $ 1,795
========= ========= ========= =========
See accompanying notes to unaudited consolidated financial statements.
2
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) AND
COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(IN THOUSANDS)
ACCUMULATED
GENERAL LIMITED OTHER TOTAL
PARTNERS' PARTNERS' COMPREHENSIVE PARTNERS'
DEFICIT CAPITAL LOSS CAPITAL
--------- --------- ------------- ---------
Balances, December 31, 2001 $ (250) $ 20,470 $ (164) $ 20,056
Net income 4 1,791 1,795
Unrealized loss on cash flow hedging derivative:
Unrealized holding loss arising during the
period (340) (340)
Less: reclassification adjustment for loss
realized in net income 179 179
------------- ---------
Net change in unrealized loss (161) (161)
---------
Comprehensive income 1,634
---------
Partners' minimum tax distributions - (9) - (9)
--------- --------- ------------- ---------
Balances, June 30, 2002 $ (246) $ 22,252 $ (325) $ 21,681
========= ========= ============= =========
See accompanying notes to unaudited consolidated financial statements.
3
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
2001 2002
--------------- --------------
Cash flows from operating activities:
Net income (loss) $ (4,029) $ 1,795
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 8,780 8,461
Deferred debt issuance cost amortization 1,377 855
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 (11) (980)
Due to affiliates (1,539) 11,546
Trade accounts payable 997 (2,751)
Accrued expenses and other liabilities 1,462 1,242
--------------- --------------
Net cash provided by operating activities 9,366 17,415
--------------- --------------
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 3,485 11,228
Cash and cash equivalents, beginning of period 8,653 3,680
--------------- --------------
Cash and cash equivalents, end of period $ 12,138 $ 14,908
=============== ==============
- ------------------------------------------------------------------------------------------------------------------
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-
Net increase in unrealized loss on cash flow hedging derivative -- 161
See accompanying notes to unaudited consolidated financial statements.
4
PETRO STOPPING CENTERS, 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, 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' capital (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 ("SFAS") No. 141, "Business Combinations," SFAS No. 142,
"Goodwill and Other Intangible Assets," 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 operates 35 multi-service truck stops in the United States.
The Company'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 its 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 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.
(continued)
5
PETRO STOPPING CENTERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2002, the Company is a franchisor to 21 Petro Stopping
Center locations. The Company collects royalties and fees in exchange for the
use of its 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 Company'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.
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.
6
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 operate 35 multi-service truck stops in the United States. Our
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 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 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 a franchisor to 21 Petro Stopping Center
locations. We collect royalties and fees in exchange for the use of our
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 our 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.
7
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 million for the six months ended
June 30, 2001 and June 30, 2002, respectively.
On January 1, 2002, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations," SFAS No. 142, "Goodwill and
Other Intangible Assets," 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 our financial position or results of operations.
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, 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 on 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.
8
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 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
======== ======= ======== ======== ========
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 Gas City, Ltd., an
unrelated entity.
9
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
approximately $3.7 million beginning in September 2002.
Any funds drawn on our senior credit facility are secured by
substantially all of our assets and the guarantees of Petro, Inc. and each of
our subsidiaries.
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) $ 205,386 $ 21,150 $ 40,150 $ 144,086 $ -
Operating leases 30,502 4,400 5,767 2,530 17,805
--------- --------- --------- --------- --------
Total $ 235,888 $ 25,550 $ 45,917 $ 146,616 $ 17,805
========= ========= ========= ========= ========
On June 3, 2002, all of our outstanding 12 1/2% Senior Notes for $6.2
million plus accrued interest matured and were retired.
We had negative working capital of $29.6 million and $31.5 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).
10
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.
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 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 10.7% 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
11
period. We believe these increases are due to increases 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 8.8% to $425.5
million in the first six months of 2002 compared to $466.6 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 9.5% or $43.6 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 10.7% to $8.6 million compared to $9.6 million in the prior year
period primarily due to lower employee-related costs.
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 13.9% or $1.7
million to $10.6 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.
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 $4.5 million compared to $5.0 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 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
12
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 5.1% to $221.3
million in the second quarter of 2002 compared to $233.2 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 5.7% or
$13.0 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 $160,000 to $28.2 million compared
to the prior year quarter. General and administrative expenses decreased 9.5% to
$4.5 million compared to $5.0 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 18.4% or $1.2
million to $5.3 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.
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.
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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 17 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, L.P.
(Registrant)
Date: August 13, 2002 By: /s/ J.A. Cardwell, Sr.
---------------------------------------------
J.A. Cardwell, Sr.
Chairman and Chief Executive Officer
(On behalf of the Registrant and as
Registrant's Principal Executive Officer)
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EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
3.1(aa) Amended and Restated Certificate of Limited Partnership of
Petro Stopping Centers, L.P.
3.2(aa) Fourth Amended and Restated Limited Partnership Agreement
of Petro Stopping Centers, L.P., dated July 23, 1999, by
and among Petro Inc., as a General Partner and Petro
Stopping Centers Holdings, L.P., Petro Holdings GP, L.L.C.,
and James A. Cardwell, Jr., as Limited Partners.
10.24* Lease agreement, dated August 12, 2002, between Quadland
Corporation and Petro Stopping Centers, L.P.
10.25* Equipment lease, dated August 12, 2002, between Tewel
Corporation and Petro Stopping Centers, L.P.
- ----------
(aa) Incorporated by reference to Petro Stopping Centers, L.P.'s Report on Form
8-K, filed on August 6, 1999.
*Filed herewith.
17