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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 September 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, September 30,
2001 2002
------------ -------------
Assets
Current assets:
Cash and cash equivalents $ 9,691 $ 15,271
Trade accounts receivable, net 3,909 4,382
Inventories, net 24,741 27,345
Other current assets 1,144 802
Due from affiliates 2,794 4,101
------------ -------------
Total current assets 42,279 51,901
Property and equipment, net 224,172 214,859
Deferred debt issuance costs, net 7,623 6,398
Other assets 12,202 12,656
------------ -------------
Total assets $286,276 $285,814
=========== =============
Liabilities and Partners' Capital and Comprehensive Loss
Current liabilities:
Current portion of long-term debt $ 14,640 $ 17,650
Trade accounts payable 14,168 7,095
Accrued expenses and other liabilities 25,526 25,113
Due to affiliates 17,529 28,152
------------ -------------
Total current liabilities 71,863 78,010
Long-term debt, excluding current portion 194,357 182,721
------------ -------------
Total liabilities 266,220 260,731
------------ -------------
Commitments and contingencies
Partners' capital (deficit) and comprehensive loss:
General partners' (250) (237)
Limited partners' 20,470 25,823
Accumulated other comprehensive loss (164) (503)
------------ -------------
Total partners' capital and comprehensive loss 20,056 25,083
------------ -------------
Total liabilities and partners' capital and comprehensive loss $286,276 $285,814
============ =============
See accompanying notes to unaudited consolidated financial statements.
1
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2002 2001 2002
---------------- ---------------- --------------- ----------------
Net revenues:
Fuel (including motor fuel taxes) $171,720 $180,629 $536,718 $503,595
Non-fuel 66,036 62,226 177,757 179,314
---------------- ---------------- --------------- ----------------
Total net revenues 237,756 242,855 714,475 682,909
Costs and expenses:
Cost of sales
Fuel (including motor fuel taxes) 160,462 170,593 505,172 474,733
Non-fuel 25,596 24,756 72,076 72,162
Operating expenses 32,033 30,709 90,957 89,919
General and administrative 4,925 4,345 14,503 12,901
Depreciation and amortization 4,439 3,904 13,219 12,365
Gain on disposition of fixed assets (59) - (59) -
---------------- ---------------- --------------- ----------------
Total costs and expenses 227,396 234,307 695,868 662,080
---------------- ---------------- --------------- ----------------
Operating income 10,360 8,548 18,607 20,829
Equity in income of affiliate 111 175 68 302
Interest income 33 16 159 46
Interest expense, net (5,991) (5,145) (18,350) (15,788)
---------------- ---------------- --------------- ----------------
Net income $ 4,513 $ 3,594 $ 484 $ 5,389
================ ================ =============== ================
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 Nine Months Ended September 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 13 5,376 - 5,389
Unrealized loss on cash flow hedging derivative:
Unrealized holding loss arising during the
period (618) (618)
Less: reclassification adjustment for loss
realized in net income 279 279
-------- --------
Net change in unrealized loss (339) (339)
--------
Comprehensive income 5,050
--------
Partners' minimum tax distributions - (23) - (23)
-------- -------- -------- --------
Balances, September 30, 2002 $ (237) $25,823 $ (503) $25,083
======== ======== ======== ========
See accompanying notes to unaudited consolidated financial statements.
3
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
September 30,
2001 2002
----------- -----------
Cash flows from operating activities:
Net income $ 484 $ 5,389
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 13,219 12,365
Deferred debt issuance cost amortization 1,860 1,291
Bad debt expense 210 161
Equity in income of affiliate (68) (302)
Gain on disposition of fixed assets (59) -
Increase (decrease) from changes in:
Trade accounts receivable 1,806 (634)
Inventories (173) (2,604)
Other current assets 341 342
Due from affiliates 349 (1,307)
Due to affiliates (2,694) 10,623
Trade accounts payable (3,326) (7,073)
Accrued expenses and other liabilities 2,467 (737)
----------- -----------
Net cash provided by operating activities 14,416 17,514
----------- -----------
Cash flows from investing activities:
Proceeds from disposition of fixed assets 109 -
Purchases of property and equipment (16,738) (3,001)
(Increase) decrease in other assets, net 100 (218)
----------- -----------
Net cash used in investing activities (16,529) (3,219)
----------- -----------
Cash flows from financing activities:
Repayments of bank debt (18,500) (23,000)
Proceeds from bank debt 25,100 25,500
Repayments of long-term debt and capital lease (1,013) (11,192)
Partners' minimum tax distributions (2) (23)
Payment of debt issuance and modification costs (1,084) -
----------- -----------
Net cash provided by (used in) financing activities 4,501 (8,715)
----------- -----------
Net increase in cash and cash equivalents 2,388 5,580
Cash and cash equivalents, beginning of period 16,165 9,691
----------- -----------
Cash and cash equivalents, end of period $18,553 $15,271
=========== ===========
- --------------------------------------------------------------------------------------------------------------
Supplemental cash flow information -
Interest paid during the period, net of capitalized interest of $87 and
$0 in 2001 and 2002 $19,924 $18,144
Non-cash activities -
Outstanding principal amount on revolving credit facility converted to a
term loan A - 29,300
Net increase in unrealized loss on cash flow hedging derivative - 339
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 September 30, 2002, the results
of operations for the three and nine months ended September 30, 2001 and
September 30, 2002, changes in partners' capital (deficit) and comprehensive
loss for the nine months ended September 30, 2002, and cash flows for the nine
months ended September 30, 2001 and September 30, 2002. The results of
operations for the three and nine months ended September 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 $56.1
million and $61.3 million for the three months ended September 30, 2001 and
September 30, 2002, respectively, and $170.2 million and $182.4 million for the
nine months ended September 30, 2001 and September 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 operations.
The Company operates 36 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 September 30, 2001 and September 30, 2002,
the revenues generated from the company-operated truck stops were $231.6 million
and $241.5 million, respectively, and $705.5 million and $679.2 million for the
nine months ended September 30, 2001 and September 30, 2002, respectively.
(continued)
5
PETRO STOPPING CENTERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
As of September 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 September 30, 2001 and
September 30, 2002, the revenues generated from the Company's franchise
operations were $6.2 million and $1.4 million, respectively, and $9.0 million
and $3.7 million for the nine months ended September 30, 2001 and September 30,
2002, respectively. The decrease in franchise revenue for the three and nine
months ended September 30, 2002 is primarily due to a $5.0 million payment for
the early termination of four franchise agreements received during the third
quarter of 2001. Franchise operations revenues, which include initial franchise
fees and other revenue types, are combined in non-fuel 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 financial commitments or obligations
resulting from these franchise agreements.
(4) Long-Term Debt
The Company's senior credit facility requires quarterly prepayments of
principal on both of the term loans A and B based on excess cash flow as defined
therein. During the nine months ended September 30, 2002, required prepayments
of approximately $77,000 and $512,000 were made on the term loans A and B,
respectively. 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 only impact will be on the amount shown as an extraordinary item in its 1999
Form 10-K, which will be reclassified 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 operations.
We operate 36 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 September 30, 2001 and September 30, 2002, the revenues
generated from the company-operated truck stops were $231.6 million and $241.5
million, respectively, and $705.5 million and $679.2 million for the nine months
ended September 30, 2001 and September 30, 2002, respectively.
As of September 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 September 30, 2001 and September 30, 2002, the
revenues generated from our franchise operations were $6.2 million and $1.4
million, respectively, and $9.0 million and $3.7 million for the nine months
ended September 30, 2001 and September 30, 2002, respectively. The decrease in
franchise revenue for the three and nine months ended September 30, 2002 is
primarily due to a $5.0 million payment for the early termination of four
franchise agreements received during the third quarter of 2001. Franchise
operations revenues, which include initial franchise fees and other revenue
types, are combined in non-fuel 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 financial 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 September 30, Nine Months Ended September 30,
-------------------------------------------- --------------------------------------------
2001 2002 2001 2002
------------------- ------------------- ------------------- -------------------
(dollars in thousands) (dollars in thousands)
Fuel $ 171,720 72.2% $ 180,629 74.4% $ 536,718 75.1% $ 503,595 73.7%
Non-Fuel (excluding restaurant) 49,555 20.9% 45,475 18.7% 130,736 18.3% 130,539 19.1%
Restaurant 16,481 6.9% 16,751 6.9% 47,021 6.6% 48,775 7.2%
---------- ------ ---------- ------ ---------- ------ ---------- ------
Total Net Revenues $ 237,756 100.0% $ 242,855 100.0% $ 714,475 100.0% $ 682,909 100.0%
========== ====== ========== ====== ========== ====== ========== ======
Our fuel revenues and related cost of sales include a significant
amount of federal and state motor fuel taxes. Such taxes were $56.1 million and
$61.3 million for the three months ended September 30, 2001 and September 30,
2002, respectively, and $170.2 million and $182.4 million for the nine months
ended September 30, 2001 and September 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 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.
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 September 30,
1998 1999 2000 2001 2002
------ ------ ------ ------ ------
Company-operated 28 29 33 35 36
Franchise operation 21 22 23 19 21
------ ------ ------ ------ ------
Total Petro Stopping Centers 49 51 56 54 57
====== ====== ====== ====== ======
The following table sets forth information on currently existing Petro
Stopping Centers opened from September 30, 1998 through September 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
Fremont, Indiana August 2002
Franchise operation:
Racine, Wisconsin December 1999
Oak Grove, Missouri April 2001
Glade Spring, Virginia October 2001
Greensburg, Indiana June 2002
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. We do not expect any material adverse affect on our financial
position or results of operations due to the transfer of these franchise rights.
9
In September and October 2002 we signed agreements for new franchise
truck stops located in Morton's Gap, Kentucky, and Gaston, Indiana,
respectively. Both franchise locations commenced operations in October 2002.
Liquidity and Capital Resources
At September 30, 2002 our principal sources of liquidity were:
o $15.4 million in available borrowing capacity under the revolving
credit portion of our senior credit facility; and
o Cash flows from operations of $17.5 million for the nine months ended
September 30, 2002. 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, and
higher operating income, offset by variations in the timing of
payments for trade accounts payable and other current liabilities and
the timing of receipts related to trade receivables.
At September 30, 2002, our senior credit facility consisted of a $25.0
million revolving credit facility, and two term loans, A and B, with original
principal amounts of $29.3 million and $40.0 million, respectively. At September
30, 2002, we had $6.6 million in standby letters of credit, $3.0 million in
additional borrowings outstanding under our revolving credit facility, and $25.6
million and $37.2 million outstanding under the term loans A and B,
respectively. Under the term loan A, we made our first of eight scheduled
quarterly principal payments of $3.7 million in September 2002. Under the term
loan B we have been making scheduled quarterly principal payments since
September 30, 2000. The first sixteen scheduled quarterly principal payments
under the term loan B are $250,000 each. In addition to the scheduled quarterly
principal payments, we are required to make quarterly prepayments of principal
on both of the term loans A and B based on excess cash flow as defined in our
senior credit facility. These required prepayments reduce scheduled principal
payments at the end of the term. During the nine months ended September 30,
2002, required prepayments of approximately $77,000 and $512,000 were made on
the term loans A and B, respectively. 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, $25.0 million is available on a
revolving basis until maturity at July 23, 2004. Interest on drawn funds is paid
quarterly at 1.75% above the bank's base rate or 3.25% 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.
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
September 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) $200,799 $ 17,650 $ 48,149 $135,000 $ -
Operating leases 32,444 3,207 9,754 3,886 15,597
---------- ---------- ---------- ---------- ----------
Total $233,243 $ 20,857 $ 57,903 $138,886 $ 15,597
========== ========== ========== ========== ==========
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 $26.1 million at
December 31, 2001 and September 30, 2002, respectively. Negative working capital
is normal in the truck stop industry since diesel fuel inventory turns
approximately every two to six days, but payment for such fuel purchases can
generally be
10
made over a longer period of time. Approximately 85.6% 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 on our truck stop network totaled $3.0 million for
the nine months ended September 30, 2002.
We currently expect to invest approximately $2.6 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 nine months ended September 30, 2002, we paid approximately $5.3
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 nine months ended September 30, 2002, aggregated
provisions amounted to approximately $5.7 million. At September 30, 2002, the
aggregated accrual amounted to approximately $7.5 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 service
through 2002 and the foreseeable future thereafter; provided however, that our
ability to satisfy such obligations, maintain covenant compliance under our
senior credit facility, and to refinance our senior credit facility prior to its
maturity is dependent upon a number of factors, some of which are beyond our
control, including economic, capital market, and competitive conditions.
Results of Operations
Nine Months Ended September 30, 2002 Compared to Nine Months Ended
September 30, 2001
Overview. The first nine months of 2002 have shown significant growth
in net income over the prior year period due to an increase in customer traffic
and our continuing focus on improving efficiencies in our operations. Our net
revenues declined as a result of a decrease in our average retail-selling price
of fuel and a $5.0 million payment for the early termination of four franchise
agreements received in 2001, partially offset by an increase in our volume of
fuel gallons sold. Our net revenues of $682.9 million decreased 4.4% in the
first nine months of 2002 from $714.5 million in the first nine months of 2001.
On a comparable unit basis, net revenues decreased by 5.4% to $662.9 million
from $700.6 million in the prior year period, again due to a decrease in our
average retail-selling price of fuel and a $5.0 million payment for the early
termination of four franchise agreements received in 2001, 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
1.1% to $89.9 million from $91.0 million in the prior year primarily due to a
decrease in utility expense and other non-employee related costs. General and
administrative expenses decreased 11.0% to $12.9 million compared to $14.5
million in the prior year primarily due to lower employee-related costs.
Fuel. Revenues decreased 6.2% to $503.6 million in the first nine
months of 2002 compared to $536.7 million in the first nine months of 2001. Fuel
revenues fell due to an 11.5% decrease in our average retail-selling price
stemming from lower fuel costs compared to the prior year period, offset by a
6.0% or 23.6 million gallon increase in fuel volumes. Gross profit decreased by
8.5% to $28.9 million in the first nine months of 2002 compared to $31.5 million
in the prior year period. On a comparable unit basis, fuel revenues fell 7.2%
due to an 11.6% decrease in our average retail-selling price, offset by a 5.0%
increase in fuel volumes compared to the prior year period. On a comparable unit
basis, gross profit decreased by 10.2% or $3.1 million in the first nine 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 nine months of 2002.
Non-Fuel (excluding restaurant). Revenues decreased 0.2% to $130.5
million in the first nine months of 2002 from $130.7 million in the first nine
months of 2001. The decrease in non-fuel revenues is primarily
11
due to a $5.0 million payment for the early termination of four franchise
agreements received in 2001, offset by a 4.8% or $5.6 million increase in
general merchandise sales at our retail stores and increased sales at our lube
facilities. Gross profit decreased 0.4% to $72.3 million in the first nine
months of 2002 from $72.5 million in the first nine months of 2001 primarily due
to a $5.0 million payment for the early termination of four franchise
agreements received in 2001. On a comparable unit basis, non-fuel revenues
decreased 0.8% or $1.1 million compared to the prior year period and gross
profit decreased 1.0% or $728,000 compared to the prior year period. The
decrease in non-fuel revenues is primarily due to a $5.0 million payment for the
early termination of four franchise agreements received in 2001, offset by a
4.1% or $4.6 million increase in general merchandise sales at our retail stores
and increased sales at our lube facilities. We believe these improvements are
due to increases in customer traffic at our sites associated with continued
increases in freight shipments seen in the first nine months of 2002, in
addition to inventory management improvements.
Restaurant. Revenues increased 3.7% to $48.8 million in the first nine
months of 2002 compared to $47.0 million in the first nine months of 2001 due to
an increase of 5.7% in our average ticket. Gross profit in the restaurants
improved by 5.3% or $1.7 million. On a comparable unit basis, restaurant
revenues increased 2.9% or $1.3 million compared to the prior year period, while
gross profit increased by 4.5% or $1.4 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 4.9% to $662.1
million in the first nine months of 2002 compared to $695.9 million in the first
nine months of 2001. Cost of sales decreased $30.4 million or 5.3% from the
prior year period primarily due to lower fuel costs in the current year,
partially offset by an increase in volume of fuel gallons sold. Operating
expenses decreased 1.1% or $1.0 million to $89.9 million compared to the prior
year primarily due to a decrease in utility expense and other non-employee
related costs. On a comparable unit basis, total costs and expenses decreased
5.7% or $39.0 million compared to the prior year period. On a comparable unit
basis, cost of sales decreased $35.3 million or 6.2% from the prior year period
due to lower fuel costs partially offset by higher fuel volumes. On a comparable
unit basis, operating expenses decreased 1.4% or $1.3 million from the prior
year period. General and administrative expenses decreased 11.0% to $12.9
million compared to $14.5 million in the prior year period primarily due to
lower employee-related costs.
Equity in Income of Affiliate. We recognized $302,000 of income related
to our investment in the Wheeler Ridge facility in Southern California compared
to $68,000 of income in the first nine months of 2001, due to improved operating
results at the facility.
Interest Expense, net. Interest expense, net, decreased 14.0% or $2.6
million to $15.8 million in the first nine 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 September 30, 2002 Compared to Three Months Ended
September 30, 2001
Overview. During the third quarter of 2002, our strong growth 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 increased due mainly to improved fuel revenues as a
result of an increase in our volume of fuel gallons sold, as well as the
addition of a new site, partially offset by a decrease in our average
retail-selling price of fuel and a $5.0 million payment for the early
termination of four franchise agreements received in 2001. Our net revenues of
$242.9 million increased 2.1% in the third quarter of 2002 from $237.8 million
in the third quarter of 2001. On a comparable unit basis, net revenues increased
by 1.0% to $234.5 million from $232.2 million in the prior year quarter, again
due to an increase in our volume of fuel gallons sold, partially offset by a
decrease in our average retail-selling price of fuel and a $5.0 million payment
for the early termination of four franchise agreements received in 2001. 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 4.1% to $30.7 million from $32.0 million in the prior year
quarter due primarily to a decrease in non-employee related costs. General and
administrative expenses decreased 11.8% to $4.3 million compared to $4.9 million
in the prior year quarter primarily due to lower employee-related costs.
Fuel. Revenues increased 5.2% to $180.6 million in the third quarter of
2002 compared to $171.7 million in the third quarter of 2001. Fuel revenues
increased due to an 8.7% increase in our volume of fuel gallons sold, as well as
the addition of a new site, offset by a 3.3% decrease in the average retail-
selling price
12
compared to the prior year quarter. Gross profit decreased by 10.9% to $10.0
million in the third quarter of 2002 compared to $11.3 million in the prior year
quarter. On a comparable unit basis, fuel revenues increased 3.9% due to a 7.5%
increase in fuel volumes, offset by a 3.4% decrease in our average
retail-selling price compared to the prior year quarter. On a comparable unit
basis, gross profit decreased by 12.9% or $1.4 million in the third 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 third quarter of 2002, in addition to our new
site.
Non-Fuel (excluding restaurant). Revenues decreased 8.2% to $45.5
million in the third quarter of 2002 from $49.6 million in the third quarter of
2001. The decrease in non-fuel revenues is primarily due to a $5.0 million
payment for the early termination of four franchise agreements received in 2001,
offset by a 2.5% or $1.0 million increase in general merchandise sales at our
retail stores and increased sales at our lube facilities due in part to the
addition of our new site. Gross profit decreased 11.8% to $25.5 million in the
third quarter of 2002 from $28.9 million in the third quarter of 2001, primarily
due to a $5.0 million payment for the early termination of four franchise
agreements received in 2001. On a comparable unit basis, non-fuel revenues
decreased 8.9% or $4.3 million compared to the prior year quarter and gross
profit decreased 12.5% or $3.5 million compared to the prior year quarter.
Restaurant. Revenues increased 1.6% to $16.8 million in the third
quarter of 2002 compared to $16.5 million in the third quarter of 2001, due to
an increase of 4.6% in our average ticket, as well as the addition of a new
site. Gross profit in the restaurants improved by 3.7% or $426,000. On a
comparable unit basis, restaurant revenues were consistent with the prior year
quarter, while gross profit increased by 2.1% or $234,000.
Costs and Expenses. Total costs and expenses increased 3.0% to $234.3
million in the third quarter of 2002 compared to $227.4 million in the third
quarter of 2001. Cost of sales increased $9.3 million or 5.0% from the prior
year quarter primarily due to an increase in volume of fuel gallons sold,
partially offset by lower costs per fuel gallon. Operating expenses decreased
4.1% or $1.3 million to $30.7 million compared to the prior year quarter
primarily due to a decrease in non-employee related costs. On a comparable unit
basis, total costs and expenses increased 1.9% or $4.2 million compared to the
prior year quarter. On a comparable unit basis, cost of sales increased $7.0
million or 3.9% from the prior year quarter due to higher fuel volumes,
partially offset by lower costs per fuel gallon. On a comparable unit basis,
operating expenses decreased 5.3% or $1.7 million to $29.5 million compared to
the prior year quarter primarily due to a decrease in non-employee-related
costs. General and administrative expenses decreased 11.8% to $4.3 million
compared to $4.9 million in the prior year quarter primarily due to lower
employee-related costs.
Equity in Income of Affiliate. We recognized $175,000 of income related
to our investment in the Wheeler Ridge facility in Southern California compared
to $111,000 of income in the third quarter of 2001, due to improved operating
results at the facility.
Interest Expense, net. Interest expense, net, decreased 14.1% or
$846,000 to $5.1 million in the third 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.
13
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 only
impact will be on the amount shown as an extraordinary item in our 1999 Form
10-K, which will be reclassified 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 September 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
September 30, 2002, the notional amount was $19.0 million. The transaction
effectively changes a portion of our interest rate exposure from a floating rate
to a fixed rate basis. For the nine months ended September 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 $279,000. As of
September 30, 2002, the interest rate swap had a negative fair value of
approximately $503,000 which has been recorded in other liabilities and
accumulated other comprehensive loss.
Item 4. Controls and Procedures
Within the 90 days prior to the date of this report, we completed an
evaluation, under the supervision and with the participation of our management,
including the company's Chief Executive Officer and Treasurer and Vice President
of Finance, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based upon that evaluation, the Chief Executive Officer
and Treasurer and Vice President of Finance concluded that our disclosure
controls and procedures are effective in timely alerting them to material
information relating to us which is required to be included in our periodic
Securities and Exchange Commission filings.
We believe there have been no significant changes in our internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our evaluation.
14
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 19 of this Quarterly Report.
(b) Reports on Form 8-K
None
15
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: November 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)
16
Certifications
I, J.A. Cardwell, Sr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Petro Stopping Centers;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ J.A. Cardwell, Sr.
- ---------------------------------------
(J.A. Cardwell, Sr.)
Chairman and Chief Executive Officer
17
Certifications
I, Edward Escudero, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Petro Stopping Centers;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Edward Escudero
- ------------------------------------------
(Edward Escudero)
Treasurer and Vice President of Finance
18
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.
- ---------
(aa) Incorporated by reference to Petro Stopping Centers, L.P.'s Report on Form
8-K, filed on August 6, 1999.
19