<PAGE> 1
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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 28, 1996
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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PETRO STOPPING CENTERS, L.P.
Index
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets
as of December 29, 1995 and June 28, 1996 3
Unaudited Consolidated Statements of Operations
for the Three and Six Months Ended June 30, 1995 and June 28, 1996 4
Unaudited Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1995 and June 28, 1996 5
Notes to Unaudited Consolidated Financial Statements 6-7
Report of Independent Accountants 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
2
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PART 1. Financial Information
Item 1. Financial Statements
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 29, June 28,
1995 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash $ 5,688 $ 6,227
Accounts receivable, net of allowance for uncollectible
accounts of $608 in 1995 and $347 in 1996 11,468 12,736
Inventories 16,319 16,062
Other current assets 1,728 2,454
Due from affiliates 1,520 1,593
------------ ------------
Total current assets 36,723 39,072
Property and equipment, net 162,348 161,482
Deferred debt issuance and organization costs, net of
accumulated amortization of $4,546 in 1995 and $5,648 in 1996 13,370 12,589
Other assets 9,258 7,548
------------ ------------
Total assets $ 221,699 $ 220,691
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current portion of long-term debt $ 4,948 $ 5,938
Trade accounts payable 14,188 13,084
Accrued expenses and other liabilities 25,166 26,097
Due to affiliates 2,028 2,183
------------ ------------
Total current liabilities 46,330 47,302
Notes payable 20,578 21,639
Long-term debt, excluding current portion 142,866 139,874
------------ ------------
Total liabilities 209,774 208,815
------------ ------------
Commitments and contingencies
Partners' capital:
General partners (7,204) (7,212)
Limited partners 19,129 19,088
------------ ------------
Total partners' capital 11,925 11,876
------------ ------------
Total liabilities and partners' capital $ 221,699 $ 220,691
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
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PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 28, June 30, June 28,
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues (including motor fuel taxes)
Diesel fuel island $ 85,562 $ 105,861 $ 169,861 $ 207,238
Petro:Lube 8,942 11,062 17,040 20,754
Restaurant 11,891 11,724 23,173 23,254
Travel and convenience stores 15,861 16,802 29,271 31,853
Petro:2 7,091 8,064 13,930 15,902
Other 2,126 2,564 4,236 5,002
---------- ----------- ----------- ----------
Total net revenues 131,562 156,077 257,511 304,002
---------- ----------- ----------- ----------
Costs and expenses:
Cost of sales (including motor fuel taxes),
exclusive of depreciation and amortization 101,562 124,399 198,647 241,945
Operating expenses 17,822 19,643 34,526 39,341
General and administrative 2,723 3,111 5,727 6,179
Depreciation and amortization 2,639 3,000 5,083 5,958
---------- ----------- ----------- ----------
Total costs and expenses 124,745 150,153 243,983 293,423
---------- ----------- ----------- ----------
Operating income 6,817 5,924 13,528 10,579
Interest expense 5,371 5,298 10,528 10,628
---------- ----------- ----------- ----------
Net income (loss) $ 1,446 $ 626 $ 3,000 $ (49)
========== =========== =========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
4
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PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 28,
1995 1996
---- ----
<S> <C> <C>
Cash flows provided by operating activities:
Net income (loss) $ 3,000 $ (49)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization 5,083 5,958
Deferred debt issuance amortization 775 783
Accretion of original issue discount 410 466
Provision for losses on accounts receivable 100 106
Increase (decrease) from changes in:
Accounts receivable (1,384) (1,374)
Inventories (1,848) 257
Other current assets 132 (726)
Due from affiliates (267) (73)
Due to affiliates (34) 155
Trade accounts payable 691 (1,104)
Accrued expenses and other liabilities (726) 1,653
----------- ------------
Net cash provided by operating activities 5,932 6,052
----------- ------------
Cash flows used in investing activities:
Purchases of property and equipment (15,470) (3,254)
Increase (decrease) in other assets, net (362) 33
----------- ------------
Net cash used in investing activities (15,832) (3,221)
----------- ------------
Cash flows provided by (used in) financing activities:
Repayments of notes payable (8,364) (14,000)
Proceeds from notes payable 20,000 15,061
Repayments of long-term debt (1,522) (2,469)
Distribution to partners (43) -
Payment of debt issuance costs (19) (162)
Increase (decrease) in cash overdrafts 1,032 (722)
----------- ------------
Net cash provided by (used in) financing activities 11,084 (2,292)
----------- ------------
Net increase in cash 1,184 539
Cash, beginning of period 3,823 5,688
----------- ------------
Cash, end of period $ 5,007 $ 6,227
=========== ============
- ------------------------------------------------------------------------------------------------------
Supplemental cash flow information -
Interest paid during the period, net of capitalized interest of
$375 in 1995 $ 9,581 $ 9,379
Minority interest converted to equity 506 -
</TABLE>
See accompanying notes to unaudited consolidated financial statements
5
<PAGE> 6
PETRO STOPPING CENTERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION
The interim consolidated financial statements of Petro Stopping
Centers, L.P. (the "Company") are unaudited, and certain information and
footnote disclosures normally included in the annual consolidated financial
statements have been omitted. While management of the Company believes that
the disclosures presented are adequate to make the information not misleading,
it is suggested that these statements be read in conjunction with the Company's
1995 annual report on Form 10-K. In the opinion of management, the
accompanying unaudited consolidated financial statements contain all necessary
adjustments (consisting of only normal recurring adjustments) for 1995 and
1996. The results of operations for the six-month period ended June 28, 1996
are not necessarily indicative of the results to be expected for the full year.
2) ENVIRONMENTAL LIABILITIES AND EXPENDITURES
Accruals for environmental matters are recorded in operating expenses
when it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated. The measurement of environmental
liabilities is based on an evaluation of currently available facts with respect
to each individual site and considers factors such as existing technology,
presently enacted laws and regulations and prior experience in remediation of
contaminated sites. Accrued liabilities are exclusive of claims against third
parties and are not discounted.
3) INVENTORIES
The following is a summary of inventories at December 29, 1995 and
June 28, 1996:
<TABLE>
<CAPTION>
1995 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Motor fuels and lubricants $ 3,623 $ 3,956
Tires and tubes 3,568 3,512
Merchandise and accessories 7,783 7,284
Restaurant and other 1,345 1,310
------- -------
Total inventories $16,319 $16,062
======= =======
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment is summarized at December 29, 1995 and June
28, 1996 as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES
(YEARS) 1995 1996
------- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Land -- $ 34,872 $ 34,944
Buildings and improvements 30 91,644 92,690
Furniture and equipment 3-10 37,887 39,442
Leasehold improvements 7-30 20,066 20,066
Facilities under development -- 157 646
-------- --------
184,626 187,788
Less accumulated depreciation and amortization 22,278 26,306
-------- --------
Net property and equipment $162,348 $161,482
======== ========
</TABLE>
Facilities under development include costs associated with new
facilities and major renovations of existing facilities. The future commitment
associated with construction of new Petro:Lubes aggregates approximately
$504,000 at June 28, 1996.
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PETRO STOPPING CENTERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5) NOTES PAYABLE
Notes payable at December 29, 1995 and June 28, 1996 consisted of a
five-year revolving credit facility under which up to $35,000,000 is available.
The credit facility matures in June 1999. Interest is paid monthly at 1.5% over
the bank's prime rate or 2.75% over the Eurodollar rate (the rate of which is
determined by the Company at time of borrowing). The revolver is
collateralized by substantially all of the Company's assets. The balance
outstanding on the credit facility was $20,578,000 and $21,639,000 as of
December 29, 1995 and June 28, 1996, respectively. The average interest rate
for the six months ended June 28, 1996 was 8.8%.
In addition, also outstanding at December 29, 1995 and June 28, 1996
under the Credit Facility were standby letters of credit principally related to
unfunded insurance claims in the amount of $3,150,000 and other various standby
letters of credit of approximately $500,000.
6) COMMITMENTS AND CONTINGENCIES
The Company is involved in various litigation incidental to the
business for which estimates of losses have been accrued, when appropriate. In
the opinion of management, such proceedings will not have a material adverse
effect on financial position or results of operations.
7) RECENT PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123 encourages entities
to adopt a fair value based method of accounting for all employee stock and
other equity based compensation, as well as transactions in which an entity
issues its equity instruments to acquire goods or services from nonemployees.
SFAS No. 123 allows an entity to continue measuring compensation costs for the
plans using the accounting principles prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"). In that case,
however, companies must also include pro forma disclosures of net income and
earnings per share, if applicable, as if the fair value based method of
accounting defined in SFAS No. 123 had been applied. SFAS No. 123 is effective
for fiscal years beginning after December 15, 1995. The Partnership has
elected to continue to apply the accounting recognition rules contained in APB
No. 25, and provide proforma disclosures as required beginning in 1996.
7
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REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Control and Partners
Petro Stopping Centers, L.P.
We have reviewed the accompanying consolidated balance sheet of Petro Stopping
Centers, L.P. as of June 28, 1996, and the related consolidated statements of
operations and cash flows for the three and six month periods ended June 30,
1995 and June 28, 1996. These consolidated financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
El Paso, Texas
August 1, 1996
8
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
The following table sets forth the development of the Company's
Stopping Center network since 1992.
<TABLE>
<CAPTION>
AS OF JUNE 30,
--------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Company-operated Stopping Centers:
Full-sized............................. 20 20 21 23 23
Petro:2 :.............................. 3 3 3 3 3
Franchised .............................. 11 12 12 14 15
Independently operated................... 1 1 1 1 -
------ ------ ----- ------ -----
Total Stopping Centers................. 35 36 37 41 41
===== ===== ===== ===== ====
</TABLE>
The following table sets forth information on Stopping Centers opened
since January 1, 1993, all of which were full-sized facilities.
<TABLE>
<CAPTION>
LOCATION DATE OPENED
<S> <C>
Company-operated Stopping Centers:
Laramie, Wyoming October 1993
Medford, Oregon February 1995
Ocala, Florida June 1995
Franchised:
Fargo, North Dakota November 1994
Carnesville, Georgia January 1995
</TABLE>
All of the Stopping Centers opened since January 1, 1993 were newly constructed
facilities, except Medford, Oregon, where the Company purchased an existing
truck stop and converted it into a Stopping Center. In addition to the new
full-sized facilities, the Company opened new Petro:Lubes at its San Antonio,
Beaumont and Medford locations in June 1994, January 1995 and April 1996,
respectively. At June 28, 1996, the Company had no new Stopping Centers under
construction. However, two franchise locations are under construction; one in
York, Nebraska, which is scheduled to open in late 1996 and the other in
Scranton, Pennsylvania, which is scheduled to open in the first quarter of
1997. The approximate construction cost of a new stopping center (exclusive of
land) is $8,500,000.
The Company has never closed a Stopping Center and has no current
plans to do so.
In May 1994, the Company purchased the rights to certain revenues
(the "Coinage Arrangement") from certain specified activities (pay telephone
services, video games and rentals of retail space) at 14 Stopping Centers.
In March 1996, the Company, and its principal partners jointly
retained Goldman, Sachs & Co. as their financial advisor to assist them in
enhancing shareholder value. This project could include the possible sale to a
strategic investor of a significant equity interest in the Company and could
result in a possible change in the ownership structure of the Company.
The Company acknowledges that currently pending minimum wage
legislation, if adopted as law, might increase expenses related to wages. The
exact language and provisions of such a law, while unknown at this time, would
determine the magnitude of such an increase. The Company expects that any such
changes as currently being considered by Congress would primarily impact its
restaurant operations, the Company's largest employer of persons paid minimum
hourly rates according to federal and state wage laws and various laws that
allow for credits to that wage. If changes in minimum wage law were to cause a
significant increase in wages, operating margins might be affected in the
short-term
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<PAGE> 10
until prices could be adjusted to pass along these increased costs. Although
there is no assurance that such cost increases can be offset by increases in
prices, the Company does not expect that it would be at a competitive
disadvantage to other similar businesses operating under the same wage laws.
Revenues. The Company's revenues at each of its full-sized Stopping
Centers are recorded through the following divisions: diesel fuel island,
Petro:Lube, restaurant and travel and convenience stores. The Company's
Petro:2 division includes all activities at its Petro:2 units except for
revenues from Petro:Lubes located at the Petro:2 locations. Sales of non-fuel
merchandise in the fuel island building, as well as its revenues from the truck
weighing scales, are included in the results of the diesel fuel island
division. The restaurant division also includes the free-standing Iron Skillet
restaurant in Arlington, Texas. The travel and convenience store division
includes the Company's revenues from other activities at the Stopping Center,
including showers, laundry, vending machines, video games and other retail
activities, as well as gasoline and auto diesel sales. Other includes
franchisee fees and income from video poker machines, discounts on franchisee
receivables, fuel hauling, fast food restaurants, motel and RV park.
The Company's fuel revenues and cost of sales include significant
amounts of federal and state motor fuel taxes. Such taxes were $38,018,000 and
$42,992,000 for the three-month periods ended June 30, 1995 and June 28, 1996,
respectively, and $75,638,000 and $85,280,000 for the six-month periods ended
June 30, 1995 and June 28, 1996, respectively.
Taxes. No provision for income taxes is reflected in the financial
statements as the Company is a partnership for which taxable income and tax
deductions are passed through to the individual partners.
RESULTS OF OPERATIONS
SIX MONTH PERIOD ENDED JUNE 28, 1996 COMPARED TO SIX MONTH PERIOD ENDED JUNE
30, 1995
Overview. The Company's net revenues increased 18.1% to $304,002,000
in the six-month period ended June 28, 1996 from $257,511,000 in the six-month
period ended June 30, 1995. Revenues from units opened before the same month
of both periods ("comparable units"), contributed $36,723,000 or 14.3% of the
increase, six months of revenues from the new locations in Ocala, Florida
opened in June 1995 and the January 1996 revenues from the Medford, Oregon
location opened in February 1995, contributed an additional 3.8% or $9,768,000
in revenues in 1996. The increase in 1996 net revenues was due principally to
significant increases in fuel gallons, a 9.4% increase in fuel sales price per
diesel gallon sold and increases in Petro:Lube sales. Operating contribution,
which is defined as net revenues less cost of sales and operating expenses,
declined 6.7% to $22,716,000. This was due to a reduction in gross margin from
22.8% of net revenues in 1995 to 20.4% of net revenues in 1996, combined with a
14.0% increase in operating expenses in total and a 9.2% increase in operating
expenses on a comparable units basis. Factors impacting margins and
profitability for the six-months ended June 28, 1996 related to higher fuel
prices, during the first quarter, due to (1) anticipated increases in natural
gas prices which caused many commercial/utility entities to shift to use of
diesel fuel, (2) an extremely cold winter which increased demand for home
heating oils, and (3) technical problems and manufacturing shifts at
refineries, which reduced output. The impact of the above factors resulted in
a 30% rise in March prices over mid-February prices while retail pump prices
increased up to 20 cents over January. In addition to the higher fuel prices
in the first quarter, margins were impacted negatively, despite higher volume,
due to heightened competitive margin pressure as a result of market share
positioning between a competing national truckstop chain and a significant
third-party billing company. The margin compression was due to lower prices
charged by the competitor in an attempt to maintain market share originally
provided by the third-party processor. The decline in gross margin and
increase in operating expenses is further explained in the following
presentation of the Company's profit centers. General and administrative
expenses increased 7.8% over 1995 but declined .2% as a percentage of revenue.
The combination of the decline in operating contribution and an increase in
depreciation and amortization resulted in the decline in net income from
$3,000,000 in 1995 to a reported net loss of $49,000 in 1996.
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<PAGE> 11
Diesel Fuel Island. Revenues increased 22.0% to $207,238,000 in 1996
from $169,861,000 in 1995. The increase in revenues was attributable in part
to revenues from the Ocala and Medford locations which contributed 3.7% or
$6,279,000 of revenues and a 18.3% or $31,098,000 increase in revenues from
comparable units. The increase in revenues at comparable units was due
primarily to higher fuel volume combined with a higher selling price per
gallon. Operating contribution decreased by 6.3% in total and 8.8% on a
comparable units basis. The decline in operating contribution was due to a
8.8% reduction in fuel margin per gallon as a result of the Company's inability
to pass along price increases to match the sudden rise in fuel costs. In
addition to lower fuel margins, a 16.5% increase in operating expenses,
primarily volume related expenses such as employee expenses and third-party
billing fees, contributed to the decline. The Company anticipates that the
recent declines in fuel margins in the industry might continue, but not to the
extent faced in the last half of the first quarter. The Company cannot
quantify the impact of such trends on future operating contribution due to the
unknown impact on fuel volume.
Petro:Lube. Revenues increased 21.8% to $20,754,000 in 1996 from
$17,040,000 in 1995. On a comparable units basis, revenues increased 17.8% or
$3,038,000 while the Ocala and Medford locations contributed 4.0% or $675,000
in revenues. Operating contribution increased 18.3% in total and 16.0% on a
comparable units basis. The increase was due to higher revenues offset
slightly by a .7% decline in gross margin percentage combined with a 21.3%
increase in operating expense in total and a 17.2% increase in comparable units
due primarily to higher employee expense associated with increased sales
volumes.
Restaurant. Revenues in total were flat in 1996 as compared to 1995.
Revenues from new locations in Ocala and Medford for the period increased 3.9%
or $900,000, while revenues from comparable units declined $820,000 or 3.5%
from 1995 to 1996. The Company believes that a major factor impacting the
decline was due to the increased fuel prices which had an impact on
discretionary spending in non-fuel profit centers. Operating contribution
declined 3.9% to $4,052,000 in 1996 from $4,215,000 in 1995. On a comparable
units basis operating contribution declined $283,000. The decline in operating
contribution was due to the decline in revenues on a comparable units basis
combined with a .2% decline in gross margin percentage and a 1.4% increase in
operating expenses. While operating expenses increased in total, on a
comparable units basis operating expenses declined 2.8% from 1995 to 1996.
Travel and Convenience Stores. Revenues increased 8.8% to
$31,853,000 in 1996 from $29,271,000 in 1995. The increase was due to revenues
of $1,548,000 from the Ocala and Medford locations combined with a $1,034,000
increase in revenues at comparable units. Operating contribution declined
$674,000 in total and $758,000 on a comparable units basis. The decline in
operating contribution was due to a 2.9% decline in gross margin percentage
combined with a 9.4% increase in operating expenses. The decline in gross
margin was due to a 13.9% decline in gasoline fuel margin per gallon from 1995
to 1996, offset somewhat by a 11.6% increase in gallons sold, combined with a
1.6% decline in merchandise margin. The Company substantially completed its
company-wide implementation of a merchandise management system ("MMS") in the
latter part of the second quarter of 1996. The MMS system is designed to
provide accurate and timely information regarding product movement in order to
help improve both retail sales and margins. The system should enable the
Company to (1) identify fast-moving items, (2)improve in-stock positions, (3)
eliminate slow-moving inventory, (4) optimize product mix and (5) reduce
inventory losses through more stringent controls. Beginning in June 1996, the
Company began to see a positive impact on merchandise margins as a result of
the MMS implementation.
Petro:2. Revenues increased 14.2% to $15,902,000 in 1996 from the
1995 period. The increase was attributable to a 10.9% increase in fuel gallons
sold. Despite the increase in revenues, the operating contribution declined
$243,000 due to a 12.9% decline in fuel margins (as described above in the
diesel fuel island section) combined with an increase in operating expenses.
The Company anticipates
11
<PAGE> 12
that the current trends affecting the Diesel Fuel Islands and Travel Stores
will be applicable to its Petro:2's.
Other. Revenues increased 18.1% to $5,002,000 in the 1996 period
from $4,236,000 in the 1995 period. The increase was attributable primarily to
the increased revenues from the fast food locations and the motel and RV park.
The increase was offset slightly by declines in coinage income and video poker
revenue at the Louisiana locations. During 1996, the Louisiana legislation
passed a bill that prohibited video poker operations in the State of Louisiana.
The bill calls for a two-year phase-out period which would require removal of
video poker machines by the end of 1997. The legislation did, however provide
an exception that allows each parish to separately decide whether it will
continue to allow operation of video poker machines. In November 1996, the two
parishes in which the Company has a Stopping Center will vote on whether to
continue to allow video poker gaming. Should one or both of the parishes
decide not to continue video poker operations, the results would reduce each
Centers monthly earnings by approximately $50,000 to $100,000.
Costs and Expenses. Total costs and expenses increased 20.3% from
$243,983,000 for the six months ended June 30, 1995 to $293,423,000 in 1996
and, as a percentage of net revenues, from 94.8% in the 1995 period to 96.5% in
the comparable period of 1996. Costs of sales increased $43,298,000 or 21.8%
from 1995 to 1996 due primarily to $7,604,000 associated with new locations and
an increase in costs in the diesel fuel island, travel and convenience stores
and Petro:2's related to fuel and an increase in food costs in the restaurants.
Operating expenses increased $4,815,000 or 13.9% to $39,341,000 in 1996. The
increase was due to $1,625,000 from the Medford and Ocala locations and a
$3,190,000 increase at comparable units. General and administrative expenses
increased 7.9% to $6,179,000 in 1996 from 1995 but as a percentage of revenue,
declined from 2.2% in 1995 to 2.0% in 1996 as a result of continued
concentration on cost containment. As a result of the above, operating income
declined 21.8% from $13,528,000 in 1995 to $10,580,000 in the 1996 period.
Interest Expense. Interest expense of $10,628,000 during the six
months of 1996 was flat to 1995.
Net Income. The Company reported a net loss of $49,000 in the 1996
compared to a profit of $3,000,000 in the first half of 1995.
QUARTER ENDED JUNE 28, 1996 COMPARED TO QUARTER ENDED JUNE 30, 1995
Overview. The Company's net revenues increased 18.6% to $156,077,000
in the second quarter of 1996 from $131,562,000 for the second quarter of 1995.
Revenues from units opened for the same months of both periods ("comparable
units"), contributed $152,732,000 or 16.1% of the increase. Revenues from the
new location in Ocala, Florida which opened in June 1995 contributed an
additional 2.5% or $3,346,000 in revenues in 1996. The increase in net
revenues for the 1996 period was due principally to significant increases in
fuel gallons, a 10.1% increase in fuel sales price per diesel gallon sold and
increases in Petro:Lube sales. Operating contribution, which is defined as net
revenues less cost of sales and operating expenses, declined 1.2% to
$12,035,000. This was due to a reduction in gross margin from 22.8% of net
revenues in 1995 to 20.3% of net revenues in 1996 combined with a 10.2%
increase in operating expenses in total and a 7.2% increase in operating
expenses on a comparable units basis. The decline in gross margin and increase
in operating expenses is further explained in the following presentation of the
profit centers. General and administrative expenses increased 14.2% in 1996
from 1995 but declined .1% as a percentage of revenue. The combination of a
decline in operating contribution and an increase in depreciation and
amortization offset slightly by the improvement in general and administrative
expenses resulted in the decline in net income for the quarter from $1,446,000
in 1995 to $626,000 in 1996.
Diesel Fuel Island. Revenues increased 23.7% to $105,861,000 in 1996
from $85,562,000 in 1995. The increase in revenues was attributable in part to
revenues from the Ocala location which
12
<PAGE> 13
contributed 2.5% or $2,098,000 of revenues and a 21.3% or $18,202,000 increase
in revenues from comparable units. The increase in revenues at comparable
units was due primarily to higher fuel volume combined with a higher selling
price per gallon. Operating contribution decreased by 7.2% in total and 8.4%
on a comparable units basis. The decline in operating contribution was due to
a 12.0% reduction in fuel margin per gallon as a result of an inability to pass
along price increases to match the sudden rise in fuel costs. In addition to
lower fuel margins, a 11.4% increase in operating expenses, primarily volume
related expenses such as employee expenses and third-party billing fees,
contributed to the decline. The Company anticipates that the recent declines
in fuel margins in the industry will continue, but not to the extent faced in
the last half of the first quarter. The Company cannot quantify the impact of
such trends on future operating contribution due to the unknown impact on fuel
volume.
Petro:Lube. Revenues increased 23.7% to $11,062,000 in the 1996
period from $8,942,000 in 1995. On a comparable units basis, revenues increased
20.6% or $1,841,000 while the Ocala location contributed 3.1% or $279,000 in
revenues. Operating contribution increased 27.9% in total and 25.8% on a
comparable units basis. The increase was due to higher revenues offset slightly
by a .6% decline in gross margin percentage combined with a 18.7% increase in
operating expense in total and a 15.8% increase in comparable units due
primarily to higher employee expense.
Restaurant. Revenues declined 1.4% to $11,724,000 in 1996 from
$11,891,000 in 1995. Revenues from comparable units declined $550,000 or 4.6%
from 1995 to 1996, which was partially offset by $293,000 of revenues from
Ocala. The Company believes that a major factor impacting the decline was the
increased fuel prices which had an impact on discretionary spending in other
profit centers. Operating contribution increased 1.9% to $2,187,000 in 1996
from $2,147,000 in 1995. On a comparable units basis, operating contribution
was flat with 1995. The overall increase in operating contribution was due to
a .9% improvement in gross margin percentage and a 1.8% decrease in operating
expenses in total and a 4.3% decline on a comparable units basis from 1995 to
1996.
Travel and Convenience Stores. Revenues increased 5.9% to
$16,802,000 in 1996 from $15,861,000 in 1995. The increase was due to revenues
of $541,000 from the Ocala location combined with a $401,000 increase in
revenues at comparable units. Operating contribution declined $23,000 in total
and $68,000 on a comparable units basis. The decline in operating contribution
was due to a 1.0% decline in gross margin percentage combined with a 4.1%
increase in operating expenses.
Petro:2. Revenues increased 13.7% to $8,064,000 in 1996 from the
1995 period. The increase was attributable to a 7.7% increase in fuel gallons
sold. Despite the increase in revenues, the operating contribution declined
$333,000 due to a 1.9% decline in merchandise margins combined with an
increase in operating expenses. The Company anticipates that the current
trends affecting the Diesel Fuel Islands and Travel Stores will be applicable
to its Petro:2s.
Other. Revenues increased 20.6% to $2,564,000 in the 1996 period
from $2,126,000 in the 1995 period. The increase was attributable primarily to
the increased revenues from the fast food locations and the motel and RV park.
The increase was offset slightly by declines in coinage income and video poker
revenue at the Louisiana locations.
Costs and Expenses. Total costs and expenses increased 20.4% from
$124,745,000 in the second quarter of 1995 to $150,153,000 in the second
quarter of 1996 and, as a percentage of net revenues, from 94.8% in the 1995
period to 96.2% in the comparable period of 1996. Costs of sales increased
$22,837,000 or 22.5% from 1995 to 1996 due primarily to $2,618,000 associated
with new locations and an increase in costs in the diesel fuel island, travel
and convenience stores and Petro:2s related to fuel and an increase in food
costs in the restaurants. Operating expenses increased $1,821,000 or 10.2% to
$19,643,000 in 1996. The increase was due to $538,000 from the Ocala locations
and a $1,283,000 increase at comparable units. General and administrative
expenses increased 14.2% or $388,000 from 1995 but as a percentage of revenue,
declined from 2.1% in 1995 to 2.0% in 1996. As a result of the above,
operating income declined 13.1% from $6,817,000 in 1995 to $5,925,000 in the
1996 period.
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<PAGE> 14
Interest Expense. Interest expense declined $73,000 to $5,298,000
during the second quarter of 1996 due to a lower average debt level outstanding
during 1996.
Net Income. The Company reported net income of $626,000 in 1996
compared to $1,446,000 in the second quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $6,052,000 for 1996
compared with $5,932,000 for 1995. The $6,052,000 of cash provided by operating
activities was used to reduce debt $2,469,000 and for $3,254,000 of capital
expenditures.
Capital expenditures totaled $3,162,000 for 1996 and $15,470,000 for
1995. Included in the capital expenditures for 1996 was $837,000 to construct
the Petro:Lube in Medford and $479,000 related to the Company's first
free-standing Petro:Lube in Franklin, Kentucky. Capital expenditures for 1995
included $7,027,000 spent on the Ocala, Florida location and $6,301,000 used to
acquire the Medford location, as described below.
At June 28, 1996, the Company had availability on its revolving line
of credit of approximately $9,711,000.
Acquisition. In January 1995, the Company acquired an existing truck
stop in Medford, Oregon. The Medford facility is designed similar to the
Company's Stopping Centers with a diesel fuel island, restaurant, travel store
and free-standing convenience store. In addition, this location has a motel
and RV park. The Company constructed a Petro:Lube at this location which
opened early in the second quarter of 1996. The Company utilized a portion of
its revolving line of credit to fund the purchase of the Medford facility and
construction of the Petro:Lube.
Expansion: In June 1995, the Company opened its Ocala, Florida
location. The Ocala location is a typical stopping center with the addition of
a free-standing Wendy's (branded food restaurant) that opened in October 1995.
The construction cost of $7,730,000 was funded by a combination of draws on the
revolving line of credit and internally generated funds.
Insurance: The Company is partially self-insured with respect to
workers' compensation and general liability. During 1996, the Company paid
claims aggregating $541,000 and $187,000 relating to workers compensation and
general liability claims, respectively. The Company believes it provides an
accrual adequate to cover both known and incurred but not reported claims.
The term loans made to the Company under the Credit Facility
Agreement require the Company to make quarterly payments of principal. The
calendar year principal payments will total $4,948,000 in 1996, $6,928,000 in
1997, $7,000,000 in 1998, $7,917,000 in 1999, $8,908,000 in 2000 and
$10,809,000 in 2001. In June 1996, the Company's Credit Facility Agreement was
amended to provide for more flexibility under the covenants.
The Company had negative working capital of $8,230,000 at June 28,
1996 and $9,607,000 at December 29, 1995. Negative working capital is normal
in the truckstop industry. The truckstop business is an industry that
generates a large amount of cash business with relatively low levels of
inventories and receivables, as a percentage of revenues. A substantial
majority of the Company's sales are cash (or the equivalent in the case of
credit card sales or sales paid for by check on a daily basis by third-party
billing companies). Diesel fuel inventory turns every two to three days, and
store merchandise inventories
14
<PAGE> 15
normally turn every 90 days. Based upon the above, the overall inventory turns
approximately every 13 days. As a result of the high level of cash receipts
and rapid inventory turns, the Company's daily operations do not require
significant amounts of working capital.
The Company has planned capital expenditures for 1996 as follows:
$9,200,000 for a new fast food location, a free-standing lube, various location
upgrades, completion of infrastructure and management information systems and
$2,000,000 for maintenance capital expenditures.
Management of the Company believes that internally generated funds,
together with amounts available under the Credit Facility Agreement, will be
sufficient to fund its current and future operational needs, planned capital
expenditures and debt service requirements.
ENVIRONMENTAL
Accruals for environmental matters are recorded in operating expenses
when it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated. The measurement of environmental
liabilities is based on an evaluation of currently available facts with respect
to each individual site and considers factors such as existing technology,
presently enacted laws and regulations and prior experience in remediation of
contaminated sites. Accrued liabilities are exclusive of claims against third
parties and are not discounted.
The Company is subject to contingencies pursuant to environmental
laws and regulations that in the future may require the Company to take action
to correct the effects on the environment of prior disposal practices or
releases of chemical or petroleum substances by the Company or other parties.
The Company has accrued for certain environmental remediation activities
consistent with the policy set forth in Note 2. At June 28, 1996, such accrual
amounted to approximately $200,000 and, in management's opinion, was
appropriate based on existing facts and circumstances. Under the most adverse
circumstances, however, this potential liability could be significantly higher.
In the event that future remediation expenditures are in excess of amounts
accrued, management does not anticipate that they will have a material adverse
effect on the consolidated financial position or results of operations of the
Company. At June 28, 1996, the Company has recognized approximately $233,000
in the consolidated balance sheet related to recoveries of certain remediation
costs from third-parties. The Company is planning to spend approximately
$350,000 in 1997 to complete the upgrade of seven of its locations to 1998 EPA
standards.
RECENT PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123 encourages entities
to adopt a fair value based method of accounting for all employee stock and
other equity based compensation, as well as transactions in which an entity
issues its equity instruments to acquire goods or services from nonemployees.
SFAS No. 123 allows an entity to continue measuring compensation costs for the
plans using the accounting principles prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"). In that case,
however, companies must also include pro forma disclosures of net income and
earnings per share, if applicable, as if the fair value based method of
accounting defined in SFAS No. 123 had been applied. SFAS No. 123 is effective
for fiscal years beginning after December 15, 1995. The Partnership has
elected to continue to apply the accounting recognition rules contained in APB
No. 25, and provide proforma disclosures as required beginning in 1996.
15
<PAGE> 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various litigation incidental to the
business for which estimates of losses have been accrued, when appropriate. In
the opinion of management, such proceedings will not have a material adverse
effect on financial position or results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Registrant filed no reports on Form 8-K during the quarter ended
June 28, 1996.
16
<PAGE> 17
SIGNATURES
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 1, 1996 /s/ Joseph R. Schillaci
-------------------------------
Joseph R. Schillaci
President and Chief
Operating Officer
/s/ David A. Haug
-------------------------------
David A. Haug
Chief Accounting Officer
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description
- ----------- -------------------
<S> <C>
27 Financial Data Schedule
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1997
<PERIOD-START> DEC-30-1995
<PERIOD-END> JUN-28-1996
<CASH> 6,227
<SECURITIES> 0
<RECEIVABLES> 12,736
<ALLOWANCES> 347
<INVENTORY> 16,062
<CURRENT-ASSETS> 39,072
<PP&E> 187,788
<DEPRECIATION> 26,306
<TOTAL-ASSETS> 220,691
<CURRENT-LIABILITIES> 47,302
<BONDS> 0<F1>
<COMMON> 0
0
0
<OTHER-SE> 11,876
<TOTAL-LIABILITY-AND-EQUITY> 220,691
<SALES> 0
<TOTAL-REVENUES> 304,002
<CGS> 241,945
<TOTAL-COSTS> 281,286
<OTHER-EXPENSES> 6,179
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 10,628
<INCOME-PRETAX> (49)
<INCOME-TAX> 0
<INCOME-CONTINUING> (49)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (49)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>NOT SEPARATELY IDENTIFIED IN THE CURRENT FINANCIAL STATEMENTS OR ACOMPANYING
NOTES THERETO.
</FN>
</TABLE>
