<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
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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<PAGE>
PETRO STOPPING CENTERS, L.P.
Index
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets
as of December 31, 1996 and June 30, 1997 3
Unaudited Consolidated Statements of Operations
for the Three and Six Months Ended June 28, 1996 and June 30, 1997 4
Unaudited Consolidated Statement of Changes in Partners' Capital
(Deficit) for the Six Months Ended June 30, 1997 5
Unaudited Consolidated Statements of Cash Flows
for the Six Months Ended June 28, 1996 and June 30, 1997 6
Notes to Unaudited Consolidated Financial Statements 7-9
Report of Independent Accountants 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
2
<PAGE>
PART 1. Financial Information
Item 1. Financial Statements
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,182 $ 26,498
Accounts receivable, net of allowance for uncollectible accounts
of $321 at December 31, 1996 and $380 at June 30, 1997 10,401 12,291
Inventories 15,195 13,597
Other current assets 1,404 1,723
Due from affiliates 2,091 1,868
-------- --------
Total current assets 32,273 55,977
Property and equipment, net 159,539 158,739
Deferred debt issuance and organization costs, net of
accumulated amortization of $6,728 at December
31, 1996 and $3,880 at June 30, 1997 11,305 17,195
Other assets 5,983 4,966
-------- --------
Total assets $209,100 $236,877
======== ========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 6,928 $ 3,500
Trade accounts payable 15,723 21,072
Accrued expenses and other liabilities 21,160 27,360
Due to affiliates 2,325 2,080
-------- --------
Total current liabilities 46,136 54,012
Notes payable 21,639 -
Long-term debt, excluding current portion 138,160 181,715
-------- --------
Total liabilities 205,935 235,727
-------- --------
Mandatorily redeemable preferred partnership interests - 20,328
Commitments and contingencies
Partners' capital (deficit) 3,165 (19,178)
-------- --------
Total liabilities and partners' capital (deficit) $209,100 $236,877
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
<PAGE>
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 28, June 30, June 28, June 30,
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues (including motor fuel taxes)
Fuel $117,017 $119,399 $227,360 $243,096
Non-Fuel 27,336 29,208 53,388 56,733
Restaurant 11,724 12,152 23,254 23,495
-------- -------- -------- --------
Total net revenues 156,077 160,759 304,002 323,324
-------- -------- -------- --------
Costs and expenses:
Cost of sales (including motor fuel taxes) 124,399 126,598 241,945 258,244
exclusive of depreciation and
amortization
Operating expenses 19,643 20,704 39,341 40,961
General and administrative 3,111 3,889 6,179 7,877
Depreciation and amortization 3,000 3,149 5,958 6,144
-------- -------- -------- --------
Total costs and expenses 150,153 154,340 293,423 313,226
-------- -------- -------- --------
Operating income 5,924 6,419 10,579 10,098
Interest expense 5,298 5,345 10,628 10,415
-------- -------- -------- --------
Income (loss) before extraordinary item 626 1,074 (49) (317)
Extraordinary item - loss from - - - (12,745)
extinguishment of debt -------- -------- -------- --------
Net income (loss) $ 626 $ 1,074 $ (49) $(13,062)
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
4
<PAGE>
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the Six Months Ended June 30, 1997
(in thousands)
<TABLE>
<CAPTION>
Total
Partners'
General Limited Capital
Partners Partners (Deficit)
--------- --------- ----------
<S> <C> <C> <C>
Balances, December 31, 1996 $(8,477) $ 11,642 $ 3,165
Capital contributions - 11,047 11,047
Assignment of mandatorily
redeemable preferred partnership interests - (19,600) (19,600)
Accrual of preferred return on mandatorily
redeemable preferred partnership interests - (728) (728)
Net loss (801) (12,261) (13,062)
-------- -------- --------
Balances, June 30, 1997 $(9,278) $ (9,900) $(19,178)
======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
5
<PAGE>
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 28, June 30,
1996 1997
-------- --------
<S> <C> <C>
Cash flows (used in) provided by operating activities:
Net loss $ (49) $ (13,062)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Loss from extinguishment of debt - 12,745
Depreciation and amortization 5,958 6,144
Deferred debt issuance cost amortization 783 895
Accretion of original issue discount 466 72
Provision for losses on accounts receivable 106 59
Increase (decrease) from changes in :
Accounts receivable (1,374) (1,949)
Inventories 257 1,598
Other current assets (726) (319)
Due from affiliates (73) 223
Due to affiliates 155 (245)
Trade accounts payable (1,104) 5,349
Accrued expenses and other liabilities 1,653 6,200
-------- ---------
Net cash provided by operating activities 6,052 17,710
-------- ---------
Cash flows (used in) provided by investing activities:
Purchases of property and equipment (3,254) (3,543)
(Increase) decrease in other assets, net 33 (436)
-------- ---------
Net cash used in investing activities ( 3,221) (3,979)
-------- ---------
Cash flows (used in) provided by financing activities:
Repayments of notes payable (14,000) (23,639)
Proceeds from notes payable 15,061 2,000
Repayments of long-term debt (2,469) (150,450)
Proceeds from long-term debt - 185,000
Capital contributions - 11,047
Payment of debt issuance costs (162) (14,373)
Decrease in cash overdrafts (722) -
-------- ---------
Net cash (used in) provided by financing activities (2,292) 9,585
-------- ---------
Net increase in cash and cash equivalents 539 23,316
Cash and cash equivalents, beginning of period 5,688 3,182
-------- ---------
Cash and cash equivalents, end of period $ 6,227 $ 26,498
======== =========
- ------------------------------------------------------------------------------------------
Supplemental cash flow information
Interest paid during the period $ 9,379 $ 3,751
Non-cash financing activity
Assignment of Preferred - 19,600
Partnership Interests
Accrual of Preferred Return - 728
</TABLE>
See accompanying notes to unaudited consolidated financial statements
6
<PAGE>
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 1996
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 1996 and 1997. The
results of operations for the six-month period ended June 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
On January 30, 1997 the Company completed a recapitalization (the
"Recapitalization"). As part of the recapitalization, affiliates of Chartwell
Investments Inc. ("Chartwell") became limited and general partners of the
Company, an affiliate of Mobil Oil Corporation ("Mobil Long Haul") became a
limited partner of the Company and Sequoia Ventures, Inc. and Roadside, Inc.
(collectively, the "Fremont Partners") sold all of their partnership interests
in the Company (See Note 2).
2) RECAPITALIZATION
On January 30, 1997, the Company consummated a transaction, in which
Chartwell and Mobil Long Haul invested $20.7 million and $15.0 million,
respectively (the "Equity Investment"), in order to directly acquire the
partnership interests of the Company owned by the Fremont Partners for
approximately $25.6 million and invested approximately $10.1 million in the
Company. James A. Cardwell, Sr., James A. Cardwell, Jr. and certain of their
affiliates (collectively, the "Cardwell Group") maintained their capital
investment in the Company. Kirschner Investments ("Kirschner"), a Company
franchisee, invested $1.0 million in the Company (the "Kirschner Investment").
Following the Equity Investment and the Kirschner Investment, the common
partnership interests of the Company are owned by Chartwell (approximately
50.8%), the Cardwell Group (approximately 39.9%), Mobil Long Haul (approximately
7.4%), and Kirschner (approximately 2.0%), and the preferred partnership
interests are owned by Mobil Long Haul ($12.0 million) and the Cardwell Group
($7.6 million). Chartwell and the Cardwell Group own both general and limited
partnership interests in the Company, and Mobil Long Haul and Kirschner own only
limited partnership interests in the Company. Mobil Oil Company and the Company
also entered into certain supply and marketing agreements in connection with the
Recapitalization.
As part of the Recapitalization, the Company issued $135 million of
10 1/2% Senior Notes due 2007 (the "New Notes"), and repurchased approximately
94% of its Existing 12 1/2% Senior Notes due 2002 (the "Old Notes") and
approximately 99% of its outstanding debt warrants (the "Debt Warrants").
The Company also amended its senior collateralized credit facility
(the "Old Credit Agreement" and, as amended, the "New Credit Agreement"). The
New Credit Agreement consists of a $25.0 million revolving credit facility (the
"New Credit Facility"), a $14.0 million Term Loan A, a $30.0 million Term Loan B
and a $40.0 million Expansion Facility (the "Expansion Facility"). The New
Credit Agreement is collateralized by substantially all of the Company's assets
and the partnership interests of Mobil Long Haul and Chartwell and guaranteed by
each of the Company's subsidiaries, whose guarantees in turn are collateralized
by substantially all of such subsidiaries' assets.
In the first quarter of 1997, the Company recognized an extraordinary
charge of $12.7 million relating to amendment of the Old Credit Agreement,
retirement of the Old Notes and Debt Warrants and the write-off of deferred debt
issuance costs.
Aggregate yearly term loan principal payments under the New Credit
Agreement will be as follows: (i) $2.0 million in 1997; (ii) $3.0 million in
1998; (iii) $4.5 million in 1999; (iv) $5.5 million in 2000; (v) $1.5 million in
2001; (vi) $13.5 million in 2002; and (vii) $14.0 million in 2003.
7
<PAGE>
3) 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. Such liabilities are exclusive of claims against third
parties and are not discounted.
4) INVENTORIES
The following is a summary of inventories at December 31, 1996 and
June 30, 1997:
<TABLE>
<CAPTION>
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Motor fuels and lubricants $ 5,074 $ 4,112
Tires and tubes 2,993 2,900
Merchandise and accessories 7,531 6,928
Restaurant and other 726 786
Less reserve for obsolescence (1,129) (1,129)
------- -------
Total inventories $15,195 $13,597
======= =======
</TABLE>
In connection with new systems implemented in 1996, the Company
identified items that were excess or obsolete inventory. The criteria
established is merchandise in excess of a one year supply. The Company has
established a reserve for obsolete and excess inventory amounting to
approximately $1.1 million.
5) PROPERTY AND EQUIPMENT
Property and equipment is summarized at December 31, 1996 and June 30,
1997 as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES
(YEARS) 1996 1997
---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Land -- $ 34,970 $ 34,978
Buildings and improvements 30 94,244 95,497
Furniture and equipment 3-10 40,396 42,674
Leasehold improvements 7-30 20,238 20,234
Facilities under development -- 141 149
-------- --------
189,989 193,532
Less accumulated depreciation and
amortization 30,450 34,793
-------- --------
Net property and equipment $159,539 $158,739
======== ========
</TABLE>
Facilities under development include costs associated with new
facilities and major renovations of existing facilities. There were no future
commitments associated with new construction of facilities at June 30, 1997.
6) NOTES PAYABLE
Notes payable at December 31, 1996 consisted of a five-year revolving
credit facility under the Old Credit Agreement under which up to $35,000,000 was
available (the "Old Facility"). The Old Credit Facility was to mature in June
1999. Interest was paid monthly at 1.5% over the bank's prime rate or 2.75% over
the Eurodollar rate (the choice of which is determined by the Company at time of
borrowing). Borrowings under the Old Facility were collateralized by
substantially all of the Company's assets. The balance outstanding on the Old
Facility was $21,639,000 as of December 31, 1996, all of which was repaid in
connection with the amendment and restatement of the Old Credit Agreement in the
Recapitalization. There were no borrowings under the New Credit Facility, as
described in Note 2, as of June 30, 1997.
8
<PAGE>
6) NOTES PAYABLE (CONTINUED)
Also outstanding at December 31, 1996 under the Old Facility and at
June 30, 1997 under the New Credit Facility were standby letters of credit
principally related to unfunded insurance claims in the amounts of $3,150,000
and $3,632,000, respectively, in addition to other various standby letters of
credit of approximately $500,000 and $400,000, respectively.
7) 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.
8) MANDATORILY REDEEMABLE PREFERRED PARTNERSHIP INTERESTS
On January 30, 1997, the Company issued mandatorily redeemable
preferred partnership interests with an assigned value of $19,600,000 to the
Cardwell Group ($12.0 million) and Mobil Long Haul ($7.6 million). The
mandatorily redeemable preferred partnership interests are entitled to
cumulative preferred returns of 9.5% for preferred interests owned by Mobil Long
Haul and 8.0% for preferred interests owned by the Cardwell Group, and are
subject to mandatory redemption 270 days after the tenth anniversary of the
Closing Date, which is subsequent to the maturity date of the New Notes.
The preferred returns on the mandatorily redeemable preferred
partnership interests accrue, but are only payable in cash if permitted by the
Company's then existing debt instruments. The Indenture and the New Credit
Agreement restrict the payment of dividends on mandatorily redeemable preferred
partnership interests.
At June 30, 1997, the Company had accrued preferred returns on the
mandatorily redeemable preferred partnership interests amounting to $728,000,
with a corresponding increase in partners' deficit.
9) RELATED PARTY TRANSACTIONS
Included in the costs of the Recapitalization discussed at Note 2 are
fees and expenses paid to Chartwell of approximately $3.1 million pursuant to
the terms of the financial advisory agreement between the Company and Chartwell.
10) SUBSEQUENT EVENT
On August 5, 1997, the Company entered into a four year lease
agreement for a truckstop location in Ohio, with an option to purchase at any
time during the lease period. The lease provides for monthly minimum lease
payments of approximately $47,000 beginning September 1997.
9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
The Board of Directors and Partners
Petro Stopping Centers, L.P.
We have reviewed the accompanying consolidated balance sheet of Petro Stopping
Centers, L.P. as of June 30, 1997, the related consolidated statements of
operations for the three and six month periods ended June 28, 1996 and June 30,
1997, the consolidated statement of changes in partners' capital (deficit) for
the six month period ended June 30, 1997, and the consolidated statements of
cash flows for the six month periods ended June 28, 1996 and June 30, 1997.
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 5, 1997
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
Recapitalization
On January 30, 1997, the Company consummated a transaction in which
Chartwell Investments, Inc. ("Chartwell") and Mobil Long Haul invested $20.7
million and $15.0 million, respectively (the "Equity Investment"), in order to
directly acquire the partnership interests of the Company owned by the Fremont
Partners for approximately $25.6 million to invest approximately $10.1 million
in the Company. James A. Cardwell Sr., James A. Cardwell Jr. and certain of
their affiliates (collectively, the "Cardwell Group") maintained their capital
investment in the Company. Kirschner Investments ("Kirschner"), a Company
franchisee, invested $1.0 million in the Company (the "Kirschner Investment").
Following their Equity Investment and the Kirschner Investment, the common
partnership interests of the Company are owned by Chartwell (approximately
50.8%), the Cardwell Group (approximately 39.9%), Mobil Long Haul (approximately
7.4%), and Kirschner (2.0%), and the preferred partnership interests of the
Company are owned by Mobil Long Haul ($12.0 million) and the Cardwell Group
($7.6 million). Chartwell and the Cardwell Group own both general and limited
partnership interests in the Company, and Mobil Long Haul and Kirschner own only
limited partnership interests in the Company. Mobil and the Company also entered
into certain supply and marketing agreements.
As part of the Recapitalization, the Company issued $135 million of 10
1/2% Senior Notes due 2007, (the "New Notes") and made a tender offer (the
"Tender Offer") for all of, and repurchased approximately 94% of, its 12 1/2%
Senior Notes due 2002 (the "Old Notes") and approximately 99% of the outstanding
debt warrants (the "Debt Warrants").
The Company also amended its senior collateralized credit facility
(the "Old Credit Agreement" and, as amended, the "New Credit Agreement"). The
New Credit Agreement consists of a $25.0 million revolving credit facility (the
"New Credit Facility"), a $14.0 million Term Loan A, a $30.0 million Term Loan B
and a $40.0 million Expansion Facility (the "Expansion Facility"). The New
Credit Agreement is collateralized by substantially all of the Company's assets
and the partnership interests of Mobil Long Haul and Chartwell and guaranteed by
each of the Company's subsidiaries, whose guarantees in turn are collateralized
by substantially all of such subsidiaries' assets.
The Recapitalization consists of the Equity Investment, the Tender
Offer, the Kirschner Investment, the issuance of the New Notes and the entering
into of the New Credit Agreement.
In the first quarter of 1997, the Company recognized an extraordinary
charge of $12.7 million relating to amendment of the Old Credit Agreement,
retirement of the Old Notes and Debt Warrants and the write-off of deferred
financing costs.
The following table sets forth the development of the Company's
Stopping Center network since 1993.
<TABLE>
<CAPTION>
AS OF JUNE 30
-------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Company-operated Stopping Centers:
<S> <C> <C> <C> <C> <C>
Full-sized........................ 20 21 23 23 24
Petro:2 :......................... 3 3 3 3 3
Franchised........................ 12 12 14 15 17
Independently operated............ 1 1 1 - -
---- ---- ---- ---- ----
Total Stopping Centers............ 36 37 41 41 44
==== ==== ==== ==== ====
</TABLE>
11
<PAGE>
The following table sets forth information on Stopping Centers opened
since January 1, 1993, all of which were full-sized facilities.
LOCATION DATE OPENED
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
York, Nebraska December 1996
Scranton, Pennsylvania May 1997
North Baltimore, Ohio August 1997
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 30, 1997, the Company had no new Stopping Centers
under construction. The approximate construction cost of a new stopping center
(exclusive of land) is between $7.0 and $9.5 million.
The Company has never closed a Stopping Center and has no current
plans to do so.
The Company operates 27 truck stop facilities selling diesel fuel and
gasoline, of which 24 are full size facilities. Full sized facilities include a
Diesel Fuel Island, the Iron Skillet Restaurant, a Petro:Lube and a Travel
Center. In addition, eight of the 24 facilities also have separate convenience
stores. The Company also operates three Petro:2 facilities which are a smaller
version of the full size facility with various smaller food offerings. The
Company has 17 additional locations which operate under franchise agreements.
The Company derives its revenues from the sale of fuels, diesel and
gasoline, non-fuel items including the sale of merchandise and offering of
services including truck tire sales and preventative maintenance, weighing
scales, showers, laundry, video games and other operations, and its restaurant
operations which includes Iron Skillet and certain fast-food operations. The
other operations included in non-fuel revenue includes franchise royalties,
rental revenue from video poker operations in Louisiana and a motel and RV park
in Oregon.
The Company's fuel revenues and cost of sales include significant
amounts of federal and state motor fuel taxes. Such taxes were $42,992,000 and
$45,540,000 for the three-month periods ended June 28, 1996 and June 30, 1997,
respectively, and $85,280,000 and $89,095,000 for the six-month periods ended
June 28, 1996 and June 30, 1997, 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 30, 1997 COMPARED TO SIX MONTH PERIOD ENDED JUNE 28,
1996
Overview. The Company's new management team assumed organizational
control on January 30, 1997. As a result, many new initiatives and other
organizational changes could not begin to be implemented until after that time.
During the first three months, new senior management personnel began overseeing
each of the Iron Skillet Restaurant division, Travel Center division and Diesel
Fuel Island division. The first quarter also marked the beginning of the planned
management transition, and many
12
<PAGE>
planned strategic initiatives began to be implemented. Operating results for the
six months ended June 30, 1997, reflect the impact of the changes occurring in
the organization and lack of focus from prior management early in the first
quarter. The Company's net revenues increased 6.4% to $323,324,000 in the first
six months of 1997 from $304,002,000 in the first six months of 1996. This
increase was due principally to a 4.2% increase in fuel gallons, a 2.6% increase
in fuel selling price per fuel gallon and an increase in non fuel sales of 6.3%
from the prior year. The increases in revenues were offset by volume costs,
associated with higher levels of revenue, and slightly higher operating expenses
over the prior year. General and administrative expenses increased to
approximately $7.9 million from $6.2 million for the same period in the prior
year. This increase was principally due to an increase in the accrual of certain
employee expenses, certain transition costs for new programs, professional and
travel related expenses in the current year.
Fuel. Revenues increased 6.9% to $243,096,000 in 1997 from
$227,360,000 in 1996. Fuel revenues increased due to a 4.2% increase in fuel
volumes combined with a 2.6% increase in selling price per fuel gallon sold. The
increased selling price was offset by increases in the wholesale costs of
product. The increased product costs were primarily in the first quarter, with
the second quarter beginning to show declines in product costs. Gross margin on
fuel was $17,363,000 for the six months ended June 1997 compared to $16,758,000
for the same period in the prior year. On a per gallon basis, margins remained
relatively flat compared to fuel margins in the prior year's period.
Non-Fuel. Revenues increased 6.3% to $56,733,000 in 1997 from
$53,388,000 in 1996. The increase in revenues was due primarily to an increase
of approximately 9.2% in sales at the Petro:Lube facilities combined with an
increase of 6.2% in merchandise sales in the Company's retail stores, which
offset slight declines in other areas. Gross margins increased 6.9% to
$31,013,000 in 1997 from $29,000,000 in 1996.
Restaurant. Revenues were slightly up for the six months ended June
1997 compared to the prior year. Management implemented certain menu changes at
its Iron Skillet Restaurants in mid March designed to enhance revenues. Gross
margin in the restaurants improved by approximately one percent due in part to
management focus on costs and implementation of menu changes.
Costs and Expenses. Total costs and expenses increased 6.7% to
$313,226,000 in the first six months of 1997 from $293,423,000 for the same
period in 1996. Costs of sales increased $16,299,000 or 6.7% in 1997 from 1996
due to higher fuel and product costs for both fuel and non-fuel revenue streams.
Operating expenses increased $1,620,000 or 4.1% to $40,961,000 in 1997,
primarily due to employee related expenses. General and administrative expenses
increased to approximately $7.9 million from $6.2 million in the prior year
period. This increase was principally due to an increase in the accrual of
certain employee expenses, certain transition costs for new programs,
professional and travel related expenses in the current year.
Interest Expense. Interest expense decreased $213,000 to $10,415,000
during the first six months of 1997 compared to 1996 due to lower interest
rates, combined with a reduction in amortization of deferred debt issuance
costs, offset by a higher level of debt outstanding.
Loss before extraordinary item. The Company reported loss before
extraordinary item of $317,000 in 1997 as compared to $49,000 for 1996.
Extraordinary item. Extraordinary item reflects a charge to earnings
of approximately $12.7 million relating to amendment of the Old Credit
Agreement, retirement of Old Notes and Debt Warrants and the write-off of
deferred debt issuance costs.
Net loss. Net loss reflects loss of $13,062,000 for 1997 after the
extraordinary item compared to a reported net loss of $49,000 for 1996.
13
<PAGE>
QUARTER ENDED JUNE 30, 1997 COMPARED TO QUARTER ENDED JUNE 28, 1996
Overview: The Company's net revenues increased 3.0% to $160,759,000 in
the second quarter of 1997 from $156,077,000 in the second quarter of 1996. This
increase was due principally to a 6.8% increase in fuel gallons, offsetting
declines in fuel selling price per fuel gallon and increases in non fuel sales.
The increase in revenues was offset by volume related costs and slightly higher
operating expenses over the prior year period. General and administrative
expenses increased to approximately $3.9 million from $3.1 million in the prior
year period. This increase was principally due to an increase in the accrual of
certain employee expenses, certain transition costs for new programs,
professional and travel related expenses in the current period.
Fuel. Revenues increased 2.0% to $119,399,000 in 1997 from
$117,017,000 in 1996. Fuel revenues increased due to a 6.8% increase in fuel
volumes, which offset a 4.5% decrease in selling price per fuel gallon sold.
Decreased selling prices were the result of declines in wholesale product costs,
which in turn resulted in declining retail prices. Gross margin on fuel was
$9,244,000 for the three months ended June 1997 compared to $8,314,000 for the
prior year period. On a per gallon basis, margins increased approximately 4.4%
compared to the prior year.
Non-Fuel. Revenues increased 6.8% to $29,208,000 in 1997 from
$27,336,000 in 1996. The increase in revenues was due primarily to an increase
in sales of approximately 9.4% at the Petro:Lube facilities, combined with a
6.4% increase in merchandise sales in the Company's retail stores, which offset
a decline in other revenues. Gross margins increased 7.2% to $16,200,000 in
1997 from $15,107,000 in 1996.
Restaurant. Revenues increased 3.7% to $12,152,000 for the current
year period compared to $11,724,000 in the prior year. Management implemented
certain menu changes at its Iron Skillet Restaurants in the first quarter
designed to enhance revenues, which is contributing to the increased sales.
Gross margin in the restaurants improved by approximately 5.6% due in part to
management focus on costs and implementation of menu changes.
Costs and Expenses. Total costs and expenses increased 2.8% to
$154,340,000 in the second quarter of 1997 from $150,153,000 in 1996. Costs of
sales increased 1.8% to $126,598,000 in 1997 from $124,399,000 in 1996 due to
volume costs associated with higher revenue levels. Operating expenses increased
$1,061,000 or 5.4% to $20,704,000 in 1997, primarily due to employee related
expenses. General and administrative expenses increased to approximately $3.9
million from $3.1 million in the prior year period. This increase was
principally due to an increase in the accrual of certain employee expenses,
certain transition costs for new programs, professional and travel related
expenses in the current period.
Interest Expense. Interest expense increased $47,000 to $5,345,000
during the second quarter of 1997 due to a higher level of debt outstanding,
offset by reductions in interest rates and amortization of deferred debt
issuance costs.
Income before extraordinary item. The Company reported income before
extraordinary item of $1,074,000 in 1997 as compared to $626,000 for 1996.
Extraordinary item. No extraordinary items were reflected during the
second quarter of 1997 or the second quarter of 1996.
Net income. Net income for the second quarter of 1997 was $1,074,000,
compared to $626,000 for the comparable period in 1996.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures totaled $3,543,000 for 1997 and $3,254,000 for
1996. Included in the capital expenditures for 1997 were funds spent on
rebranding and fuel automation at various locations and the Company's
information systems. Capital expenditures for 1996 included funds spent on the
construction of the new Petro:Lube facilities in Medford, Oregon and Franklin,
Kentucky.
The Company has a $25.0 million revolving line of credit, that at June
30, 1997 had letters of credit issued for approximately $4.1 million, resulting
in an availability of approximately $20.9 million. As of June 30, 1997 there
were no borrowings on the line of credit.
The term loans made to the Company under the Credit Facility Agreement
require the Company to make quarterly payments of principal. Aggregate yearly
term loan principal payments under the New Credit Agreement will be as follows:
(i) $2.0 million in 1997; (ii) $3.0 million in 1998; (iii) $4.5 million in 1999;
(iv) $5.5 million in 2000; (v) $1.5 million in 2001; (vi) $13.5 million in 2002;
and (vii) $14.0 million in 2003.
The Company had positive working capital of $1,965,000 at June 30,
1997 and negative working capital of $13,863,000 at December 31, 1996. Negative
working capital is normal in the truckstop industry. Diesel fuel inventory turns
every two to three days, which is significantly faster than payment is required.
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).
Accrual of dividends on mandatorily redeemable preferred partnership
interests amounted to $728,000 for the six months ended June 30, 1997. The
dividends are only payable in cash if permitted by the Company's then existing
debt instruments. The Indenture and New Credit Agreement restrict payment of
dividends on mandatorily redeemable preferred partnership interests.
Insurance: The Company, up to certain limits, pays its own workers'
compensation and general liability claims. Through June 30, 1997, the Company
has paid claims aggregating $1,020,000 and $382,000 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.
Recapitalization:
In connection with the Recapitalization, the Old Credit Agreement was
amended and borrowings thereunder, 94% of existing Old Notes and 99% of
outstanding Debt Warrants were repaid with borrowings under the New Credit
Agreement, the net proceeds from the sale of the Notes, a portion of the
proceeds of the Equity Investment and the proceeds of the Kirschner Investment.
The New Credit Agreement provides for a $25.0 million New Credit Facility, a
$40.0 million Expansion Facility, a $14.0 million Term Loan A and a $30.0
million Term Loan B.
The Revolving Credit Facility permits the Company to borrow, repay and
reborrow up to $25.0 million at any time until the fifth anniversary of the date
of recapitalization, the proceeds of which may be used for working capital and
other corporate purposes. Up to $5.0 million of the Revolving Credit Facility
is available for the issuance of standby and documentary letters of credit. The
Expansion Facility permits the Company to borrow, repay and reborrow up to $40.0
million for the acquisition and development of new Stopping Centers and stand-
alone Petro:Lubes at any time until the third anniversary of the date of
recapitalization. Term Loan A is repayable in 15 quarterly installments
commencing on September 30, 1997. Term Loan B is repayable in 26 quarterly
installments commencing on September 30, 1997.
15
<PAGE>
Borrowings under the New Credit Agreement are collateralized by
substantially all of the Company's assets and the partnership interests in the
Company held by Mobil Long Haul and Chartwell and guaranteed by each of the
Company's subsidiaries, which guarantees in turn are collateralized by
substantially all of such subsidiaries' assets.
Management of the Company believes that internally generated funds,
together with amounts available under the Revolving Credit Facility, will be
sufficient to satisfy its cash requirements for operations through 1997 and the
foreseeable future thereafter. The Company also expects that expansion and
future acquisitions would be financed from funds generated from operations,
borrowings under the New Credit Facility and the Expansion Facility and
additional financings.
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. Such 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 3 to the consolidated financial statements. At June 30,
1997, such accrual balance amounted to approximately $182,000 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 30, 1997, the Company has a receivable of
approximately $247,000 related to recoveries of certain remediation costs from
third parties.
16
<PAGE>
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 30, 1997.
17
<PAGE>
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 11, 1997 /s/ Larry J. Zine
---------------------------------
Larry J. Zine
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
18
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Description
- ----------- -------------------
27 Financial Data Schedule
19
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 26,498
<SECURITIES> 0
<RECEIVABLES> 12,671
<ALLOWANCES> 380
<INVENTORY> 13,597
<CURRENT-ASSETS> 55,977
<PP&E> 193,532
<DEPRECIATION> 34,793
<TOTAL-ASSETS> 236,877
<CURRENT-LIABILITIES> 54,012
<BONDS> 0<F1>
20,328
0
<COMMON> 0
<OTHER-SE> (19,178)
<TOTAL-LIABILITY-AND-EQUITY> 236,877
<SALES> 0
<TOTAL-REVENUES> 323,324
<CGS> 258,244
<TOTAL-COSTS> 299,205
<OTHER-EXPENSES> 14,021
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 10,415
<INCOME-PRETAX> (317)
<INCOME-TAX> 0
<INCOME-CONTINUING> (317)
<DISCONTINUED> 0
<EXTRAORDINARY> (12,745)
<CHANGES> 0
<NET-INCOME> (13,062)
<EPS-PRIMARY> 0
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<FN>
<F1>NOT SEPARATELY IDENTIFIED IN THE CURRENT FINANCIAL STATEMENTS OR ACCOMPANYING
NOTES THERETO.
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