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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, 1998
Commission file number 1-13018
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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 1. Financial Information
Item 1. Financial Statements
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 24,796 $ 21,103
Trade accounts receivable, net 12,548 15,851
Inventories, net 16,362 16,772
Other current assets 2,551 2,431
Due from affiliates 980 782
Land held for sale 4,442 2,343
-------- --------
Total current assets 61,679 59,282
Property and equipment, net 153,363 157,423
Deferred debt issuance and organization costs, net 16,353 14,610
Other assets 8,271 7,244
-------- --------
Total assets $239,666 $238,559
======== ========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 3,000 $ 4,125
Trade accounts payable 9,350 5,468
Accrued expenses and other liabilities 26,491 22,592
Due to affiliates 18,988 23,066
-------- --------
Total current liabilities 57,829 55,251
Long-term debt, excluding current portion 180,190 176,721
-------- --------
Total liabilities 238,019 231,972
-------- --------
Commitments and contingencies
Mandatorily redeemable preferred partnership interests 21,202 22,674
Partners' capital (deficit):
General partners (903) (828)
Limited partners (18,652) (15,259)
-------- --------
Total partners' capital (deficit) (19,555) (16,087)
-------- --------
Total liabilities and partners' capital (deficit) $239,666 $238,559
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
1
<PAGE>
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues (including motor fuel taxes):
Fuel $ 123,090 $ 117,378 $ 366,186 $ 353,572
Non-Fuel 32,190 36,008 88,923 101,699
Restaurant 12,929 13,902 36,424 40,106
--------- --------- --------- ---------
Total net revenues 168,209 167,288 491,533 495,377
--------- --------- --------- ---------
Costs and expenses:
Cost of sales (including motor fuel
taxes) 131,716 126,868 389,960 380,296
Operating expenses 21,680 23,625 62,642 69,136
General and administrative 4,416 4,978 12,293 14,391
Depreciation and amortization 3,155 3,986 9,299 11,566
--------- --------- --------- ---------
Total costs and expenses 160,967 159,457 474,194 475,389
--------- --------- --------- ---------
Operating income 7,242 7,831 17,339 19,988
Interest expense, net 5,122 5,057 15,537 15,046
Income before extraordinary item 2,120 2,774 1,802 4,942
Extraordinary item - loss from
restructuring of debt - - (12,745) -
--------- --------- --------- ---------
Net income (loss) $ 2,120 $ 2,774 $ (10,943) $ 4,942
========= ========= ========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
2
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PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the Nine Months Ended September 30, 1998
(in thousands)
<TABLE>
<CAPTION>
Total
Partners'
General Limited Capital
Partners Partners (Deficit)
--------- ---------- ----------
<S> <C> <C> <C>
Balances, December 31, 1997 $ (903) $(18,652) $(19,555)
Accrual of preferred return on mandatorily
redeemable preferred partnership interests (32) (1,442) (1,474)
Net income 107 4,835 4,942
------- -------- --------
Balances, September 30, 1998 $ (828) $(15,259) $(16,087)
======= ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
<PAGE>
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1998
---- ----
<S> <C> <C>
Cash flows provided by operating activities:
Net income (loss) $(10,943) $ 4,942
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Loss from extinguishment of debt 12,745 -
Depreciation and amortization 9,299 11,566
Deferred debt issuance amortization 1,320 1,205
Accretion of original issue discount 47 -
Bad debt expense 192 174
Increase (decrease) from changes in:
Trade accounts receivable (1,514) (3,477)
Inventories 758 (410)
Other current assets (824) 119
Due from affiliates 1,088 198
Due to affiliates (201) 4,078
Trade accounts payable 8,355 (3,882)
Accrued expenses and other liabilities 1,735 (3,899)
-------- --------
Net cash provided by operating activities 22,057 10,614
-------- --------
Cash flows used in investing activities:
Purchases of property and equipment (12,013) (13,005)
Proceeds from sale of property - 2,165
Decrease in other assets, net (1,150) (1,123)
-------- --------
Net cash used in investing activities (13,163) (11,963)
-------- --------
Cash flows provided by (used in) financing activities:
Repayments of notes payable (23,639) -
Proceeds from notes payable 2,000 -
Repayments of long-term debt (151,800) (2,344)
Proceeds of long-term debt 185,190 -
Capital contribution 11,047 -
Payment of debt issuance costs (14,517) -
-------- --------
Net cash provided by (used in) financing activities 8,281 (2,344)
-------- --------
Net increase (decrease) in cash and cash equivalents 17,175 (3,693)
Cash and cash equivalents, beginning of period 3,182 24,796
-------- --------
Cash and cash equivalents, end of period $20,357 $21,103
======== ========
- --------------------------------------------------------------------------------------------------
Supplemental cash flow information
Interest paid during the period $12,640 $17,363
Non-cash financing activities:
Assignment of preferred partnership interests 19,600 -
Preferred return on mandatorily redeemable
Preferred partnership interests 1,165 1,474
</TABLE>
See accompanying notes to unaudited consolidated financial statements
4
<PAGE>
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. (the "Company") and its
subsidiaries, 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 the financial statements prepared in accordance with
generally accepted accounting principles.
These condensed 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, 1997 ("1997 Form 10-K").
Capitalized terms used in this report and not defined herein have the meanings
ascribed to such terms in the 1997 Form 10-K. In the opinion of management of
the Company, the accompanying financial statements contain all adjustments
necessary to present fairly the financial position of the Company at September
30, 1998 and December 31, 1997, the results of operations for the three and nine
months ended September 30, 1998 and 1997 and cash flows for the nine months
ended September 30, 1998 and 1997. The results of operations for the three and
nine months ended September 30, 1998 are not necessarily indicative of the
results to be expected for the full calendar year.
2) SIGNIFICANT ACCOUNTING POLICIES
Reclassifications - Certain prior period amounts have been
reclassified to conform to current year presentation.
3) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
For a full discussion of recently issued accounting pronouncements,
see Note 16 of Notes to Consolidated Financial Statements in the 1997 Form 10-K.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting the Costs of Start-Up Activities"
("SOP 98-5"). SOP 98-5 requires that costs of start-up activities (including,
among other things, pre-opening costs related to the development of new sites
and organization costs) be expensed as incurred and that previously deferred
costs expensed in the initial adoption be reported as a cumulative effect of a
change in accounting principle. SOP 98-5 is required to be adopted in 1999,
although earlier adoption is allowed. As of September 30, 1998, the Company had
approximately $3.1 million of deferred costs that may be affected by SOP 98-5,
and management is currently analyzing these costs to determine what amount will
be required to be expensed in the initial adoption.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in a derivative's fair value be
recognized currently on earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allow a derivative's gain and
loss to offset related results on the hedged item in the income statement and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999. A company may also
implement the statement as of the beginning of any fiscal quarter after issuance
(that is, fiscal quarters beginning June 16, 1998 and thereafter). SFAS No. 133
cannot be applied retroactively. Management has not yet quantified the impact of
adopting SFAS No. 133 on the Company's financial statements and has not
determined the timing of or method of adoption. However, the implementation of
SFAS No. 133 could increase volatility in earnings and other comprehensive
income.
5
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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 the Company's
1997 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 the Company's 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. The Company cautions that these
statements are further qualified by important factors 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,
"--Operations", "--Liquidity and Capital Resources", "--Year 2000" and
"--Environmental". The Company, in the preparation of its financial statements,
also makes various estimates and assumptions that are forward-looking
statements.
Recapitalization
On January 30, 1997, the Company consummated a transaction entered
into in October 1996, under which Chartwell and Mobil Long Haul invested
$20,700,000 and $15,000,000, respectively, to directly acquire the partnership
interests of the Company owned by the Fremont Partners for approximately
$25,600,000 and invest approximately $10,100,000 in the Company. The Cardwell
Group maintained its capital investment in the Company. Kirschner Investments, a
Company franchisee, invested $1,000,000 in the Company. Following the Equity
Investment and the Kirschner Investment, the common partnership interests of the
Company are owned by Chartwell (approximately 50.6%), the Cardwell Group
(approximately 39.7%), Mobil Long Haul (approximately 7.3%), and Kirschner
(approximately 2.4%), and the preferred partnership interests are owned by Mobil
Long Haul ($12,000,000) and the Cardwell Group ($7,600,000). Chartwell and the
Cardwell Group own both general and limited partnership interests and Mobil Long
Haul and Kirschner own only limited partnership interests. Mobil Oil Company and
the Company also entered into certain supply and marketing agreements.
As part of the Recapitalization, the Company issued $135,000,000 of 10
1/2% Senior Notes due 2007, and repurchased approximately 94% of its 12 1/2%
Senior Notes due 2002 and approximately 100% of the outstanding Debt Warrants.
In connection with the issuance of the New Notes, the Company capitalized
approximately $14,500,000 of debt issuance costs and wrote off, as an
extraordinary item, $12,745,000 of debt restructuring costs associated with the
retired debt.
The Company also amended its senior collateralized credit facility
(the "Old Credit Agreement" and, as amended, the "New Credit Agreement") at the
time of Recapitalization. The New Credit Agreement consists of a $25,000,000
revolving credit facility, a $14,000,000 Term Loan A, a $30,000,000 Term Loan B
and a $40,000,000 Expansion Facility.
6
<PAGE>
Operations
The following table sets forth the development of the Company's
Stopping Center network since 1994.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
--------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Company-operated Stopping
Centers........................ 24 26 26 28 28
Franchised..................... 12 14 15 17 21
Independently operated......... 1 1 - - -
---- ---- ---- ---- ----
Total Stopping Centers...... 37 41 41 45 49
==== ==== ==== ==== ====
</TABLE>
The following table sets forth information on Stopping Centers opened
since September 30, 1994, all of which are full-sized facilities.
<TABLE>
<CAPTION>
LOCATION DATE OPENED
-------- -----------
<S> <C>
Company-operated Stopping Centers:
Medford, Oregon January 1995
Ocala, Florida June 1995
North Baltimore, Ohio August 1997
North Little Rock, Arkansas September 1997
Franchised:
Fargo, North Dakota November 1994
Carnesville, Georgia January 1995
York, Nebraska December 1996
Scranton, Pennsylvania May 1997
Claysville, Pennsylvania November 1997
Breezewood, Pennsylvania February 1998
Milton, Pennsylvania March 1998
Monee, Illinois April 1998
</TABLE>
The North Baltimore, Ohio facility is operated under a lease
agreement. 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. On August 24, 1998, the Company
purchased land in Mebane, North Carolina for the construction of a new Stopping
Center. At September 30, 1998, 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.
Three new franchises have been opened since December 31, 1997. Two of
the franchises are located in Pennsylvania and one in Illinois. The Breezewood,
Milton and Monee locations opened in January, February and April of 1998,
respectively. The Company signed an agreement in July 1998 to open a new
franchise location in Lowell, Indiana.
All franchises are operated under franchise agreements which, with the
exception of one, are for an initial ten-year term and are automatically renewed
for two five-year terms subject to the satisfaction of certain conditions,
unless the franchisee gives a termination notice at least 12 months prior to the
expiration of its franchise agreement with the Company. The franchise agreement
for the Portage, Wisconsin location has been amended so that its initial term is
approximately 15 years (expiring on December 2001), and it provides for only one
five-year renewal. The Company is currently in the process of obtaining
execution of the renewal franchise agreements.
In addition, the Company has entered into a joint venture agreement
with Tejon Development Corporation ("Tejon") to build and operate a Petro
branded location in Southern California. Pursuant to the terms of the Limited
Liability Company Operating Agreement of Petro Travel Plaza LLC, dated as of
December 5, 1997, among the Company, Tejon and Tejon Ranch Company, as guarantor
(the "Agreement"), the Company is required to make an initial capital
contribution for working capital and inventory and contemplates that the joint
venture will finance construction of the location with a non recourse credit
facility. Under the Agreement, the Company will receive a management fee of
$250,000 per annum and will share in 40% of the location's operating earnings.
At September 30, 1998, the Petro branded location was under construction.
7
<PAGE>
The Company derives its revenues from (i) the sale of fuels, diesel
and gasoline; (ii) non-fuel items including the sale of merchandise and offering
of services such as truck repairs and maintenance, weighing scales, showers,
laundry, video games and other operations; and (iii) restaurant operations which
include the Iron Skillet and certain fast-food operations. The Company's
franchise royalties and rental revenue from video poker operations in Louisiana
are also included in non-fuel revenue.
The Company's fuel revenues and cost of sales include significant
amounts of federal and state motor fuel taxes. Such taxes were $47,967,000 and
$51,307,000 for the three-month periods ended September 30, 1997, and September
30, 1998, respectively, and $137,062,000 and $155,118,000 for the nine-month
period ended September 30, 1997, and September 30, 1998, respectively.
Taxes. No provision for income taxes is reflected in the accompanying
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
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Overview. The Company's net revenues of $495,377,000 increased 0.8%
in the first nine months of 1998 from $491,533,000 in the first nine months of
1997. The increase is primarily due to an increase of 14.4% and 10.1% in total
non-fuel and restaurant sales, respectively, from the prior year. Fuel revenues
decreased 3.4% as a result of a 12.9% decline from the prior year in the average
retail-selling price per gallon. However, this decrease was almost entirely
offset by a 10.8% increase in gallons sold. Operating expenses increased 10.4%
from the prior year due mainly to employee related costs and the addition of two
new Company locations in the third quarter of 1997. General and administrative
expenses increased 17.1% to approximately $14,391,000 compared to $12,293,000 in
the prior year. This increase was principally due to employee related expenses
from the Company's expanding operations.
Fuel. Revenues decreased 3.4% overall to $353,572,000 compared to
$366,186,000 in 1997. Fuel revenues decreased primarily due to lower pump
prices stemming from lower fuel costs compared to 1997. The decrease in fuel
prices was offset by a 10.8% increase in fuel volumes which management
believes, together with improved pricing strategies increased fuel margins by
13.2% compared to the prior year. On a comparable unit basis, fuel volumes and
margins increased 5.8% and 8.1%, respectively.
Non-Fuel. Revenues increased 14.4% overall to $101,699,000 from
$88,923,000 in the prior year. The increase in non-fuel revenues is primarily
due to increased tire and repair part sales and sales at the Company's retail
stores. On a comparable unit basis, non-fuel revenues increased 10.2% and
margins increased 10.3%. Management believes the improved margins reflect
continued focus on improving profitability in those areas.
Restaurant. Revenues of $40,106,000 reflect an increase of 10.1%
over prior year's revenues of $36,424,000. Comparable unit revenues of
$37,632,000 were 3.3% over the prior year. Revenue increases were primarily due
to the addition of the Company's two new locations. Management believes revenues
were enhanced by the implementation of new menus and featured meal specials.
Gross margin in the restaurants improved by 11.7% overall and 5.0% on a
comparable unit basis, due to continued focus on costs and the implementation of
menu changes.
Costs and Expenses. Total costs and expenses increased slightly over
the prior year. Cost of sales decreased 2.5% or $9,664,000 from the prior year,
primarily due to reduced fuel costs experienced during the current year.
Operating expenses increased $6,494,000, or 10.4%, to $69,136,000. The increase
is mainly due to employee related costs and the addition of the Company's two
new locations. General and administrative expenses increased $2,098,000, or
17.1% to $14,391,000. This increase was principally due to employee related
expenses from the Company's expanding operations.
Interest Expense, net. Interest expense decreased $491,000 to
$15,046,000 during the third quarter of 1998 due primarily to increased interest
income compared to the prior year and a .25% per annum decrease in interest
rates on Term Loans A and B beginning March 31, 1998.
8
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
Overview. The Company's net revenues of $167,288,000 remained
comparable to net revenues in the prior year quarter decreasing only 0.5% or
$921,000. Such decrease is primarily due to a decrease of 4.6% in fuel revenues
over the prior year as a result of a 12.0% decline in the average retail-selling
price per gallon from the prior year. The decrease in fuel revenues was almost
entirely offset by an 11.9% and 7.5% increase in non-fuel and restaurant sales,
respectively, over the prior year. Operating expenses increased 9.0% from the
prior year due mainly to employee related costs and the full quarter effects of
the addition of two new Company locations in the prior year quarter. General and
administrative expenses increased 12.7% to approximately $4,978,000 compared to
$4,416,000 in the prior year. This increase was principally due to employee
related expenses from the Company's expanding operations.
Fuel. Revenues decreased 4.6% overall to $117,378,000 compared to
$123,090,000 in 1997. Fuel revenues decreased primarily because of reductions
in pump prices stemming from lower fuel costs compared to 1997. Management
believes the decrease in fuel revenues was offset by a 12.5% increase in fuel
margins compared to prior year due to improved pricing strategies.
Non-Fuel. Revenues increased 11.9% overall to $36,008,000 from
$32,190,000 in the prior year quarter. The increase in non-fuel revenues is
primarily due to increased tire and repair part sales, sales at the Company's
retail stores, and the full quarter effects of the addition of the two new
Company locations. Management believes on a comparable unit basis, non-fuel
revenues increased by 8.2% and margins increased by 7.6% due to continued focus
on improving profitability in these areas.
Restaurant. Revenues of $13,902,000 were 7.5% over prior year's
revenues of $12,929,000. Comparable unit revenues of $13,046,000 were 1.0% over
the prior year. Revenue increases were primarily due to the full quarter effects
of the addition of two new Company locations in the prior year quarter and were
limited by two locations being closed during the quarter for renovation.
Management believes revenues were also enhanced by the implementation of new
menus and featured meal specials. Gross margin in the restaurants improved by
8.7% overall and 2.2% on a comparable unit basis due to management's continued
focus on costs and the implementation of menu changes.
Costs and Expenses. Total costs and expenses were consistent with the
prior year quarter. Cost of sales decreased 3.7% compared to prior year.
Operating expenses increased $1,945,000, or 9.0%, to $23,625,000. The increase
is mainly due to employee related costs and the full quarter effects of the
addition of two new Company locations in the prior year quarter. General and
administrative expenses increased $562,000 to $4,978,000. This increase was
principally due to employee related expenses from the Company's expanding
operations.
Interest Expense, net. Interest expense decreased $65,000 to
$5,057,000 during the third quarter of 1998 due primarily to increased interest
income compared to the prior year and a .25% per annum decrease in interest
rates on Term Loans A and B beginning March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures through the first nine months totaled $13,005,000
for 1998 and $12,013,000 for 1997. Included in capital expenditures for 1998
were funds spent on new and existing facilities, in addition to systems
implementation projects.
The Company had positive working capital of $4,031,000 at
September 30, 1998 and $3,850,000 at December 31, 1997. Negative working capital
is normal in the truckstop industry; however, due to the Recapitalization and
the reclassification of land held for sale during the fourth quarter of 1997,
the Company currently has positive working capital. 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, which is significantly
faster than payment is required.
During the quarter ended September 30, 1998, the Company made
principal payments on its Term Loans A and B of $625,000 and $125,000,
respectively, and made principal payments of $1,902,000 and $442,000 on these
loans, respectively, during the nine months ended September 30, 1998.
In accordance with the New Credit Agreement, the interest rate the
Company is required to pay on its Term
9
<PAGE>
Loans A and B was reduced .25% per annum, effective March 31, 1998, due to the
Company's improved leverage ratio, as defined in the New Credit Agreement.
At September 30, 1998, the Company had standby letters of credit
issued for approximately $3,029,000, resulting in availability of approximately
$21,971,000 on the Revolving Credit Facility. As of September 30, 1998, there
were no borrowings on the Revolving Credit Facility or the Expansion Facility.
Accrual of dividends on mandatorily redeemable preferred partnership
interests amounted to $1,474,000 for the nine months ended September 30, 1998.
The dividends are only payable in cash if permitted by the Company's then
existing debt instruments. The Indenture and the New Credit Agreement restrict
payment of dividends on mandatorily redeemable preferred partnership interests.
The Company, within certain limits, pays its own workers' compensation
and general liability claims. During the third quarter of 1998, the Company paid
claims aggregating $460,000 and $616,000 relating to workers' compensation and
general liability, respectively, on such claims. On a year to date basis, the
Company has paid $1,384,000 and $927,000, respectively, on such claims. The
Company believes it provides an accrual adequate to cover both reported and
incurred but not reported claims.
The Company has approved the purchase of an existing truck stop (which
the Company intends to convert into a Stopping Center) and the construction of
five new Stopping Centers. The Company expects to invest up to approximately $65
million relating to this expansion between the fourth quarter of 1998 and the
end of the year 2000.
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 1998 and the
foreseeable future thereafter. The Company also expects that current and future
expansion and acquisitions will be financed from funds generated from
operations, borrowings under the Revolving Credit Facility and the Expansion
Facility and additional financings.
IMPACT OF THE YEAR 2000 ISSUE
The Company is aware of the complexity and the significance of the
"Year 2000" issue. The Year 2000 issue is a result of computer programs being
written using two digits, rather than four to define the applicable year. Any of
the Company's systems that utilize date-sensitive software may recognize a date
using "00" as the year 1900 rather than as the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
The Company's sales, accounts receivable, inventory management,
accounts payable, general ledger, payroll and Electronic Data Interchange
systems comprise its critical information technology ("IT") systems. The Company
has assessed its Year 2000 readiness with regard to critical IT systems and is
currently evaluating, replacing, upgrading and testing its computer systems and
applications. Additionally, the Company is in the preliminary stage of
communicating with all customers, suppliers, franchisees, financial
institutions, third party billing providers and others with which it does
significant business to determine the extent to which the Company is vulnerable
to those third parties' failure to remedy their own Year 2000 Issues. The
Company currently expects to bring all of its critical IT systems into Year 2000
compliance by June 1999.
Software and hardware, such as telecommunication and office automation
systems that facilitate operations of the Company's locations and corporate
headquarters comprise the Company's primary non-IT systems. Currently, the
Company is in the process of assessing the Year 2000 compliance of its non-IT
systems and expects to bring them into compliance by June 1999.
The Company is using a mixture of internal and external resources to
address Year 2000 issues. The total costs of achieving Year 2000 compliance is
estimated to be approximately $6 million, which includes the costs of software
upgrades and replacements the Company is currently making. These costs are
expected to be incurred through fiscal year 1999. There can be no guarantee that
the Company or its trading partners will not experience Year 2000 compliance
difficulties which could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company is also in
the preliminary stage of assessing the need to formulate contingency
10
<PAGE>
plans to deal with Year 2000 issues relating to key third parties and the
Company's IT and non-IT systems. However, the Company believes the modifications
and conversions it is making and plans to make will allow it to mitigate
problems resulting from the Year 2000 Issue.
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 the notes to the consolidated financial statements. At
September 30, 1998, such accrual amounted to approximately $179,000 and, in
management's opinion, is 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 September 30, 1998, the Company has recognized
approximately $270,000 in the consolidated balance sheet related to recoveries
of certain remediation costs from third parties.
11
<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 the Company's 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
September 30, 1998.
12
<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: November 13, 1998 /s/ Larry J. Zine
-----------------------
Larry J. Zine
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
13
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Description
- ----------- -------------------
27* Financial Data Schedule
* Filed herewith.
14
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
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<SECURITIES> 0
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22,674
0
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