<PAGE>
================================================================================
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, 1999
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
--- ---
================================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
---- ----
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,183 $ 14,456
Trade accounts receivable, net 10,631 16,853
Inventories, net 16,459 19,224
Other current assets 2,892 2,380
Due from affiliates 1,163 1,963
-------- --------
Total current assets 44,328 54,876
Property and equipment, net 162,274 173,836
Deferred debt issuance costs, net 11,229 10,283
Other assets 9,168 11,940
-------- --------
Total assets $226,999 $250,935
======== ========
Liabilities and Partners' Capital (Deficit)
Current liabilities:
Current portion of long-term debt $ 4,967 $ 743
Trade accounts payable 4,214 8,572
Accrued expenses and other liabilities 21,439 21,663
Due to affiliates 16,768 23,193
-------- --------
Total current liabilities 47,388 54,171
Long-term debt, excluding current portion 176,361 180,676
-------- --------
Total liabilities 223,749 234,847
-------- --------
Commitments and contingencies
Mandatorily redeemable preferred partnership interests 23,172 -
Partners' capital (deficit):
General partners (915) (254)
Limited partners (19,007) 16,342
-------- --------
Total partners' capital (deficit) (19,922) 16,088
-------- --------
Total liabilities and partners' capital (deficit) $226,999 $250,935
======== ========
</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,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues (including motor fuel
taxes) $167,288 $183,748 $495,377 $505,761
-------- -------- -------- --------
Costs and expenses:
Cost of sales (including motor fuel
taxes) 126,868 143,129 380,296 388,244
Operating expenses 23,625 25,843 69,136 73,630
General and administrative 4,993 4,663 14,378 14,423
Depreciation and amortization 3,986 3,415 11,566 10,085
(Gain) loss on disposition of assets,
net (15) - 13 (849)
-------- -------- -------- --------
Total costs and expenses 159,457 177,050 475,389 485,533
-------- -------- -------- --------
Operating income 7,831 6,698 19,988 20,228
Other income (expense):
Recapitalization costs - (326) - (949)
Equity in earnings (loss) of affiliate - (221) - (451)
Interest expense, net (5,057) (4,908) (15,046) (14,935)
-------- -------- -------- --------
Income (loss) before extraordinary 2,774 1,243 4,942 3,893
item
Extraordinary item - write off of deferred
financing costs associated with retired
debt - (2,016) - (2,016)
-------- -------- -------- --------
Net income (loss) $ 2,774 $ (773) $ 4,942 $ 1,877
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
2
<PAGE>
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the Nine Months Ended September 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Total
Partners'
General Limited Capital
Partners Partners (Deficit)
-------- -------- ---------
<S> <C> <C> <C>
Balances, December 31, 1998 $(915) $(19,007) $(19,922)
Partners' minimum tax distributions (8) (972) (980)
Accrual of preferred return on mandatorily
redeemable preferred partnership interests (25) (1,134) (1,159)
Assignment of mandatorily redeemable preferred
partnership interests and accrued but unpaid
preferred returns to partners' capital - 24,331 24,331
Conversion of interest 637 (637) -
Cash contributions - 10,987 10,987
Non-cash contributions - 954 954
Net income 57 1,820 1,877
----- -------- --------
Balances, September 30, 1999 $(254) $ 16,342 $ 16,088
===== ======== ========
</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,
1998 1999
---- ----
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income $ 4,942 $ 1,877
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,566 10,085
Extraordinary item - write off of deferred financing
costs associated with retired debt - 2,016
Deferred debt issuance cost amortization 1,205 1,190
Bad debt expense 174 185
Equity in loss of affiliate - 451
(Gain) loss on disposition of assets 13 (849)
Increase (decrease) from changes in:
Trade accounts receivable (3,477) (6,407)
Inventories (410) (2,765)
Other current assets 119 512
Due from affiliates 198 (800)
Due to affiliates 4,078 7,545
Trade accounts payable (3,882) 4,358
Accrued expenses and other liabilities (3,899) 224
-------- --------
Net cash provided by operating activities 10,627 17,622
-------- --------
Cash flows provided by (used in) investing activities:
Proceeds from disposition of assets 2,165 1,394
Purchases of property and equipment (13,018) (22,123)
Increase in other assets, net (1,123) (3,292)
-------- --------
Net cash used in investing activities (11,976) (24,021)
-------- --------
Cash flows provided by (used in) financing activities:
Repayment of expansion loan - (1,400)
Proceeds from expansion loan - 1,400
Repayments of long-term debt and capital lease (2,344) (39,254)
Proceeds from long-term debt - 40,000
Minimum tax distributions to partners - (2,100)
Cash contributions - 10,987
Payment of debt issuance and consent costs - (1,961)
-------- --------
Net cash provided by (used in) financing activities (2,344) 7,672
-------- --------
Net (decrease) increase in cash and cash equivalents (3,693) 1,273
Cash and cash equivalents, beginning of period 24,796 13,183
-------- --------
Cash and cash equivalents, end of period $ 21,103 $ 14,456
======== ========
=======================================================================================================================
Supplemental cash flow information -
Interest paid during the period, net of capitalized interest of
$0 and $114 in 1998 and 1999 $ 17,363 $ 17,082
Non-cash financing activities:
Preferred return on mandatorily redeemable preferred
partnership interests 1,474 23,172
Assignment of mandatorily redeemable preferred partnership interests
and accrued but unpaid preferred returns to partners' capital - 24,331
Non-cash contributions - 954
</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 condensed consolidated financial statements,
which include the accounts of Petro Stopping Centers, L.P. and its subsidiaries
(the "Company"), have been prepared in accordance with the instructions to Form
10-Q and, therefore, certain financial information has been condensed and
certain footnote disclosures have been omitted. Such information and
disclosures are normally included in the financial statements prepared in
accordance with generally accepted accounting principles.
These unaudited condensed consolidated financial statements should be read
in conjunction with the financial statements and notes thereto in the Annual
Report of the Company on Form 10-K for the year ended December 31, 1998 ("1998
Form 10-K"). Capitalized terms used in this report and not defined herein have
the meanings ascribed to such terms in the 1998 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
December 31, 1998 and September 30, 1999, the results of operations for the
three and nine months ended September 30, 1998 and 1999 and cash flows for the
nine months ended September 30, 1998 and 1999. The results of operations for
the three and nine months ended September 30, 1999 are not necessarily
indicative of the results to be expected for the full calendar year.
The Company's revenues and cost of sales include a significant amount of
federal and state motor fuel taxes. Such taxes were $51,307,000 and $50,379,000
for the three-month periods ended September 30, 1998 and 1999, respectively, and
$155,118,000 and $152,562,000 for the nine-month periods ended September 30,
1998 and 1999, respectively.
2) Recapitalization
Formation of Holdings
On July 23, 1999, the Company, certain of its partners and Volvo Trucks
North America, Inc. ("Volvo") consummated a transaction pursuant to which Petro
Stopping Centers Holdings, L.P. ("Holdings") was formed, and substantially all
of the present owners in the Company (other than Petro Holdings GP Corp. and
Petro Holdings LP Corp., each of which were affiliates of Chartwell Investments,
Inc. (collectively, "Chartwell"); Kirschner Investments ("Kirschner"), a company
franchisee), exchanged their interests in the Company for identical interests in
Holdings and became owners of Holdings. Petro Holdings Financial Corporation
("Financial Holdings") was formed for the purpose of serving as co-issuer of New
Senior Discount Notes (as defined below). Financial Holdings, the Company and
its subsidiary, Petro Financial Corporation, became subsidiaries of Holdings.
Petro Warrant Holdings Corporation ("Warrant Holdings") was formed for the
purpose of owning a common limited partnership interest in Holdings and issuing
the Warrants (see below) that are exchangeable into all of the common stock of
Warrant Holdings. In addition, an affiliate of Volvo invested $30,000,000 to
acquire a 28.7% limited common partnership interests in Holdings while Mobil
Long Haul, Inc. ("Mobil"), an affiliate of Mobil Corporation, invested an
additional $5,000,000 in Class B convertible preferred partnership interests of
Holdings. Holdings purchased the 50.8% common interest in the Company owned by
affiliates of Chartwell for aggregate consideration of approximately
$69,800,000, which consisted of a $55,000,000 cash payment and the issuance to
Chartwell of approximately $14,800,000 in accreted value of 15.0% New Senior
Discount Notes (as defined below) due 2008, without Warrants. Holdings also
purchased the 2% common interest in the Company owned by Kirschner for cash
consideration of $2,800,000. The foregoing is referred to as the
"Recapitalization".
As part of the Recapitalization, Holdings issued 82,707 Units each
consisting of $1,000 principal amount at stated maturity of Holdings 15.0%
Senior Discount Notes Due 2008 ("New Senior Discount Notes") and 82,707
exchangeable Warrant Holdings' Warrants. As consideration for issuance of the
Units, Holdings received $40,000,000 cash. For financial accounting purposes,
$30,300,000 was allocated to the Senior Discount notes and $9,700,000 was
allocated to the Warrants that in turn funded Warrant Holdings' investment in
Holdings. Upon an exchange event (change in control, IPO, or bankruptcy of
Holdings), the Warrants will be exchanged, for no additional consideration, for
100% of the common stock of Warrant Holdings, whose sole asset is currently
approximately 10.0% of the common limited partnership interests in Holdings.
Prior to August 1, 2002, Holdings has the right to repurchase the Warrants
5
<PAGE>
at a price per Warrant initially equal to $134.87 and increasing to $155.87 on
August 1, 2000 and $178.37 on August 1, 2001. If the Warrants have not been
exchanged by August 1, 2004, Holdings will be obligated to repurchase the
Warrants at fair market value.
As a result of the Recapitalization, Holdings is the owner of approximately
99.5% of the common interests of the Company. The remaining interest in the
Company is owned by various individuals and affiliates of the Cardwell Group
(who own approximately 51.6% of the common interests in Holdings).
Holdings' only material asset is its investment in the Company, and its
only material liabilities are the New Senior Discount Notes. Holdings exists as
a holding company, has no independent operations of its own, and is, therefore,
dependent upon the operating results and cash flows of the Company to meet its
cash obligations under the New Senior Discount Notes and Warrants and to fund
other expenses.
Affect of Recapitalization on the Company
In connection with the exchange of interests referred to above, the Company
and its partners (Holdings and various individuals and affiliates of the
Cardwell Group) agreed to restate the Company's partnership agreement. Among
other things, the parties agreed to convert the outstanding amount of
mandatorily redeemable preferred partnership interests ($24,331,000, including
accrued but unpaid preferred returns) into common limited partnership interests
of the Company.
Holdings raised funds from the capital contributions of Volvo and Mobil and
the offering of the Units exceeding the amounts necessary to purchase the
interests in the Company owned by Chartwell and Kirschner. As a consequence,
Holdings made a cash contribution to the Company in the amount of $10,987,000.
The Company also amended its senior collateralized credit facility (the
"Existing Senior Credit Facility" and, as amended, the "New Senior Credit
Facility") as part of the Recapitalization. The New Senior Credit Facility
consists of an $85,000,000 revolving credit facility and a $40,000,000 Term Loan
B. The proceeds of the New Term Loan B were used to repay amounts due under the
Existing Senior Credit Facility of approximately $38,057,000, plus accrued
interest. The New Senior Credit Facility is collateralized by substantially all
of the Company's assets and contains certain covenants similar to those
described in Note 6 of the Company's 1998 Form 10-K.
As of September 30, 1999, the Company capitalized debt issuance and other
costs of approximately $2,915,000 and expensed legal and accounting fees of
$949,000 incurred in connection with the Recapitalization. Holdings incurred
approximately $954,000 of these costs on behalf of the Company and that amount
has been reflected as a non-cash capital contribution in the accompanying
financial statements.
Other than described above, the Recapitalization had no affect on the
historical book values of the Company's assets and liabilities.
3) Significant Accounting Policies
Reclassifications
Certain prior period amounts have been reclassified to conform to current
year presentation.
4) (Gain) Loss on Disposition of Assets
In June 1999, the Company sold its scale equipment located at twenty-seven
locations throughout the U.S. The gain of $866,000 is included in (gain) loss on
dispositions of assets in the accompanying unaudited condensed consolidated
statements of operations.
5) Segments
The Company operates large, multi-service truck stops in the United States.
The Company's facilities, which are known as Petro Stopping Centers, offer a
broad range of products, services and amenities, including diesel fuel,
gasoline, home-style restaurants, truck preventive maintenance centers and
retail merchandise stores to the highway motorists. The Company has aggregated
its corporate truck stop operations into one reportable operating segment
6
<PAGE>
based on distribution of products and services under one common site facility,
classified as a multi-service truck stop.
In addition to corporate operations, the Company is a franchisor to 22
Petro Stopping Center locations as of September 30, 1999. The Company collects
royalties and fees in exchange for the use of its name and for certain services
provided to the franchisees. Franchise fees are based generally upon a
percentage of franchisee's sales. Given the insignificance of initial franchise
fees and other revenue types, the Company reports a total combined revenue
amount. During the three months ended September 30, 1998 and 1999, the revenues
generated from the Company's franchise operations were $1,220,000 and
$1,387,000, respectively, and $3,383,000 and $3,743,000 for the nine months
ended September 30, 1998 and 1999, respectively. These revenues are included in
net revenues reported on the accompanying consolidated statements of operations.
The Company does not allocate any expenses or assets in measuring this segment's
profit and loss, nor does it believe there are any significant commitments or
obligations resulting from these franchise agreements.
6) Recently Issued Accounting Pronouncements
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 market value.
SFAS No. 133 requires that changes in a derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows 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 was originally
effective for fiscal years beginning after June 15, 1999, but has been postponed
by Statement of Financial Accounting Standard No. 137, "An Amendment of SFAS No.
133", for one year with a mandatory effective date for fiscal years beginning
after June 15, 2000. Additionally, SFAS 133 has been modified regarding
recognition in the balance sheet of an embedded derivative that is required to
be separated from the host contract. At the date of initial application of SFAS
133, an entity may choose either to recognize such embedded derivatives or to
select either January 1, 1998 or January 1, 1999, as a transition date for
embedded derivatives. A company may also implement the statement as of the
beginning of any fiscal quarter after issuance (that is, fiscal quarters
beginning June 16, 1999 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.
7
<PAGE>
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
1998 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.
General
Recapitalization
On July 23, 1999, the Company consummated several transactions collectively
referred to as the Recapitalization. See Note 2 to the accompanying unaudited
consolidated financial statements for a discussion of the Recapitalization.
Operations
The following table sets forth the development of the Company's Stopping
Center network since 1995:
As of September 30,
-------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Company-operated Stopping Centers.. 26 26 28 28 29
Franchised......................... 14 15 17 21 22
Independently operated............. 1 - - - -
---- ---- ---- ---- ----
Total Stopping Centers............. 41 41 45 49 51
==== ==== ==== ==== ====
The following table sets forth information on Stopping Centers opened since
September 30, 1995, all but two of which are full-sized facilities:
Location Date Opened
-------- -----------
Company-operated Stopping Centers:
North Baltimore, Ohio August 1997
North Little Rock, Arkansas September 1997
Wheeler Ridge, California June 1999
Franchised:
Bordentown, New Jersey January 1996
York, Nebraska December 1996
Dupont, Pennsylvania May 1997
Claysville, Pennsylvania November 1997
Breezewood, Pennsylvania February 1998
Milton, Pennsylvania March 1998
Monee, Illinois April 1998
Lowell, Indiana April 1999
In August and November of 1998, the Company purchased land in Mebane, North
Carolina and Glendale, Kentucky, respectively, and in September and October of
1999 the Company also purchased land in North Las Vegas, Nevada and Mariana,
Florida, respectively, for the future construction of four new Stopping Centers.
On September 30, 1999, the Company had sites in various stages of development
with two new Stopping Centers under construction. The Wheeler Ridge facility in
Southern California, which is jointly-owned with Tejon Development Corporation
("Tejon"), opened in June 1999.
8
<PAGE>
The Company has also entered into an agreement for a new franchised
location in Frederick, Maryland, which is in the final stages of completion.
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 consecutive 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. One
franchise agreement has been amended so that its initial term is approximately
15 years (expiring on December 2001), and such agreement provides for only one
five-year renewal thereof. The Company has recently completed revision of its
form franchise agreement and each franchisee has been given the choice to either
enter into the new agreement or remain as a franchisee under the existing
agreement.
The Company operates large, multi-service truck stops in the United States.
The Company's facilities, which are known as Petro Stopping Centers, offer a
broad range of products, services and amenities, including diesel fuel,
gasoline, home-style restaurants, truck preventive maintenance centers and
retail merchandise stores to the highway motorists. The Company has aggregated
its corporate truck stop operations into one reportable operating segment based
on distribution of products and services under one common site facility,
classified as a multi-service truck stop.
In addition to corporate operations, the Company is a franchisor to 22
Petro Stopping Center locations as of September 30, 1999. The Company collects
royalties and fees in exchange for the use of its name and for certain services
provided to the franchisees. Franchise fees are based generally upon a
percentage of franchisee's sales. Given the insignificance of initial franchise
fees and other revenue types, the Company reports a total combined revenue
amount. During the three months ended September 30, 1998 and 1999, the revenues
generated from the Company's franchise operations were $1,220,000 and
$1,387,000, respectively, and $3,383,000 and $3,743,000 for the nine months
ended September 30, 1998 and 1999, respectively. These revenues are included in
net revenues reported on the accompanying consolidated statements of operations.
The Company does not allocate any expenses or assets in measuring this segment's
profit and loss, nor does it believe there are any significant commitments or
obligations resulting from these 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, showers,
laundry, video games and other operations, and restaurant operations which
include Iron Skillet and certain fast-food operations. The other operations
included in non-fuel revenue include franchise royalties and rental revenue from
video poker operations in Louisiana.
The following table sets forth the Company's total revenues by major
source:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1998 1999 1998 1999
---- ---- ---- ----
(dollars in thousands)
----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fuel $117,378 70.2% $132,256 72.0% $353,572 71.4% $357,154 70.6%
Non-Fuel 36,008 21.5% 37,118 20.2% 101,699 20.5% 107,247 21.2%
Restaurant 13,902 8.3% 14,374 7.8% 40,106 8.1% 41,360 8.2%
-------- ----- -------- ----- -------- ----- -------- -----
Total Net
Revenue $167,288 100.0% $183,748 100.0% $495,377 100.0% $505,761 100.0%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
The Company's fuel revenues and cost of sales include significant amounts
of federal and state motor fuel taxes. Such taxes were $51,307,000 and
$50,379,000 for the three-month periods ended September 30, 1998 and 1999,
respectively, and $155,118,000 and $152,562,000 for the nine-month periods ended
September 30, 1998 and 1999, 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.
9
<PAGE>
Results of Operations
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Overview. The Company's net revenues of $505,761,000 increased 2.1% in the
first nine months of 1999 from $495,377,000 in the first nine months of 1998.
The increase is primarily due to an increase of 5.5% and 3.1% in total non-fuel
and restaurant sales, respectively, from the prior year. Operating expenses
increased 6.5% from the prior year due mainly to employee-related costs and
system project costs. General and administrative expenses increased only
slightly to approximately $14,423,000 compared to $14,378,000 in the prior year.
The Company's operating income increased 1.2% from the prior year.
Fuel. Revenues increased 1.0% to $357,154,000 compared to $353,572,000 in
1998. Fuel revenues increased primarily due to a 3.4% increase in the average
retail-selling price per gallon stemming from higher fuel costs compared to
prior year. The increase in fuel prices was offset by a 2.3% decrease in fuel
volume. Management believes the decreased volume is due primarily to state tax
changes negatively effecting volumes at two locations, increased competition at
two other locations and the cancellation of the Company's old customer loyalty
program during the fourth quarter of 1998. Additionally, during the period,
several of the Company's locations' diesel Fuel Islands were at limited capacity
due to the installation of new fuel dispenser equipment. Gross margin on fuel
was $28,727,000 for the nine months ended September 30, 1999, compared to
$30,651,000 for the prior year period due mainly to the decrease in volume and
rising fuel costs, since the Company is not always able to immediately pass
these higher costs on to its customers.
Non-Fuel. Revenues increased 5.5% overall to $107,247,000 from
$101,699,000 in the prior year. The increase in non-fuel revenues is primarily
due to a 6.8% increase in oil, tire and repair part sales and a 5.5% increase in
sales at the Company's retail stores. Gross margins increased 6.5% to
$59,103,000 from $55,520,000 for the nine months ended September 30, 1999
compared to the prior year. Management believes the improved margins reflect
the result of management's continued focus on improving profitability in those
areas by increasing efficiency through greater procedural controls and improved
retailing.
Restaurant. Revenues of $41,360,000 were 3.1% over prior year's revenues
of $40,106,000. Management believes revenues were enhanced by the
implementation of new menus and featured meal specials, resulting in the
average ticket price increasing by 3.5%. Gross margins in the restaurants
improved by 2.7% due to continued focus on costs and the implementation of the
menu changes.
Costs and Expenses. Total costs and expenses increased 2.1% or $10,144,000
compared to prior year. Cost of sales increased 2.1% or $7,948,000 from the
prior year, primarily due to higher fuel cost compared to prior year. Operating
expenses increased $4,494,000, or 6.5%, to $73,630,000. The increase is mainly
due to a $2,774,000 increase in employee-related costs and a $1,115,000 increase
in system project costs. General and administrative expenses increased $45,000,
or 0.3%, compared to total general and administrative expenses of $14,378,000
during the same period in the prior year. These costs and expenses were offset
by a net gain of $849,000 on the disposition of location scale equipment as part
of the Company's strategy to focus on its core business.
Other Income (Expense). Other income (expense) was impacted by
approximately $949,000 of expenses related to the Recapitalization, which were
primarily legal and accounting fees, and a $451,000 loss primarily from startup
costs related to the Company's investment in the Wheeler Ridge facility in
Southern California, which opened in June of 1999. Interest expense, net,
decreased $111,000 to $14,935,000 in the first nine months of 1999 primarily due
to capitalized interest on new site construction of approximately $114,000
during the current period.
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
Overview. The Company's net revenues of $183,748,000 exceeded the net
revenues in the prior year quarter by 9.8% or $16,460,000. The increase is
primarily due to an increase of 12.7% in total fuel revenue over the prior year
quarter. Additionally, non-fuel and restaurant sales increased 3.1% and 3.4%,
respectively, over the prior year quarter. Operating expenses increased 9.4%
from the prior year quarter due mainly to employee related costs and system
project costs. General and administrative expenses decreased 6.6% to
approximately $4,663,000 compared to $4,993,000 in the prior year quarter.
Fuel. Revenues increased 12.7% overall to $132,256,000 compared to
$117,378,000 in the prior year quarter. Fuel revenues increased
10
<PAGE>
primarily due to a 17.7% increase in the average retail-selling price per gallon
stemming from higher fuel costs compared to the prior year quarter. The increase
in fuel prices was offset by a 4.3% decrease in fuel volume. Management believes
the decreased volume is due primarily to state tax changes negatively effecting
volumes at two locations, increased competition at two other locations and the
cancellation of the Company's old customer loyalty program during the fourth
quarter of 1998. Gross margin on fuel was $9,743,000 for the quarter ended
September 30, 1999, compared to $10,930,000 for the prior year quarter due
mainly to the decrease in volume and rising fuel costs, since the Company is not
always able to immediately pass these higher costs on to its customers.
Non-Fuel. Revenues increased 3.1% overall to $37,118,000 from $36,008,000
in the prior year quarter. The increase in non-fuel revenues is primarily due
to a 3.8% increase in oil, tire and repair part sales and a 2.7% increase in
sales at the Company's retail stores. Gross margins increased 5.7% to
$20,619,000 in 1999 from $19,512,000 in 1998. Management believes the improved
margins reflect continued focus on improving the profitability in those areas by
increasing efficiency through greater procedural controls and improved
retailing.
Restaurant. Revenues increased 3.4% overall to $14,374,000, compared to
$13,902,000 in the prior year quarter. Management believes revenues were
enhanced by changes in the core menu including featured meal specials, resulting
in the average ticket price increasing by 5.6%. Gross margins in the restaurants
increased $279,000 or 2.8% over the prior year quarter due to continued focus on
costs and the implementation of the menu changes.
Costs and Expenses. Total costs and expenses were 11.0% above the prior
year quarter primarily due to the increase in cost of sales. Cost of sales
increased 12.8% or $16,261,000 compared to prior year quarter mainly due to
higher fuel cost compared to the prior year quarter. Operating expenses
increased $2,218,000, or 9.4%, to $25,843,000. The increase is mainly due to a
$983,000 increase in employee-related costs and a $478,000 increase in system
project costs. General and administrative expenses decreased 6.6% or $330,000
primarily due to a decrease in management fees to a former Partner in
conjunction to the Recapitalization.
Other Income (Expense). Other income (expense) was impacted by
approximately $326,000 of expenses related to the Recapitalization, which were
primarily legal and accounting fees, and a $221,000 loss primarily from startup
costs related to the Company's investment in the Wheeler Ridge facility in
Southern California, which opened in June of 1999. Interest expense, net
decreased $149,000 to $4,908,000 primarily due to capitalized interest on new
site construction of approximately $93,000 during the current period.
Liquidity and Capital Resources
Cash flows from operations, which provided $17,622,000 and $10,627,000 for
the nine-month periods ended September 30, 1999 and 1998, respectively,
increased in 1999 primarily due to the timing of payments to vendors. The cash
flow used in investing activities totaled $24,021,000 and $11,976,000 for the
nine-month periods ended September 30, 1999 and 1998, respectively. The increase
is due primarily to additional investment in property and equipment of
$9,105,000 for the nine-month period ended September 30, 1999 compared to 1998,
mainly related to new site construction. Cash flow provided by or (used in)
financing activities amounted to $7,672,000 and ($2,344,000) for the nine months
ending September 30, 1999 and 1998, respectively. These fluctuations are almost
entirely due to the 1999 Recapitalization transaction.
The Company had negative working capital of $3,060,000 at December 31, 1998
and positive working capital of $705,000 at September 30, 1999. The Company's
positive working capital at September 30, 1999 is mainly due to excess cash
generated from the Recapitalization transaction. Negative working capital is
normal in the truckstop industry. Diesel fuel inventory turns every two to three
days, while payment is generally required in 12-15 days. A 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).
The New Senior Credit Facility consists of an $85,000,000 Revolving Credit
Facility and a $40,000,000 New Term Loan B. As part of the Recapitalization
transaction consummated on July 23, 1999, the Company used the proceeds from the
New Term Loan B to repay principal amounts due under the Existing Senior Credit
Facility of $38,057,000 plus accrued interest.
At September 30, 1999, the Company had standby letters of credit issued for
approximately $2,463,000, resulting in availability of approximately $82,537,000
on the Revolving Credit Facility of the New Senior Credit Facility. As of
September 30, 1999, there were no borrowings on the Revolving Credit Facility.
11
<PAGE>
The Company pays its own employment practices, workers' compensation,
general liability and group health benefit claims, up to stop-loss amounts
ranging from $50,000 to $250,000 on a per occurrence basis. During the third
quarter of 1999, the Company paid $445,000 on claims relating to workers'
compensation, $617,000 relating to general liability and $840,000 relating to
group health benefits. On a year to date basis, the Company paid $1,528,000 on
claims relating to workers' compensation, $2,085,000 relating to general
liability and $2,648,000 relating to group health benefits. At September 30,
1999, the Company had accrued $4,644,000 in the aggregate to cover these claims.
The Company believes it provides an accrual adequate to cover both reported and
incurred but not reported claims.
Capital expenditures through the first nine months totaled $13,018,000 for
1998 and $22,123,000 for 1999. Included in capital expenditures for both 1998
and 1999 were funds spent on new and existing facilities, in addition to
information systems projects.
In addition to amounts expended during the first nine months of 1999, the
Company currently expects to invest approximately $16,000,000 during the
remainder of 1999 and $55,000,000 during the year ended 2000 on capital
expenditures. The Company currently plans to construct six new truck stops,
through year 2000, with a cost of approximately $10,000,000 to $11,000,000 per
site including land acquisition costs. Management believes, approximately
$10,000,000 will be spent on regular maintenance capital and volume building
projects during the year 2000. These capital outlays will be funded under the
New Senior Credit Facility and from internally generated cash.
Management of the Company believes that internally generated funds,
together with amounts available under the New Senior Credit Facility, will be
sufficient to satisfy its cash requirements for operations through 1999 and the
foreseeable future thereafter. The Company also expects that current and future
expansion and acquisitions will be financed from funds generated from
operations, the New Senior Credit Facility and to the extent necessary,
additional financing.
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 has
replaced, upgraded and tested its computer systems and applications. The
financial reporting application will be upgraded in November. At that point,
all critical IT systems will be Year 2000 ready.
The Company continues to assess and communicate with software vendors,
hardware vendors, banks, utilities, fuel suppliers, merchandise suppliers,
customers, partners, franchisees, service contract suppliers, and insurance
companies 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 has received responses from approximately 84%
of its suppliers, partners, franchisees and vendors surveyed, of which
approximately 98% have indicated that they will be Year 2000 ready by the end of
1999. The Company has received responses from approximately 75% of its major
customers of which approximately 98% have indicated that they will be Year 2000
ready by the end of 1999. Included in the responses were communications from
100% of the Company's financial and insurance service providers and
approximately 78% of the Company's utility providers, all of which have
indicated that they will be Year 2000 ready by the end of 1999. The Company has
assumed non-responsive third parties will be non-compliant for the purpose of
risk assessment. The Company does not believe there has been a significant
disruption of the Company's business due to its Year 2000 remediation efforts.
Telecommunication and office automation systems that facilitate operations
of the Company's locations and corporate headquarters, comprise the Company's
primary non-IT systems. The Company has assessed the Year 2000 readiness of
100% of its non-IT systems and has completed compliance testing to bring them
into readiness.
The Company is using a mixture of internal and external resources to
address Year 2000 issues. The total
12
<PAGE>
costs of achieving Year 2000 readiness is estimated to be approximately
$9,000,000, which includes the costs of software upgrades and replacements the
Company is currently making. The Company has incurred $6,200,000 in costs
attributable to projects that address the Year 2000 issue through the third
quarter of 1999 and expects to incur $2,800,000 in such costs in the remainder
of fiscal year 1999. The Company expects that future expenses incurred will
continue to be financed from internally generated funds.
Although the Company has day-to-day operational contingency plans,
management has updated these plans for possible Year 2000 specific operational
requirements. The Company has formed a committee to handle business
interruption scenarios with respect to Year 2000. The Company has established
contingency plans for situations relating to Year 2000 issues that may arise in
its dealing with key third parties and its IT and non-IT systems. Management
believes that the worst case scenario related to Year 2000 issues is scattered
interruptions of power and other services which would not interface with its
business as a whole. However, network-wide power outages at the Company's
locations for extended periods of time could significantly interrupt the
provision of services to customers and have a material adverse effect on
business operations.
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.
Contingencies under environmental laws and regulations 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 liabilities for environmental
remediation activities consistent with the policy set forth in the notes to the
consolidated financial statements of the Company's 1998 Form 10-K. At September
30, 1999, such accrual amounted to approximately $161,000. In management's
opinion, the accrual 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, 1999, the Company has recognized
approximately $161,000 in the consolidated balance sheet related to recoveries
of remediation costs from third parties.
13
<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 a report on Form 8-K on August 6, 1999 reporting
on (Changes in Control of Registrant).
14
<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 12, 1999 /s/ David A. Appleby
----------------------------
David A. Appleby
Vice President of Finance
(Chief Accounting Officer)
15
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Description
- ----------- -------------------
27* Financial Data Schedule
* Filed herewith.
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 14,456
<SECURITIES> 0
<RECEIVABLES> 17,646
<ALLOWANCES> 793
<INVENTORY> 19,224
<CURRENT-ASSETS> 54,876
<PP&E> 236,616
<DEPRECIATION> 62,780
<TOTAL-ASSETS> 250,935
<CURRENT-LIABILITIES> 54,171
<BONDS> 0<F1>
0
0
<COMMON> 0
<OTHER-SE> 16,088
<TOTAL-LIABILITY-AND-EQUITY> 250,935
<SALES> 0
<TOTAL-REVENUES> 505,761
<CGS> 388,244
<TOTAL-COSTS> 485,533
<OTHER-EXPENSES> 1,400
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 14,935
<INCOME-PRETAX> 3,893
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,893
<DISCONTINUED> 0
<EXTRAORDINARY> 2,016
<CHANGES> 0
<NET-INCOME> 1,877
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>NOT SEPARATELY IDENTIFIED IN THE CURRENT FINANCIAL STATEMENTS OR
ACCOMPANYING NOTES THERETO.
</FN>
</TABLE>
