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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 June 30, 1999
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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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, June 30,
1998 1999
-------------- ---------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 13,183 $ 19,401
Trade accounts receivable, net 10,631 14,798
Inventories, net 16,459 17,929
Other current assets 2,892 2,407
Due from affiliates 1,163 1,766
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Total current assets 44,328 56,301
Property and equipment, net 162,274 164,765
Deferred debt issuance costs, net 11,229 10,392
Other assets 9,168 11,082
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Total assets $226,999 $242,540
======== ========
Liabilities and Partners' Capital (Deficit)
Current liabilities:
Current portion of long-term debt $ 4,967 $ 6,884
Trade accounts payable 4,214 8,294
Accrued expenses and other liabilities 21,439 25,651
Due to affiliates 16,768 23,259
-------- --------
Total current liabilities 47,388 64,088
Long-term debt, excluding current portion 176,361 173,365
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Total liabilities 223,749 237,453
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Commitments and contingencies
Mandatorily redeemable preferred partnership interests 23,172 24,207
Partners' capital (deficit):
General partners (915) (889)
Limited partners (19,007) (18,231)
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Total partners' capital (deficit) (19,922) (19,120)
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Total liabilities and partners' capital (deficit) $226,999 $242,540
======== ========
See accompanying notes to unaudited consolidated financial statements
</TABLE>
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<TABLE>
<CAPTION>
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1999 1998 1999
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Net revenues (including motor fuel
taxes):
Fuel $ 117,162 $ 118,017 $ 236,194 $ 224,898
Non-fuel 34,758 36,573 65,691 70,129
Restaurant 13,237 13,850 26,204 26,986
----------- ----------- ------------ -------------
Total net revenues 165,157 168,440 328,089 322,013
----------- ----------- ------------ -------------
Costs and expenses:
Cost of sales (including motor fuel
taxes) 126,657 128,774 253,428 245,115
Operating expenses 22,901 24,382 45,511 47,787
General and administrative 4,787 4,953 9,385 9,760
Depreciation and amortization 3,874 3,403 7,580 6,670
----------- ----------- ------------ -------------
Total costs and expenses 158,219 161,512 315,904 309,332
----------- ----------- ------------ -------------
Operating income 6,938 6,928 12,185 12,681
Other income (expense):
Gain (loss) on disposition of assets, net - 865 (28) 849
Recapitalization costs - (623) - (623)
Equity in earnings (loss) of affiliate - (230) - (230)
Interest expense, net (4,972) (5,065) (9,989) (10,027)
----------- ----------- ------------ -------------
Net income $ 1,966 $ 1,875 $ 2,168 $ 2,650
=========== =========== ============ =============
See accompanying notes to unaudited consolidated financial statements
</TABLE>
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<TABLE>
<CAPTION>
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the Six Months Ended June 30, 1999
(in thousands)
Total
Partners'
General Limited Capital
Partners Partners (Deficit)
---------------------- ------------------- --------------------
<S> <C> <C> <C>
Balances, December 31, 1998 $ (915) $ (19,007) $ (19,922)
Accrual of preferred return on mandatorily
redeemable preferred partnership interests (21) (1,012) (1,033)
Partners' minimum tax distributions (8) (807) (815)
Net income 55 2,595 2,650
--------------------- ------------------ -------------------
Balances, June 30, 1999 $ (889) $ (18,231) $ (19,120)
===================== ================== ===================
See accompanying notes to unaudited consolidated financial statements
</TABLE>
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<TABLE>
<CAPTION>
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
1998 1999
--------------------------- -------------------------
<S> <C> <C>
Cash flows provided by operating activities:
Net income $ 2,168 $ 2,650
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,580 6,670
Deferred debt issuance cost amortization 813 837
Bad debt expense 114 122
Equity in loss of affiliate - 230
Loss (gain) on disposition of assets 28 (849)
Increase (decrease) from changes in:
Trade accounts receivable (805) (4,289)
Inventories (1,130) (1,470)
Other current assets 222 485
Due from affiliates 196 (603)
Due to affiliates 3,156 7,611
Trade accounts payable (3,739) 4,080
Accrued expenses and other liabilities (3,169) 4,212
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Net cash provided by operating activities 5,434 19,686
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Cash flows provided by (used in) investing activities:
Proceeds from disposition of assets - 1,394
Purchases of property and equipment (8,035) (9,647)
Increase in other assets, net (623) (2,201)
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Net cash used in investing activities (8,658) (10,454)
------- --------
Cash flows provided by (used in) financing activities:
Repayments of long-term debt and capital lease (1,594) (2,479)
Proceeds from expansion loan - 1,400
Tax distribution to partners - (1,935)
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Net cash used in financing activities (1,594) (3,014)
------- --------
Net (decrease) increase in cash and cash equivalents (4,818) 6,218
Cash and cash equivalents, beginning of period 24,796 13,183
------- --------
Cash and cash equivalents, end of period $19,978 $ 19,401
======= ========
- ---------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information -
Interest paid during the period, net of capitalized interest of $0 and $21
in 1998 and 1999 $ 9,357 $ 9,255
Non-cash financing activities:
Preferred return on mandatorily redeemable
preferred partnership interests 980 1,033
See accompanying notes to unaudited consolidated financial statements
</TABLE>
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PETRO STOPPING CENTERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1) Basis of Presentation
The accompanying unaudited consolidated financial statements, which include
the accounts of Petro Stopping Centers, L.P. and its subsidiaries (the
"Company"), have been prepared in accordance with the instructions to Form 10-Q
and, therefore, certain financial information has been condensed and certain
footnote disclosures have been omitted. Such information and disclosures are
normally included in 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, 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
June 30, 1999, the results of operations for the three and six months ended June
30, 1998 and 1999 and cash flows for the six months ended June 30, 1998 and
1999. The results of operations for the three and six months ended June 30, 1999
are not necessarily indicative of the results to be expected for the full
calendar year.
2) Significant Accounting Policies
Reclassification - Certain prior period amounts have been reclassified to
conform to current year presentation.
3) 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 two
reportable operating segments, its corporate truck stops and its franchise
operations. The Company has aggregated its corporate truck stop operations into
one reportable operating segment based on the distribution of products and
services under one common site facility, classified as a multi-service truck
stop.
The Company is a franchisor to 22 Petro Stopping Center locations as of
June 30, 1999. The Company collects royalties and fees in exchange for the use
of its name and for certain services provided to the franchisees. During the
three months ended June 30, 1998 and 1999, the revenues generated from the
Company's franchise operations were $1,202,000 and $1,310,000, respectively,
and $2,163,000 and $2,356,000 for the six months ended June 30, 1998 and 1999,
respectively. These revenues are included in non-fuel 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.
4) 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 Standards 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
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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, 2000 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.
5) Subsequent Events
On July 23, 1999, the Company, certain of its partners and Volvo Trucks
North America, Inc. ("Volvo") consummated a transaction (the "Recapitalization")
pursuant to which Petro Stopping Centers Holdings, L.P. ("Holdings") was formed,
and all of the present owners in the Company, other than Petro Holdings GP
Corp., Petro Holdings LP Corp., each of which are affiliates of Chartwell
Investments, Inc. (collectively, "Chartwell") and Kirschner Investments
("Kirschner"), a company franchisee, became owners in 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) and 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). In addition, Volvo Petro Holdings L.L.C.
("Volvo Trucks"), an affiliate of Volvo, invested $30,000,000 to acquire common
partnership interests in Holdings while Mobil Long Haul, Inc. ("Mobil"), an
affiliate of Mobil Corporation, invested an additional $5,000,000 in convertible
preferred interests of Holdings. Holdings purchased the 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 common interests in the Company owned by Kirschner
for cash consideration of $2,800,000. The Cardwell Group and Mobil maintained
their capital investments in Holdings.
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 and 82,707 exchangeable Warrant Holdings'
Warrants ("New Senior Discount Notes"). Upon an exchange event, 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. Neither Warrant Holdings nor
Financial Holdings will conduct any business other than issuance of the Warrants
and acting as the co-issuer of the New Senior Discount Notes, respectively.
After giving effect to the Recapitalization, Holdings is the owner of
approximately 99.0% of the common interests of the Company. The common limited
partnership interests of Holdings are owned by the Cardwell Group (approximately
51.6%), Volvo Trucks (approximately 28.7%), Mobil (approximately 9.7%) and
Warrant Holdings (approximately 10.0%) and the mandatorily redeemable preferred
partnership interests of Holdings are owned by Mobil ($17,000,000) and the
Cardwell Group ($7,600,000). The Cardwell Group owns both general and limited
partnership interests in Holdings, while Volvo, Mobil and Warrant Holdings own
only limited partnership interests.
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
Term A and B Loans and the Expansion Facility of the Existing Senior Credit
Facility of approximately $38,271,000, plus accrued interest. The New Senior
Credit Facility is collateralized by substantially all of the Company's assets.
In connection with the Recapitalization, the Company capitalized debt
issuance and other costs of approximately $388,000 as of June 30, 1999.
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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
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.
Operations
The following table sets forth the development of the Company's Stopping
Center network since 1995:
<TABLE>
<CAPTION>
As of June 30,
---------------
1995 1996 1997 1998 1999
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<S> <C> <C> <C> <C> <C> <C>
Company-operated Stopping Centers......... 26 26 26 28 29
Franchised................................ 14 15 17 21 22
Independently operated.................... 1 - - - -
---- ---- ---- ---- ----
Total Stopping Centers.................. 41 41 43 49 51
==== ==== ==== ==== ====
</TABLE>
The following table sets forth information on Stopping Centers opened since
June 30, 1995, all but two of which are full-sized facilities:
<TABLE>
<CAPTION>
Location Date Opened
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<S> <C> <C>
Company-operated Stopping Centers:
North Baltimore, Ohio August 1997
North Little Rock, Arkansas September 1997
Wheeler Ridge, California June 1999
Franchised:
York, Nebraska December 1996
Scranton, Pennsylvania May 1997
Claysville, Pennsylvania November 1997
Breezewood, Pennsylvania February 1998
Milton, Pennsylvania March 1998
Monee, Illinois April 1998
Lowell, Indiana April 1999
</TABLE>
In addition to the two full-sized facilities opened in 1997, the Company
opened a Petro:Lube at its Medford location in April 1996. In August and
November of 1998, the Company purchased land in Mebane, North Carolina and
Glendale, Kentucky, respectively, for the future construction of two new
Stopping Centers. On June 30, 1999, the Company had sites in various stages of
development with one new Stopping Center under construction. The Wheeler Ridge
facility in Southern California, which is jointly-owned with Tejon Development
Corporation ("Tejon"), opened in June 1999.
The Company has also entered into an agreement for a 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
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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
franchisees 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 two
reportable operating segments, its corporate truck stops and its franchise
operations. The Company has aggregated its corporate truck stop operations into
one reportable operating segment based on the distribution of products and
services under one common site facility, classified as a multi-service truck
stop.
In addition to corporate truck stop operations, the Company is a franchisor
to 22 Petro Stopping Center locations as of June 30, 1999. The Company collects
royalties and fees in exchange for the use of its name and for certain services
provided to the franchisees. During the three months ended June 30, 1998 and
1999, the revenues generated from the Company's franchise operations were
$1,202,000 and $1,310,000, respectively, and $2,163,000 and $2,356,000 for the
six months ended June 30, 1998 and 1999, respectively. These revenues are
included in non-fuel 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.
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 including truck tire sales and preventative maintenance and repair
services, weighing scales, showers, laundry, video games and other operations,
and (iii) restaurant operations which include Iron Skillet and certain fast-food
operations. The presentation allows management to focus more closely on the
major sources of revenues of the business. The other operations included in
non-fuel revenue include franchise royalties and rental revenue from video poker
operations in Louisiana.
The Company's fuel revenues and cost of sales include significant amounts
of federal and state motor fuel taxes. Such taxes were $52,038,000 and
$50,391,000 for the three-month periods ended June 30, 1998 and 1999,
respectively, and $103,811,000 and $102,183,000 for the six-month periods ended
June 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.
Results of Operations
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Overview. The Company's net revenues of $322,013,000 decreased 1.9% in the
first six months of 1999 from $328,089,000 in the first six months of 1998. The
decrease is primarily due to a decrease of 4.8% in fuel revenues from the
prior year. Fuel revenues decreased as a result of a 3.5% decline from the prior
year in the retail selling price per gallon and a 1.3% decrease in fuel volume.
The decrease in fuel revenues was partially offset by a 6.8% and 3.0% increase
in non-fuel and restaurant sales, respectively, from the prior year. Operating
expenses increased 5.0% from the prior year due mainly to employee related costs
and system project costs. General and administrative expenses increased 4.0% to
approximately $9,760,000 compared to $9,385,000 in the prior year. This increase
was principally due to employee related costs as a result of filling previously
unfilled positions. Although net revenues decreased from prior year, the
Company's operating income increased 4.1% from the prior year, as a result of
its diversified income stream.
Fuel. Revenues decreased 4.8% to $224,898,000 compared to $236,194,000 in
1998 primarily as a result of a 3.5% decline in average fuel prices during the
first six months of 1999 compared to the first six months in 1998 and to a
lesser extent, a 1.3% decline in fuel volumes. Management beleives the
decreased volume is due primarily to state tax changes negatively effecting
volumes at two locations and increased competition at another location.
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 $18,983,000 for the six months ended June
30, 1999, compared to $19,721,000 for the prior year period due mainly to the
decrease in volume.
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Non-Fuel. Revenues increased 6.8% overall to $70,129,000 from $65,691,000
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.
Gross margins increased 6.9% to $38,484,000 from $36,008,000 for the six months
ended June 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.
Restaurant. Revenues of $26,986,000 were 3.0% over prior year's revenues
of $26,204,000. Management believes revenues were enhanced by the implementation
of new menus and featured meal specials. Gross margins in the restaurants
improved by 2.6% due to continued focus on costs and the implementation of menu
changes.
Costs and Expenses. Total costs and expenses decreased 2.1% or $6,572,000
compared to prior year. Cost of sales decreased 3.3% or $8,313,000 from the
prior year, primarily due to reduced fuel volumes and fuel costs experienced
primarily during the current period. Operating expenses increased $2,276,000, or
5.0%, to $47,787,000. The increase is mainly due to employee related costs and
system project costs. General and administrative expenses increased $375,000, or
4.0%, compared to total general and administrative expense of $9,385,000 during
the same period in the prior year. This increase was principally due to employee
related expenses as a result of filling previously unfilled positions.
Other Income (Expense). Other Income (expense) was impacted by
approximately $623,000 of expenses related to the Recapitalization and a
$230,000 loss from startup costs related to the Company's investment in the
Wheeler Ridge facility in Southern California, which opened in June of 1999.
These items were offset by an $849,000 gain on the disposition of location scale
equipment as part of the Company's strategy to focus on its core business, which
occurred during June 1999. Interest expense, net, increased $38,000 to
$10,027,000 in the first six months of 1999 due primarily to a decrease in
interest income compared to the prior year.
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Overview. The Company's net revenues of $168,440,000 exceeded the net
revenues in the prior year quarter by 2.0% or $3,283,000. The increase is
primarily due to an increase of 5.2% and 4.6% in total non-fuel and restaurant
sales, respectively, over the prior year quarter. Fuel revenue increased 0.7%
as a result of a 3.6% increase from the prior year quarter in the retail selling
price per gallon, partially offset by a 2.8% decrease in the volume of gallons
sold. Operating expenses increased 6.5% from the prior year quarter due mainly
to employee related costs and system project costs. General and administrative
expenses increased 3.5% to approximately $4,953,000 compared to $4,787,000 in
the prior year quarter. This increase was due principally to employee related
expenses as a result of filling previously unfilled positions.
Fuel. Revenues increased 0.7% overall to $118,017,000 compared to
$117,162,000 in 1998. Fuel revenues increased primarily due to a 3.6% increase
in pump prices stemming from higher fuel costs compared to the prior year
quarter. The increase in fuel prices were offset by a 2.8% decrease in fuel
volume. Management believes the decreased volume is due primarily to state tax
changes negatively effecting volumes at two locations and increased competition
at another location. 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. Management believes its pricing strategies
resulted in increased fuel margin per gallon of 2.1% compared to the prior year
quarter, which partially offset the decreased volume.
Non-Fuel. Revenues increased 5.2% overall to $36,573,000 from $34,758,000
in the prior year quarter. The increase in non-fuel revenues is primarily due
to increased oil, tire and repair part sales and sales at the Company's retail
stores. Gross margins increased 4.2% to $19,950,000 in 1999 from $19,138,000 in
1998. Management believes the improved margins reflect continued focus on
improving the profitability in those areas.
Restaurant. Revenues increased 4.6% overall to $13,850,000, compared to
$13,237,000 in 1998. Management believes revenues were enhanced by changes in
the core menu including featured meal specials. Gross margins in the
restaurants increased $424,000 or 4.4% over the prior year quarter, due to
continued focus on costs and the implementation of menu changes.
Costs and Expenses. Total costs and expenses were 2.1% above the prior
year quarter primarily due to the increase in cost of sales. Cost of sales
increased 1.7% or $2,117,000 compared to prior year quarter mainly due to the
higher fuel costs experienced during the current quarter compared to prior year.
Operating expenses increased
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$1,481,000, or 6.5%, to $24,382,000. The increase is mainly due to employee
related costs and system project costs. General and administrative expenses
increased 3.5% or $166,000 principally due to employee related expenses
as a result of filling previously unfilled positions.
Other Income (Expense). Other income (expense) was impacted by
approximately $623,000 of expenses related to the Recapitalization and a
$230,000 loss from startup costs related to the Company's investment in the
Wheeler Ridge facility in Southern California, which opened in June of 1999.
These items were offset by an $865,000 gain on the disposition of location
scale equipment as part of the Company's strategy to focus on its core business,
which occurred during June 1999. Interest expense, net, increased $93,000 to
$5,065,000 during the second quarter of 1999 due primarily to a decrease in
interest income compared to the prior year quarter, in addition to interest
related to the $1,400,000 in borrowings on the Expansion Facility.
Liquidity and Capital Resources
Capital expenditures through the first six months totaled $8,035,000 for
1998 and $9,647,000 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.
The Company had negative working capital of $3,060,000 at December 31, 1998
and $7,787,000 at June 30, 1999. 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. 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).
During the quarter ended June 30, 1999, the Company made principal payments
on its Term Loans A and B of $1,000,000 and $125,000, respectively, and made
principal payments of $2,000,000 and $250,000 on these loans, respectively,
during the six months ended June 30, 1999.
In accordance with the Existing Senior Credit Facility, the interest rate
the Company is required to pay on its Term Loans A and B was reduced .25% per
annum, effective March 31, 1998, due to the Company's improved leverage ratio.
At June 30, 1999, the Company had standby letters of credit issued for
approximately $2,413,000, resulting in availability of approximately $22,587,000
on the Revolving Credit Facility. As of June 30, 1999, there were $1,400,000 in
borrowings on the Expansion Facility and no borrowings on the Revolving Credit
Facility.
Accrual of dividends on mandatorily redeemable preferred partnership
interests amounted to $1,033,000 for the six months ended June 30, 1999. The
dividends are only payable in cash if permitted by the Company's then existing
debt instruments. The Indentures, New Notes 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 second quarter of 1999, the Company paid
claims aggregating $575,000 and $604,000 relating to workers' compensation and
general liability, respectively. On a year to date basis, the Company has paid
$1,083,000 and $1,468,000 respectively, on such claims. The Company believes it
provides an accrual adequate to cover both reported and incurred but not
reported claims.
In addition to amounts expended during the first six months of 1999, the
Company currently expects to invest approximately $28,000,000 during the
remainder of 1999 and $55,000,000 during the year ended 2000 on capital
expenditures. These amounts include regular maintenance and new site capital
expenditures.
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.
10
<PAGE>
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 replacing, upgrading and testing its computer systems and
applications. 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 a
majority of 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 a majority of its major customers,
of which approximately 98% have indicated that they will be Year 2000 ready by
the end of 1999. The Company has assumed non-responsive third parties will not
be Year 2000 ready for the purpose of risk assessment. The Company has received
communications from its key financial and insurance service providers indicating
they are actively working to resolve their Year 2000 service issues. The Company
does not believe there has been a significant disruption of the Company's
business due to its Year 2000 remediation efforts. The Company is 90% complete
regarding readiness testing to bring all of its critical IT systems into Year
2000 readiness by October 1999.
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 100% of the Year 2000
readiness of its non-IT systems and has begun compliance testing to bring them
into readiness by October 1999.
The Company is using a mixture of internal and external resources to
address Year 2000 issues. The total 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 $5,670,000 in costs attributable to projects that address the Year 2000
issue through the second quarter of 1999 and expects to incur $3,330,000 in such
costs in the remainder of fiscal year 1999.
Although the Company has day-to-day operational contingency plans,
management is in the process of updating these plans for possible Year 2000
specific operational requirements. To facilitate the completion of these plans,
the Company has formed a committee to handle business interruption scenarios
with respect to the Year 2000 issue. The Company intends to complete its
determination of business interruption scenarios as it receives and analyzes
responses to inquiries made of third parties. The Company is in the process of
establishing contingency plans for situations relating to the Year 2000 issues
that may arise in its dealings with key third parties and the Company's IT and
non-IT systems. The anticipated completion of such contingency plans is by
October 1999. There can be no assurance that either the Company or its trading
partners will not experience Year 2000 readiness difficulties which could have a
material adverse effect on the Company's business, results of operations and
financial condition. The costs and expenses associated with such failure are
not presently estimatable.
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.
11
<PAGE>
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 of the
Company's 1998 Form 10-K. At June 30, 1999, such accrual balance approximates
$161,000 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 June 30, 1999, the Company
has recognized approximately $162,000 in the consolidated balance sheet related
to recoveries of certain remediation costs from third parties.
12
<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
June 30, 1999.
13
<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 16, 1999 /s/ David A. Appleby
-------------------------
David A. Appleby
Vice President of Finance
(Chief Accounting Officer)
14
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Description
- ----------- -------------------
27* Financial Data Schedule
* Filed herewith.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 19,401
<SECURITIES> 0
<RECEIVABLES> 15,587
<ALLOWANCES> 789
<INVENTORY> 17,929
<CURRENT-ASSETS> 56,301
<PP&E> 222,729
<DEPRECIATION> 57,964
<TOTAL-ASSETS> 242,540
<CURRENT-LIABILITIES> 64,088
<BONDS> 0<F1>
24,207
0
<COMMON> 0
<OTHER-SE> (19,120)
<TOTAL-LIABILITY-AND-EQUITY> 242,540
<SALES> 0
<TOTAL-REVENUES> 322,013
<CGS> 245,115
<TOTAL-COSTS> 309,332
<OTHER-EXPENSES> 16,430
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 10,027
<INCOME-PRETAX> 2,650
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,650
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,650
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>NOT SEPARATELY IDENTIFIED IN THE CURRENT FINANCIAL STATEMENTS OR ACCOMPANYING
NOTES THERETO.
</FN>
</TABLE>
