<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
Commission file number 1-13020
-------
PETRO FINANCIAL CORPORATION
(Exact name of the registrant as specified in its charter)
DELAWARE 74-2699614
(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
_________________________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
_________________________________
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
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [X]
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant.
Not Applicable
DOCUMENTS INCORPORATED BY REFERENCE: Petro Financial Corporation's Current
Report on Form 8-K filed on September 3, 1997, as amended on Form 8-K/A, filed
on September 11, 1997.
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<PAGE>
PART I
ITEM 1. BUSINESS
General
Petro Financial Corporation (the "Company") is a wholly owned subsidiary of
Petro Stopping Centers, L.P. ("PSC") and was incorporated in February 1994 for
the sole purpose of acting as a co-obligor with PSC for the issuance of 100,000
units consisting of $100,000,000 12.5% Senior Notes due 2002 (the "Notes") and
100,000 exchangeable debt warrants (the "Warrants"). The Notes and Warrants are
recorded on the financial statements of PSC. In January 1997, PSC and the
Company, as co-obligors, issued $135,000,000 10.5% Senior Notes due 2007 (the
"New Notes") and made a tender offer for all of, and repurchased approximately,
94% of the Notes and 100% of the Warrants. The New Notes are also recorded on
the financial statements of PSC.
The Company has no employees, only nominal assets and does not conduct any
operations. Accordingly, the financial statements of the Company are unaudited.
In the opinion of management, the accompanying unaudited financial statements
contain all necessary adjustments as of and for the year ended December 31,
1997.
PSC files with the Securities and Exchange Commission the reports required
to be filed pursuant to the rules and regulations promulgated under the
Securities Exchange Act of 1934. For information regarding PSC and its business
and financial results, reference is made to PSC's Annual Report on Form 10-K for
1997, a copy of which is filed as Exhibit 99 to this report.
ITEM 2. PROPERTIES
None
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET OF REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company is a wholly owned subsidiary of PSC. Consequently, there is
no established trading market for the Company's equity.
ITEM 6. SELECTED FINANCIAL DATA
The Company is inactive and therefore does not have financial data to
present.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company is inactive and, accordingly, it has no operations and only
minimal assets.
1
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Item 8. Financial Statements and Supplementary Data
PETRO FINANCIAL CORPORATION
UNAUDITED BALANCE SHEETS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1996 1997
------------- -----------------
ASSETS
Current assets:
<S> <C> <C>
Cash $ - $1,000
Receivable for issuance of stock 1,000 -
------ ------
Total assets $1,000 $1,000
====== ======
STOCKHOLDER'S EQUITY
Common stock, $.01 par value: authorized 10,000 shares:
issued and outstanding 2,500 shares $ 25 $ 25
Additional paid-in capital 975 975
------ ------
Total stockholder's equity $1,000 $1,000
====== ======
</TABLE>
See accompanying notes to unaudited financial statements
2
<PAGE>
PETRO FINANCIAL CORPORATION
UNAUDITED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1996 1997
-------- --------
<S> <C> <C>
Cash flows provided by financing activities:
Proceeds from sale of stock $ - $1,000
------- ------
Net cash provided by financing activities - 1,000
------- ------
Net increase in cash - 1,000
Cash, beginning of period - -
------- ------
Cash, end of period $ - $1,000
======= ======
</TABLE>
See accompanying notes to unaudited financial statements
3
<PAGE>
PETRO FINANCIAL CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) COMPANY FORMATION AND DESCRIPTION OF BUSINESS
Organization
Petro Financial Corporation (the "Company") is a wholly owned subsidiary of
Petro Stopping Centers, L.P. ("PSC"). The Company was incorporated in 1994 for
the sole purpose of acting as a co-obligor with PSC for the issuance of 100,000
units consisting of $100,000,000 12.5% Senior Notes due 2002 (the "Notes") and
100,000 exchangeable debt warrants (the "Warrants"). The Notes and Warrants are
recorded on the financial statements of PSC. In January 1997, PSC and the
Company, as co-obligors, issued $135,000,000 10.5% Senior Notes due 2007 (the
"New Notes") and made a tender offer for all of, and repurchased approximately,
94% of the Notes and 100% of the Warrants. The New Notes are also recorded on
the financial statements of PSC.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company has no employees, only nominal assets, has not and will not
conduct any operations and, accordingly, has no statement of operations. At
December 31, 1997, the Company's balance sheet consists only of common stock and
additional paid-in capital in the amount of $1,000 and cash in the amount of
$1,000. The accounts of the Company are included in the December 31, 1996 and
December 31, 1997 consolidated balance sheets of PSC, which are included in
PSC's Annual Report on Form 10-K for the year ended December 31, 1997, a copy of
which is filed as Exhibit 99 to this report. In the opinion of management, the
accompanying unaudited financial statements contain all necessary adjustments as
of and for the year ended December 31, 1997.
The Company meets all of the requirements of an Inactive Registrant as
defined by Rule 3-11 of the Securities and Exchange Commission's Regulation S-X
(the "Rule"). The Rule stipulates that if a registrant is inactive, the
financial statements required for purposes of reports pursuant to the Securities
Exchange Act of 1934 may be unaudited.
(3) STOCKHOLDERS' EQUITY
The Company is a wholly owned subsidiary of PSC, which is the sole
shareholder of all of the Company's single class of common stock. As the sole
shareholder, PSC has all voting rights and privileges.
4
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On August 27, 1997, the Registrant notified Coopers & Lybrand LLP (El Paso,
Texas office) of its decision to dismiss Coopers & Lybrand LLP and to retain
Arthur Andersen LLP (Dallas, Texas office) for the audit of its financial
statements for fiscal year ended December 31, 1997. The change in the
independent accountants was recommended by the Audit Committee of the Board of
Directors.
During the last two most recent fiscal years and interim periods through
August 27, 1997, there were no disagreements with Coopers & Lybrand LLP on
matters of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure which disagreement(s), if not resolved to the
satisfaction of Coopers & Lybrand LLP, would have caused them to make reference
to the subject matter of the disagreement(s) in connection with their report.
In addition, during such period, there have been no "reportable events" with
Coopers & Lybrand LLP as described in Items 304 (a)(I)(v) of Regulation S-K.
During the last two most recent calendar years and through September 3,
1997, the Company did not consult Arthur Andersen LLP on either the application
of accounting principles to a complete or proposed specific transaction, or on
the type of audit opinion that might be rendered on the Company's financial
statements.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS AND MEMBERS OF BOARD OF DIRECTORS
The executive officers and directors of the Company and their ages as of
February 1, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- ----------------------------
<S> <C> <C>
James A. Cardwell, Sr. 66 Director and President
Larry J. Zine 43 Director and Vice President
James A. Cardwell, Jr. 38 Director and Vice President
Evan C. Brudahl 42 Vice President
David A. Haug 37 Vice President and Secretary
</TABLE>
James A. (Jack) Cardwell, Sr. -- Jack Cardwell has been President and a
Director of the Company since its organization in 1994. He founded PSC in 1975
and has been serving as its Chief Executive Officer since May 1992 and has been
a member of the Board of Directors since its formation in 1992. He is the
Chairman and President with responsibility for PSC's overall performance. He
served as the Chairman of the National Association of Truck Stop Operators
("NATSO") in 1983 and 1984 and has worked on various committees of NATSO since
that time. He currently serves as a trustee for Security Capital Pacific Trust
(a New York Stock Exchange Company). Jack Cardwell is the father of Jim
Cardwell.
Larry J. Zine -- Larry Zine has been a Director and Vice President since
December 1996. He was hired by PSC in December 1996 as Executive Vice President
and Chief Financial Officer and is responsible for all financial, accounting,
management information and insurance and benefit services for PSC. Mr. Zine
was the Executive Vice President and Chief Financial Officer for The Circle K
Corporation, the second largest chain of convenience stores in the United
States, from 1988 to 1996. Mr. Zine was an integral part of The Circle K
Corporation's reorganization from bankruptcy in July 1993, its initial public
offering in March 1995 and subsequent sale in June 1996. Mr. Zine had worked for
The Circle K Corporation for 15 years in various capacities including the last
eight years as Chief Financial Officer. Mr. Zine was educated at the University
of North Dakota and holds an M.S. degree in Accounting and a B.S.B.A. in
Marketing.
5
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
James A. (Jim) Cardwell, Jr. -- Jim Cardwell is a Director and Vice
President. He is also Senior Vice President of Operations and Marketing with
responsibility for PSC's operations and fuel purchasing. Mr. Cardwell has been
involved with PSC for 14 years and has held various positions including profit
center management and was Vice President of Operations from 1986 to 1992. Prior
to his current position, he served as Vice President of National Sales and
Promotions from June 1993 to January 1997. Mr. Cardwell studied Management and
Finance at the University of North Texas. Currently he serves on the board of
NATSO, and is Chairman of the Board of the NATSO Foundation. He is also a member
of the Young Presidents Organization. Jim Cardwell is the son of Jack Cardwell.
Evan C. Brudahl -- Evan Brudahl, a Mobil Oil employee, is a Vice President
of the Company and the Senior Vice President of Strategic Planning and
Development and a Director of PSC. Mr. Brudahl was most recently the Manager of
U.S. Diesel Retail Marketing and Travel Center Business at Mobil Oil and has
worked for Mobil Oil for 19 years. He has held the positions of District
Manager, Manager of U.S. company-operated Gasoline Stations Operations, Company
Operation Accounting Manager, and various other positions in U.S. Marketing and
Administrative areas. He received a B.B.A. in Marketing from the University of
Wisconsin at Whitewater.
David A. Haug -- David A. Haug is a Vice President and Secretary for the
Company. He is also Vice President of Finance and Treasurer of PSC. Prior to
his current position he served as the Controller for PSC, a position he held
since April 1990. Prior to joining PSC, he was an audit manager with Lauterbach,
Borschow and Company, Certified Public Accountants from 1982 to 1990. He
received a B.A. in Accounting from New Mexico State University and is a
Certified Public Accountant in the state of Texas.
ITEM 11. EXECUTIVE COMPENSATION
None
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is a wholly owned subsidiary of PSC.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
6
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORMS 8-K
The following documents are filed as a part of this report: Page
-----
1. Financial statements
Balance Sheets 2
Statements of Cash Flows 3
The accounts of the Company are included in the December 31, 1996 and
December 31, 1997 consolidated balance sheets of PSC, which are included in
PSC's Annual Report on Form 10-K for the year ended December 31, 1997, a
copy of which is filed as Exhibit 99 to this report.
2. Financial statements schedule and supplementary information required to be
submitted.
None
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the financial
statements or notes thereto.
3. Exhibits
Incorporated herein by reference is a list of Exhibits contained in the Exhibit
Index on page 9 of this Annual Report.
(b) Reports on Form 8-K: None
7
<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 FINANCIAL CORPORATION
(Registrant)
/s/ Larry J. Zine
--------------------
(Larry J. Zine)
Vice President and Director
(Principal Financial Officer)
March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Petro
Financial Corporation and in the capacities on the date indicated:
Signature Title Date
--------- ----- ----
/s/ James A. Cardwell, Sr. President and Director March 30, 1998
---------------------------
(James A. Cardwell, Sr.)
/s/ Larry J. Zine Vice President and Director March 30, 1998
---------------------------
(Larry J. Zine)
/s/ James A. Cardwell, Jr. Vice President and Director March 30, 1998
---------------------------
(James A. Cardwell, Jr.)
/s/ Evan C. Brudahl Vice President March 30, 1998
---------------------------
(Evan C. Brudahl)
/s/ David A. Haug Vice President and Secretary March 30, 1998
---------------------------
(David A. Haug)
8
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Description
16.1(aa) Letter, dated September 3, 1997, from Coopers & Lybrand LLP,
Regarding Change in Certifying Accountants.
16.2(aa) Letter, dated September 3, 1997, from Arthur Andersen LLP,
Regarding Change in Certifying Accountants.
16.3(bb) Letter, dated September 11, 1997, from Coopers & Lybrand LLP,
Regarding Change in Certifying Accountants.
23.1* Consent of experts and counsel from Arthur Andersen LLP.
23.2* Consent of experts and counsel from Coopers & Lybrand LLP.
27* Financial Data Schedule
99* Petro Stopping Centers, L.P.'s Annual Report on Form 10-K for
the year ended December 31, 1997, filed on March 30, 1998.
* Filed herewith.
(aa) Incorporated by reference to the Company's Current Report on Form 8-K,
filed on September 3, 1997.
(bb) Incorporated by reference to the Company's Current Report on Form 8-K/A,
filed on September 11, 1997.
9
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion as
Exhibit 99 in this Form 10-K of our report dated February 23, 1998 included in
Form 10-K of Petro Stopping Centers, L.P. (the "Company"). It should be noted
that we have not audited any financial statements of the Company subsequent to
December 31, 1997 or performed any audit procedures subsequent to the date of
our report.
ARTHUR ANDERSEN LLP
Dallas, Texas
March 30, 1998
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this Form 10-K of Petro Financial
Corporation for the fiscal year ended December 31, 1997 of our report dated
March 28, 1997, on our audits of the consolidated financial statements of Petro
Stopping Centers, L.P. as of December 31, 1996, and for each of the two years in
the period ended December 31, 1996.
COOPERS & LYBRAND L.L.P.
El Paso, Texas
March 30, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,000
<CURRENT-LIABILITIES> 0
<BONDS> 0<F1>
0
0
<COMMON> 25
<OTHER-SE> 975
<TOTAL-LIABILITY-AND-EQUITY> 1,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>NOT SEPARATELY INDENTIFIED IN THE CURRENT FINANCIAL STATEMENTS OR ACCOMPANYING
NOTES THERETO.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1997
Commission file number 1-13018
PETRO STOPPING CENTERS, L.P.
(Exact name of the registrant as specified in its charter)
Delaware 74-2628339
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6080 Surety Dr. 79905
El Paso, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (915) 779-4711
---------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
---------------------------
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
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock and non-voting common
equity held by non-affiliates of the registrant.
Not Applicable
DOCUMENTS INCORPORATED BY REFERENCE: Portions of Item 14 of Part IV are
incorporated by reference to: Petro Stopping Centers, L.P.'s Registration
Statement No. 33-76154, filed on April 26, 1994; Petro Stopping Centers, L.P.'s
Quarterly Report on Form 10-Q for the quarter ended March 30, 1994, filed on
July 1, 1994; Petro Stopping Centers, L.P.'s Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995, filed on May 15, 1995 ; Petro Stopping
Centers, L.P.'s Annual Report on Form 10-K for the fiscal year ended December
29, 1995, filed on March 28, 1996 ; Petro Stopping Centers, L.P.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1996, filed on April 14,
1996; and Petro Stopping Centers, L.P.'s Current Report on Form 8-K filed on
September 3, 1997, as amended on Form 8-K/A, filed on September 11, 1997.
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<PAGE>
PART I
ITEM 1. Business
General
Petro Stopping Centers, L.P. (the "Company") is a leading operator of
large, full-service truck stops with a nationwide network of 46 facilities known
as Petro Stopping Centers ("Stopping Centers"), located in 29 states. The
Company has built its reputation by providing a high level of customer service
in a consistently clean and friendly environment. Each Stopping Center offers a
broad range of products, services and amenities, including diesel fuel,
gasoline, home-style restaurants, truck preventive maintenance centers
("Petro:Lubes") and travel and convenience stores to commercial truck drivers,
other highway motorists and local residents. Of the 46 Stopping Centers, 18 are
operated by franchisees who are required to meet the Company's high standards of
quality and service.
The Company's primary customers are commercial and private trucking fleets
and professional truck drivers that comprise the long-haul sector of the
trucking industry. The Company sells diesel fuel to over 10,600 trucking
accounts. By serving the needs of this customer base, the Company has continued
to grow its revenues and generate stable cash flow.
The Company's facilities are designed to offer a number of benefits to
truck fleet operators and drivers. These advantages generally include well-lit
and fenced parking lots to enhance security for drivers, trucks and freight;
spacious parking areas and well-designed traffic flow to reduce truck stop
accidents; and fewer stops and out-of-route miles through the use of the
Company's one-stop, multi-service facilities. As trucking fleets consolidate
and outsource their fueling as well as maintenance requirements, the Company's
facilities continue to experience sizable growth in diesel fuel volume and
preventive maintenance revenues.
The Company's business was founded by Jack Cardwell, who opened the
Company's first truck stop in El Paso, Texas in 1975. Until 1992, the Company
conducted its operations through a variety of entities owned by Mr. Cardwell and
members of his family. Effective as of April 30, 1992, Fremont Group, Inc.
("Fremont"), an affiliate of Bechtel Group, Inc. and then named Bechtel
Investments, Inc., made an equity investment in the business through two
Delaware limited partnerships, Petro PSC Properties, L.P. ("Petro Properties")
and Petro PSC, L.P. ("Petro PSC"). In the transaction, Fremont and Roadside,
Inc. ("Roadside"), which is a wholly owned subsidiary of Fremont and was one of
the general partners of Petro Properties and Petro PSC, invested $25,000,000 in
the partnerships and Mr. Cardwell, his son and entities controlled by them, as
well as Arcadian Management Corporation ("Arcadian"), a corporation wholly owned
by a former executive officer of the Company, contributed most of the real
estate assets of the business to Petro Properties and the operating and other
assets of the business to Petro PSC. The contributions made by the members of
the Cardwell Group (as defined) and Arcadian were valued at $45,570,000 by the
partners of Petro Properties. The Cardwell Group's contribution to Petro
Properties was recorded at the Cardwell Group's amortized cost of the related
assets and liabilities. Thereafter, Fremont and Roadside made additional equity
investments in the partnerships totaling $10,000,000. Effective December 31,
1994, Petro Properties and its principal operating subsidiary, Petro PSC, were
merged and the name of the surviving partnership was changed to Petro Stopping
Centers, L.P., a Delaware limited partnership.
In October 1996, Jack Cardwell, Jim Cardwell, JAJCO II, Inc. ("JAJCO"),
Petro Inc. (together with Jack Cardwell, Jim Cardwell, and JAJCO, collectively,
the "Cardwell Group"), Mobil Long Haul Inc. ("Mobil Long Haul"), wholly owned by
Mobil Oil Corporation ("Mobil"), Petro Holdings GP Corp. ("Holdings GP"), Petro
Holdings LP Corp. ("Holdings LP") and together with Holdings GP, "Chartwell,"
both of which were newly formed affiliates of Chartwell Investments Inc.
("Chartwell Investments") and the Company, entered into the Omnibus Agreement
pursuant to which the parties thereto agreed, among other matters, that
Chartwell and Mobil Long Haul would acquire the general and limited partnership
interests of the Company owned by Sequoia Ventures, Inc. ("SVI") and Roadside
(and together with SVI, the "Fremont Partners") and invest in the Company. On
January 30, 1997, the Company consummated the Omnibus Agreement transaction in
which Chartwell and Mobil Long Haul invested $20,700,000 and $15,000,000,
respectively (the "Equity Investment"), and directly acquired the partnership
interest of the Fremont Partners for approximately $25,600,000 and invested
approximately $10,100,000 in the Company. The Cardwell Group maintained their
capital investment in the Company. Kirschner Investments ("Kirschner"), a
Company franchisee, invested $1,000,000 in the Company (the "Kirschner
Investment"). Following their Equity Investment and the Kirschner Investment,
the common partnership interests of the Company are owned by Chartwell
1
<PAGE>
(approximately 50.6%), the Cardwell Group (approximately 39.7%), Mobil Long Haul
(approximately 7.3%), and Kirschner (2.4%), and the mandatorily redeemable
preferred partnership interests of the Company 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 in the Company, and
Mobil Long Haul and Kirschner own only limited partnership interests in the
Company. Mobil and the Company also entered into certain supply and marketing
agreements in connection with the Recapitalization (as defined).
As part of the Recapitalization, the Company issued $135,000,000 of 10 1/2%
Senior Notes due 2007, (the "New Notes") and made a tender offer (the "Tender
Offer") for all of, and repurchased approximately 94% of, its 12 1/2% Senior
Notes due 2002 (the "Old Notes") and 100% of the outstanding debt warrants (the
"Debt Warrants").
The Company also amended its senior collateralized credit facility (the
"Old Credit Agreement" and, as amended, the "New Credit Agreement"). The New
Credit Agreement consists of a $25,000,000 revolving credit facility (the
"Revolving Credit Facility"), a $14,000,000 Term Loan A, a $30,000,000 Term Loan
B and a $40,000,000 Expansion Facility (the "Expansion Facility"). The New
Credit Agreement is collateralized by substantially all of the Company's assets
and the partnership interests of Mobil Long Haul and Chartwell and guaranteed by
each of the Company's subsidiaries, whose guarantees in turn are collateralized
by substantially all of such subsidiaries' assets.
The Recapitalization consists of the Equity Investment, the Tender Offer,
the Kirschner Investment, the issuance of the New Notes and the entering into of
the New Credit Agreement.
Petro Stopping Centers
There are 28 Company-operated Stopping Centers, of which 25 are full-size
locations and three are Petro :2 Centers ("Petro:2 Centers"). There are 18
franchised facilities, of which 14 are "full-service" locations and four are
Petro:2 Centers. Petro:2 Centers provide the same basic fuel, non-fuel, and
restaurant services as full-sized Stopping Centers, but on a smaller scale and
with fewer amenities. A typical full-size Stopping Center is built on 15 to 30
acres with separate entrances and parking areas for trucks and automobiles.
Parking areas typically accommodate 200 to 300 trucks and 100 to 175 cars or
recreational vehicles, and are well lit and fenced to maximize customer safety.
Petro Stopping Centers are open 24 hours a day and typically consist of the
following:
Fuel
Each Stopping Center has a diesel fuel island which is a self-service
facility for professional drivers that typically consists of eight to 16
fueling lanes. The fuel dispensers are computer driven, high speed units. Each
fueling lane permits simultaneous fueling of each of the truck's two tanks.
Pursuant to its strategic alliance with Mobil, the Company converted to selling
Mobil branded diesel fuel with the Company's proprietary Petro Power Plus fuel
additive at all of the Company-operated diesel fuel islands during 1997. All
Company-operated diesel fuel islands and dispensers carry signage with both the
"Petro" and "Mobil" brand names.
In addition to the diesel fuel island for professional drivers, gasoline and
automobile diesel fuel are sold from a separate auto fuel island at 27 of the
Company's 28 locations. The auto fuel islands are accessed by separate "auto-
only" entrances which help to separate auto and truck traffic at the facility.
The typical auto fuel island is equipped with four to 12 fuel dispensers for
convenient and efficient fueling.
Non-fuel
In 1983 the Company opened its first Petro:Lube facility to provide "while-
you-wait" preventive maintenance service for trucks. Since that time,
Petro:Lubes have been introduced at all of the Company-operated full-size
Stopping Centers and at two of its three Petro:2 Centers. Petro:Lube facilities
offer oil and filter changes, lubrication and new, used and retread tires, as
well as tire repair. The Company was the first truck stop chain to offer service
to truckers on an express basis.
2
<PAGE>
Each Petro:Lube sells a limited number of high-quality brands such as Mobil
Delvac, Shell Rotella and Chevron Delo heavy duty motor oils and Kelly,
Bridgestone and Firestone tires. Under the marketing agreements entered into
with Mobil, Petro:Lube locations feature Mobil's Delvac brand lubricants and
have developed marketing programs and strategies with Mobil. See Item 13
"Certain Relationships and Related Transactions." Each Petro:Lube honors
manufacturers' warranties as well as the Company's warranties for work performed
at any Petro:Lube throughout the country.
Petro:Lube services are primarily utilized by owner/operators and small
fleets, but larger fleets are increasingly looking to outsource their
maintenance needs. In addition to Stopping Center locations, the Company opened
a stand-alone Petro:Lube in 1996.
To attract the business of drivers seeking a quick refueling stop, each
diesel fuel island includes a "mini-mart" offering an array of deli take out
food, snack foods, beverages, toiletries and a basic selection of trucker
accessories and supplies. In addition, other services including certified
scales, check cashing, money wire services, permit services, faxing and copying
are available. These facilities enable the driver seeking a quick refueling stop
to purchase consumables and services while refueling.
Each Stopping Center also includes a Travel Store featuring merchandise
specifically selected to cater to a professional truck driver's shopping needs
during the long periods typically spent away from home. Merchandise categories
include clothing, electronics such as televisions, mobile satellite dishes,
VCR's and CB radios as well as toiletries, gifts and truck accessories such as
cables, fuses, reflectors and antennae. A travel store typically carries
approximately 7,500 SKUs and averages 1,900 square feet of selling space.
To meet the personal and business needs of commercial drivers and other
motorists, the Company provides numerous additional services at its Stopping
Centers. At the typical Stopping Center, customers have access to telephone, fax
and other communications services, overnight express drop boxes and ATMs.
Professional drivers have convenient on-site access to a certified truck
weighing scale and a truck wash operated by a third-party at most locations. In
addition, they can receive their paychecks and cash advances. For a driver's
comfort and relaxation, Stopping Centers provide laundry facilities, game rooms,
television viewing rooms and at certain Stopping Centers, movie theaters.
Each full-size Stopping Center features 12 to 18 private shower facilities.
The showers are fully tiled for easy maintenance and are professionally cleaned
after each use. Each shower room is equipped with a lock to provide privacy and
security. The Company also leases retail space at its Stopping Centers to
independent merchants.
Since June 1993, the Stopping Centers located in Hammond and Shreveport,
Louisiana have featured video poker operations. The primary customers for these
activities are local area residents. The video poker operations at each of these
sites feature 50 machines and are conducted in a stand-alone building, separated
from other Stopping Center facilities. A third-party operator manages the video
poker operations and incurs substantially all related expenses while paying a
portion of each machine's "winnings" to the Company. During 1996, Louisiana
enacted a statute requiring the cessation of video poker operations unless the
parish in which the operations were conducted voted to allow the continued
operations of video poker machines. On November 5, 1996, the parish in which the
Shreveport facility is located voted to continue to allow video poker
operations, while the parish in which the Hammond facility is located voted to
disallow video poker operations. The video poker operations at the Hammond
facility are required to be phased out by the end of June 1999.
Restaurants
Each full-size Stopping Center includes the Company's trademarked "Iron
Skillet" restaurant. This home-style, sit down restaurant typically seats
approximately 180 customers, and features counter and waitress service, a soup
and salad bar and three "All-You-Can-Eat" buffets per day. The Iron Skillet
prides itself on the "home cooked" items prepared fresh at each location.
Recipes developed at the Company's test kitchen in El Paso are accessible from
each location by computer. In addition, two of the Company operated Petro:2
3
<PAGE>
Centers currently contain a "Quick! Skillet" restaurant, which offers a narrower
menu selection than the Iron Skillet restaurant at full-sized Stopping Centers.
Iron Skillet restaurants are open 24 hours per day, 365 days per year and
have "drivers only" sections. Public telephones are generally available
throughout the dining area for customer convenience.
The Company has introduced nationally branded fast food concepts at several
of its locations. The Company currently operates one Wendy's, two Blimpie Subs &
Salads and three Pizza Hut Express units and plans to expand its fast food
program during the next several years. In addition, the Company has introduced
its own branded deli program within the locations known as "The Filling
Station." At December 31, 1997, the Company had three locations and plans to
expand the concept in the future.
Competition
The U.S. truck stop industry is large and highly fragmented. According to
industry data, which is limited, there are approximately 2,200 truck stops
located on interstate highways. Management believes that approximately 30% are
operated by eight major national or regional truck stop chains. Long-haul trucks
can obtain diesel fuel from a wide variety of sources, including their own
fueling terminals, chains of large, high-quality truck stops, limited service
fueling facilities and some large service stations. The Company believes that,
while it competes with all truck stops, its principal competitors are
increasingly large, multi-service truck stop chains. Management believes that
eight chains accounted for approximately 45% of the 13.0 billion gallons of
over-the-road diesel fuel sold in 1996 in the United States and that the market
share of these large chains continues to increase as fleets look to do business
with fewer, more nationally represented providers to meet their needs. Trucking
fleets typically place a limited number of truck stop chains in their approved
fuel networks in an attempt to consolidate and leverage purchasing power.
Certain of the Company's competitors have substantially greater financial and
marketing resources than the Company.
The Company prices its diesel fuel competitively. A number of other large,
multi-service truck stop chains build somewhat smaller and less expensive
facilities, emphasizing low-priced diesel fuel and fast food restaurants. Many
of the other truck stop chains employ discount pricing of diesel fuel to
compete. At the same time, increased competition and over capacity among
trucking companies in recent years have increased truck fleet owners' focus on
reducing their operating costs. This has put increased pressure on diesel fuel
margins for the Company and its competitors. In recent years, a number of the
larger fleets have also opened proprietary terminals along their most-traveled
routes. In addition, from time to time, the Company is subject to intense price
competition in certain of its markets.
Fuel Suppliers
Historically, the Company has not entered into significant long-term
contracts with fuel suppliers and engaged in only limited hedging activities. On
occasion the Company has purchased fuel in the forward contract market. In
connection with the Recapitalization, the Company has entered into 10-year
supply agreements with Mobil Oil Corp. ("Mobil") under which Mobil will supply
the Company-operated Stopping Centers' diesel fuel requirements as well as a
portion of their lubricant and gasoline requirements. The diesel fuel sold at
all Company-operated Stopping Centers is branded Mobil Diesel, and the Company-
operated Petro:Lubes feature Mobil Delvac lubricants. Under the diesel fuel and
gasoline supply agreement dated January 30, 1997(the "Supply Agreement"), the
Company has agreed to purchase from Mobil specified distribution terminals a
minimum number of gallons of diesel fuel and gasoline on a monthly basis and on
an annual basis, subject to product availability and reductions by Mobil under
certain described circumstances and subject to existing gasoline supply
contractual obligations. As a result of the Supply Agreement and in order to
comply with the laws governing the branding of diesel fuel, Mobil Diesel Supply
Corp. ("MDS"), a wholly owned subsidiary of Mobil, was formed. MDS purchases
diesel fuel from third-party suppliers and then sells it back to the Company at
cost, given that Mobil cannot supply 100% of the Company's diesel fuel demand
due to limited product availability and restrictions on the amount of diesel
fuel that the Company is allowed to purchase from Mobil. The Company's fuel
purchase arrangement with MDS enables the Company to meet its
4
<PAGE>
diesel fuel demand and to comply with branding laws, which require Mobil to
first take possession of the fuel before it can be branded as Mobil Diesel.
The Supply Agreement allows the Company to continue to negotiate for the
purchase of diesel fuel with third-party suppliers approved by MDS. If the
Company is able to obtain a lower diesel fuel price from a third-party supplier
in a particular market area, the Company may request that Mobil meet such lower
price or allow a portion of the Company's diesel fuel requirements to be
supplied from such MDS approved third-party supplier, in which case MDS would
purchase the diesel fuel from the supplier and resell the product to the
Company. Any change in supply source, however, does not affect the Company's
requirement to purchase the annual minimum number of gallons from Mobil
specified distribution terminals fixed by the Supply Agreement. The Supply
Agreement also places a monthly limit on the maximum number of gallons of diesel
fuel and gasoline that the Company may lift from Mobil specified distribution
terminals. See Item 13. "Certain Relationships and Related Transactions."
The Company purchases diesel fuel for each of its Company-operated Stopping
Centers on a daily basis. Each location typically maintains a one to three day
inventory of fuel. During 1997, the Company purchased the majority of its diesel
fuel from two key suppliers. The Company purchased approximately 40% and 27% of
diesel fuel from MDS and Mobil, respectively, during 1997.
Trademarks and Trade Names
The Company is the owner in the United States of various trademarks and
service marks. The Company grants franchisees the non-exclusive right to use
the proprietary marks at franchised locations. The Company regards its
trademarks and service marks as valuable assets and believes that they have
significant value in the marketing of its products and services.
Governmental Regulation
Environmental Regulation
The Company's operations and property are subject to extensive federal and
state legislation and regulations relating to environmental matters. The Company
uses underground and above ground storage tanks to store petroleum products and
waste oils. Statutory and regulatory requirements for underground storage tank
("UST") systems include requirements for tank construction, integrity testing,
leak detection and monitoring, overfill and spill control, and mandate
corrective action in case of a release from an UST into the environment. The
Company is also subject to regulations in certain locations relating to vapor
recovery and discharges into water. Management believes that all of its USTs are
currently in compliance with applicable requirements and that it is currently in
compliance with all other applicable environmental laws and regulations. Some
existing laws and regulations relating to USTs do not become applicable
immediately and have future compliance schedules. The Company is currently in
the process of installing cathodic protection and overfill equipment or devices
on its older USTs (those installed before 1988) and plans to complete that work
on or before the dates required to achieve compliance under the current
regulations. The Company plans to spend approximately $390,000 in 1998 in
connection with this work. If additional requirements are imposed, additional
expenditures may be required. During 1995, 1996, and 1997, the Company's
expenditures for environmental matters were $261,000, $180,000, and $154,000,
respectively. See Note 2 to the Company's Consolidated Financial Statements for
the year ended December 31, 1997 for a discussion of its accounting policies
relating to environmental matters.
In connection with its ownership of the properties and operation of its
business, the Company may also be subject to liability under various federal,
state and local environmental laws, ordinances and regulations relating to
cleanup and removal of hazardous substances (which may include petroleum or
petroleum products) on, under or in such property. Certain laws typically impose
liability whether or not the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances. Persons who arrange, or are
deemed to have arranged, for the disposal or treatment of hazardous or toxic
substances may also be liable for the costs of removal or remediation of such
substances at the disposal or treatment site, regardless of whether such site is
owned or operated by such person. The Company is not involved in any litigation
or other proceedings seeking to impose such liability. Where required or
believed by the Company to be warranted, the Company takes action at Company-
operated locations to correct the effects on the environment of prior disposal
practices or releases of chemical or petroleum substances by the Company or
other parties. In light of the business of the Company and the quantity of
petroleum products that it handles, there can be no assurance that hazardous
substance contamination does not exist or that material liability will not be
imposed in the future.
5
<PAGE>
Other Regulation
The Company is also subject to local licensing ordinances. The issuance of
permits for service station and lubrication operations is generally a matter of
discretion and is subject to the underlying requirement that the granting of the
permit be consistent with health, safety and moral welfare of the community.
Although the Company believes that careful planning and site selection reduces
the likelihood of significant zoning opposition, significant opposition to the
construction of a Stopping Center, if encountered, may cause the Company to
incur substantial expenses and delay.
The Company's restaurant operations are subject to federal, state and local
regulations concerning health standards, sanitation, fire and general safety,
noncompliance with which could result in temporary or permanent curtailment or
termination of a restaurant's operations. In addition, difficulties in obtaining
the required licensing or approvals could result in delays or cancellations in
the openings of new restaurant facilities.
In addition, the Company's video poker operations are subject to oversight
at the state and local level. During 1996, Louisiana enacted a statute requiring
the cessation of video poker operations unless the parish in which the
operations were conducted voted to allow the continued operations of video poker
machines. On November 5, 1996, the parish in which the Shreveport facility is
located voted to continue to allow video poker operations, while the parish in
which the Hammond facility is located voted to disallow video poker operations.
The video poker operations at the Hammond facility are required to be phased out
by the end of June 1999.
The Louisiana State Police, who administer the gaming licensing process in
Louisiana, issued citations in February 1998, against the licensee of video
poker at the two Petro Truck Stops in Louisiana, alleging failure to file
complete license application forms for the business. An administrative hearing
officer of the Louisiana Gaming Control Board issued a recommendation that the
video poker business be suspended at both locations for a period of 30 days.
This recommendation is being appealed to the Louisiana Gaming Control Board.
Management believes that mitigating circumstances exist to justify overturning
on appeal the hearing officer's recommendation. Management does not believe
that the ultimate outcome of this matter will have a material adverse effect on
the business or financial condition of the Company.
The Company as a franchisor is also subject to federal and state regulation
in the states in which it offers franchises or where franchised Stopping Centers
are currently operating. Federal regulations require that the Company provide
each perspective franchisee with a disclosure document that provides information
regarding the Company and the relevant provisions of the franchise agreement and
other ancillary contracts. In addition, certain state regulations require that
the franchisor be registered or be exempt from the applicable registration
requirements. Federal and state franchising laws prohibit certain "deceptive
trade practices" and, in some cases, impose fairness and "anti-discrimination"
standards on the Company.
In addition to the franchise regulations outlined immediately above, the
Company's operations are subject to the Petroleum Marketing Practices Act
("PMPA"). PMPA is a federal law that prohibits a franchisor engaged in the sale,
consignment or distribution of refiner-branded motor fuels from terminating or
failing to renew a "franchise" or "franchise relationship," except on specified
grounds and only after compliance with the statute's notification provisions.
PMPA expressly preempts state law concerning the termination, nonrenewal and
notice thereof with respect to motor fuel franchises. PMPA is enforced
judicially through cases interpreting the statute.
The Company is also a franchisor under the PMPA because it distributes and
sells diesel fuel and gasoline under Mobil's trademarks to its franchisees.
Thus, the Company is subject, as a franchisor, to PMPA's termination, nonrenewal
and notice requirements in each of its individual motor fuel contracts with its
franchisees. At the same time, the Company is entitled to PMPA's protections in
its branded supply agreements with Mobil, as well as other branded suppliers.
The Company is not party to any PMPA litigation.
Under the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. While the Company believes its facilities
are in compliance with these requirements, a determination that the Company is
not in compliance with the ADA could result in the imposition of fines or an
award of damages, which could adversely affect the Company.
6
<PAGE>
The Company believes that all of its Stopping Centers are in compliance with
existing laws and regulations. However, new laws and regulations could require
the Company to incur significant additional costs.
Employees
At December 31, 1997, the Company had a total of 3,691 employees, of which
3,408 were full-time and 283 were part time. At that date, 515 of the Company's
employees were salaried and performed executive, management or administrative
functions and the remaining 3,176 employees were hourly employees. Almost 95%
of the Company's employees worked at the Stopping Centers and most employees at
the Stopping Centers work on an hourly basis.
The Company has never had a work stoppage and none of its employees is
represented by a labor organization. The Company believes that it provides
working conditions, wages and benefits that are competitive with other providers
of the kinds of products and services offered by the Company.
ITEM 2. Properties
The Company's corporate headquarters is located in a three-story building in
El Paso, Texas, which contains approximately 30,000 square feet of space. The
Company leases the entire building from a member of the Cardwell Group. The
Company's lease of the building expires in December 2005 and provides for annual
rental payments of $336,000, plus taxes, maintenance and operating expenses. See
Item 13 "Certain Relationships and Related Transactions."
The Company owns 24 of its 28 Stopping Centers in their entirety, owns all
but four acres of the West Memphis Stopping Center site, owns the facility and
leases the land at the Hammond, Louisiana site and leases both the Effingham,
Illinois and North Baltimore, Ohio Stopping Centers sites in their entirety.
The Company owns a site in Green River, Wyoming which is suitable for the
construction of a new Stopping Center. The Company also has options, which
expire in December 2006, to purchase vacant land owned by the Cardwell Group
that is located adjacent to four existing Stopping Centers: Shreveport,
Louisiana (7 acres subject to option); Weatherford, Texas (34 acres); Beaumont,
Texas (17 acres); and Oklahoma City, Oklahoma (30 acres). See Item 13 "Certain
Relationships and Related Transactions."
The Stopping Center located in Effingham, Illinois is leased from an entity
owned by current and former employees of the Company. The lease expires in May
2006 and provides for adjustable rental payments tied to interest rates (the
"Basic Rent"), which currently are approximately $89,000 per month, plus taxes
and operating expenses. The Company has three consecutive options to renew this
lease for terms of five years each at rental rates equal to the Basic Rent, plus
certain adjustments at the time of renewal and a right of first refusal to
purchase the Stopping Center complex. See Item 13 "Certain Relationships and
Related Transactions."
The land at the Hammond, Louisiana and a small portion (approximately
four acres) of the West Memphis, Arkansas Stopping Centers are subject to ground
leases. The Hammond ground lease expires in September 1998 and provides for
annual rental payments of $109,000, plus taxes. The Company has an option to
renew the ground lease for an additional six years at the current annual rent
increased by the percentage increase in the consumer price index from the
commencement date of the lease to the commencement of the first option, provided
that such increase shall not exceed 10%. The Company has the option, which
expires at the end of the lease term, to purchase the entire 21 acre tract of
land for $4.53 per square foot. If the Company elects to purchase less than all
of the property, the price shall be at a price to be determined according to a
formula specified in the lease. The Company's ground lease at the West Memphis
site expires in April 2005, and the Company has two additional options to renew
the ground lease for 10 years each, with scheduled rent increases every five
years, and a right of first refusal to purchase the land. Under the lease, the
Company makes annual rental payments of approximately $40,000 plus taxes.
The Stopping Center located in North Baltimore, Ohio is leased in its
entirety. The lease expires in August 2001 and provides for annual rental
payments of $560,000, plus taxes. The Company has four renewal options of five
years each with rental adjustment based on the Consumer Price Index. The
Company also has a purchase option on the property which may be exercised at any
time during the lease.
7
<PAGE>
The following table outlines the Company-operated Stopping Centers at
December 31, 1997:
<TABLE>
<CAPTION>
Approximate
-----------------------------------------------
Stopping Total Size of Main
Location Center Acreage at Building
-------- Date Opened Acreage Location (Sq. Ft.)
----------- ------- -------- --------
<S> <C> <C> <C> <C>
Company - operated
El Paso, Texas .................. Apr. 1975 31 51 20,000
Weatherford, Texas .............. Sept. 1977 25 25 21,000
Beaumont, Texas ................. May 1981 20 20 12,300
San Antonio, Texas .............. Sept. 1982 21 21 13,200
Eloy/Casa Grande, Arizona ....... June 1984 23 36 12,300
Corning, California ............. May 1985 18 18 12,300
Amarillo, Texas.................. June 1985 20 32 13,800
Shreveport, Louisiana............ Nov. 1985 18 21 13,800
Hammond, Louisiana (a) .......... Jan. 1986 16 21 12,300
West Memphis, Arkansas (a) ...... Aug. 1986 24 63 13,800
Milan, New Mexico ............... Nov. 1986 23 30 13,800
Knoxville, Tennessee ............ Mar. 1987 25 25 13,800
Kingman, Arizona ................ Dec. 1987 38 67 14,600
Oklahoma City, Oklahoma ......... May 1988 30 30 14,600
Perrysburg/Toledo, Ohio ......... Aug. 1988 33 74 20,000
Kingdom City, Missouri .......... Feb. 1989 25 35 20,500
Bucksville, Alabama ............. Feb. 1990 48 51 14,400
Girard/Youngstown, Ohio ......... May 1990 29 98 20,000
Vinton, Texas.................... Jan. 1991 8 19 4,800
Effingham, Illinois (b) ......... Mar. 1991 30 30 20,000
Kingston Springs, Tennessee ..... Sept. 1991 9 12 6,900
Shorter, Alabama ................ Sept. 1991 9 9 12,700
Atlanta, Georgia................. Mar. 1992 64 69 21,500
Laramie, Wyoming ................ Oct. 1993 35 50 15,500
Ocala, Florida................... Jun. 1995 37 170 20,500
Medford, Oregon ................. Jan. 1995 15 15 11,500
North Baltimore, Oregon (a) ..... Aug. 1997 17 40 29,000
North Little Rock, Arkansas ..... Sept. 1997 17 24 16,000
</TABLE>
- ------------
(a) The North Baltimore, Ohio facility is leased in its entirety, and the
Hammond, Louisiana and four acres of West Memphis, Arkansas units are
subject to ground leases.
(b) As discussed above, the Effingham, Illinois facility is owned by one
present and five former Company employees and leased to the Company.
8
<PAGE>
Franchises
Since 1985, the Company has franchised others to operate Stopping Centers in
particular markets. The following table sets forth information on the Company's
18 franchising arrangements at December 31, 1997.
<TABLE>
<CAPTION>
Date Center Expiration of
Location Opened Franchise (1)
-------- ------ -------------
<S> <C> <C>
Elkton, Maryland Sept. 1985 Mar. 1998
Ft. Chiswell, Virginia Mar. 1986 Mar. 1998
Portage, Wisconsin Sept. 1986 Dec. 2001
Joplin, Missouri Oct. 1987 Mar. 1998
Lake Station, Indiana Oct. 1987 Mar. 1998
Ruther Glen, Virginia Mar. 1988 Mar. 1998
New Paris, Ohio Oct. 1989 Oct. 1999
Florence, South Carolina Feb. 1991 Feb. 2001
Rochelle, Illinois Apr. 1992 Apr. 2002
Fargo, North Dakota Nov. 1994 Nov. 2004
Carnesville, Georgia Jan. 1995 Jan. 2005
Bordentown, New Jersey(2) May 1989 Dec. 2005
York, Nebraska Dec. 1996 Dec. 2006
Scranton, Pennsylvania May 1997 May 2007
Benton Harbor, Michigan July 1989 July 1999
Salina, Kansas Feb. 1990 Feb. 2000
Jerome/Twin Falls, Idaho Dec. 1990 Dec. 2000
Claysville, Pennsylvania Nov. 1997 Nov. 2017
</TABLE>
_________
(1) All franchise agreements 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 expirations. 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. All franchise agreements are in
their initial term including the Elkton, Ft. Chiswell, Joplin and Lake
Station agreements, whose initial terms have been extended from their
initial termination dates of September 1995, March 1996, June 1997 and
October 1997, respectively, until March 1998 by letter agreements. The
Company is currently in the process of attempting to obtain a first renewal
of such agreements.
(2) Bordentown, New Jersey was a licensee from the date of opening to December
1995, at which time it became a franchised location.
One franchisee operates four locations, two operate three locations and
nine operate one location each. All of the franchisees are unaffiliated with
the Company, except Highway Service Ventures Inc., (See Item 13 "Certain
Relationships and Related Transactions"), which operates the Elkton, Maryland,
Ruther Glen, Virginia, Florence, South Carolina and Carnesville, Georgia
locations.
Each existing franchise agreement grants to the franchisee the right and
license to operate a Stopping Center in a specified territory. The franchise
agreements require that the franchisee build, at its own expense, and operate
the Stopping Center in accordance with certain requirements, standards and
specifications prescribed by the Company, including site approval, and that the
franchisee purchase certain products from suppliers approved by the Company.
The Company, in turn, is obligated to provide the franchisee with, among other
things, advisory assistance in the operation of the franchised Stopping Center
and assistance in connection with advertising and promotional programs.
The agreements require the franchisee to pay the Company (subject to certain
exceptions), in addition to certain initial fees and training fees, a monthly
royalty fee and a monthly advertising fee (administered through an advertising
fund for national and regional advertising). During 1997, the
9
<PAGE>
Company's revenues from its franchisees totaled $3,954,000. In addition,
franchisees contributed $306,000 to advertising programs sponsored by the
Company.
While a majority of diesel purchases at Stopping Centers are paid for by
third-party billing companies, a portion of diesel fuel purchases are paid for
through direct billing arrangements with particular trucking companies. As
provided in the franchise agreements, the Company purchases all of the
receivables generated by the franchisees from customers using direct billing
arrangements. These purchases are on a non-recourse basis to the franchisee.
In addition, upon termination or expiration of the franchise agreement in
the event that the franchisee wishes to accept an offer from a third party to
purchase its facility, each franchise agreement grants the Company a right of
first refusal to purchase the facility, at the price offered by the third party.
Similarly, in nine cases, the Company has the right to purchase the franchise
for fair market value, as determined by the parties or an independent appraiser,
upon termination or expiration of the franchise agreement. Each franchise
agreement also contains a three-year covenant by the franchisee not to compete
with the Company at any other location in the area upon termination or
expiration of the franchise agreement.
ITEM 3. Legal Proceedings
The Company is from time to time involved in ordinary routine litigation
incidental to its operations. The Company believes that the litigation
currently pending or threatened against it will not have a material adverse
effect on its consolidated financial condition or results of operations.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
All of the Company's general and limited partnership interests are owned by
the Cardwell Group, Chartwell, Mobil Long Haul and Kirschner. See Note 1 to the
Company's Consolidated Financial Statements included elsewhere herein.
Consequently, there is no established public trading market for the Company's
equity.
ITEM 6. Selected Financial Data
The information set forth below should be read in conjunction with the
consolidated financial statements and notes thereto included at Item 8 herein.
The selected consolidated financial data as of and for the years ended December
31, 1997, December 31, 1996, December 29, 1995, December 30, 1994 and December
31, 1993 have been derived from the audited financial statements of the Company.
The unaudited financial data presented include, in the opinion of management,
all necessary adjustments required for fair presentation of such data. In 1994,
the Company adopted a 52/53 week fiscal year, which ended on the Friday closest
to December 31. Beginning in 1996, the Company adopted a calendar year fiscal
year, which ends on December 31. The acquisition, by the Company, of its
operating properties during the periods reflected in the following selected
financial data materially affect the comparability of such data from one period
to another.
10
<PAGE>
ITEM 6. Selected Financial Data (continued)
<TABLE>
<CAPTION>
Year ended Year ended Year ended Year ended Year ended
December 31, December 30, December 29, December 31, December 31,
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(dollars in thousands)
--------------------
<S> <C> <C> <C> <C> <C>
Net revenues (including motor fuel taxes):
Fuel .................................................. $ 340,044 $ 350,570 $ 385,181 $ 478,312 $ 513,571
Non-Fuel .............................................. 80,740 93,446 100,447 111,410 122,609
Restaurant ............................................ 41,819 43,877 47,387 47,335 49,549
--------- --------- --------- --------- ---------
Total net revenues .................................. 462,603 487,893 533,015 637,057 685,729
--------- --------- --------- --------- ---------
Costs and expenses:
Cost of sales (including motor fuel taxes) ........... 353,761 373,436 411,893 511,431 546,581
Operating expenses .................................... 66,706 64,968 73,052 81,522 85,560
General and administrative ............................ 12,933 11,448 12,053 13,925 17,035
Employee severance, benefit and placement expenses .... -- -- -- 2,534 --
Depreciation and amortization (1) ..................... 7,819 8,851 11,144 12,204 14,502
--------- --------- --------- --------- ---------
Total costs and expenses ............................ 441,219 458,703 508,142 621,616 663,678
--------- --------- --------- --------- ---------
Operating income ........................................ 21,384 29,190 24,873 15,441 22,051
Recapitalization costs .................................. -- -- -- 2,938 --
Interest expense, net ................................... 15,515 18,711 21,098 21,263 20,292
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item and cumulative
effect of a change in accounting principle .......... 5,869 10,479 3,775 (8,760) 1,759
Extraordinary item (2) .................................. -- 5,250 -- -- 12,745
Minority interest ....................................... 52 191 -- -- --
Cumulative effect of a change in accounting principle (7) -- -- -- -- 1,579
--------- --------- --------- --------- ---------
Net income (loss) (3) ................................... $ 5,817 $ 5,038 $ 3,775 $ (8,760) $ (12,565)
========= ========= ========= ========= =========
Other Data:
- ----------
EBITDA, as defined(4)(5) ................................ $ 29,203 $ 38,041 $ 36,017 $ 32,108 $ 36,553
Capital expenditures(6) ................................. 10,665 8,428 19,508 5,523 15,870
Balance Sheet Data:
- ------------------
Total assets ............................................ $ 190,848 $ 206,148 $ 221,699 $ 209,100 $ 239,666
Total debt ............................................. 143,843 161,459 168,392 166,727 183,190
Mandatorily redeemable preferred partnership interests .. -- -- -- -- 21,202
Total partners' capital (deficit) ....................... 3,042 7,968 11,925 3,165 (19,555)
Cash Flow Presentation:
- ----------------------
Cash provided by operating activities ................... $ 14,792 $ 13,084 $ 12,766 $ 14,668 $ 30,328
Cash used in investing activities ....................... (11,045) (18,915) (21,130) (5,337) (15,779)
Cash provided by (used in) financing activities ......... 938 2,441 10,229 (11,837) 7,065
</TABLE>
(1) Includes depreciation and amortization relating to the Company's Stopping
Centers. Amortization of deferred debt issuance costs is classified as
interest expense.
(2) Extraordinary item reflects write-off of debt restructuring costs
associated with retired debt.
(3) No provision for income taxes is reflected in the financial statements as
the Company is a partnership for which taxable income and tax deductions
are passed through to the individual partners.
(4) EBITDA, as defined, represents operating income before deducting
depreciation, amortization and net interest. EBITDA data, which are not a
measure of financial performance under generally accepted accounting
principles, are presented because such data are used by certain investors
to determine a company's ability to meet historical debt service
requirements. Such data should not be considered as an alternative to net
income, as an indicator of the Company's operating performance or as an
alternative to cash flows as a measure of liquidity.
(5) EBITDA, as defined, results for fiscal 1996 excludes certain one-time
charges related to the Recapitalization and the change in management and
operations. Included in the one-time charges were $2.5 million related to
severance and hiring costs; $1.4 million in obsolete inventory reserves,
included in cost of sales; and $.5 million in insurance related costs.
(6) Capital expenditures primarily represent the cost of new Stopping Centers
and renovations of existing Stopping Centers.
(7) Cumulative effect of a change in accounting principle reflects expensing of
costs related to process reengineering activities as required by EITF Issue
No. 97-13 in the fourth quarter of 1997.
11
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain sections of this Form 10-K, including "Business" and "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-K
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,
"Business--Governmental Regulation", "--Liquidity and Capital Resources", "--
Environmental", and "--Recently Issued Accounting Pronouncements." The Company,
in the preparation of its financial statements, also makes various estimates and
assumptions that are forward-looking statements.
General
Recapitalization
As discussed in Item 1. "Business," as part of the Recapitalization, in the
first quarter of 1997, the Company issued $135,000,000 of 10 1/2% Senior Notes
due 2007 and made a tender offer for all of, and repurchased approximately 94%
of, its 12 1/2% Senior Notes due 2002 and 100% of the outstanding debt warrants.
The Company also amended its senior collateralized credit facility in
the first quarter of 1997. The New Credit Agreement consists of a $25,000,000
revolving credit facility (the "Revolving Credit Facility"), a $14,000,000 Term
Loan A, a $30,000,000 million Term Loan B and a $40,000,000 Expansion Facility.
The New Credit Agreement is collateralized by substantially all of the Company's
assets and the partnership interests of Mobil Long Haul and Chartwell and
guaranteed by each of the Company's subsidiaries, whose guarantees in turn are
collateralized by substantially all of such subsidiaries' assets.
As part of the Recapitalization in the first quarter of 1997, the Company
recognized an extraordinary charge of $12,745,000 relating to the amendment of
the Old Credit Agreement, retirement of the Old Notes and Debt Warrants and the
write-off of deferred financing costs.
Ongoing Operations
The following table sets forth the development of the Company's Stopping Center
network since 1993.
<TABLE>
<CAPTION>
Open at the end of
------------------------------------
1993 1994 1995 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Company-operated Stopping Centers............ 24 24 26 26 28
Franchised................................... 12 13 15 16 18
Independently operated....................... 1 1 - - -
---- ---- ---- ---- ----
Total Stopping Centers..................... 37 38 41 42 46
==== ==== ==== ==== ====
</TABLE>
The following table sets forth information on Stopping Centers opened since
January 1, 1993, all but one of which are full-sized facilities.
Location Date Opened
---------------------------------- -----------
Company-operated Stopping Centers:
Laramie, Wyoming October 1993
Medford, Oregon January 1995
Ocala, Florida June 1995
N. Baltimore, Ohio August 1997
N. 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
12
<PAGE>
During 1997, the Company acquired two locations. The new sites acquired
were North Baltimore, Ohio and North Little Rock, Arkansas. The sites acquired
were existing truck stops. The North Baltimore site is leased at $560,000 per
year. The North Little Rock site was purchased for $5,500,000. The Company
opened a stand-alone Petro:Lube in Franklin, Kentucky in August 1996, in
addition to new Petro:Lubes at its San Antonio, Beaumont and Medford locations
in June 1994, January 1995 and April 1996, respectively. At December 31, 1997,
the Company had no new Stopping Centers under construction. The approximate
construction cost of a new Stopping Center (exclusive of land) is between
$7,000,000 and $9,500,000.
The Company operates 28 truck stop facilities selling diesel fuel, 27 of
which also sell gasoline. Of these facilities, 25 are full size facilities.
Full-sized facilities include a Diesel Fuel Island, the Iron Skillet Restaurant,
a Petro:Lube and a Travel Store. In addition, eight of the 25 facilities also
have separate convenience stores. The Company also operates three Petro:2
facilities which are a smaller version of the full size facility with various
fast food offerings. The Company has 18 additional locations which operate
under franchise agreements. On February 19, 1998 and March 19, 1998, the
Company added two franchise locations at Breezewood, Pennsylvania and Milton,
Pennsylvania, respectively. The Company believes it will add additional
franchise locations during 1998.
Historically, the Company's revenues at each of its full-sized Stopping
Centers were recorded through the following divisions: diesel fuel island,
restaurant, Petro:Lube and travel and convenience store. Beginning with the
first quarter of 1997 and in connection with new management, the presentation
format for results of operation has been changed to reflect revenues from fuel,
non-fuel and restaurant. The Company derives its revenues from the sale of
fuels, diesel and gasoline, non-fuel items including the sale of merchandise and
offering of services including truck tire sales and preventative maintenance,
weighing scales, showers, laundry, video games and other operations, and its
restaurant operations which includes Iron Skillet and certain fast-food
operations. The presentation will allow management to focus more closely on the
major sources of revenues of the business. The other operations included in
non-fuel revenue includes franchise royalties, rental revenue from video poker
operations in Louisiana and a motel and RV park in Oregon.
The Company's fuel revenues and cost of sales include federal and state
motor fuel taxes. Such taxes were $150,360,000, $175,873,000 and $192,650,000
for the years ended December 29, 1995, December 31, 1996 and December 31, 1997,
respectively.
Taxes. No provision for income taxes is reflected in the financial
statements as the Company is a partnership for which taxable income and tax
deductions are passed through to the individual partners.
Results of Operations
Year ended December 31, 1997 Compared to Year ended December 31, 1996
Overview. The Company's net revenues increased $48,672,000 or 7.6% to
$685,729,000 for the year ended December 31, 1997. Revenues from comparable
units contributed 80.8% of the increase. A Stopping Center is considered a
"comparable unit" as to a particular period in the current year if it was open
during the same period of the prior year. The increase was due principally to a
10.1% increase in fuel gallons and increases of 10.1% and 4.7% in non-fuel and
restaurant sales, respectively, from the prior year. The increases in revenues
were offset by product costs associated with higher levels of revenue and
higher general and administrative and operating expenses over the prior year.
General and administrative expenses increased 22.3% to approximately $17,035,000
from $13,925,000 for the same period in the prior year. This increase was
principally due to an increase in certain employee expenses, certain transition
costs for new programs, and professional and travel related expenses in the
current year.
Fuel. Revenues increased 7.4% to $513,571,000 in 1997 from $478,312,000
in 1996. Fuel revenues increased due to a 10.1% increase in fuel volumes. On a
comparable unit basis, fuel volumes increased 8.7%. Fuel costs were up in the
first quarter, but declined in the latter quarters. On a per gallon basis,
margins remained relatively flat compared to fuel margins in the prior year.
13
<PAGE>
Non-Fuel. Revenues increased 10.1% to $122,609,000 in 1997 from
$111,410,000 in 1996. On a comparable unit basis, sales increased 8.8%. Gross
margins increased 14.7% to $66,499,000 in 1997 from $57,991,000 in 1996. This
increase was due to improved cost management and lower margins in 1996 due to
establishment of inventory reserves.
Restaurant. Revenues increased 4.7% to $49,549,000 in 1997 from
$47,335,000 in 1996. On a comparable unit basis, revenues increased 2.0%.
Management implemented certain menu changes at its Iron Skillet Restaurants in
the first quarter designed to enhance revenues, which is contributing to the
increased sales. Gross margin in the restaurants improved by approximately 5.5%
in total and approximately 2.9% on a comparable unit basis. The improvement is
due in part to management focus on costs and implementation of menu changes.
Costs and Expenses. Total costs and expenses increased 6.8% to
$663,778,000 in 1997 from $621,616,000 in 1996. On a comparable unit basis,
total costs and expenses increased 5.0% in 1997. Costs of sales increased
$35,150,000 or 6.9% in 1997 from 1996. The increase is due to higher fuel and
product costs for both fuel and non-fuel revenue streams. Operating expenses
increased $4,038,000 or 5% to $85,560,000 in 1997. The increase is primarily
due to employee related expenses. General and administrative expenses increased
22.3% to approximately $17,035,000 from $13,925,000 in the prior year. This
increase was principally due to an increase in certain employee expenses,
certain transition costs for new programs, and professional and travel related
expenses in the current year.
Interest Expense, net. Interest expense decreased $971,000 or 4.6% to
$20,292,000 in 1997 compared to 1996 due to lower interest rates combined with a
reduction in amortization of deferred debt issuance costs and higher interest
income from short term investments. These items were partially offset by a
higher level of debt outstanding.
Extraordinary item. Extraordinary item reflects a charge to earnings of
$12,745,000 for the write-off of debt restructuring costs relating to the
Recapitalization.
Cumulative effect of a change in accounting principle. Cumulative effect
of a change in accounting principle reflects the write-off of $1,579,000 of
costs, previously allowed to be capitalized. These costs are related to process
reengineering activities and, as required by EITF Issue No. 97-13, were written
off during the fourth quarter of 1997.
Year ended December 31, 1996 Compared to Year ended December 29, 1995
Overview. The Company's net revenues increased $104,042,000 or 19.5% to
$637,057,000 for the year ended December 31, 1996. Revenues from comparable
units contributed 90.6% of the increase. A Stopping Center is considered a
"comparable unit" as to a particular period in the current year if it was open
during the same period of the prior year. The increase in 1996 net revenues was
due principally to a 13.3% increase in diesel gallons sold, an 11.2% increase in
fuel sales price per diesel gallon sold and a 21.8% increase in Petro:Lube
sales.
Fuel. Revenues increased 24.2% to $478,312,000 in 1996 from $385,181,000
in 1995. Fuel revenues increased due to a 13.2% increase in fuel volumes
combined with a higher selling price per gallon which increased 9.3%. On a
comparable unit basis, fuel volumes increased 11.6%.
Non-Fuel. Revenues increased 10.9% to $111,410,000 in 1996 from
$100,447,000 in 1995. On a comparable unit basis, revenues increased 8.9%.
Gross margins increased 4.0% to $56,951,000 in 1996 from $54,782,000 in 1995.
Restaurant. Revenues of $47,335,000 were flat compared to 1995.
Revenues from new locations in Ocala and Medford contributed $901,000, while
revenues from comparable units were down a similar amount.
Costs and Expenses. Total costs and expenses increased 22.3% to
$621,616,000 in 1996 from $508,142,000 in 1995. The increase related to higher
cost of sales due to higher fuel costs, costs associated with new locations,
increase in general and administrative expense, increase in depreciation and
14
<PAGE>
amortization and employee severance, benefit and placement expenses. The
increase in cost of sales was attributable in part to adjustments related to
establishment of inventory reserves of approximately $1,400,000. General and
administrative expenses increased $1,872,000 or 15.5% due to increased employee
expense and professional fees associated with the management changes.
Depreciation and amortization increased due to additional 1996 capital
expenditures combined with full year depreciation of the Medford and Ocala
locations. Employee severance, benefit and placement expenses relate primarily
to severance costs of existing management and placement and relocation of new
management as a result of the sale of the partnership interest.
Recapitalization Costs. This represents costs incurred by the Company
in 1996 associated with the sale of the Fremont partnership interest. Costs
include legal and professional fees combined with the investment banking fees
paid with respect to the issuance of debt.
Interest Expense. Interest expense of $21,263,000 in 1996 was flat
compared to 1995, due to lower average level of debt outstanding offset by an
increase in the interest rate.
Liquidity and Capital Resources
Capital expenditures totaled $15,870,000 for 1997 and $5,523,000 for 1996.
Included in the capital expenditures for 1997 were funds spent on the
acquisition of the North Baltimore, Ohio and North Little Rock, Arkansas
locations. Additional expenditures were due to refurbishing certain locations,
fuel automation at certain locations and improving the Company's information
systems. Capital expenditures for 1996 included funds spent on the construction
of the new Petro:Lube facilities in Medford, Oregon and Franklin, Kentucky.
As noted in Item 1. "Business," in connection with the Recapitalization,
the Old Credit Agreement was amended and borrowings thereunder, 94% of existing
Old Notes and approximately 100% of outstanding Debt Warrants, were repaid with
borrowings under the New Credit Agreement, the net proceeds from the sale of the
New Notes, a portion of the proceeds of the Equity Investment and the proceeds
of the Kirschner Investment. The New Credit Agreement provides for a $25,000,000
revolving credit facility (the "Revolving Credit Facility"), a $40,000,000
Expansion Facility, a $14,000,000 Term Loan A and a $30,000,000 Term Loan B.
The Revolving Credit Facility permits the Company to borrow, repay and
reborrow up to $25,000,000 at any time until the fifth anniversary of the date
from the Recapitalization, the proceeds of which may be used for working capital
and other corporate purposes. Up to $5,000,000 of the Revolving Credit Facility
is available for the issuance of standby and documentary letters of credit. The
Expansion Facility permits the Company to borrow, repay and reborrow up to
$40,000,000 for the acquisition and development of new Stopping Centers and
stand-alone Petro:Lubes at any time until the third anniversary from the date of
the Recapitalization.
The term loans made to the Company under the Credit Facility Agreement
require the Company to make quarterly payments of principal. Aggregate yearly
term loan principal payments under the New Credit Agreement are as follows: (i)
$3.0 million in 1998; (ii) $4.5 million in 1999; (iii) $5.5 million in 2000;
(iv) $1.5 million in 2001; (v) $13.5 million in 2002; and (vi) $14.0 million in
2003. Term Loan A is repayable in 18 quarterly installments, the first of which
was made on September 30, 1997. Term Loan B is repayable in 26 quarterly
installments, the first of which was made on September 30, 1997.
Borrowings under the New Credit Agreement are collateralized by
substantially all of the Company's assets and the partnership interests of Mobil
Long Haul and Chartwell and guaranteed by each of the Company's subsidiaries,
which guarantees in turn are collateralized by substantially all of such
subsidiaries' assets. The Indentures for the New Notes and those under the New
Credit Agreement each contain certain covenants. At December 31, 1997 the
Company was in compliance with all debt covenants.
At December 31, 1997, the Company had standby letters of credit issued
for approximately $3,927,000, resulting in an availability of approximately
$21,073,000 on the Revolving Credit Facility. As of December 31, 1997, there
were no borrowings on the Revolving Credit Facility or the Expansion Facility.
15
<PAGE>
The Company had working capital of $3,850,000 at December 31, 1997 and
negative working capital of $13,863,000 at December 31, 1996. Negative working
capital is normal in the truckstop industry; however, due to the
Recapitalization and reclassification of land held for sale, the Company
currently has positive working capital. Diesel fuel inventory turns every two to
three days, which is significantly faster than payment is required. The
truckstop business is an industry that generates a large amount of cash business
with relatively low levels of inventories and receivables as a percentage of
revenues. A substantial majority of the Company's sales are cash (or the
equivalent in the case of credit card sales or sales paid for by check on a
daily basis by third-party billing companies).
Accrual of dividends on mandatorily redeemable preferred partnership
interests amounted to $1,602,000 for the year ended December 31, 1997. The
dividends are only payable in cash if permitted by the Company's then existing
debt instruments. The Indenture governing the New Notes and New Credit
Agreement restrict payment of dividends on mandatorily redeemable preferred
partnership interests.
Insurance. The Company, up to certain limits, pays its own workers'
compensation and general liability claims. During 1997, the Company paid claims
aggregating $1,828,000 and $707,000 relating to workers compensation and general
liability claims, respectively. The Company believes it provides an accrual
adequate to cover both known and incurred but not reported claims.
Acquisitions. In 1997, the Company acquired two existing truck stops,
North Baltimore, Ohio in August and North Little Rock, Arkansas in September.
The North Baltimore, Ohio site is a leased facility and the North Little Rock,
Arkansas facility is owned.
Expansion. In June 1996, the Company opened its first stand-alone
Petro:Lube operation. The construction costs of the stand-alone Petro:Lube was
funded by a combination of borrowing and internally generated funds.
Year 2000. The Company recognizes the need to ensure that its
operations will not be adversely impacted by Year 2000 software failures. The
Year 2000 issue arises because most computer systems and programs were designed
to handle only a two-digit year, not a four-digit year. When the year 2000
begins, these computers may interpret "00" as the year 1900 (e.g., 1997 is seen
as "97") and either stop processing date-related computations or process them
incorrectly. Policies and procedures have been established for evaluating and
managing the risks and costs associated with this issue. The Company is in the
process of communicating with suppliers, dealers, financial institutions and
others with which it does business to identify and determine appropriate action.
Management does not currently anticipate a material effect on customers or
disruption of business operations as a result of year 2000 software failures.
The Company is currently upgrading or replacing many of its information systems,
which will effectively solve internal Year 2000 issues. The total cost of
achieving Year 2000 compliance is estimated to be approximately $6 million,
which includes the cost of software upgrades and replacements the Company is
currently making, and will be incurred through fiscal 1999.
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 expansion and
future acquisitions would be financed from funds generated from operations,
borrowings under the Revolving Credit Facility and the Expansion Facility and
additional financings.
Environmental
Accruals for environmental matters are recorded in operating expenses
when it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated. The measurement of environmental
liabilities is based on an evaluation of currently available facts with respect
to each individual site and considers factors such as existing technology,
presently enacted laws and regulations and prior experience in remediation of
contaminated sites. Such liabilities are exclusive of claims against third
parties and are not discounted.
16
<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 Note 2 to the consolidated financial statements.
At December 31, 1996 and 1997, such accrual amounted to approximately $217,000
and $187,000, respectively, and in management's opinion, was appropriate based
on existing facts and circumstances. Under the most adverse circumstances,
however, this potential liability could be significantly higher. In the event
that future remediation expenditures are in excess of amounts accrued,
management does not anticipate that they will have a material adverse effect on
the consolidated financial position or results of operations of the Company. At
December 31, 1996 and 1997, the Company has recognized approximately $256,000
and $262,000, respectively, in the consolidated balance sheet related to
recoveries of certain remediation costs from third parties.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). Adoption is required for interim and annual periods
beginning after December 15, 1997. SFAS No. 130 requires that comprehensive
income and its components, as defined in the Statement, be reported in a
company's financial statements. Management does not believe that the adoption
of this statement will have a significant impact on the Company.
Also in June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131"). Adoption is
required for financial statements for periods beginning after December 15, 1997,
although it need not be applied to interim financial statements in its initial
year of application. SFAS No. 131 requires disclosure of certain segment
financial information, explanations of segment measurements, reconciliations to
consolidated amounts, and information about products and services and major
customers on an enterprise-wide basis. Management does not believe that the
adoption of this statement will have a significant impact on the Company's
financial statements or related disclosures.
In February 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-1 "Accounting for the Cost of
Computer Software Developed or Obtained for Internal-Use" ("SOP 98-1").
Adoption is required for fiscal years beginning after December 15, 1998.
SOP 98-1 provides guidance on accounting for the costs of computer software
developed or obtained for internal-use and identifies the characteristics of
internal-use software. Management does not believe the adoption will be material
to its financial statements or results of operations.
17
<PAGE>
Item 8. Financial Statements and Supplementary Data
PETRO STOPPING CENTERS, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,182 24,796
Trade accounts receivable, net of allowance for uncollectible accounts
of $321 in 1996 and $330 in 1997 10,401 12,548
Inventories, net 15,195 16,362
Other current assets 1,404 2,551
Due from affiliates 2,091 980
Land held for sale - 4,442
-------- -------
Total current assets 32,273 61,679
Property and equipment, net 159,539 153,363
Deferred debt issuance costs and Company organization costs, net of
accumulated amortization of $6,728 in 1996 and $5,489 in 1997 11,305 16,353
Other assets 5,983 8,271
-------- -------
Total assets $209,100 239,666
======== =======
Liabilities and Partners' Capital (Deficit)
Current liabilities:
Current portion of long-term debt $ 6,928 3,000
Trade accounts payable 15,723 9,350
Accrued expenses and other liabilities 21,160 26,491
Due to affiliates 2,325 18,988
-------- -------
Total current liabilities 46,136 57,829
Notes payable 21,639 -
Long-term debt, excluding current portion 138,160 180,190
-------- -------
Total liabilities 205,935 238,019
-------- -------
Commitments and contingencies
Mandatorily redeemable preferred partnership interests - 21,202
Partners' capital (deficit):
General partners (8,477) (8,848)
Limited partners 11,642 (10,707)
-------- -------
Total partners' capital (deficit) 3,165 (19,555)
-------- -------
Total liabilities and partners' capital (deficit) $209,100 239,666
======== =======
</TABLE>
See accompanying notes to consolidated financial statements
18
<PAGE>
PETRO STOPPING CENTERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 29, December 31, December 31,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net revenues (including motor fuel taxes):
Fuel $385,181 478,312 513,571
Non-fuel 100,447 111,410 122,609
Restaurant 47,387 47,335 49,549
-------- ------- -------
Total net revenues 533,015 637,057 685,729
Costs and expenses:
Cost of sales (including motor fuel taxes) 411,893 511,431 546,581
Operating expenses 73,052 81,522 85,560
General and administrative 12,053 13,925 17,035
Employee severance, benefit and placement expenses - 2,534 -
Depreciation and amortization 11,144 12,204 14,502
-------- ------- -------
Total costs and expenses 508,142 621,616 663,678
-------- ------- -------
Operating income 24,873 15,441 22,051
Recapitalization costs - 2,938 -
Interest expense, net 21,098 21,263 20,292
-------- ------- -------
Income (loss) before extraordinary item and cumulative
effect of a change in accounting principle 3,775 (8,760) 1,759
Extraordinary item - write off of debt
restructuring costs associated with retired debt - - 12,745
Cumulative effect of a change in accounting principle - - 1,579
-------- ------- -------
Net income (loss) $ 3,775 (8,760) (12,565)
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
19
<PAGE>
PETRO STOPPING CENTERS, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL(DEFICIT)
Years ended December 29, 1995, December 31, 1996 and 1997
(in thousands)
<TABLE>
<CAPTION>
General Limited Total
Partners' Partners' Partners'
Capital Capital Capital
(Deficit) (Deficit) (Deficit)
--------- --------- ---------
<S> <C> <C> <C>
Balances, December 30, 1994 $(8,240) 16,208 7,968
Conversion of minority interest 506 - 506
Distributions (15) (309) (324)
Net income 545 3,230 3,775
------- ------- -------
Balances, December 29, 1995 (7,204) 19,129 11,925
Net loss (1,273) (7,487) (8,760)
------- ------- -------
Balances, December 31, 1996 (8,477) 11,642 3,165
------- ------- -------
Capital contributions - 11,047 11,047
Assignment of mandatorily redeemable preferred
partnership interests - (19,600) (19,600)
Accrual of preferred return on mandatorily
redeemable preferred partnership interests - (1,602) (1,602)
Net loss (371) (12,194) (12,565)
------- ------- -------
Balances, December 31, 1997 $(8,848) (10,707) (19,555)
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
20
<PAGE>
PETRO STOPPING CENTERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 29, December 31, December 31,
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net income (loss) $ 3,775 (8,760) (12,565)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 11,144 12,204 14,502
Extraordinary item-write off of debt
restructuring costs associated with retired debt - - 12,745
Cumulative effect of a change in accounting principle - - 1,579
Deferred debt issuance cost amortization 1,056 1,485 1,749
Accretion of original issue discount 845 978 47
Provision for losses on accounts receivable 297 215 271
Increase (decrease) from changes in:
Accounts receivable (2,361) 852 (2,418)
Inventories (1,838) 1,124 (1,167)
Other current assets (118) 324 (1,147)
Due from affiliates (545) (571) 1,111
Due to affiliates 436 297 16,663
Trade accounts payable 270 1,535 (6,373)
Accrued expenses and other liabilities (195) 4,985 5,331
-------- ------- --------
Net cash provided by operating activities 12,766 14,668 30,328
-------- ------- --------
Cash flows provided by (used in) investing activities:
Purchase of property and equipment (19,508) (5,523) (15,870)
Proceeds from sale of property - - 3,102
(Increase) decrease in other assets, net (1,622) 186 (3,011)
-------- ------- --------
Net cash used in investing activities (21,130) (5,337) (15,779)
-------- ------- --------
Cash flows provided by (used in) financing activities:
Repayments of notes payable (59,422) (25,000) (23,639)
Proceeds from notes payable 69,000 26,061 2,000
Repayments of long-term debt (3,491) (3,704) (152,800)
Proceeds from issuance of long-term debt - - 185,190
Distributions to partners (324) - -
Capital contributions - - 11,047
Payment of debt issuance costs (190) (203) (14,733)
Increase (decrease) in cash overdrafts 4,656 (8,991) -
-------- ------- --------
Net cash provided by (used in) financing activities 10,229 (11,837) 7,065
-------- ------- --------
Net increase (decrease) in cash and cash equivalents 1,865 (2,506) 21,614
Cash and cash equivalents, beginning of period 3,823 5,688 3,182
-------- ------- --------
Cash and cash equivalents, end of period $ 5,688 3,182 24,796
======== ======= ========
- --------------------------------------------------------------------------------------------------------------
Supplemental cash flow information--
Interest paid during the period, net of capitalized interest of
$515, $80 and $0 in 1995, 1996 and 1997 $ 19,785 18,364 14,028
Non-cash transactions-
Minority interest converted to partners' capital 506 - -
Preferred return on mandatorily redeemable
preferred partnership interests - - 1,602
</TABLE>
See accompanying notes to consolidated financial statements
21
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(1) Company Formation and Description of Business
Company Formation
Petro Stopping Centers, L.P. (the "Company"), a Delaware limited
partnership, was formed effective April 30, 1992 for the ownership, operation,
management and development of the Petro Stopping Centers network. The partners
are as follows:
General Partners
Petro, Inc.
Petro Holding GP Corp., an entity owned by Chartwell Investments, Inc.
Limited Partners
Various individuals and entities affiliated with the Cardwell Group
Mobil Long Haul, Inc., an entity owned by Mobil Oil Corporation
Petro Holdings LP Corp. an entity owned by Chartwell Investments, Inc.
Petro, Inc. and the various individuals and entities affiliated with
Petro, Inc. are collectively referred to herein as the "Cardwell Group".
Petro Holdings GP Corp. and Petro Holdings LP Corp. are collectively referred to
herein as "Chartwell".
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 (the "Equity Investment"), 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 ("Kirschner"), a Company franchisee, invested $1,000,000 in the
Company (the "Kirschner Investment"). Following the Equity Investment and the
Kirschner Investment, the common partnership interests of the Company are owned
by Chartwell (approximately 50.6%), 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 unsecured notes due 2007, (the "New Notes") and repurchased
approximately 94% of the Existing 12 1/2% Senior Notes due 2002 and
approximately 100% of 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"). The New
Credit Agreement consists of a $25,000,000 revolving credit facility (the
"Revolving Credit Facility"), a $14,000,000 Term Loan A, a $30,000,000 Term Loan
B and a $40,000,000 Expansion Facility (the "Expansion Facility").
Description of Business
The Company operates large, multi-service truck stops in the United
States. The Company's facilities, which are known as "Petro Stopping Centers"
(the "Stopping Centers"), are located along interstate highways and typically
offer diesel fuel, gasoline, home-style restaurants, truck preventative
maintenance centers, travel and convenience stores and a range of other
products, services and amenities to commercial truck drivers, as well as other
highway motorists and local residents. At December 31, 1997, the Company's
network consisted of 46 Stopping Centers located in 29 states, of which 28 were
operated by the Company and 18 were franchised.
22
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements of the Company include
the consolidated balance sheets, statements of operations, changes in partners'
capital and cash flows of Petro Stopping Centers, L.P. and its wholly-owned
subsidiaries, Petro Financial Corporation and Petro Distributing, Inc.. All
significant intercompany balances have been eliminated in consolidation.
Beginning in 1994, the Company adopted a 52/53 week fiscal year, which
ended on the Friday closest to December 31. The Company converted back to a
calendar fiscal year, ending on December 31, at the beginning of 1996.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable. Accounts receivable are primarily due from national and regional
commercial trucking companies, and include accounts receivable purchased at a
discount from the Company's franchisees. The receivables are not
collateralized, however the risk is limited due to the large number of entities
comprising the Company's customer base and their dispersion across geographic
regions. At December 31, 1997, the Company had no significant concentrations of
credit risk.
Cash and Cash Equivalents
The Company considers as cash equivalents all highly liquid investments
with an original maturity of three months or less.
Allowance for Uncollectible Accounts
Accounts receivable are reviewed on a regular basis and the allowance for
uncollectible accounts is established to reserve for specific accounts believed
to be uncollectible. In addition, the allowance provides a reserve for the
remaining accounts not specifically identified.
Inventories
Inventories are stated at the lower of cost or market as determined by the
first-in, first-out method.
Land Held for Sale
In the fourth quarter of 1997, the Company's management committed to a plan
to dispose of certain real estate holdings. Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" requires that long-lived assets held for
sale be reported at the lower of carrying amount or fair value less cost to
sell. At December 31, 1997 the Company reported land held for sale at its net
book value of $8,102,000. The land held for sale consists of several parcels of
undeveloped land, $4,442,000 of which management believes will be sold and
converted to cash during 1998. The remainder of $3,660,000, which management
believes will be sold in the subsequent year, is included in other assets in the
accompanying consolidated balance sheet. These amounts were previously reported
in property and equipment in the Company's consolidated balance sheet.
Property and Equipment
Property and equipment are recorded at historical cost. Depreciation and
amortization are generally provided using the straight-line method over the
estimated useful lives of the respective assets. Repairs and maintenance are
charged to expense as incurred, and amounted to $2,893,000, $2,785,000 and
$3,486,000 for the years ended December 29, 1995, December 31, 1996 and December
31, 1997, respectively. Renewals and betterments are capitalized. Gains or
losses on disposal of property and equipment are credited or charged to income.
23
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies (continued)
Facilities under development are recorded at cost, and include capitalized
interest costs associated with the development of a project. These costs are
classified as facilities under development until the project is completed, at
which time the costs are transferred to the appropriate property and equipment
accounts.
Organization Costs
Costs incurred in connection with the formation of the Company, which
primarily include legal expenses, private placement fees and other due diligence
expenditures, are being amortized using the straight-line method over a ten-year
period.
Debt Issuance Costs
Costs incurred in obtaining long-term financing are amortized over the
life of the related debt using a method that approximates the interest method.
Self Insurance
The Company is self-insured for general liability, workers' compensation,
and group health benefit claims, up to stop-loss amounts ranging from $75,000 to
$250,000 on a per-occurrence basis. Provisions for these self-insurance
programs are made for both estimated losses on known claims and claims incurred
but not reported, based on claims history.
Advertising and Promotion
Costs incurred in connection with advertising and promotion are expensed
as incurred, net of reimbursements from franchisees. Net advertising and
promotion expenses of $1,688,000, $2,156,000 and $2,479,000 were incurred for
the years ended December 29, 1995, December 31, 1996 and December 31, 1997,
respectively, and are included in operating expenses in the accompanying
consolidated statements of operations. Advertising and promotion
reimbursements from franchisees totaled $306,000, $292,000 and $334,000 for the
years ended December 29, 1995, December 31, 1996 and December 31, 1997.
Motor Fuel Taxes
Certain motor fuel taxes are collected from consumers and remitted to
governmental agencies by the Company. Such taxes were $150,360,000,
$175,873,000 and $192,650,000 for the years ended December 29, 1995, December
31, 1996 and December 31, 1997, respectively, and are included in net revenues
and cost of sales in the accompanying consolidated statements of operations.
Environmental Liabilities and Expenditures
Accruals for environmental matters are recorded in operating expenses when
it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated. The measurement of environmental
liabilities is based on an evaluation of currently available facts with respect
to each individual site and considers factors such as existing technology,
presently enacted laws and regulations and prior experience in remediation of
contaminated sites. Such liabilities are exclusive of claims against third
parties and are not discounted.
Franchise Revenues
The Company recognizes net revenue from individual franchises and initial
training fees when substantially all significant services to be provided by the
Company have been performed. Continuing franchise fees, which are based
generally upon a percentage of the franchisees' sales, are recognized monthly as
earned. Fees earned from franchises aggregated $2,926,000, $3,397,000 and
$3,858,000 during the years ended December 29, 1995, December 31, 1996 and
December 31, 1997, respectively.
Financial Instruments with Off-Balance Sheet Risk
The Company occasionally utilizes futures and options contracts with the
objective of minimizing fuel cost risk due to market fluctuations. Gains and
losses resulting from changes in the market value of these contracts are
recognized when the related inventory is sold. The Company also may
occasionally enter into futures and options contracts that are not specific
hedges and gains or losses resulting from changes in market value of these types
of futures contracts are recognized in income currently. At December 31, 1997
the Company was not a party to any futures or options contracts. Interest rate
swap agreements are utilized from time to time to manage interest rate
exposures. The amount to be paid or
24
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies (continued)
received on these agreements is accrued as interest rates change and is
recognized over the lives of the respective agreements.
Income Taxes
The Company is not subject to federal or state income taxes. Results of
operations are allocated to the partners in accordance with the provisions of
the Company's Partnership Agreement and reported by each partner on their
respective federal and state income tax returns. The taxable income or loss
allocated to the partners in any one year generally varies substantially from
income or loss for financial reporting purposes due to differences between the
periods in which such items are reported for financial reporting and income tax
purposes.
Development Costs/Preopening Costs
The Company incurs costs associated with the development and opening of
new sites which are separately identifiable and incremental to normal operating
expenses. The costs are capitalized as incurred and are amortized over a 12
month period following the opening of the location.
Change in Accounting Policies
In the fourth quarter of 1997 the Financial Accounting Standards Board
issued, and the Company adopted, Emerging Issues Task Force Issue No. 97-13,
"Accounting for Costs Incurred in Connection with a Consulting Contract that
Combines Business Process Reengineering and Information Technology
Transformation" ("EITF 97-13"). EITF 97-13 required the immediate write off,
during the Company's fourth quarter, of cumulative costs related to process
reengineering activities that were previously allowed to be capitalized.
Prospective costs of a similar nature are also required to be expensed as
incurred. The adoption of EITF 97-13 resulted in a charge to income of
$1,579,000 and is presented as a cumulative effect of a change in accounting
principle, as required.
Reclassifications
Certain prior year amounts have been reclassified to conform to current
year presentation.
(3) Inventories
The following is a summary of inventories at December 31, 1996 and
December 31, 1997:
1996 1997
--------- -------
(in thousands)
Motor fuels and lubricants $ 5,074 5,207
Tires and tubes 2,993 3,387
Merchandise and accessories 7,531 7,476
Restaurant and other 726 1,420
Less reserve for obsolescence (1,129) (1,128)
------- ------
Inventories, net $15,195 16,362
======= ======
25
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(4) Property and Equipment
Property and equipment is summarized at December 31, 1996 and December
31, 1997 as follows:
<TABLE>
<CAPTION>
Estimated
Useful
Lives
(years) 1996 1997
------- ---- ----
(in thousands)
<S> <C> <C> <C>
Land - $ 34,970 26,526
Buildings and improvements 30 94,244 99,361
Furniture and equipment 3-10 40,396 48,350
Leasehold improvements 7-30 20,238 20,234
Facilities under development - 141 148
-------- -------
189,989 194,619
Less accumulated depreciation and amortization (30,450) (41,256)
-------- -------
Property and equipment, net $159,539 153,363
======== =======
</TABLE>
Facilities under development includes costs associated with new facilities
and major renovations of existing facilities. There were no future construction
commitments at December 31, 1997.
(5) Operating Leases
The Company is party to various operating leases. The operating leases are
for the leases on two Stopping Center locations, an office building, truck
leases and various equipment leases. The leases contain renewal options varying
from automatic annual renewals to multiple five-year options.
A summary of future minimum rental payments on operating leases which have
initial or remaining noncancellable lease terms in excess of one year as of
December 31, 1997, follows:
<TABLE>
<CAPTION>
Related Third
Fiscal Year ending Party Party Total
- ------------------ ----- ----- -----
<S> <C> <C> <C>
(in thousands)
1998 $ 1,494 821 2,315
1999 1,422 601 2,023
2000 1,422 560 1,982
2001 1,422 560 1,982
2002 1,422 - 1,422
Later years 3,241 - 3,241
------- ----- ------
Total minimum lease payments $10,423 2,542 12,965
======= ===== ======
</TABLE>
Rent expense under all operating leases was $2,004,000, $2,201,000 and
$2,034,000 for the years ended December 29, 1995, December 31, 1996 and December
31, 1997, respectively. Of these rentals, $1,488,000, $1,487,000 and $1,481,000
were paid to related parties for the respective years ended 1995, 1996 and 1997.
(6) Notes Payable
Notes payable at December 31, 1996 consisted of a five-year revolving
credit facility under which up to $35,000,000 was available. The balance
outstanding on the credit facility was $21,639,000 as of December 31, 1996 and
was paid-off as part of the Recapitalization in January 1997 and a new credit
facility established.
At December 31, 1997 the Company has available a $25,000,000 five year
revolving credit facility (the "Credit Facility") which may be used for working
capital and other corporate uses. The Credit Facility matures in January 2002
and interest on drawn funds is paid monthly at 1.5% above the bank's base rate
or 2.75% over the Eurodollar rate (the rate is determined at time of borrowing
at the Company's option). Fees of 2.75% on drawn funds and commitment fees of
one-half of one percent ( 1/2%) on undrawn
26
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(6) Notes Payable (continued)
funds are paid quarterly. At December 31, 1997, the Company did not have a
balance outstanding on the Credit Facility.
The Company did have standby letters of credit outstanding under the
respective revolving credit facilities at December 31, 1996 and 1997. For both
years, the standby letters of credit principally related to unfunded insurance
claims in the amount of $3,150,000 and various other standby letters of credit
in the amount of $500,000 and $777,000 at December 31, 1996 and 1997,
respectively.
Also as part of the Recapitalization, the Company has available a
$40,000,000 three year Expansion Facility which may be used to fund the
acquisition and development of new Stopping Centers and stand-alone Petro:Lubes.
The Expansion Facility matures in January 2000 and interest on drawn funds is
paid monthly at 1.5% above the bank's base rate or 2.75% over the Eurodollar
rate (the rate is determined at time of borrowing at the Company's option).
Fees of 2.75% on drawn funds and commitment fees of one-half of one percent (
1/2%) on undrawn funds are paid quarterly. At December 31, 1997, the Company did
not have a balance outstanding on the Expansion Facility.
Any funds drawn on both the Credit Facility or Expansion Facility are secured by
substantially all of the Company's assets and the partnership interests of Mobil
Long Haul and Chartwell and guaranteed by each of the Company's subsidiaries,
whose guarantees in turn are collateralized by substantially all of such
subsidiaries' assets.
27
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(7) Long-Term Debt
Long-term debt at December 31, 1996 and December 31, 1997 is presented
below.
<TABLE>
<CAPTION>
1996 1997
-------- -------
(in thousands)
-----------------
<S> <C> <C>
Five-year term note to a bank in an original amount of $25,000,000 maturing
June 30, 1999. The note was payable in 16 consecutive quarterly installments
commencing June 30, 1995. Interest at either the bank's prime rate plus 1.5%
or the Eurodollar rate plus 2.75% is payable monthly. The rate was 8.68% at
December 31, 1996. The note was refinanced January 30, 1997. $ 19,794 -
Four-year term note to a bank in an original amount of $20,000,000 maturing
September 30, 2001. The note is payable in 18 consecutive quarterly installments
varying from $625,000 to $3,500,000 commencing September 30, 1997. In accordance
with the debt agreements entered into as part of the Recapitalization, proceeds not
used to retire the 12 1/2% Senior Notes were to be used to paydown this term note.
Accordingly, the Company retired approximately $6,000,000 of this note in addition
to the quarterly installments due during 1997. Interest at either the bank's prime
rate plus 1.5% or the Eurodollar rate plus 2.75% is payable monthly. The rate was
8.4375% at December 31, 1997. The note is collateralized by substantially all of
the Company's assets. - 12,500
Seven-year term note to a bank in an original amount of $25,000,000 maturing June
30, 2001. The note was payable in 24 consecutive quarterly installments commencing
June 30, 1995. Interest at either the bank's prime rate plus 2% or the Eurodollar
rate plus 3.25% was payable monthly. The effective rate was 9.1172% at December
31, 1996 as a result of an interest swap agreement (the "Swap") with the lender as
required under the loan agreement. The Swap was to expire on June 30, 1999. The
notes were refinanced and the swap extinguished January 30, 1997. 23,010 -
Six-year term note to a bank in an original amount of $30,000,000 maturing September
30, 2003. The note is payable in 26 consecutive quarterly installments varying from
$125,000 to $3,500,000 commencing September 30, 1997 which aggregated $500,000
during 1997. Interest at either the bank's prime rate plus 2% or the Eurodollar
rate plus 3.25% is payable monthly. The effective rate was 8.9688% at December 31,
1997 as a result of an interest swap agreement (the "Swap") with the lender as
required under the loan agreement. The Swap expires on February 12, 2000. The
note is collateralized by substantially all of the Company's assets. - 29,500
12 1/2% Senior Notes due 2002 (the "Notes") in an original aggregate principal
amount of $100,000,000, net of original issue discount. As part of the
Recapitalization, approximately 94% of the Notes were retired during 1997.
Interest on the Notes is payable on June 1 and December 1 of each year beginning
December 1, 1994. 97,173 6,190
10 1/2% Senior Notes due 2007 (the "New Notes") in an original aggregate principal
amount of $135,000,000. Interest on the New Notes is payable on February 1 and
August 1 of each year, beginning August 1, 1997. The New Notes will be effectively
subordinated to the loans outstanding under the New Credit Agreement to the extent
of the value of the assets securing such loans. - 135,000
100,000 Exchangeable Debt Warrants (the "Warrants"), net of original issue
discount. As part of the Recapitalization, substantially all of the Warrants were
repurchased by the Company during 1997. 5,111 -
-------- -------
Total long-term debt 145,088 183,190
Less current portion 6,928 3,000
-------- -------
Long-term debt, excluding current portion $138,160 180,190
======== =======
</TABLE>
28
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(7) Long-Term Debt (continued)
The Indentures for the Long-Term Debt and the Credit Facility agreement
each contain certain covenants, including without limitation, covenants with
respect to the following matters: (i) limitation on indebtedness; (ii)
limitation on restricted payments; (iii) limitation on sales of restricted
subsidiary stock; (iv) limitation on transactions with affiliates; (v)
limitation on liens; (vi) limitation on disposition of proceeds of asset sales;
(vii) limitation on distributions and other payment restrictions affecting
restricted subsidiaries; (viii) restrictions on mergers and certain transfers
of assets and (ix) in the case of the Credit Facility financial covenants
covering leverage, cash flows, capital expenditures, EBITDA(as defined)/interest
coverage, and minimum net worth. At December 31, 1996 and 1997 the Company was
in compliance with all debt covenants.
Estimated principal payment requirements on long-term debt are as follows:
<TABLE>
<CAPTION>
Fiscal Year ending (in thousands)
--------------
<S> <C>
1998 $ 3,000
1999 4,500
2000 5,500
2001 1,500
2002 19,690
Thereafter 149,000
--------
Total $183,190
========
</TABLE>
(8) Accrued Expenses and Other Liabilities
The following is a summary of accrued expenses and other liabilities at
December 31, 1996 and December 31, 1997:
<TABLE>
<CAPTION>
1996 1997
------- ------------
(in thousands)
--------------
<S> <C> <C>
Accrued expenses:
Employee related expenses $ 7,748 10,071
Taxes payable-sales, fuel and property 5,088 2,935
Other 4,497 8,424
Due to franchisees 3,827 5,061
------- ------
Total $21,160 26,491
======= ======
</TABLE>
(9) Related Party Transactions
Amounts due to and from affiliates as of December 31, 1996 and December 31,
1997 consist of the following:
<TABLE>
<CAPTION>
1996 1997
------- ------
(in thousands)
---------------
Due from affiliates:
<S> <C> <C>
C&R Distributing, Inc. $1,370 105
Petro Truckstops, Inc. 336 196
Highway Service Ventures, Inc. 35 114
Cardwell Properties, Inc. - 412
Other 350 153
------ ------
Total $2,091 980
====== ======
Due to affiliates:
El Paso Amusement Company $ 194 221
Highway Service Ventures, Inc. 1,524 1,471
C&R Distributing, Inc. 213 167
Mobil Diesel Supply Corp. - 13,792
Mobil Oil Corp. - 3,337
Other 394 -
------ ------
Total $2,325 18,988
====== ======
</TABLE>
29
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(9) Related Party Transactions (continued)
In connection with the Recapitalization, the Company has entered into 10-
year supply agreements (the "Supply Agreement") with Mobil Oil Corp. ("Mobil")
under which Mobil will supply the Company operated Stopping Centers' diesel fuel
requirements as well as a portion of their lubricant and gasoline requirements.
The diesel fuel sold at all Company-operated Stopping Centers is branded Mobil
Diesel, and the Company operated Petro:Lubes feature Mobil Delvac lubricants.
Under the diesel fuel and gasoline Supply Agreement, the Company has agreed to
purchase from Mobil specified distribution terminals a minimum number of gallons
of diesel fuel and gasoline on a monthly basis and on an annual basis, subject
to product availability and reductions by Mobil under certain described
circumstances and subject to existing gasoline supply contractual obligations.
As a result of the Supply Agreement and in order to comply with the laws
governing the branding of diesel fuel, Mobil Diesel Supply Corp. ("MDS"), a
wholly owned subsidiary of Mobil was formed. MDS purchases diesel fuel from
third party suppliers and then sells it back to the Company at cost, given that
Mobil cannot supply 100% of the Company's diesel fuel demand because of product
availability and restrictions on the amount of diesel fuel the Company is
allowed to purchase from Mobil. The transactions with MDS are done in order to
meet the Company's diesel fuel demand and comply with branding laws, which
require Mobil to take possession of the fuel first, before it can be branded
Mobil Diesel.
The Supply Agreement allows the Company to continue to negotiate for the
purchase of diesel fuel with third-party suppliers approved by MDS. If the
Company is able to obtain a lower diesel fuel price from a third-party supplier
in a particular market area, the Company may request that Mobil meet such lower
price or allow a portion of the Company's diesel fuel requirements to be
supplied from such MDS approved third-party supplier, in which case MDS would
purchase the diesel fuel from the supplier and resell the product to the
Company. Any change in supply source, however, does not affect the Company's
requirement to purchase the annual minimum number of gallons from Mobil
specified distribution terminals fixed by the Supply Agreement. The Supply
Agreement also places a monthly limit on the maximum number of gallons of diesel
fuel and gasoline that the Company may lift from Mobil specified distribution
terminals.
The Company purchased approximately 40% and 27% of diesel fuel from MDS
and Mobil, respectively during 1997. Management does not believe this
concentration in fuel supply provides any significant additional risks, as the
Supply Agreement with Mobil allows the Company to continue to negotiate with
third-party suppliers in order to obtain market prices for fuel.
The Company entered into an agreement with Chartwell Investments,
providing for the payment of fees and reimbursement of certain expenses to
Chartwell Investments for acting as financial advisor with respect to the
Recapitalization, including soliciting, structuring and arranging the financing
of the Recapitalization. The fees, totaling approximately $3,000,000, equal to
1% of the total capitalization of the Company plus 1/2 of 1% of the Expansion
Facility and the reimbursement of certain expenses, were paid at the closing.
Fuel sales aggregating $4,022,000, $4,567,000 and $3,315,000 for the years
ended December 29, 1995, December 31, 1996 and December 31, 1997, respectively,
were made to C&R Distributing, Inc. ("C&R") at the Company's cost. C&R sales of
fuel and lubricants and truck hauling fees, aggregating $7,857,000, $11,432,000
and $5,079,000 for the years ended December 29, 1995, December 31, 1996 and
December 31, 1997, respectively, were charged to the Company.
Since June 1993, the two Stopping Centers located in Louisiana have
featured video poker games housed in a separate on-site facility and operated by
a third party, Petro Truckstops, Inc., an affiliate who, under terms of a
contract, turns over a specified portion of the revenue generated from the
machines. Petro Truckstops, Inc. pays 95% of revenue collected to the Company
and retains 5% for operating expenses in accordance with a lease agreement.
Payments to the Company under this arrangement aggregated $2,383,000 during
1995, $1,979,000 during 1996 and $2,103,000 during 1997. During 1996, Louisiana
enacted a statute requiring the cessation of video poker operations unless the
parish in which the operations were conducted voted to allow the continued
operation of video poker machines. On November 5, 1996, the parish in which the
Shreveport unit is located voted to continue to allow video poker operations,
while the parish in which the Hammond unit is located voted to disallow video
poker operations. The phase out
30
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(9) Related Party Transactions (continued)
period for the Hammond location is through June 1999. During the year ended
December 31, 1997, the Hammond location generated approximately $1,025,000 of
revenue from video poker.
Management fees of $250,000 were earned by the Fremont Group for each of
the years ended December 29, 1995, December 31, 1996. During 1997 management
fees of $600,000 and $300,000 were earned by Chartwell and Mobil Oil,
respectively, in accordance with terms of the Company's Partnership Agreement.
Each of the affiliates, with exception of Mobil Diesel Supply Corporation
and Mobil Oil Corporation , is owned or controlled to some degree by a member or
members of the Cardwell Group. Related party transactions, other than those
specifically discussed above, generally arise in the ordinary course of business
as a result of the Company's purchase of trade accounts receivable or receipt of
franchisee fees from certain related parties who own properties which are part
of the Company's network. All significant related party transactions have been
appropriately reflected in these footnotes and accompanying consolidated
financial statements.
In order to comply with applicable Internal Revenue Code and Treasury
Regulation provisions dealing with recourse debt, certain Cardwell entities and
Arcadian Management Corporation each entered into an indemnity agreement under
which each has agreed to indemnify the Company, the general partners and certain
limited partners in the event that the indemnified party is required to pay
certain of the Company's indebtedness after a default, acceleration by the
creditor and exhaustion of any collateral securing the credit facility. In May
1994, certain Cardwell entities and Arcadian Management Corporation amended
their original indemnity agreements in connection with the May 1994 financing.
No payments have been made under these agreements.
(10) Partners' Capital
Ownership
As discussed in Note 1, effective January 30, 1997, the Company
consummated a transaction under which Chartwell and Mobil Long Haul invested to
directly acquire the partnership interests of the Company and invest in the
Company. The Cardwell Group maintained its capital investment in the Company.
Kirschner Investments, a Company franchisee, also invested in the Company.
Immediately following the transaction, 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.
Under the Company's Partnership Agreement ("the Agreement"), the general
partners delegated management authority to a committee of the partners
representatives ("the Board" or "Board of Directors"). Both the Cardwell Group
and Mobil Long Haul have the right to appoint two persons each to the Board and
Chartwell may appoint four persons. Additionally, each of these partners
(subject to maintaining certain ownership percentages, as detailed in the
Agreement) also has the right to veto most actions by the Board.
Mandatorily Redeemable Preferred Partnership Interests
The mandatorily redeemable preferred partnership interests are entitled to
cumulative preferred returns of 9.5% for preferred interests owned by Mobil Long
Haul and 8.0% for preferred interests owned by the Cardwell Group, and are
subject to mandatory redemption 270 days after the tenth anniversary of the date
of closing of the Recapitalization, which is subsequent to the maturity date of
the New Notes.
The preferred returns on the mandatorily redeemable preferred partnership
interest accrue, but are only payable in cash if permitted by the Company's then
existing debt instruments. The Indenture governing the New Notes and the New
Credit Agreement restrict the payment of dividends on mandatorily redeemable
preferred partnership interests.
31
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(10) Partners' Capital (continued)
At December 31, 1997, the Company had accrued preferred returns on the
mandatorily redeemable preferred partnership interests amounting to $1,602,000,
with a corresponding increase in partners' deficit.
Distributions
Under the terms of the Agreement, the Company is required to distribute to
the partners, on a pro rata basis in accordance with ownership percentage
interests, an amount calculated based upon allocated taxable income using
certain state and federal tax rates ("Minimum Tax Distribution"). The payments
are to be made on or before the estimated tax payment dates, which are April 15,
June 15, September 15 and December 15. Debt agreements restrict distributions
upon certain debt covenant violations.
As of December 31, 1997, the historical net book value of assets and
liabilities was approximately $34,000,000 greater than the associated net tax
basis of those assets and liabilities.
Occasionally, the Company's Board of Directors may elect to make
distributions (subject to loan covenants in effect at that time) to the
partners. After the preference given to the Minimum Tax Distribution described
above, in general, distributions, including any liquidating distributions, are
first made to partners in proportion to their preferred ownership, in an amount
equal to any unpaid and accrued return on the manditorily redeemable partnership
interests. Next, distributions may be made to common or preferred partners
(with preference given to the preferred interests), in proportion to their
respective ownership, equal to any unrecovered capital. Finally, remaining
distributions may be given to the partners in accordance with their positive
capital account balances.
(11) Employee Benefits
The Company sponsors a defined contribution retirement plan under Internal
Revenue Code Section 401(k) covering substantially all of its employees.
Company contributions equal 50% of the participants' contributions up to 2% of
the participants' annual salary and aggregated approximately $133,000, $138,000
and $189,000 for the years ended December 29, 1995, December 31, 1996 and
December 31, 1997, respectively. At December 31, 1996 and 1997 there were no
other post employment or retirement plans.
(12) Partnership Interests Option Plan
The Company has established an equity incentive plan to attract and retain
key personnel, including senior management, and to enhance their interest in the
Company's continued success. The Company anticipates that the aggregate equity
issued pursuant to such plans and any future plans will be between 5% and 10% of
the fully diluted equity of the Company. At December 31, 1997, options covering
6.0% of the partnership interests in the Company were outstanding. No options
were vested at December 31, 1997 and, accordingly, none were exercised during
1997.
(13) Commitments and Contingencies
The Company is involved in various litigation incidental to the business
for which estimates of losses have been accrued, when appropriate. In the
opinion of management, such proceedings will not have a material adverse effect
on the consolidated financial position or results of operations.
(14) Financial Instruments
The following disclosure of the estimated fair value of financial
instruments is presented in accordance with the requirements of Statement of
Financial Accounting Standards No. 107 "Disclosures about Fair Value of
Financial Instruments". The estimated fair value amounts have been determined by
the Company using available market information and valuation methodologies.
As of December 31, 1996 and December 31, 1997, the carrying amounts of
certain financial instruments employed by the Company, including cash and cash
equivalents, accounts receivable, trade accounts payable and amounts due from/to
affiliates are representative of fair value because of the short-term maturity
of these instruments. The carrying amount of notes payable approximate fair
value due to the floating nature of the interest rate. The fair value of both
series of senior notes has been estimated based on quoted market prices for the
same or similar issues or by discounting the future cash flows using
32
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(14) Financial Instruments (continued)
rates currently available for debt of similar terms and maturity. The fair
value of all derivative financial instruments is the amount at which they could
be settled, based on quoted market prices or estimates obtained from dealers.
The following table reflects the carrying amount and estimated fair value
of the Company's financial instruments:
<TABLE>
<CAPTION>
Year Ended,
1996 1997
Carrying Carrying
Amount Fair Value Amount Fair Value
-------- ----------- -------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Balance sheet financial instruments
Long-term debt $145,088 $142,825 $183,190 $191,088
Other financial instruments
Interest rate swap agreements - (535) - (154)
</TABLE>
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company uses
derivatives to manage well-defined interest rate risks. At December 31, 1997,
the Company was party to an interest rate swap agreement with an aggregate
notional principal amount of $30,000,000. Under the agreement, the Company pays
a fixed rate of 6.15% and receives a floating rate based on LIBOR on the
aggregate principal amount as determined in three month intervals. The
transaction effectively changes a portion of the Company's interest rate
exposure from a floating rate to a fixed rate basis. The effect of the swap
was to increase the rate by .5% which resulted in additional interest expense of
approximately $154,000.
The primary risks associated with swaps are the exposure to movements in
interest rates and the ability of the counterparties to meet the terms of the
contracts. Based on review and assessment of counterparty risk, the Company
does not anticipate non-performance by the other party. The Company does not
obtain collateral or other security to support financial instruments subject to
credit risk, but monitors the credit standing of counterparties.
(15) Environmental Matters
The Company is subject to contingencies pursuant to environmental laws and
regulations that in the future may require the Company to take action to correct
the effects on the environment of prior disposal practices or releases of
chemical or petroleum substances by the Company or other parties. The Company
has accrued for certain environmental remediation activities consistent with the
policy set forth in Note 2. At December 31, 1996 and 1997, such accrual
amounted to approximately $217,000 and $187,000, respectively, and in
management's opinion, was appropriate based on existing facts and circumstances.
Under the most adverse circumstances, however, this potential liability could be
significantly higher. In the event that future remediation expenditures are in
excess of amounts accrued, management does not anticipate that they will have a
material adverse effect on the consolidated financial position or results of
operations of the Company. At December 31, 1996 and 1997 the Company has
recognized approximately $256,000 and $262,000, respectively, in the
consolidated balance sheet related to recoveries of certain remediation costs
from third parties.
(16) Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"). Adoption is required for interim and annual periods beginning after
December 15, 1997. SFAS No. 130 requires that comprehensive income and its
components, as defined in the Statement, be reported in a company's financial
statements. Management does not believe that the adoption of this statement
will have a significant impact on the Company.
33
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(16) Recently Issued Accounting Pronouncements (continued)
Also, in June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131"). Adoption is
required for financial statements for periods beginning after December 15, 1997,
although it need not be applied to interim financial statements in its initial
year of application. SFAS No. 131 requires disclosure of certain segment
financial information, explanations of segment measurements, reconciliations to
consolidated amounts, and information about products and services and major
customers on an enterprise-wide basis. Management does not believe that the
adoption of this statement will have a significant impact on the Company's
financial statements or related disclosures.
In February 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 "Accounting for the Cost of Computer Software
Developed or Obtained for Internal-Use" ("SOP 98-1"). Adoption is required for
fiscal years beginning after December 15, 1998. SOP 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for
internal-use and identifies the characteristics of internal-use software.
Management does not believe the adoption will be material to its financial
statements or results of operations.
34
<PAGE>
Petro Stopping Centers, L.P.
Notes to Consolidated Financial Statements
(17) Selected Quarterly Financial Data (unaudited)
(in thousands)
--------------
First Second Third Fourth
Quarter Quarter Quarter Quarter(a)
------- ------- ------- ----------
1996
- ----
Net revenues $147,925 156,077 160,530 172,525
Operating income 4,655 5,924 6,216 (1,354)
Net income (loss) (675) 626 969 (9,680)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1997
- ----
Net revenues $162,565 160,759 168,209 194,196
Operating income 3,680 6,418 7,241 4,712
Net income (loss) (14,135)(b) 1,073 2,119 (1,622)(c)
(a) Fourth quarter of 1996 decline in operating income and net income is due
principally to the following items: (1) Earnings reflect the impact due to
lack of management direction and focus on the business during the change in
management structure that was in process as a result of the
Recapitalization and sale of the partnership interest. (2) In addition to
the decline in performance in the fourth quarter, the quarter also reflects
adjustments relating to establishment of inventory reserves, insurance
reserves, employee severance, benefit and placement expenses as well as
recapitalization costs amounting to approximately $1,400,000, $500,000,
$2,534,000, and $2,938,000 respectively.
(b) Approximately $12,745,000 of this net loss is due to the Company charging,
as an extraordinary item, debt restructuring costs in conjunction with the
Recapitalization.
(c) Approximately $1,900,000 of this net loss is due to additional depreciation
expense recorded as a result of revising the service life of certain
computer equipment. Furthermore, a charge of $1,579,000 was recorded in the
fourth quarter as a result of the adoption of EITF No. 97-13, which
required the write-off of certain costs related to process reengineering
activities that were previously allowed to be capitalized. In accordance
with EITF 97-13, the charge was recorded as a cumulative effect of a change
in accounting principle.
35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
The Board of Directors and Partners
Petro Stopping Centers, L.P.
We have audited the accompanying consolidated balance sheet of Petro Stopping
Centers, L.P. (a Delaware limited partnership) as of December 31, 1997, and the
related statements of operations, changes in partners' capital(deficit) and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Petro Stopping
Centers, L.P. as of December 31, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
As discussed in Note 2, the Company adopted Emerging Issues Task Force Issue No.
97-13, "Accounting for Costs Incurred in Connection with a Consulting Contract
that Combines Business Process Reengineering and Information Technology
Transformation," during the fourth quarter of 1997.
ARTHUR ANDERSEN LLP
Dallas, Texas
February 23, 1998
36
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
The Board of Directors and Partners
Petro Stopping Centers, L.P.
We have audited the accompanying consolidated balance sheet of Petro Stopping
Centers, L.P. as of December 31, 1996 and the related consolidated statements of
operations, changes in partners' capital(deficit) and cash flows for each of the
two years in the period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Petro
Stopping Centers, L.P. as of December 31, 1996 and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
El Paso, Texas
March 28, 1997
37
<PAGE>
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On August 27, 1997, the Registrant notified Coopers & Lybrand LLP (El
Paso, Texas office) of its decision to dismiss Coopers & Lybrand LLP and to
retain Arthur Andersen LLP (Dallas, Texas office) for the audit of its financial
statements for fiscal year ended December 31, 1997. The change in the
independent accountants was recommended by the Audit Committee of the Board of
Directors.
During the last two most recent fiscal years and interim periods through
August 27, 1997, there were no disagreements with Coopers & Lybrand LLP on
matters of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure which disagreement(s), if not resolved to the
satisfaction of Coopers & Lybrand LLP, would have caused them to make reference
to the subject matter of the disagreement(s) in connection with their report.
In addition, during such period, there have been no "reportable events" with
Coopers & Lybrand LLP as described in Items 304 (a)(I)(v) of Regulation S-K.
During the last two most recent calendar years and through September 3,
1997, the Company did not consult Arthur Andersen LLP on either the application
of accounting principles to a complete or proposed specific transaction, or on
the type of audit opinion that might be rendered on the Company's financial
statements.
38
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The following sets forth certain information with respect to the persons who
are members of the Company's Board of Directors, Executive Committee, Operating
Committee and senior management team as of February 1, 1998.
Name Age Position
---- --- --------
James A. Cardwell, Sr. 66 Chairman, Chief Executive Officer, President,
Member of the Executive Committee, Operating
Committee and Director
Larry Zine 43 Executive Vice President, Chief Financial
Officer and Member of Operating Committee
Evan Brudahl 42 Senior Vice President of Operating of
Strategic Planning Committee and and
Development, Member Director
James A. Cardwell, Jr. 38 Senior Vice President and Director of
Operations, Member of Operating Committee
Travis R. Roberts 62 Vice President of Real Estate Services and
Member of Operating Committee
David Latimer 39 Vice President of Petro:Lube
David A. Haug 37 Vice President of Finance and Treasurer
Todd R. Berman 40 Member of the Executive Committee and Director
Lynne Lachenmyer 39 Member of the Executive Committee, Audit
Committee and Director
Michael S. Shein 34 Member of Operating Committee, Audit Committee
and Director
Malcolm Lassman 59 Member of the Executive Committee, Audit
Committee and Director
James A. (Jack) Cardwell, Sr. -- Jack Cardwell founded the Company in 1975 and
has been serving as the Chief Executive Officer since May 1992 and has been a
member of the Board of Directors since its formation in 1992. He is the Chairman
and President of the Company with responsibility for the Company's overall
performance, while defining Petro's image in the marketplace and identifying
growth opportunities and overseeing employee and customer retention. He served
as the Chairman of the National Association of Truck Stop Operators ("NATSO") in
1983 and 1984 and has worked on various committees of NATSO since that time. He
currently serves as a trustee for Security Capital Pacific Trust (a New York
Stock Exchange Company). Jack Cardwell is the father of Jim Cardwell.
Larry Zine -- Larry Zine was hired in December 1996 as Executive Vice
President and Chief Financial Officer and is responsible for all financial,
accounting, management information and insurance and benefit services for the
Company. Mr. Zine was the Executive Vice President and Chief Financial Officer
for The Circle K Corporation, the second largest chain of convenience stores in
the United States, from 1988 to 1996. Mr. Zine was an integral part of The
Circle K Corporation's reorganization from bankruptcy in July 1993, its initial
public offering in March 1995 and subsequent sale in June 1996. Mr. Zine had
worked for The Circle K Corporation for 15 years in various capacities including
the last eight years as Chief Financial Officer. Mr. Zine has been a director of
Morris Material Handling, Inc., since March 1998. He was educated at the
University of North Dakota and holds an M.S. degree in Accounting and a B.S.B.A.
in Marketing.
Evan Brudahl -- Evan Brudahl, a Mobil Oil employee, is the Senior Vice
President of Strategic Planning and Development and a director. Mr. Brudahl is
responsible for strategic planning and business development functions of the
Company. This includes overseeing field support services, advertising, travel
store operations, corporate planning and franchise operations. Mr. Brudahl was
most recently the Manager of U.S. Diesel Retail Marketing and Travel Center
Business at Mobil Oil and has worked for Mobil Oil for 19 years. He has held the
positions of District Manager, Manager of U.S. company-operated Gasoline
Stations Operations, Company Operations Accounting Manager, and various other
positions in U.S. Marketing and Administrative areas. He received a B.B.A. in
Marketing from the University of Wisconsin at Whitewater.
James A. (Jim) Cardwell, Jr. -- Jim Cardwell is Senior Vice President of
Operations and Marketing with responsibility for the Company's operations and
fuel purchasing. Mr. Cardwell has been involved with the Company full time for
14 years and has held various positions including profit center management and
was Vice President of Operations from 1986 to 1992. Prior to his current
position, he served as Vice President of National Sales and Promotions from June
1993 to January 1997. Mr. Cardwell studied Management and
39
<PAGE>
Finance at the University of North Texas. Currently he serves on the board of
NATSO, and is Chairman of the Board of the NATSO Foundation. He is also a member
of the Young Presidents Organization. Jim Cardwell is the son of Jack Cardwell.
Travis Roberts -- Travis Roberts is Vice President of Real Estate Services.
Mr. Roberts manages support services related to maintenance at existing sites,
capital projects at existing sites, new site acquisition and construction,
franchisee support, and new site selection. Mr. Roberts served as Vice
President of Maintenance and Development. Mr. Roberts joined the Company at its
inception in 1975. He was Vice President of Development from 1985 to 1992.
David Latimer -- David Latimer has been serving as Vice President of
Petro:Lube since April 1995, prior to which he served as Vice President of
Operations from 1993 to 1995. Mr. Latimer joined the Company in 1983 and was
instrumental in the introduction and development of the Petro:Lube Express Truck
Service Center business. Mr. Latimer served for 4 years on the
Bridgestone/Firestone Dealer Board and is a current member of the Kelly
Springfield Advisory Council. Mr. Latimer also serves as the Company
representative to the National Tire Dealers and Retreaders Association and The
Maintenance Council.
David A. Haug -- David A. Haug is Vice President of Finance and Treasurer of
the Company. Prior to his current position, he served as the Controller for the
Company, a position he held since April 1990. Prior to that, he was an audit
manager with Lauterbach, Borschow and Company, Certified Public Accountants from
1982 to 1990. He received a B.A. in Accounting from New Mexico State University
and is a Certified Public Accountant in the state of Texas.
Todd R. Berman -- Todd Berman has been a director of the Company since January
30, 1997. Mr. Berman is the founder and President of Chartwell Investments. Mr.
Berman has served as Chairman of the Board of Griffith Consumers Company, one of
the nation's largest independent distributors of heating oil and other petroleum
products, since December 1994, as Chairman of Carl King, Inc., the leading
operator of gas stations and convenience stores in the Delmarva peninsula
(Delaware, Maryland, Virginia), since 1994; and as Chairman of the Board of
Morris Material Handling Inc., since March 1998. Mr. Berman has been with
Chartwell or its predecessor since 1992. Mr. Berman received an A.B. from Brown
University and an M.B.A. from Columbia University Graduate School of Business.
Lynne Lachenmyer -- Lynne Lachenmyer has been a director of the Company since
June 25, 1997. Ms. Lachenmyer currently serves as Manager of the North
American Distillate Business for Mobil Oil Corporation and has since April 1997.
Prior to this role, from 1995 to 1997, she was Manager of Chemical Global
Aromatics Business for Mobil Oil. Ms. Lachenmyer also served as Manager of
Strategic Planning and Investments for Mobil Chemical from 1994 through 1995 and
has held various management positions with Mobil Oil Corp. since 1991.
Michael S. Shein -- Mr. Shein has been a director of the Company since January
30, 1997. Mr. Shein, a managing director and co-founder of Chartwell
Investments, has been with Chartwell Investments or its predecessor since 1992.
Mr. Shein has been a director of Griffith Consumers Company, one of the nation's
largest independent distributors of heating oil and other petroleum products,
since December 1994; a director of Carl King, Inc., the leading operator of gas
stations and convenience stores in the Delmarva Peninsula (Delaware, Maryland,
Virginia), since December 1994; and a director of Morris Material Handling,
Inc., since March 1998. He received a B.S. summa cum laude from The Wharton
School at the University of Pennsylvania.
Malcolm Lassman -- Mr. Lassman has been a director of the Company since
September 23, 1997. Mr. Lassman is a managing partner of the Washington, D.C.
office of the law firm Akin, Gump, Strauss, Hauer & Feld, L.L.P., where he has
practiced law since 1971. Mr. Lassman currently serves as a director of Project
NorthStar, a company committed to assisting underprivileged children. Mr.
Lassman received a B.A. in Economics from Washington & Lee University and a
L.L.B. cum laude from Washington & Lee University.
40
<PAGE>
ITEM 11. Executive Compensation
Executive Compensation
The following table presents information concerning compensation paid for
services to the Company during 1995, 1996 and 1997 to the Chief Executive
Officer of the Company and the four other most highly paid executive officers
employed by the Company at the end of 1997, collectively, the "Named Executive
Officers."
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------ ------------
Awards
Name and Other Annual Options All Other
Principal Position Year Salary Bonus Compensation (% Interest)(12) Compensation
- ------------------ ---- ------ ----- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
James A. Cardwell- 1997 $362,700 - 247,177(2)
Chief Executive 1996 363,686 - 247,037
Officer 1995 363,685 - 259,850
Larry Zine - 1997(5) $290,000 174,000 2.75(8) 64,728(9)
Executive Vice
President & Chief
Financial Officer
Joseph R. Schillaci- 1997 $ 31,277(7) - 458,314(3)(10)
President & Chief 1996 274,189 - 10,586
Operating Officer 1995 272,602 30,000 2.90(1) 11,325
Walter A. Fitzgerald , Jr. 1997 $ 16,730(7) - 197,696(10)(11)
Vice President- 1996 145,514 - 960
Operations 1995 128,133 20,000 .70(1) 24,176(4)
Evan Brudahl- 1997(5) $135,000 81,000 .90
Senior Vice President-
Strategic Planing and
Development
James A. Cardwell, Jr.- 1997 $135,000 81,000 .90 1,326(6)
Vice President - 1996 107,882 - 1,179
National Sales and 1995 101,642 10,000 1,500
Promotions
David Latimer- 1997 $128,516 90,959 .25 3,166(6)
Vice President- 1996 123,296 - 2,767
Lube Operations 1995 117,491 20,000 .40(1) 3,498
</TABLE>
- -------------------
(1) Options held by the Named Executive Officers in the Company, expressed as a
percent of the partnership equity. All of such options were terminated
upon consummation of the Recapitalization at no cost to the Company.
(2) Represents employer contributions to the Company's 401(k) Plan of $3,637,
$3,497 and $3,295 in 1997, 1996 and 1995, respectively, and life insurance
premiums paid by the Company for the benefit of Mr. Cardwell in the amounts
of $243,540, $243,540 and $256,555 in 1997, 1996 and 1995, respectively.
(3) Represents insurance premiums of $0, $7,653 and $7,653 paid by the Company
for the benefit of Mr. Schillaci in 1997, 1996 and 1995, respectively, and
$314, $2,933 and $3,672 of employer contributions to the Company's 401(k)
Plan for 1997, 1996 and 1995, respectively.
(4) Represents $23,663 of payments in connection with relocation expenses
incurred by Mr. Fitzgerald.
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<PAGE>
(5) Mr. Zine's employment with the Company commenced December 1996 and Mr.
Brudahl's commenced January 30, 1997.
(6) Represents employer contributions to the Company's 401(k) Plan.
(7) Mr. Schillaci's and Mr. Fitzgerald's employment was terminated in January
1997.
(8) Represents options to purchase 2.75% of the common partnership interests of
the Company granted pursuant to the terms of his employment agreement. 25%
of the options become exercisable on each of December 31, 1997, 1998, 1999,
and 2000.
(9) Represents payments in connection with relocation expenses incurred by Mr.
Zine.
(10) Amount includes $458,000 and $194,000 of payments related to the buyout of
Mr. Schillaci's employment contract and Mr. Fitzgerald's severance letter,
respectively.
(11) Represents $3,696, $960 and $513 of employer contributions to the Company's
401(k) Plan in 1997, 1996 and 1995, respectively.
(12) Options held by the Named Executive Officers in the Company, expressed as a
percent of the partnership equity.
The following table sets forth certain information concerning options to
purchase partnership interests granted by the Company to the Named Executive
Officers during 1997.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Partnership Interest
Price Appreciation for
Individual Grants the Option Term
---------------------------------------------------------- ----------------------
% of Total
Options Exercise
Options Granted to or Base
Granted Employees Price Expiration
Name (% Interest) in Fiscal Year ($/1% Interest) Date 5% ($) 10% ($)
- --------------- ----------- -------------- -------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Larry Zine(1) 2.75% 31.4% $400,000 12/31/2006 $691,784 $1,753,117
Evan C. .90 10.3 400,000 1/30/2007 226,402 573,747
Brudahl(2)
James A. .90 10.3 400,000 1/30/2007 226,402 573,747
Cardwell(2)
David .25 2.9 400,000 1/30/2007 62,889 159,374
Latimer(2)
</TABLE>
- ----------------
(1) In accordance with Mr. Zine's Employment Agreement (the "Agreement"), dated
December 31, 1996, Mr. Zine received options to purchase 2.75% of the
common partnership interests of the Company. 25% of the options become
exercisable on each of December 31, 1997, 1998, 1999 and 2000. As of
December 31, 1997, no options had been exercised.
The options become immediately exercisable upon a Change of Control (as
defined in the Agreement). Upon the termination of Mr. Zine's employment
with the Company, at his request, the Company must purchase the options and
any partnership interests issued upon exercise of the options (if permitted
under the Company's existing debt instruments) at the fair market value of
the securities at such time as determined under the Agreement.
(2) Pursuant to the Company's 1997 Class B Limited Partnership Interest Option
Plan (the "Option Plan"), these Named Executive Officers were granted ten-
year options (the "Options") to purchase Class B Limited Partnership
Interests of the Company. The Options granted to Messrs. Brudahl, Cardwell
and
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<PAGE>
Latimer vest in equal installments of 25% on each of the first four
anniversaries of the date of the closing of the Recapitalization.
At December 31, 1997, Options covering 6.0% of the partnership interests in
the Company were outstanding, of which none were exercisable. Accordingly,
no Options were exercised in 1997.
Participants become fully vested upon the occurrence of a Change in Control
(as defined in the Option Plan), upon a sale of substantially all of the
assets of the Partnership, upon the liquidation of the Partnership, or upon
the Partnership's consummation or adoption of a plan to make an
Extraordinary Distribution or Redemption (as defined in the Plan). Options
may be exercised at any time, to the extent that such options are
exercisable. All Options expire on the earlier to occur of (i) the tenth
anniversary of the date the Option was granted, (ii) one year after the
participant ceases to be an employee of the Partnership due to retirement,
death or disability, (iii) immediately, if the participant ceases to be an
employee of the Partnership for cause, or (iv) ninety days after the
occurrence of the termination of the participant's employment with the
Partnership, for any reason other than (ii) or (iii) above.
Fiscal Year End Option Values
Partnership interests in the Company are not registered or publicly traded
and, therefore, a public market price of the partnership interests is not
available. While a formal valuation of the Company's partnership interests has
not been undertaken recently, the Company believes that the exercise price of
the Options held by the Named Executive Officers at December 31, 1997 was in
each case greater than or equal to the fair market value of the underlying
partnership interests as of such date.
Partnership Interests Option Plan
The Company has established an equity incentive plan to attract and retain
key personnel, including senior management, and to enhance their interest in the
Company's continued success. The Company anticipates that the aggregate equity
issued pursuant to such plans and any future plans will be between 5% and 10% of
the fully diluted equity of the Company. At December 31, 1997, options covering
6.0% of the partnership interests in the Company were outstanding. No options
were vested at December 31, 1997 and, accordingly, none were exercised during
1997.
Compensation of Members of the Board of Directors
Outside members of the Board of Directors receive a payment of $3,500 per
meeting from the Company for their services. Members who are employees of the
Company or employees of affiliates of the Company do not receive a salary or any
other payment for their services on the Board of Directors.
Compensation Committee
The Company does not maintain a formal Compensation Committee. The Vice
President of Administration of the Company administers the compensation program
in conjunction with the Chief Executive Officer, the President and the Board of
Directors. The Chief Executive Officer's salary is determined by the Executive
Committee of the Board of Directors.
Employment Agreements
The Company entered into employment agreements with Jack Cardwell and Jim
Cardwell on January 30, 1997 and, effective December 16, 1996, entered into an
employment agreement with Mr. Zine (collectively the "Employment Agreements").
The Employment Agreements commenced on the date of execution and expire on
December 31, 1999. Under the Employment Agreements, the annual base salaries of
Jack Cardwell, Jim Cardwell and Mr. Zine (the "Executives") are $362,700,
$135,000 and $290,000, respectively, and are subject to review and may be
increased by the Company's Board of Directors (or compensation committee, if one
is elected). Jack Cardwell and Jim Cardwell are also entitled to participate in
any bonus plan approved by the Board of Directors of the Company. Mr. Zine is
eligible to receive an annual
43
<PAGE>
cash bonus, based on parameters to be established by Jack Cardwell and Mr. Zine
and approved by the Board of Directors.
On January 30, 1997, Mr. Zine received options to purchase (at an exercise
price per share of approximately $400,000 per 1%) 2.75% of the Company's common
partnership interests, on a fully diluted basis.
If the Company terminates any of the Employment Agreements without cause or
because the officer has been incapacitated for three consecutive months, or the
Executive terminates his Employment Agreement for "good reason" (as defined in
each Employment Agreement), then the terminated officer will be entitled to
continue to receive his salary, plus certain benefits, for twelve months from
the date of the notice of termination. The Employment Agreements contain certain
customary nonsolicitation provisions upon termination of such agreements.
The Company and Joseph R. Schillaci, the Company's former President and
Chief Operating Officer, entered into an employment agreement dated as of
January 1, 1993 (the "Employment Agreement"). The Company terminated the
Employment Agreement at the closing of the Recapitalization. Pursuant to the
terms of the Employment Agreement, at the closing, the Company: (i) paid Mr.
Schillaci a lump sum of $300,000; and (ii) paid Mr. Schillaci for reasonable
expenses in connection with his relocation and out-placement assistance.
Secondment Letter Agreement
The Company entered into an agreement with Mobil Oil providing for the
temporary secondment (or loan) of one of Mobil Oil's employees, Evan C. Brudahl,
to the Company. The period of secondment commenced on January 30, 1997 and is
contemplated to continue until July 1, 2000, subject to certain termination
rights, including the right of Mobil Oil or Mr. Brudahl to terminate the
agreement at their discretion. Under the agreement, the Company has the right,
if Mr. Brudahl is performing at an unacceptable level, to terminate the
secondment period on 120 days' notice. During the secondment period, the loaned
employee, Mr. Brudahl, will continue as an employee of Mobil Oil but will be
under the day-to-day supervision of the Company. The Company will be responsible
for all compensation, benefit and other expenses relating to the secondment of
Mr. Brudahl to the Company.
Employee Benefits Plans
The Company sponsors a defined contribution retirement plan under Internal
Revenue Code Section 401(k) covering substantially all of its employees.
Company contributions equal 50% of the participants' contributions up to 2% of
the participants' annual salary and aggregated $133,000, $138,000 and $189,000
for the years ended December 29, 1995, December 31, 1996 and December 31, 1997,
respectively.
On December 19, 1996, the Company filed with the Internal Revenue Service
("IRS"), pursuant to IRS Rev. Proc. 94-62, a request for a compliance statement
with respect to the Petro Stopping Centers, L.P. 401(k) Plan (the "Plan"). The
compliance statement request relates to the Plan's failure (i) to allocate
participant forfeitures pursuant to the terms of the Plan and (ii) to correctly
apply the actual deferral percentage test and the actual contribution percentage
test (items (i) and (ii) hereafter collectively referred to as the "Operational
Defects"). The Operational Defects relate to Plan years 1990 through 1995. The
Company does not believe that the existence or resolution of the Operational
Defects are material to its business.
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<PAGE>
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of the Company's common partnership interests by each general partner,
each limited partner who owns more than 5% of the Company's common partnership
interests, each director who beneficially owns partnership interests, each
executive officer who beneficially owns partnership interests and all directors
and executive officers of the Company as a group. Except as set forth in the
footnotes to the table, each partner listed below has informed the Company that
such partner will have (i) sole voting and investment power with respect to such
partner's partnership interests, except to the extent that authority is shared
by spouses under applicable law and (ii) record and beneficial ownership with
respect to such partner's partnership interests.
<TABLE>
<CAPTION>
Type of Class of Capital Percentage
Names Interest Interest Contribution of Class
- ----------------------------- --------------- -------- --------------- --------------
<S> <C> <C> <C> <C>
James A. Cardwell, Sr. General Partner Common $ 485,560(1) 1.1843%(2)
6080 Surety Drive Limited Partner Common 14,143,493(1) 34.4963 (2)
El Paso, Texas 79905
Chartwell L.P.(3) General Partner Common 400,000 0.9756
c/o Maples & Calder Limited Partner Common 20,330,000 49.5854
Ugland House
P.O. Box 309
George Town, Grand Cayman
Cayman Islands (B.W.I.)
James A. Cardwell, Jr. Limited Partner Common 1,640,947(1) 4.0023(4)
6080 Surety Drive
El Paso, Texas 79905
Mobil Long Haul Inc. Limited Partner Common 3,000,000 7.3171
3225 Gallows Road
Fairfax, Virginia 22037
--------
97.5610%
All directors and officers
as a group (10 persons) 39.6829%
</TABLE>
- ------------
(1) Represents the implied carryover value of the Cardwell Group in the Company
after the consummation of the Recapitalization. The Cardwell Group did not
receive or invest any cash in the Recapitalization. For purposes of the
Recapitalization, its partnership interests were given an implied value of
approximately $23.9 million, of which $7.6 million was the face value of
preferred partnership interests and approximately $16.3 million was the
implied value of common partnership interests. The value of the Cardwell
Group's partnership interests has been implied based on the partnership
interest purchase price paid and capital contributions to the Company made
by Chartwell and Mobil Long Haul in the Recapitalization.
(2) Includes partnership interests owned of record by Petro, Inc. Petro, Inc.
is a wholly owned subsidiary of Nevada Trio, Inc., a Nevada corporation,
which is a wholly owned subsidiary of Card Partners, L.P., a Texas limited
partnership of which Jack Cardwell and Mrs. Jack Cardwell are limited
partners and of which Texas Mec, Inc., a Texas corporation, is the general
partner. Jack Cardwell is the sole shareholder of Texas Mec, Inc.
Accordingly, Jack Cardwell may be deemed to have beneficial ownership of
the partnership interests owned by Petro, Inc.
(3) Represents partnership interests owned of record by Petro Holdings GP Corp.
and Petro Holdings LP Corp. Petro Holdings GP Corp., a Delaware
corporation, is a wholly owned subsidiary of Petro Holdings LP Corp., which
is a wholly owned subsidiary of Petro Holdings L.L.C., a Delaware limited
liability company. Chartwell L.P., a Cayman Islands limited partnership, is
the
45
<PAGE>
majority shareholder of Petro Holdings L.L.C. Todd R. Berman, who is a
Director and a member of the Executive Committee of the Company, is a
limited partner of Chartwell L.P. Michael S. Shein, who is a Director and a
member of the Operating Committee of the Company, is also a limited partner
of Chartwell L.P. Mr. Berman and Mr. Shein are the Managers of Petro
Holdings L.L.C. Other minority shareholders include an affiliate of CIBC
Wood Gundy Securities Corp. and The First National Bank of Boston, the
agent and a lender under the New Credit Agreement.
(4) Includes partnership interests owned of record by JAJCO II, Inc. Jim
Cardwell is the sole shareholder of JAJCO II, Inc. and may be deemed to
have beneficial ownership of the partnership interest owned by JAJCO II,
Inc.
ITEM 13. Certain Relationships and Related Transactions
Tax Reimbursements
The Restated Partnership Agreement requires the Company to make
distributions to each of its partners in an amount sufficient to allow each
partner to pay federal, state and local income taxes with respect to allocations
of taxable income to such partner by the Company. Historically, aggregate tax
distributions to the Company's partners were based on the Company's taxable
income. For the fiscal years ended December 29, 1995, December 31, 1996 and
December 31, 1997, tax distributions made to the Company's partners were
$326,236, $0 and $0, respectively. Because tax distributions will in the future
be based on separate allocations of taxable income of the Company's partners
rather than the taxable income of the Company, the aggregate tax distribution
likely will increase by up to approximately $1.2 million per year. Under certain
circumstances, the Company's partners receiving tax distributions with respect
to allocations of taxable income under the Restated Partnership Agreement will
be obligated to repay the portion of such tax distribution that exceeds the
amount of a tax distribution that would have been made had tax distributions
been based on the Company's taxable income.
Principal Executive Offices
The office building in which the Company's principal executive offices are
located is owned by Jack Cardwell, the Chief Executive Officer and a Director of
the Company. The Company leases the entire building under a lease expiring on
December 31, 2005. Under the lease, the Company pays monthly rent totaling
$336,000 per year, as well as taxes, maintenance and other operating expenses.
For each of the fiscal years ended December 29, 1995, December 31, 1996 and
December 31, 1997, the Company made annual rental payments of $336,000.
Effingham, Illinois Stopping Center
The Stopping Center located in Effingham, Illinois is owned by Truck Stop
Property Owners, Inc. ("Truck Stop"), which is owned by Travis Roberts, who is a
current officer of the Company, and five former employees of the Company. Mr.
Roberts owns 22% of the stock of Truck Stop. The Company leases the Effingham
Center under a lease expiring in May 2006, which provides for adjustable rental
payments tied to interest rates (the "Basic Rent"), plus taxes and operating
expenses. The Company has three consecutive options to renew the lease for terms
of five years each at rental rates equal to the Basic Rent, plus certain
adjustments at the time of renewal. The Company also has a right of first
refusal to purchase the Stopping Center at a purchase price agreed upon between
Truck Stop and a third party. For the fiscal years ended December 29, 1995,
December 31, 1996 and December 31, 1997, the Company made rental payments to
Truck Stop of $1,086,000, $1,080,000 and $1,073,000, respectively.
Bordentown Stopping Center
The Stopping Center located in Bordentown, New Jersey is owned by an entity
(the "Bordentown Venture") in which Jack Cardwell held a 50% interest in 1994.
In May 1995, Jack Cardwell sold his interest in the Bordentown Venture to his
partner. The Bordentown location became a franchisee effective December 1995.
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<PAGE>
Highway Service Ventures, Inc.
Highway Service Ventures, Inc. ("HSV"), a corporation in which Jack
Cardwell owns a 32.5% interest, operates four franchised Stopping Centers
located in Elkton, Maryland; Ruther Glen, Virginia; Florence, South Carolina;
and Carnesville, Georgia pursuant to franchise agreements with the Company. The
initial term of each of these franchise agreements is ten years and they are
automatically renewed for two five-year terms unless terminated by the
franchisee. The initial term of the Elkton, Maryland franchise agreement expired
in September 1995, but such term has been extended by letter agreement through
March 1998. The initial terms of the remaining three franchise agreements will
expire in March 1998, February 2001 and January 2005, respectively. None of
these franchise agreements contain terms that are any more favorable to the
franchisee than the terms in any of the Company's other franchise agreements.
Petro:Tread
In May 1992, the Company leased a facility in El Paso, Texas from a trust,
in which Jack Cardwell is a 50% beneficiary, to operate the Company's retread
plant, which produces retread tires for sale at Stopping Centers (including
franchisees) and to others. The lease, which expired in October 1995, provided
for two consecutive renewal options for terms of five years each. The Company
exercised its first renewal option in October 1995 to renew the lease for five
years commencing November 1, 1995. The Company made lease payments of $67,000,
$72,000 and $72,000, respectively, for the fiscal years ended December 29, 1995,
December 31, 1996 and December 31, 1997. In addition, the Company sells retread
tires to El Paso Tire Center, Inc., a corporation in which Jack Cardwell owns
100%. Such sales amounted to $288,000, $153,000 and $47,000 in 1995, 1996 and
1997, respectively.
Product Services Agreement and Fuel Sales Agreement
The Company currently purchases Chevron branded gasoline and motor oils at
cost for three of its Auto Fuel Islands pursuant to a sales agreement with C&R
Distributing, Inc. ("C&R"), a corporation in which Jack Cardwell is the sole
shareholder. In addition, in May 1992, C&R and the Company entered into a
product services agreement terminating in 1999, under which C&R provides the
Company with fuel hauling and fuel pump maintenance and services within the El
Paso, Texas metropolitan area, if requested by the Company. The agreement
provides that C&R will charge the Company for these services at the lowest rates
charged by C&R for similar services and, in any event, at rates that will not
exceed rates available from unrelated parties providing similar services. During
fiscal years 1995, 1996 and 1997, the Company's purchases from C&R under these
two agreements aggregated $7,857,000, $10,771,000 and $5,079,000, respectively.
Furthermore, the Company and C&R agreed to notify the other if either party had
petroleum products for sale with no obligation on either party to purchase any
portion of such products. During fiscal years 1995, 1996 and 1997, the Company
made sales to C&R under this agreement aggregating $4,022,000, $3,950,000 and
$3,315,000, respectively. The term of the agreements with C&R have been extended
through December 31, 2004. Notwithstanding the extension, the Company has the
option of not purchasing products or services from C&R if the Company can
purchase such products or services more economically from third parties.
Option and Right of First Refusal Agreement
In connection with the formation of the Company in May 1992 under an Option
and Right of First Refusal Agreement, Jack Cardwell and Jim Cardwell, officers
and members of the Board of Directors of the Company, granted to the Company and
Roadside options, which expire in December 2006, to purchase certain properties
owned by the Cardwells that are located near or adjacent to the Company's
Stopping Centers located in Shreveport, Louisiana (7 acres subject to option),
Weatherford, Texas (34 acres), Beaumont, Texas (17 acres) and Oklahoma City,
Oklahoma (30 acres) (the "Option Properties"), and a right of first refusal on
each of the Option Properties. At the closing of the Recapitalization, Roadside
assigned all of its rights under the Option and Right of First Refusal Agreement
to Mobil Long Haul, Holdings GP and Holdings LP. The price at which an Option
Property may be purchased will be equal to the fair market value of the property
when the option is exercised as determined by an appraisal.
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<PAGE>
Alcohol Sales and Servicing Agreements
In order to continue engaging in retail sales of beer, wine or wine coolers
at a limited number of its facilities after the formation of the Company in May
1992, the Company entered into agreements with CYMA Development Corporation
("CYMA"), C and PPR, Inc. ("C&PPR"), Petro Truckstops, Inc. ("Petro Truckstops")
and Petro Beverage, Inc., which collectively hold permits or licenses to sell
alcoholic beverages in the states of Louisiana, Texas and Oregon. Jack Cardwell,
Jim Cardwell and Mrs. Jack Cardwell own 60%, 30% and 10%, respectively, of the
stock of C&PPR. Jack Cardwell is the sole shareholder of CYMA and Jim Cardwell
is the sole shareholder of Petro Truckstops and Petro Beverage, Inc. The
agreements continue in effect until terminated by either party. Under the
agreements with CYMA and C&PPR, the Company agreed to operate the alcohol sales
business at these locations in exchange for 10% of the gross receipts generated
from alcoholic beverage sales, plus reimbursement of all operating expenses.
Under a similar agreement with Petro Truckstops, dated April 8, 1994, and Petro
Beverage, Inc., dated February 10, 1995, each of which has a one year initial
term and continues in effect until terminated by either party, the Company
receives 15% of gross receipts generated from alcoholic beverage sales. In each
of the agreements the net payments to the Company are approximately equal to the
gross profit received by the above entities.
Motor Media Arrangements
In connection with the formation of the Company in May 1992, Motor Media,
Inc., a company owned 100% by Jim Cardwell ("Motor Media"), entered into a five-
year agreement with the Company (the "Motor Media Agreement"), under which Motor
Media leases floor and wall space at all Stopping Centers operated by the
Company and sells space for in-store advertising to third parties. Under the
agreement, the Company and Motor Media are entitled to 25% and 75%,
respectively, of the gross revenues generated. Motor Media received $170,000,
$214,000 and $234,000, respectively, before its selling, maintenance and
administrative expenses for the fiscal years ended December 29, 1995, December
31, 1996, and December 31, 1997, representing its share of the gross receipts
generated. Motor Media has entered into similar floor and wall space leases with
other truck stops nationwide. The Company and Motor Media have extended the term
of the Motor Media Agreement through April 2002.
Amusement and Video Poker Games Agreements
Under an existing agreement (the "Amusement Agreement") between El Paso
Vending and Amusement Company ("EPAC"), of which Jack Cardwell and Jim Cardwell
own 99% and 1%, respectively, and the Company, EPAC furnishes video and other
games to four of the Company's Stopping Centers and services these games.
Pursuant to the Amusement Agreement, which expires in May 2002 or until earlier
terminated by either party, the Company paid 60% of the revenues generated by
the games to EPAC and retained the remaining 40%. Beginning November 1994, the
arrangement was modified to pay 50% of the revenue generated by the games to
EPAC and 50% to the Company. The Company amended the Amusement Agreement to
cause EPAC to contract directly with the Company to furnish and service video
and other games at an additional 12 Stopping Centers. Subsequent thereto, EPAC
began furnishing and servicing games at an additional five Stopping Centers
under the terms of the Amusement Agreement. EPAC received $1,880,000, $2,021,000
and $2,421,000 in revenues, respectively, generated from the furnishing and
servicing games located at the Stopping Centers for the fiscal years ended
December 29, 1995, December 31, 1996 and December 31, 1997. Since June 1993, the
two Company-operated Stopping Centers located in Louisiana have featured video
poker games operated by a third party. Under the terms of agreements relating to
the operation of, and distribution of revenues derived from the video poker
operations, the Company is entitled to a specified portion of the revenues of
each machine. Under these arrangements, the operator turns over a share of the
revenues to Petro Truckstops, a corporation in which Jim Cardwell is the sole
shareholder, which in turn forwards 95% of these revenues to the Company. The
Amusement Agreement has been amended to extend its term through May 2002.
Fremont Partners' Annual Fee
Pursuant to the Company's former partnership agreement, the Fremont
Partners provided various services to the Company, including tax and legal
services, and paid the directors' fees for the outside members of the Company's
Board of Directors. In consideration for these services, the partnership
agreement provided that the Fremont Partners were entitled to an annual
management fee of $250,000 per year. Upon closing of
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<PAGE>
the Recapitalization, the partnership agreement was restated. Such services are
no longer rendered by the Fremont Partners and no further fees will be paid to
the Fremont Partners.
Indemnity Agreements
In order to comply with applicable Internal Revenue Code and Treasury
Regulation provisions dealing with recourse debt, Jack Cardwell, Jim Cardwell,
Texas JIMCO, Inc., JAJCO, Inc., JAJCO II Inc., and Arcadian Management
Corporation each entered into an indemnity agreement under which each has agreed
to indemnify the Company, the general partners and certain limited partners in
the event that the indemnified party is required to pay certain of the Company's
indebtedness after a default, acceleration by the creditor and exhaustion of any
collateral securing the credit facility. In May 1994, Jack Cardwell, Jim
Cardwell, Texas JIMCO, Inc., JAJCO, Inc., JAJCO II Inc., and Arcadian Management
Corporation amended their original indemnity agreements in connection with the
May 1994 financing. No payments have been made under these agreements.
Motor Fuels Franchise Agreement
On January 30, 1997, the Company and Mobil Oil entered into a 10-year Motor
Fuels Franchise Agreement whereby the Company has agreed to purchase Mobil
branded diesel fuel and gasoline for sale and distribution under Mobil Oil's
trademarks at the Company-operated truckstops. The agreement requires the
Company to purchase from Mobil Oil certain minimum monthly and annual quantities
of diesel fuel and gasoline available at Mobil Oil's specified delivery
terminals subject to product availability and reductions by Mobil Oil under
certain described circumstances and subject to existing gasoline supply
contractual obligations. The agreement allows the Company to continue to
negotiate for the purchase of diesel fuel with third-party suppliers approved by
Mobil Oil. If the Company is able to obtain a lower diesel fuel price from a
third-party supplier approved by Mobil in a particular market area, the Company
may request that Mobil Oil meet such lower price or a portion of the diesel fuel
requirements would be supplied from such Mobil Oil approved third-party
supplier, in which case Mobil Oil would purchase the diesel fuel from the
supplier and resell the product to the Company. Any change in supply source,
however, does not affect the Company's requirement to purchase the annual
minimum number of gallons from Mobil Oil specified delivery terminals fixed by
the agreement. The Company is also limited to certain monthly maximum purchase
quantities from each Mobil Oil specified delivery terminal. Prices charged for
Mobil Oil fuel sold to the Company during the term are based on certain
referenced prices plus or minus discounts or premiums. Subject to certain
adjustments based upon fuel availability at specified Mobil Oil supply
terminals, beginning with the calendar year January 1, 1997, and each succeeding
calendar year thereafter, to the extent the Company purchases from Mobil Oil
quantities of diesel fuel below the minimum amount required by the agreement,
the Company is required to pay Mobil Oil a fee based on the shortfall.
Master Supply Contract for Resale of Oils and Greases
Mobil Oil and the Company have also entered into a 10-year supply
agreement, commencing January 30, 1997, whereby the Company will purchase and
feature certain Mobil Delvac branded oils and lubricants at the truckstop
locations operated by the Company.
Marketing Services Agreement
On January 30, 1997, Mobil Oil and the Company entered into a ten-year
Marketing Services Agreement whereby Mobil Oil provides advice and assistance to
the Company on matters concerning the distribution and marketing of fuels and
petroleum products, including certain personnel support. In connection
therewith, the Company will pay to Mobil Oil an annual marketing services fee of
$300,000, payable in two semi-annual installments, and additionally will pay or
directly reimburse Mobil Oil for all costs of certain personnel support,
including salary compensation, benefits, travel and other out-of-pocket expenses
incurred by certain Mobil Oil employees in connection with the Company's
business.
Joint Project Development Agreement
Mobil Oil and the Company have entered into a letter of intent, commencing
January 30, 1997, that contemplates definitive agreements with respect to
certain projects related to the Company or negotiations in
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<PAGE>
good faith with respect to items which do not by their terms contemplate the
execution of a definitive agreement, including: the joint development of a truck
stop payment card; an on-and-off site fleet billing system for the Company's
customers; and establishment of a joint products supply company.
Secondment Letter Agreement
On January 30, 1997, the Company has entered into an agreement with Mobil
Oil, providing for the temporary secondment (or loan) of one of Mobil Oil's
employees, Evan C. Brudahl, to the Company. The period of secondment commenced
upon the closing of the Recapitalization and is contemplated to continue until
July 1, 2000 subject to certain termination rights, including the right of Mobil
Oil or the employee to terminate the agreement at their discretion. Under the
agreement, the Company has the right, if the employee is performing at an
unacceptable level, to terminate the secondment period on 120 days' notice.
During the secondment period, the loaned employee will continue as an employee
of Mobil Oil but will be under the day-to-day supervision of the Company. The
Company is responsible for all compensation, benefit and other expenses relating
to the secondment of the employee to the Company.
Chartwell Financial Advisory Agreement
The Company entered into an agreement with Chartwell Investments,
commencing January 30, 1997, providing for the payment of fees and reimbursement
of certain expenses to Chartwell Investments for acting as financial advisor
with respect to the Recapitalization, including soliciting, structuring and
arranging the financing of the Recapitalization. The fees, totaling
approximately $3,000,000, equal to 1% of the total capitalization of the Company
plus 1/2 of 1% of the Expansion Facility and the reimbursement of certain
expenses, were paid at the closing of the Recapitalization. Mr. Berman and Mr.
Shein are directors of the Company and are officers and directors of Chartwell
Investments.
Chartwell Management Consulting Agreement
The Company has entered into a management consulting agreement with
Chartwell Investments, commencing January 30, 1997, pursuant to which Chartwell
Investments will provide the Company with certain management, advisory and
consulting services for a fee of $600,000 for each fiscal year of the Company
during the term of the agreement, with up to an additional $100,000 payable for
each fiscal year, provided that EBITDA is at least $45 million, plus
reimbursement of certain expenses. The term of the management consulting
agreement is ten years and is renewable for additional one year periods unless
the Board of Directors of the Company gives prior written notice of non-renewal
to Chartwell Investments. Mr. Berman and Mr. Shein are directors of the Company
and are officers and directors of Chartwell Investments. During 1997, the
Company paid Chartwell Investments $600,000 under this agreement.
Certain Business Relationships
Mr. Lassman, a director of the Company since September 23, 1997, is a
managing partner of Akin, Gump, Strauss, Hauer & Feld, L.L.P., which has
provided legal services to the Company during 1997 and will continue to provide
legal services to the Company during 1998.
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PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
1. Financial statements
The following consolidated financial statements of the Company are included in
Part II, Item 8 of this report:
Page
----
Consolidated Balance Sheets 18
Consolidated Statements of Operations 19
Consolidated Statements of Changes in Partners' Capital(Deficit) 20
Consolidated Statements of Cash Flows 21
Notes to Consolidated Financial Statements 22
Reports of Independent Accountants 36-37
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the audited
consolidated financial statements or notes thereto.
2. Exhibits
Incorporated herein by reference is a list of Exhibits contained in the
Exhibit Index on pages 53 through 57 of this Annual Report.
(b) Reports on Form 8-K: None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Petro Stopping Centers, L.P. has duly caused this report
to be signed on its behalf by undersigned, thereunto duly authorized.
PETRO STOPPING CENTERS, L.P.
Registrant
By /s/ James A. Cardwell, Sr.
-------------------------------
James A. Cardwell, Sr.
Chairman of the Board of Directors,
March 30, 1998 President and Chief Executive Officer
(Date)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of Petro
Stopping Centers, L.P. and in the capacities on the date indicated:
Signature Title Date
--------- ----- ----
/s/ James A. Cardwell, Sr. Chairman of the Board of
- --------------------------- Directors, President and Chief March 30, 1998
(James A. Cardwell, Sr.) Executive Officer (Principal
Executive Officer)
/s/ Larry J. Zine Executive Vice President and
- --------------------------- Chief Financial Officer March 30, 1998
(Larry J. Zine) (Principal Financial Officer)
/s/ David A. Haug Vice President of Finance,
- --------------------------- Treasurer and Chief Accounting March 30, 1998
(David A. Haug) Officer
/s/ Evan Brudahl Member of the Board of Directors
- --------------------------- and Sr. Vice President of Planning March 30, 1998
(Evan Brudahl) and Administration
/s/ James A. Cardwell, Jr. Member of the Board of Directors
- --------------------------- and Sr. Vice President of March 30, 1998
(James A. Cardwell, Jr.) Operations
/s/ Todd R. Berman Member of the Board of Directors
- --------------------------- March 30, 1998
(Todd R. Berman)
/s/ Lynne Lachenmyer Member of the Board of Directors
- --------------------------- and Audit Committee March 30, 1998
(Lynne Lachenmyer)
/s/ Michael S. Shein Member of the Board of Directors
- ---------------------------- and Audit Committee March 30, 1998
(Michael S. Shein)
/s/ Malcolm Lassman Member of the Board of Directors
- ---------------------------- and Audit Committee March 30, 1998
(Malcolm Lassman)
52
<PAGE>
PETRO STOPPING CENTERS, L.P.
Exhibit Index
3.1(aa) Amended and Restated Certificate of Limited Partnership of the
Company dated as of January 30, 1997.
3.2(aa) Third Amended and Restated Limited Partnership Agreement of the
Company, dated as of January 30, 1997, by and among the Petro,
Inc., James A. Cardwell, Sr., James A. Cardwell, Jr., JAJCO II,
Inc., Petro Holdings GP Corp, Petro Holdings LP Corp., Mobil Long
Haul Inc. and Kirschner Investments.
3.3(bb) Certificate of Incorporation of Petro Financial Corporation.
3.4(bb) Bylaws of Petro Financial Corporation.
4.1(cc) Indenture, dated as of May 24, 1994, among the Company, Petro
Financial Corporation and First Trust National Association, as
trustee, for the Company's $100,000,000 principal amount 12 1/2%
Senior Notes due 2002.
4.2(cc) Form of 12 1/2% Senior Note due 2002.
4.3(cc) Guarantee Agreement, dated as of May 24, 1994, between the Company
and First Trust National Association.
4.4(cc) Warrant Agreement, dated as of May 24, 1994, among the Company,
Petro Financial Corporation and First Trust National Association.
4.5(cc) Specimen of Exchangeable Debt Warrant
4.6(aa) Indenture dated as of January 30, 1997 among the Company, Petro
Financial Corporation and State Street Bank and Trust Company, as
trustee, relating to the Company's $135,000,000 principal amount
10 1/2% Senior Notes due 2007.
4.7(aa) Form of 10 1/2% Senior Note due 2007.
4.8(aa) Note Registration Rights Agreement, dated as of January 30, 1997,
by and among the Company, Petro Financial Corporation and CIBC
Wood Gundy Securities Corp. and Morgan Stanley Incorporated.
4.9(aa) Amended and Restated Revolving Credit and Term Loan Agreement,
dated as of January 30, 1997, among the Company, the Lenders party
thereto, and The First National Bank of Boston, as Agent.
4.10(aa) First Amendment to Amended and Restated Revolving Credit and Term
Loan Agreement and Limited Waiver, dated as of February 12, 1997,
among the Company, the Lenders party thereto, and The First
National Bank of Boston, as Agent.
10.1* Form of the Company's Franchise Agreement.
10.2* Schedule of Existing Franchise Agreements (including franchises in
which James A. Cardwell has an interest: Florence, SC; Elkton, MD;
Ruther Glen, VA; and Carnesville, GA).
10.3(bb) Surety Drive Lease Agreement, dated April 30, 1992, between James
A. Cardwell and the Company.
10.4(bb) Agreement relating to trademark license for Bordentown, New
Jersey, dated April 30, 1992, between the Company and Petro, Inc.
53
<PAGE>
10.5(bb) Petro:Tread Lease Agreement, dated April 30, 1992, between James
Arthur Lyle and the Company.
10.6(bb) Lease Agreement relating to Louisiana liquor sales, dated April
30, 1992, between the Company and Petro, Inc.
10.7(bb) Servicing Agreement relating to Louisiana liquor sales, dated
April 30, 1992, between the Company and Petro, Inc.
10.8(bb) Lease Agreement relating to Arlington, Texas liquor sales, dated
April 30, 1992, between the Company and CYMA Development
Corporation.
10.9(bb) Servicing Agreement relating to Arlington, Texas liquor sales,
dated April 30, 1992, between the Company and CYMA Development
Corporation.
10.10(bb) Lease Agreement relating to Texas convenience store liquor sales,
dated April 30, 1992, between the Company and C and PPR, Inc.
10.11(bb) Servicing Agreement relating to Texas convenience store liquor
sales, dated April 30, 1992, between the Company and C and PPR,
Inc.
10.12(bb) Sublease and Services Agreement relating to Shreveport, Louisiana
liquor sales, dated April 8, 1994, between the Company and Petro
Truckstops, Inc.
10.13(bb) Sublease and Services Agreement relating to Shorter, Alabama
liquor sales, dated April 13, 1994, between the Company and
Petro, Inc.
10.14(bb) Lease relating to the Effingham, Illinois Stopping Center, dated
May 23, 1990, between Truck Stop Property Owners, Inc. and Petro,
Inc.
10.15(bb) Lease with Option to Purchase, dated September 9, 1983, among
Vaughn O. Seale, Francine S. Dodson, Hazel S. Darouse and Metro
Hammond, Inc.
10.16(bb) Profit Participation Agreement, dated March 1, 1993, between
Pelican Gaming, Inc. and Petro Truckstops, Inc.
10.17(bb) Amended and Restated Sublease and Services Agreement dated to be
effective as of February 26, 1993, between the Company and Petro
Truckstops, Inc.
10.18(bb) Agreement and General Release, dated February 22, 1993, among
the Company, Petro PSC Properties, L.P., Petro, Inc., Arcadian
Management Corporation and William J. La Croix.
10.19(bb) Agreement relating to the purchase of Chevron brand and other
petroleum products of Chevron U.S.A. Products Company for the
Shorter, Alabama convenience store (facility no. 13929), between
the Company and C&R Distributing, Inc.
10.20(bb) Agreement relating to the purchase of Chevron brand and other
petroleum products of Chevron U.S.A. Products Company for the
Bucksville, Alabama convenience store (facility no.13817),
between the Company and C&R Distributing, Inc.
10.21(bb) Agreement relating to the purchase of Chevron brand and other
petroleum products of Chevron U.S.A. Products Company for the
Kingston Springs, Tennessee convenience store (facility no.
13928), between the Company and C&R Distributing, Inc.
54
<PAGE>
10.22(bb) Agreement relating to the purchase of Chevron brand and other
petroleum products of Chevron U.S.A. Products Company for the
Vinton, Texas convenience store (facility no. 7-5661), between
the Company and C&R Distributing, Inc.
10.23(bb) Agreement relating to the purchase of Chevron brand and other
petroleum products of Chevron U.S.A. Products Company for the El
Paso, Texas convenience store (facility no. 20-1602), between the
Company and C&R Distributing, Inc.
10.24(aa) Distributor Sales Agreement (Branded) Renewal Offer dated
November 1, 1996, between Exxon Company, U.S.A. and the Company.
10.25(aa) Amended Split Dollar Life Insurance Agreement, dated as of May 1,
1995, among the Company, James A. Cardwell, Jr., Trustee of the
James A. and Evonne Cardwell Trust Number Two and James A.
Cardwell, Jr., Trustee of the James A. Cardwell Trust No. Three.
10.26(dd) Lease and Services Agreement, dated January 26, 1995, between the
Company and Petro Truckstops, Inc.
10.27(dd) Lease and Services Agreement, dated February 10, 1995, between
the Company and Petro Beverage, Inc.
10.28(aa) Omnibus Agreement by and among the James A. Cardwell, Sr., James
A. Cardwell, Jr. JAJCO II, Petro Inc., Mobil Long Haul Inc.,
Petro Holdings GP Corp., Petro Holdings LP Corp., the Company and
Kirschner Investments Company dated as of October 18, 1996 (the
"Omnibus Agreement").
10.29(aa) Amendment No. 1 to the Omnibus Agreement, dated as of January
30, 1997.
10.30(aa) Employment Agreement, dated January 30, 1997, by and between
James A. Cardwell, Sr. and the Company.
10.31(aa) Employment Agreement, dated January 30, 1997, by and between
James A. Cardwell, Jr. and the Company.
10.32(aa) Employment Agreement, dated December 16, 1996, by and between
Larry Zine and the Company.
10.33(aa) PMPA Distributor Motor Fuels Franchise Agreement, dated January
30, 1997, by and between Mobil Oil and the Company.
10.34(aa) Marketing Services Agreement, dated January 30, 1997, by and
between Mobil Oil and the Company.
10.35(aa) Memorandum of Understanding - Joint Project Development, dated
January 30, 1997, by and between Mobil Oil and the Company.
10.36(aa) Secondment Agreement, dated January 30, 1997, by and between
Mobil Oil and the Company
10.37(aa) Master Supply Contract for Resale of Oils and Greases, dated
January 30, 1997, by and between Mobil Oil and the Company.
10.38(aa) Financial Advisory Agreement, dated January 30, 1997, by and
between Chartwell Investment and the Company.
55
<PAGE>
10.39(aa) Management Consulting Agreement, dated January 30, 1997, by and
between Chartwell Investment and the Company.
10.40(aa) Product Services Agreement, dated January 30, 1997, by and
between C&R Distributing, Inc., a Texas corporation, and the
Company.
10.41(aa) Petro/El Paso Amusement Services Agreement, dated January 30,
1997, by and between El Paso Vending and Amusement Company and
the Company.
10.42(aa) Display Space Agreement, dated January 30, 1997, by and between
Motor Media, Inc. and the Company.
10.43(aa) Second Amended and Restated Indemnity and Hold Harmless
Agreement, dated January 30, 1997, by James A. Cardwell, Sr. for
the benefit of Petro Holdings GP Corp., Petro, Inc., the Company
and Petro Financial Corporation.
10.44(aa) Second Amended and Restated Indemnity and Hold Harmless
Agreement, dated January 30, 1997, by James A. Cardwell, Jr. and
for the benefit of Petro Holdings GP Corp., Petro, Inc., the
Company and Petro Financial Corporation.
10.45(aa) Second Amended and Restated Indemnity and Hold Harmless
Agreement, dated January 30, 1997, by JAJCO II for the benefit of
Petro Holdings GP Corp., Petro, Inc., the Company and Petro
Financial Corporation.
10.46(aa) Indemnity and Hold Harmless Agreement, dated January 30, 1997, by
Petro, Inc. for the benefit of Petro Holdings GP Corp., Petro,
Inc., the Company and Petro Financial Corporation.
10.47(aa) Second Amended and Restated Indemnity and Hold Harmless
Agreement, dated January 30, 1997, by Arcadian Management
Corporation, a Colorado corporation, for the benefit of Petro
Holdings GP Corp., Petro, Inc., the Company and Petro Financial
Corporation.
10.48(aa) Interest Purchase Agreement among Sequoia Ventures Inc.,
Roadside, Inc., Chartwell, Mobil Long Haul and the Company dated
as of October 18, 1997.
10.49(bb) Southwestern Bell Telephone Company Multi-State License Agreement
for placement of Public Telephone Equipment, dated April 1, 1993,
between the Company and Southwestern Bell Telephone Company.
10.50(bb) Southwestern Bell Telephone Company Public Telephone License
Agreement, dated May 16, 1990, between Southwestern Bell
Telephone Company and Petro, Inc.
10.51(ee) Form of Key Employee Incentive Compensation Plan.
10.52(aa) 1996 Management Incentive Plan.
10.53* Purchase and Sale Agreement dated October 27, 1997 between Dr.
Jung Y. Park and Wife, Kyung Hee Park and Petro Stopping Centers,
L.P.
10.54* Amendment No. 1 dated November 3, 1997 to Purchase and Sale
Agreement between Dr. Jung Y. Park and Wife, Kyung Hee Park and
Petro Stopping Centers, L.P.
56
<PAGE>
16.1(ff) Letter, dated September 3, 1997, from Coopers & Lybrand L.L.P.,
Regarding Change in Certifying Acountants.
16.2(ff) Letter, dated September 3, 1997, from Arthur Andersen LLP,
Regarding Change in Certifying Acountants.
16.3(gg) Letter, dated September 11, 1997, from Coopers & Lybrand L.L.P.,
Regarding Change in Certifying Accountants.
21(aa) Subsidiaries of the Company
27* Financial Data Schedule
* Filed herewith.
(aa) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
(bb) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 33-76154).
(cc) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 30, 1994.
(dd) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995.
(ee) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 29, 1995.
(ff) Incorporated by reference to the Company's Current Report on Form 8-K,
filed on September 3, 1997.
(gg) Incorporated by reference to the Company's Current Report on Form 8-K/A,
filed on September 11, 1997.
57
