UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
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 incorporation or organization) |
(IRS Employer Identification No.) | |
| 6080 Surety Dr. | ||
| El Paso, Texas | 79905 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (915) 779-4711
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Not applicable.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
| December 31, 2003 |
March 31, 2004 |
|||||||
| Assets | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 17,806 | $ | 15,834 | ||||
| Trade accounts receivable, net |
1,315 | 2,511 | ||||||
| Inventories, net |
25,410 | 26,731 | ||||||
| Other current assets |
1,215 | 1,491 | ||||||
| Due from affiliates |
4,950 | 3,167 | ||||||
| Total current assets |
50,696 | 49,734 | ||||||
| Property and equipment, net |
202,827 | 199,454 | ||||||
| Deferred debt issuance costs, net |
4,245 | 11,476 | ||||||
| Other assets |
13,072 | 12,133 | ||||||
| Total assets |
$ | 270,840 | $ | 272,797 | ||||
| Liabilities and Partners’ Capital (Deficit) | ||||||||
| Current liabilities: |
||||||||
| Current portion of long-term debt |
$ | 9,500 | $ | 9,764 | ||||
| Trade accounts payable |
13,928 | 8,141 | ||||||
| Accrued expenses and other liabilities |
25,691 | 23,432 | ||||||
| Due to affiliates |
19,104 | 19,917 | ||||||
| Total current liabilities |
68,223 | 61,254 | ||||||
| Other liabilities |
789 | 796 | ||||||
| Long-term debt, excluding current portion |
165,979 | 238,986 | ||||||
| Total liabilities |
234,991 | 301,036 | ||||||
| Commitments and contingencies |
||||||||
| Partners’ capital (deficit): |
||||||||
| General partner’s |
(210 | ) | (230 | ) | ||||
| Limited partners’ |
36,059 | (28,009 | ) | |||||
| Total partners’ capital (deficit) |
35,849 | (28,239 | ) | |||||
| Total liabilities and partners’ capital (deficit) |
$ | 270,840 | $ | 272,797 | ||||
See accompanying notes to unaudited consolidated condensed financial statements.
1
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands)
| Three Months Ended March 31, |
||||||||
| 2003 |
2004 |
|||||||
| Net revenues: |
||||||||
| Fuel (including motor fuel taxes) |
$ | 213,570 | $ | 224,044 | ||||
| Non-fuel |
57,171 | 62,083 | ||||||
| Total net revenues |
270,741 | 286,127 | ||||||
| Costs and expenses: |
||||||||
| Cost of sales |
||||||||
| Fuel (including motor fuel taxes) |
203,440 | 215,588 | ||||||
| Non-fuel |
22,248 | 24,591 | ||||||
| Operating expenses |
32,015 | 33,511 | ||||||
| General and administrative |
3,593 | 3,690 | ||||||
| Depreciation and amortization |
3,828 | 3,830 | ||||||
| Loss on disposition of fixed assets |
— | 4 | ||||||
| Total costs and expenses |
265,124 | 281,214 | ||||||
| Operating income |
5,617 | 4,913 | ||||||
| Loss on retirement of debt |
— | (6,164 | ) | |||||
| Retired debt restructuring costs |
— | (794 | ) | |||||
| Equity in loss of affiliate |
(43 | ) | (24 | ) | ||||
| Interest income |
13 | 27 | ||||||
| Interest expense |
(4,965 | ) | (5,537 | ) | ||||
| Income (loss) before cumulative effect of a change in accounting principle |
622 | (7,579 | ) | |||||
| Cumulative effect of a change in accounting principle |
(397 | ) | — | |||||
| Net income (loss) |
$ | 225 | $ | (7,579 | ) | |||
See accompanying notes to unaudited consolidated condensed financial statements.
2
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF
CHANGES IN PARTNERS’ CAPITAL (DEFICIT)
For the Three Months Ended March 31, 2004
(in thousands)
| General Partner’s (Deficit) |
Limited Partners’ Capital (Deficit) |
Total Partners’ Capital (Deficit) |
||||||||||
| Balances, December 31, 2003 |
$ | (210 | ) | $ | 36,059 | $ | 35,849 | |||||
| Net loss |
(20 | ) | (7,559 | ) | (7,579 | ) | ||||||
| Partners’ operating distributions |
— | (56,505 | ) | (56,505 | ) | |||||||
| Partners’ minimum tax distributions |
— | (4 | ) | (4 | ) | |||||||
| Balances, March 31, 2004 |
$ | (230 | ) | $ | (28,009 | ) | $ | (28,239 | ) | |||
See accompanying notes to unaudited consolidated condensed financial statements.
3
PETRO STOPPING CENTERS, L.P.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
| Three Months Ended March 31, |
||||||||
| 2003 |
2004 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 225 | $ | (7,579 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
3,828 | 3,831 | ||||||
| Write-off of deferred financing costs associated with retired debt |
— | 4,009 | ||||||
| Cumulative effect of a change in accounting principle |
397 | — | ||||||
| Deferred debt issuance cost amortization |
449 | 799 | ||||||
| Provision for bad debt |
47 | 41 | ||||||
| Equity in loss of affiliate |
43 | 24 | ||||||
| Loss on disposition of fixed assets |
— | 4 | ||||||
| Other operating activities |
11 | 10 | ||||||
| Increase (decrease) from changes in: |
||||||||
| Trade accounts receivable |
(456 | ) | (1,237 | ) | ||||
| Inventories |
835 | (1,321 | ) | |||||
| Other current assets |
(130 | ) | (276 | ) | ||||
| Due from affiliates |
(536 | ) | 1,783 | |||||
| Due to affiliates |
8,477 | 813 | ||||||
| Trade accounts payable |
(1,882 | ) | 2,698 | |||||
| Accrued expenses and other liabilities |
(2,822 | ) | (2,262 | ) | ||||
| Net cash provided by operating activities |
8,486 | 1,337 | ||||||
| Cash flows from investing activities: |
||||||||
| Proceeds from disposition of fixed assets and land held for sale |
— | 983 | ||||||
| Purchases of property and equipment |
(420 | ) | (675 | ) | ||||
| Increase in other assets, net |
(5 | ) | (117 | ) | ||||
| Net cash provided by (used in) investing activities |
(425 | ) | 191 | |||||
| Cash flows from financing activities: |
||||||||
| Repayments of bank debt |
(13,500 | ) | (4,500 | ) | ||||
| Proceeds from bank debt |
16,500 | 4,500 | ||||||
| Repayments of long-term debt |
(3,727 | ) | (177,035 | ) | ||||
| Proceeds from long-term debt issuance |
— | 250,000 | ||||||
| Change in book cash overdraft |
(237 | ) | (8,323 | ) | ||||
| Partners’ operating distribution |
— | (56,505 | ) | |||||
| Partners’ minimum tax distributions |
(38 | ) | (4 | ) | ||||
| Payment of debt issuance costs |
— | (11,633 | ) | |||||
| Net cash used in financing activities |
(1,002 | ) | (3,500 | ) | ||||
| Net increase (decrease) in cash and cash equivalents |
7,059 | (1,972 | ) | |||||
| Cash and cash equivalents, beginning of period |
8,221 | 17,806 | ||||||
| Cash and cash equivalents, end of period |
$ | 15,280 | $ | 15,834 | ||||
| Supplemental cash flow information - |
||||||||
| Interest paid during the period |
$ | 8,033 | $ | 8,063 | ||||
| Non-cash activities - |
||||||||
| Net change in unrealized loss on cash flow hedging derivative |
(85 | ) | — | |||||
See accompanying notes to unaudited consolidated condensed financial statements.
4
PETRO STOPPING CENTERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited consolidated condensed financial statements, which include the accounts of Petro Stopping Centers, L.P. and its wholly owned subsidiaries, Petro Financial Corporation and Petro Distributing, Inc. (the “Company”), have been prepared in accordance with the instructions to Form 10-Q and, therefore, certain financial information has been condensed and certain footnote disclosures have been omitted. Such information and disclosures are normally included in financial statements prepared in accordance with generally accepted accounting principles.
These unaudited consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Annual Report of the Company on Form 10-K for the year ended December 31, 2003 (“2003 Form 10-K”). Capitalized terms used in this report and not defined herein have the meanings ascribed to such terms in the 2003 Form 10-K. In the opinion of management of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments necessary to present fairly the consolidated condensed financial position of the Company at December 31, 2003 and March 31, 2004, the consolidated condensed results of operations and cash flows for the three months ended March 31, 2003 and 2004, and changes in partners’ capital (deficit) for the three months ended March 31, 2004. The results of operations for the three months ended March 31, 2004 are not necessarily indicative of the results to be expected for the full calendar year.
The Company’s fuel revenues and related cost of sales include a significant amount of federal and state motor fuel taxes. Such taxes were $60.6 million and $64.5 million for the three months ended March 31, 2003 and 2004, respectively.
(2) Refinancing Transactions
On February 9, 2004, the Company completed its refinancing transactions (the “Refinancing Transactions”) in which the Company and Petro Stopping Centers Holdings, L.P. (the “Holding Partnership”) refinanced substantially all of their existing indebtedness. The Refinancing Transactions consisted of the following components:
| • | The issuance of $225.0 million of 9.0% senior secured notes due 2012 (“9% Notes”); |
| • | The repurchase of the majority of the Company’s 10 1/2% senior notes due 2007 (“10 1/2% Notes”); |
| • | Entering into the new senior secured credit facilities of an aggregate principal amount of $50.0 million, consisting of a three year revolving credit facility of $25.0 million and a four year term loan facility of $25.0 million; |
| • | The repayment and retirement of the Company’s retired senior secured credit facilities of approximately $40.8 million, plus accrued interest; |
| • | The repurchase for cash of approximately 54.8% of the Holding Partnership’s 15.0% senior discount notes due 2008 (the “Holding Partnership’s 15% Notes”) and the exchange of approximately 42.2% of the Holding Partnership’s 15% Notes for new senior third secured discount notes; |
| • | The extension by the Holding Partnership of the mandatory purchase date of the warrants issued in July of 1999 by Petro Warrant Holdings Corporation from August 1, 2004 to October 1, 2009; and |
| • | The reduction of the Company’s outstanding trade credit balance with Exxon Mobil Corporation (“ExxonMobil”). |
In connection with the Refinancing Transactions, the repurchase of the majority of the Company’s 10 1/2% Notes and the Holding Partnership’s 15% Notes were accounted for as debt extinguishments resulting in the recognition of a loss of approximately $5.4 million and $9.3 million, respectively, which included the write-off of
(continued)
5
PETRO STOPPING CENTERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
unamortized deferred debt issuance costs of approximately $2.8 million for each transaction. These losses are presented as a component of income (loss) before cumulative effect of a change in accounting principle on each company’s unaudited consolidated condensed statements of operations for the three months ended March 31, 2004. Additionally, the Company capitalized approximately $9.4 million of debt issuance costs related to the issuance of the 9% Notes through March 31, 2004. The Holding Partnership capitalized approximately $3.1 million of debt issuance costs related to its exchange offer through March 31, 2004.
Upon entering into the Company’s new senior credit facilities, the Company capitalized approximately $2.3 million of debt issuance costs through March 31, 2004 and wrote-off approximately $794,000 of unamortized deferred debt issuance costs associated with the refinancing of its retired senior credit facilities.
In connection with the Refinancing Transactions, the Company reduced its outstanding trade credit balance and amended its agreement with the ExxonMobil Suppliers. The amendment provides that the penalty for failing to purchase the Company’s annual volume commitments under its agreement with the ExxonMobil Suppliers will be multiplied by a fraction, the numerator of which is the average of the Company’s trade credit with the ExxonMobil Suppliers during December of each year and the denominator of which is $30.0 million. As a result, the Company will have an incentive to reduce its accounts payable to the ExxonMobil Suppliers each year.
On March 12, 2004, the Company repurchased all of its remaining 10 1/2% Notes. In connection with this repurchase, the Company recognized a loss of approximately $724,000, which includes the write-off of approximately $379,000 of unamortized deferred debt issuance costs. This loss is presented as a component of income (loss) before cumulative effect of a change in accounting principle on the Company’s unaudited consolidated condensed statements of operations for the three months ended March 31, 2004.
After giving effect to the Refinancing Transactions and the repurchase of the Company’s remaining 10 1/2% Notes, the Company’s total consolidated debt increased $79.0 million and, as a result, the Company’s associated estimated annual interest expense will increase approximately $5.3 million.
The Company’s total debt before and after the Refinancing Transactions and the repurchase of the Company’s remaining 10 1/2% Notes is as follows:
| December 31, 2003 |
March 12, 2004 | |
| (in thousands) | ||
| $ 175,479 |
$ 254,500 | |
(3) Significant Accounting Policies
Land Held for Sale
The Company records long-lived assets held for sale at the lower of carrying amount or fair value less cost to sell. At December 31, 2003 and March 31, 2004, the Company reported land held for sale at its carrying value of $5.0 million and $4.3 million, respectively. The land held for sale consists of several parcels of undeveloped land considered by management as excess and no longer necessary for the operations of the Company. In March 2004, the Company sold all of its undeveloped land in Knowlton Township, New Jersey for a sales price of $1.1 million. Since the carrying amount of land in Knowlton Township, New Jersey was equal to the selling price less cost to sell, no gain or loss was recognized in 2004. These balances are included in other assets in the accompanying consolidated condensed balance sheets.
Asset Retirement Obligations
On January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 143,
(continued)
6
PETRO STOPPING CENTERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
“Accounting for Asset Retirement Obligations” (“SFAS No. 143”). SFAS No. 143 provides accounting guidance for retirement obligations, for which there is a legal obligation to settle, associated with tangible long-lived assets. SFAS No. 143 requires that asset retirement costs be capitalized as part of the cost of the related long-lived asset and such costs should be allocated to expense by using a systematic and rational method. The statement requires that the initial measurement of the asset retirement obligation be recorded at fair value and that an allocation approach be used for subsequent changes in the measurement of the liability. SFAS No. 143 changes the Company’s accounting for underground storage tank removal costs and sewage plant waste removal costs. An asset retirement obligation for $489,000 and $499,000 has been recorded as a liability at December 31, 2003 and March 31, 2004, respectively. The implementation of this standard resulted in a one-time cumulative effect of a change in accounting principle of $397,000 in 2003.
A reconciliation of the Company’s asset retirement obligation for the three months ended March 31, 2004 is as follows:
| Three Months Ended March 31, 2004 | |||