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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended September 30, 2003



Commission file number 1-13018



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PETRO STOPPING CENTERS, L.P.

(Exact name of the registrant as specified in its charter)



|Delaware                                                      |  | 74-2628339                      
|------------------------------------------------------------- |  | --------------------------------
|(State or other jurisdiction ofincorporation or organization) |  | (IRS EmployerIdentification No.)



|6080 Surety Dr.El Paso, Texas            |  | 79905     
|---------------------------------------- |  | ----------
|(Address of principal executive offices) |  | (Zip Code)



Registrants
telephone number, including area code: (915) 779-4711



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No ̈



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.



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PART I. FINANCIAL INFORMATION



|Item 1. |  | Financial Statements
|------- |  | --------------------



PETRO STOPPING CENTERS, L.P.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in thousands)



|                                                               |  | December 31,2002 |         |   | September 30,2003 |  
|-------------------------------------------------------------- |  | ---------------- | ------- | - | ----------------- | -
|Assets                                                         |  |                  |         |   |                   |  
|Current assets:                                                |  |                  |         |   |                   |  
|Cash and cash equivalents                                      |  | $                | 8,221   |   |                   | $
|Trade accounts receivable, net                                 |  |                  | 2,594   |   |                   |  
|Inventories, net                                               |  |                  | 27,328  |   |                   |  
|Other current assets                                           |  |                  | 1,332   |   |                   |  
|Due from affiliates                                            |  |                  | 2,491   |   |                   |  
|                                                               |  |                  |         |   |                   |  
|Total current assets                                           |  |                  | 41,966  |   |                   |  
|                                                               |  |                 
|Property and equipment, net                                    |  |                  | 212,131 |   |                   |  
|Deferred debt issuance costs, net                              |  |                  | 5,979   |   |                   |  
|Other assets                                                   |  |                  | 12,741  |   |                   |  
|                                                               |  |                  |         |   |                   |  
|Total assets                                                   |  | $                | 272,817 |   |                   | $
|                                                               |  |                  |         |   |                   |  
|Liabilities and Partners Capital and Comprehensive Loss       |  |                  |         |   |                   |  
|Current liabilities:                                           |  |                  |         |   |                   |  
|Current portion of long-term debt                              |  | $                | 15,660  |   |                   | $
|Trade accounts payable                                         |  |                  | 10,486  |   |                   |  
|Accrued expenses and other liabilities                         |  |                  | 25,827  |   |                   |  
|Due to affiliates                                              |  |                  | 18,686  |   |                   |  
|                                                               |  |                  |         |   |                   |  
|Total current liabilities                                      |  |                  | 70,659  |   |                   |  
|                                                               |  |                 
|Asset retirement obligation (note 2)                           |  |                  |        |   |                   |  
|Long-term debt, excluding current portion                      |  |                  | 175,384 |   |                   |  
|                                                               |  |                  |         |   |                   |  
|Total liabilities                                              |  |                  | 246,043 |   |                   |  
|                                                               |  |                  |         |   |                   |  
|Partners capital (deficit) and comprehensive loss:            |  |                  |         |   |                   |  
|General partner                                                |  |                  | (232    | ) |                   |  
|Limited partners                                              |  |                  | 27,462  |   |                   |  
|Accumulated other comprehensive loss                           |  |                  | (456    | ) |                   |  
|                                                               |  |                  |         |   |                   |  
|Total partners capital and comprehensive loss                 |  |                  | 26,774  |   |                   |  
|                                                               |  |                  |         |   |                   |  
|Total liabilities and partners capital and comprehensive loss |  | $                | 272,817 |   |                   | $
|                                                               |  |                  |         |   |                   |  



See accompanying notes
to unaudited consolidated financial statements.



1



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PETRO STOPPING CENTERS, L.P.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)



|                                                                    |  | Three Months EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |  
|------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | -
|                                                                    |  | 2002                            |         |   | 2003                           |  
|Net revenues:                                                       |  |                                 |         |   |                                |  
|Fuel (including motor fuel taxes)                                   |  | $                               | 180,629 |   |                                | $
|Non-fuel                                                            |  |                                 | 62,208  |   |                                |  
|                                                                    |  |                                 |         |   |                                |  
|Total net revenues                                                  |  |                                 | 242,837 |   |                                |  
|                                                                    |  |                                 |         |  
|Costs and expenses:                                                 |  |                                 |         |   |                                |  
|Cost of sales                                                       |  |                                 |         |   |                                |  
|Fuel (including motor fuel taxes)                                   |  |                                 | 170,593 |   |                                |  
|Non-fuel                                                            |  |                                 | 24,756  |   |                                |  
|Operating expenses                                                  |  |                                 | 31,131  |   |                                |  
|General and administrative                                          |  |                                 | 3,905   |   |                                |  
|Depreciation and amortization                                       |  |                                 | 3,904   |   |                                |  
|Loss on disposition of fixed assets                                 |  |                                 |        |   |                                |  
|                                                                    |  |                                 |         |   |                                |  
|Total costs and expenses                                            |  |                                 | 234,289 |   |                                |  
|                                                                    |  |                                 |         |   |                                |  
|Operating income                                                    |  |                                 | 8,548   |   |                                |  
|                                                                    |  |                                 |         |  
|Equity in income of affiliate                                       |  |                                 | 175     |   |                                |  
|Interest income                                                     |  |                                 | 16      |   |                                |  
|Interest expense                                                    |  |                                 | (5,145  | ) |                                |  
|                                                                    |  |                                 |         |   |                                |  
|Income before cumulative effect of a change in accounting principle |  |                                 | 3,594   |   |                                |  
|                                                                    |  |                                 |         |  
|Cumulative effect of a change in accounting principle (note 2)      |  |                                 |        |   |                                |  
|                                                                    |  |                                 |         |   |                                |  
|Net income                                                          |  | $                               | 3,594   |   |                                | $
|                                                                    |  |                                 |         |   |                                |  



See accompanying notes
to unaudited consolidated financial statements.



2



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PETRO STOPPING CENTERS, L.P.

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS CAPITAL (DEFICIT)

AND COMPREHENSIVE INCOME

For the Nine Months Ended September 30, 2003

(in thousands)



|                                                                  |  | GeneralPartnerDeficit |      |   | LimitedPartnersCapital |   |        | AccumulatedOtherComprehensiveLoss |  |   | TotalPartnersCapital |  
|----------------------------------------------------------------- |  | --------------------- | ---- | - | ----------------------- | - | ------ | --------------------------------- |  | - | --------------------- | -
|Balances, December 31, 2002                                       |  | $                     | (232 | ) |                         | $ | 27,462 |                                   |  | $ | (456                  | )
|Net income                                                        |  |                       | 18   |   |                         |   | 7,051  |                                   |  |   |                      |  
|Unrealized loss on cash flow hedging derivative:                  |  |                       |      |   |                         |   |        |                                   |  |   |                       |  
|Unrealized holding loss arising during the period                 |  |                       |      |   |                         |   |        |                                   |  |   | (38                   | )
|Less: reclassification adjustment for loss realized in net income |  |                       |      |   |                         |   |        |                                   |  |   | 367                   |  
|                                                                  |  |                       |      |   |                         |   |        |                                   |  |   |                       |  
|Net change in unrealized loss                                     |  |                       |      |   |                         |   |        |                                   |  |   | 329                   |  
|                                                                  |  |                       |      |   |                         |   |        |                                   |  |   |                       |  
|Comprehensive income                                              |  |                       |      |   |                         |   |        |                                   |  |   |                       |  
|                                                                  |  |                       |      |   |                         |   |        |                                   |  |   |                       |  
|Partners minimum tax distributions                               |  |                       |     |   |                         |   | (50    | )                                 |  |   |                      |  
|                                                                  |  |                       |      |   |                         |   |        |                                   |  |   |                       |  
|Balances, September 30, 2003                                      |  | $                     | (214 | ) |                         | $ | 34,463 |                                   |  | $ | (127                  | )
|                                                                  |  |                       |      |   |                         |   |        |                                   |  |   |                       |  



See accompanying notes
to unaudited consolidated financial statements.



3



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PETRO STOPPING CENTERS, L.P.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                     |  | Nine Months EndedSeptember 30, |        
|------------------------------------------------------------------------------------ |  | ------------------------------ | -------
|                                                                                     |  | 2002                           |        
|Cash flows from operating activities:                                                |  |                                |        
|Net income                                                                           |  | $                              | 5,389  
|Adjustments to reconcile net income to net cash provided by operating activities:    |  |                                |        
|Depreciation and amortization                                                        |  |                                | 12,365 
|Cumulative effect of a change in accounting principle                                |  |                                |       
|Deferred debt issuance cost amortization                                             |  |                                | 1,291  
|Bad debt expense                                                                     |  |                                | 161    
|Equity in income of affiliate                                                        |  |                                | (302   
|Loss on disposition of fixed assets                                                  |  |                                |       
|Other operating activities                                                           |  |                                |       
|Increase (decrease) from changes in:                                                 |  |                                |        
|Trade accounts receivable                                                            |  |                                | (634   
|Inventories                                                                          |  |                                | (2,604 
|Other current assets                                                                 |  |                                | 342    
|Due from affiliates                                                                  |  |                                | (1,307 
|Due to affiliates                                                                    |  |                                | 10,623 
|Trade accounts payable                                                               |  |                                | (7,073 
|Accrued expenses and other liabilities                                               |  |                                | (737   
|                                                                                     |  |                                |        
|Net cash provided by operating activities                                            |  |                                | 17,514 
|                                                                                     |  |                                |        
|Cash flows from investing activities:                                                |  |                                |        
|Proceeds from disposition of fixed assets                                            |  |                                |       
|Purchases of property and equipment                                                  |  |                                | (3,001 
|(Increase) decrease in other assets, net                                             |  |                                | (218   
|                                                                                     |  |                                |        
|Net cash used in investing activities                                                |  |                                | (3,219 
|                                                                                     |  |                                |        
|Cash flows from financing activities:                                                |  |                                |        
|Repayments of bank debt                                                              |  |                                | (23,000
|Proceeds from bank debt                                                              |  |                                | 25,500 
|Repayments of long-term debt                                                         |  |                                | (11,192
|Partners minimum tax distributions                                                  |  |                                | (23    
|                                                                                     |  |                                |        
|Net cash used in financing activities                                                |  |                                | (8,715 
|                                                                                     |  |                                |        
|Net increase in cash and cash equivalents                                            |  |                                | 5,580  
|Cash and cash equivalents, beginning of period                                       |  |                                | 9,691  
|                                                                                     |  |                                |        
|Cash and cash equivalents, end of period                                             |  | $                              | 15,271 
|                                                                                     |  |                                |        
|                                                                                    
|Supplemental cash flow information -                                                 |  |                                |        
|Interest paid during the period                                                      |  | $                              | 18,144 
|Non-cash activities -                                                                |  |                                |        
|Outstanding principal amount on revolving credit facility converted to a term loan A |  |                                | 29,300 
|Net change in unrealized loss on cash flow hedging derivative                        |  |                                | 339    



See accompanying notes
to unaudited consolidated financial statements.



4



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PETRO STOPPING CENTERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



(1) Basis of Presentation



The accompanying unaudited consolidated financial statements, which include the accounts of Petro Stopping Centers, L.P. and its wholly owned subsidiaries
(the Company), have been prepared in accordance with the instructions to Form 10-Q and, therefore, certain financial information has been condensed and certain footnote disclosures have been omitted. Such information and disclosures are
normally included in financial statements prepared in accordance with generally accepted accounting principles.



These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto in the Annual
Report of the Company on Form 10-K for the year ended December 31, 2002 (2002 Form 10-K). Capitalized terms used in this report and not defined herein have the meanings ascribed to such terms in the 2002 Form 10-K. In the opinion of
management of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company at December 31, 2002 and September 30, 2003, the results of operations
for the three and nine months ended September 30, 2002 and September 30, 2003, changes in partners capital (deficit) and comprehensive income for the nine months ended September 30, 2003, and cash flows for the nine months ended September 30,
2002 and September 30, 2003. The results of operations for the three and nine months ended September 30, 2003 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 $61.0 million and $65.0 million for the three months ended September 30, 2002 and 2003, respectively, and $181.1 million and $186.9 million for the nine months ended September
30, 2002 and 2003, respectively.



(2) Significant Accounting Policies



Asset Retirement Obligations



On January 1, 2003, the Company adopted Statement of Financial Accounting
Standards No. 143, 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 the use of an allocation approach 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 of $477,000 has been recorded as a liability. The implementation of this standard resulted in a one time cumulative effect of a change in
accounting principle of $397,000.



Pro forma effects on net
income before cumulative effect of a change in accounting principle assuming the application of SFAS No. 143 on a retroactive basis for the periods shown are as follows:



|                                                                    |  | Three Months EndedSeptember 30, 2002 |       | Nine Months EndedSeptember 30, 2002
|------------------------------------------------------------------- |  | ------------------------------------ | ----- | -----------------------------------
|                                                                    |  | Actual                               |       | Pro forma                          
|                                                                    |  | (in thousands)                       |       | (in thousands)                     
|Income before cumulative effect of a change in accounting principle |  | $                                    | 3,594 |                                    
|Net income                                                          |  | $                                    | 3,594 |                                    



(continued)

5



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PETRO STOPPING CENTERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



As of December 31, 2001 and 2002, the pro forma asset retirement liability would have been $385,000
and $443,000, respectively.



A reconciliation of the
Companys asset retirement obligation for the nine months ended September 30, 2003 is as follows:



|                      |  | Nine Months EndedSeptember 30, 2003
|--------------------- |  | -----------------------------------
|                      |  | (in thousands)                     
|January 1, 2003       |  | $                                  
|Liabilities incurred  |  |                                    
|Liabilities settled   |  |                                    
|Revisions of estimate |  |                                    
|Accretion expense     |  |                                    
|                      |  |                                    
|September 30, 2003    |  | $                                  
|                      |  |                                    



Partnership Interests Option Plan



The Company has established an equity incentive plan
(Option Plan) to attract and retain key personnel, including senior management, and to enhance their interest in the Companys continued success, which is more fully described in Note 11 in Notes to Consolidated Financial Statements
included in the Companys 2002 Form 10-K. The Company applies Accounting Principles Board Opinion No. 25 in accounting for its Option Plan. Accordingly, compensation costs for partnership interest options are measured as the excess, if any, of
the market price of the partnership interests at the date of grant over the amount an employee must pay to exercise the option. No such compensation cost was recognized during the nine months ended September 30, 2002 and 2003.



Had compensation expense been determined consistent with Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of
FASB Statement No. 123, the Companys net income for the three and nine months ended September 30, 2002, and 2003 (no options were granted during the nine months ended September 30, 2002 or 2003) would have been recorded in the following
pro forma amounts:



|                                                                                                        |  | Three Months EndedSeptember 30, |       |   | Nine Months EndedSeptember 30, |  
|------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ----- | - | ------------------------------ | -
|                                                                                                        |  | 2002                            |       |   | 2003                           |  
|                                                                                                        |  | (in thousands)                  |       |   | (in thousands)                 |  
|Net income  as reported                                                                                |  | $                               | 3,594 |   |                                | $
|Deduct: Total stock-based employee compensation determined under fair value based method for all awards |  |                                 | (13   | ) |                                |  
|                                                                                                        |  |                                 |       |   |                                |  
|Net income  pro forma                                                                                  |  | $                               | 3,581 |   |                                | $
|                                                                                                        |  |                                 |       |   |                                |  



For pro forma
disclosure purposes, the Company recognizes compensation cost on a straight-line basis over the related service period.



Reclassifications



Certain prior period amounts have been reclassified to conform to the current year presentation.



(continued)

6



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PETRO STOPPING CENTERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



(3) Segments



The Company has two reportable operating segments: company-operated truck stops and franchise operations.



The Company operates 37 multi-service truck stops in the United States. The
Companys facilities, which are known as Petro Stopping Centers®, offer a broad range of products, services, and amenities, including diesel fuel, gasoline, home-style restaurants, truck preventive maintenance centers, and retail merchandise stores primarily to professional
truck drivers and other highway motorists. The Company has aggregated its company-operated truck stops into one reportable operating segment based on the distribution of products and services under one common site facility, classified as a
multi-service truck stop. During the three months ended September 30, 2002 and 2003, the revenues generated from the company-operated truck stops were $241.4 million and $270.2 million, respectively, and $679.2 million and $790.5 million for the
nine months ended September 30, 2002 and 2003, respectively.



As of September 30, 2003, the Company is a franchisor to 23 Petro Stopping Center locations. The Company collects royalties and fees in exchange for the use of its tradenames and trademarks and for certain services provided to the
franchisees. Franchise fees are based generally upon a percentage of the franchisees sales. During the three months ended September 30, 2002 and 2003, the revenues generated from the Companys franchise operations were $1.4 million and
$1.5 million, respectively, and $3.7 million and $4.0 million for the nine months ended September 30, 2002 and 2003, respectively. Franchise operations revenues, which include initial franchise fees and other revenue types, are combined in non-fuel
revenues reported on the accompanying unaudited consolidated statements of operations. The Company does not allocate any expenses in measuring this segments profit and loss, nor does it believe there are any significant financial commitments
or obligations resulting from these franchise agreements.



(4) Related-Party
Transactions



The Companys related-party
transactions are described in Note 8 in Notes to Consolidated Financial Statements included in the Companys 2002 Form 10-K. Management believes that its transactions with related-parties are on terms comparable to those that could have been
obtained in arms-length transactions.



Under an existing
agreement (the Amusement Agreement) between El Paso Vending and Amusement Company (EPAC), of which J.A. Cardwell, Sr. and James A. Cardwell, Jr. own 99.0% and 1.0%, respectively, and the Company, EPAC furnishes and services
video and other games to the company-operated Petro Stopping Centers. The term of the Amusement Agreement expired in May 2002 and operated on a month to month basis prior to the renewal and extension of the Amusement Agreement, which was made as of
April 1, 2003 for a three year term ending March 31, 2006. The Amended Amusement Agreement shall automatically renew for successive one year terms unless either party provides a written notice of termination at least ninety days prior to the
termination of the extended initial term or any renewal term. The Amended Amusement Agreement currently provides that at 31 of the company-operated Petro Stopping Centers, the Company and EPAC are entitled to 50% each of the revenues generated by
the games for 24 sites and at the remaining 7 sites, the Company and EPAC are entitled to 60% and 40%, respectively, of the revenues generated by the games.



The office building in which the Companys principal executive offices are located is owned by J.A. Cardwell, Sr., the Chief Executive Officer and
Chairman of the Company. The Company rents the entire building under a lease agreement, as amended on July 10, 2003, which extended the term of the lease from December 31, 2005 to December 31, 2013. Under the lease agreement, the Company pays rent
totaling $336,000 per year and is required to pay all taxes, maintenance, and other operating expenses related to the building.



Concurrent with the Companys 1999 Recapitalization, J.A. Cardwell, Sr., James A. Cardwell, Jr., Petro, Inc., and JAJCO II Inc. each entered into an
indemnity agreement under which he or it agreed to



(continued)

7



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PETRO STOPPING CENTERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



indemnify the Company and Holdings, and the general and limited partners thereof, for a definitive amount of debt arising out of the 1999 Recapitalization.
The indemnity agreements were entered into by the parties to address specific income tax issues arising out of the 1999 Recapitalization under the at-risk limitation rules, the partnership basis rules, and the liability allocation rules
found in the Internal Revenue Code and the Treasury regulations. Consequently, each partys obligation under its respective indemnity agreement is determined by taking into account that partys basis in its partnership interest and the
applicable at-risk rules and liability allocation rules. The indemnity agreements do not relieve the Company and Holdings, and the general and limited partners thereof, from making regular interest and principal payments on and otherwise
satisfying all obligations of the debt obligations arising out of the 1999 Recapitalization until (i) an event of default or default has occurred in connection with one or more of the debt obligations, which remains uncured and/or is not otherwise
waived, (ii) all amounts owing on the debt obligations that are in default become immediately due and payable, and (iii) all real and personal property, if any, liable for securing the debt obligations that are in default has been exhausted or
otherwise disposed of to satisfy the debt obligations.



(5) Guarantees



The Company guaranteed a portion of the debt of its joint
venture, Petro Travel Plaza LLC, under a Repayment Guaranty dated as of June 4, 1999 and last modified on November 25, 2002. The guaranteed amount is reduced as the outstanding principal balance of the loan is reduced. The guarantee is reduced to
zero when the loan to value ratio is equal to or less than 0.5 to 1.00. As of September 30, 2003, the maximum potential amount of future payments related to the guarantee was $356,000.



Additionally, the Company guaranteed a portion of the debt of Petro Travel Plaza LLC under a Continuing Guaranty dated as of
May 12, 2003. Any payment by the Guarantor with respect to the debt shall not reduce Guarantors maximum obligation. As of September 30, 2003, the maximum potential amount of future payments related to the guarantee was $75,000. The fair value
of the guarantee is insignificant.



(6) Recently Issued Accounting
Pronouncements



In May 2003, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS No. 150). SFAS No. 150 established standards
for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires issuers to classify as liabilities three classes of freestanding financial instruments that embody
obligations for the issuer. Upon adoption of SFAS No.150, an entity reports the cumulative effect of a change in accounting principle by initially measuring the financial instrument at fair value or other measurement attribute required by this
statement. Adoption of SFAS No. 150 was effective at the beginning of the first interim period beginning after June 15, 2003. On July 1, 2003, the Company adopted this statement, however it had no significant impact on the Companys financial
position or results of operations.



8



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|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- |  | -------------------------------------------------------------------------------------



The information contained in this Item 2 updates, and should be read in conjunction with, the information set forth in Part
II, Item 7 of our 2002 Form 10-K.



Certain sections of this
Form 10-Q, including Managements Discussion and Analysis of Financial Condition and Results of Operations, contain various forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 which
represent our expectations or beliefs concerning future events that involve risks and uncertainties. All statements, other than statements of historical facts included in this Form 10-Q, may be considered forward-looking statements. We caution that
these statements are further qualified by important factors, some of which we have little or no control over, 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, Critical Accounting Policies, Transactions with Related-Parties, Network Development, Liquidity and
Capital Resources, and Results of Operations. In addition, in the preparation of the financial statements, we make various estimates and assumptions that are by their nature forward-looking statements.



Reporting Format



We have two reportable operating segments: company-operated truck stops and franchise operations.



We operate 37 multi-service truck stops in the United States. Our facilities,
which are known as Petro Stopping Centers®, generally are built on fifteen to thirty acres of land situated at a convenient location with easy interstate highway access. They can each generally accommodate 200 to 300 trucks and 100 to 175 cars or
recreational vehicles in spacious, well-lit, and fenced parking lots, which are designed to provide good traffic flow, reduce accidents, and enhance security for the drivers, their trucks and freight. Within the Petro Stopping Center network, we
offer standardized and consistent products and services to accommodate the varied needs of professional truck drivers and other highway motorists. Generally, these include separate gas and diesel fueling islands, our home-style Iron
Skillet®restaurants, truck preventive maintenance and repair services, and travel and
convenience stores offering an array of merchandise selected to cater to professional truck drivers needs during long periods away from home. In addition, we provide amenities such as telephone, fax, photocopying, internet access, other
communication services, and postal services. Most Petro Stopping Centers also offer certified truck weighing scales, truck washes, laundry facilities, private showers, video games, television and/or movie rooms, and barbershops. We have aggregated
our company-operated truck stops into one reportable operating segment based on the distribution of products and services under one common site facility, classified as a multi-service truck stop. During the three months ended September 30, 2002 and
2003, the revenues generated from our company-operated truck stops were $241.4 million and $270.2 million, respectively, and $679.2 million and $790.5 million for the nine months ended September 30, 2002 and 2003, respectively.



We believe there are approximately 2,400 multi-service and pumper truck stops
located in the United States. Approximately 32% of the multi-service truck stops are operated by five national chains, of which we are one.



As of September 30, 2003, we are a franchisor to 23 Petro Stopping Center locations. We collect royalties and fees in exchange for the use of our
tradenames and trademarks and for certain services provided to the franchisees. Franchise fees are based generally upon a percentage of the franchisees sales. During the three months ended September 30, 2002 and 2003, the revenues generated
from our franchise operations were $1.4 million and $1.5 million, respectively, and $3.7 million and $4.0 million for the nine months ended September 30, 2002 and 2003, respectively. Franchise operations revenues, which include initial franchise
fees and other revenue types, are combined in non-fuel revenues reported on the accompanying unaudited consolidated statements of operations. We do not allocate any expenses in measuring this segments profit and loss, nor do we believe there
are any significant financial commitments or obligations resulting from these franchise agreements.



9



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The following table sets forth our total consolidated revenues by major source:



SUMMARY OF SOURCES OF REVENUES



|                                |  | Three Months Ended September 30, |         |  | Nine Months Ended September 30, |  
|------------------------------- |  | -------------------------------- | ------- |  | ------------------------------- | -
|                                |  | 2002                             |         |  | 2003                            |  
|                                |  | (dollars in thousands)           |         |  | (dollars in thousands)          |  
|Fuel                            |  | $                                | 180,629 |  | 74.4                            | %
|Non-Fuel (excluding restaurant) |  |                                  | 45,457  |  | 18.7                            | %
|Restaurant                      |  |                                  | 16,751  |  | 6.9                             | %
|                                |  |                                  |         |  |                                 |  
|Total Net Revenues              |  | $                                | 242,837 |  | 100.0                           | %
|                                |  |                                  |         |  |                                 |  



Our fuel revenues and
related cost of sales include a significant amount of federal and state motor fuel taxes. Such taxes were $61.0 million and $65.0 million for the three months ended September 30, 2002 and 2003, respectively, and $181.1 million and $186.9 million for
the nine months ended September 30, 2002 and 2003, respectively.



On January 1, 2003, we adopted Statement of Financial Accounting Standards No. 143, 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 the use of an allocation approach for subsequent changes in the measurement of
the liability. SFAS No. 143 changes our accounting for underground storage tank removal costs and sewage plant waste removal costs. An asset retirement obligation of $477,000 has been recorded as a liability. The implementation of this standard
resulted in a one time cumulative effect of a change in accounting principle of $397,000.



Pro forma effects on net income before cumulative effect of a change in accounting principle assuming the application of SFAS No. 143 on a retroactive basis for the periods shown are as follows:



|                                                                    |  | Three Months EndedSeptember 30, 2002 |       | Nine Months EndedSeptember 30, 2002
|------------------------------------------------------------------- |  | ------------------------------------ | ----- | -----------------------------------
|                                                                    |  | Actual                               |       | Pro forma                          
|                                                                    |  | (in thousands)                       |       | (in thousands)                     
|Income before cumulative effect of a change in accounting principle |  | $                                    | 3,594 |                                    
|Net income                                                          |  | $                                    | 3,594 |                                    



No provision for
income taxes is reflected in the accompanying unaudited financial statements because we are a partnership for which taxable income and tax deductions are passed through to our partners.



Critical Accounting Policies



The preparation of our financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that
affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in our unaudited consolidated financial statements and accompanying notes. The U.S. Securities and Exchange
Commission has defined a companys critical accounting policies as the ones that are most important to the portrayal of the companys financial condition and results of operations, and which require the company to make its most difficult
and subjective judgments, often as a result of the need to make estimates about matters that are inherently uncertain. Based on this definition, we have identified our critical accounting policies as including those addressed below. We also have
other key accounting policies that involve the use of estimates, judgments, and assumptions. See Note 2 in Notes to Consolidated Financial Statements included in our 2002



10



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Form 10-K for additional discussion of these accounting policies. We believe that our estimates and assumptions are reasonable, based upon information
presently available, however, actual results may differ from these estimates under different assumptions or conditions.



Partial Self-Insurance



We are partially self-insured, paying our own employment practices, general liability, workers compensation, and group health benefit claims, up to
stop-loss amounts ranging from $100,000 to $250,000 on a per-occurrence basis. Provisions established under these partial self-insurance programs are made for both estimated losses on known claims and claims incurred but not reported, based on
claims history.



Loyalty Program



We utilize estimates in accounting for our Petro Passport loyalty program.
We record a liability for the estimated redemption of Petro points based upon our estimates about the future redemption rate of Petro points outstanding. A change to these estimates could have an impact on our liability in the year of the change as
well as in future years.



Transactions with Related-Parties



Our related-party transactions are described in our 2002 Form 10-K under
Item 13, Certain Relationships and Related Transactions. We believe that our transactions with related-parties are on terms comparable to those that could be obtained in arms-length transactions.



Our most significant related-party transactions are the two ten-year supply
agreements with ExxonMobil entered into in July 1999. Under the terms of one of these agreements, ExxonMobil will supply the company-operated Petro Stopping Centers diesel fuel and gasoline requirements in those markets in which Mobil branded
diesel fuel and gasoline is available for sale, and under the other of these agreements, we purchase lubricants, based upon minimum purchase commitments, at the prices set forth in the agreement. Under these agreements, ExxonMobil may extend us
trade credit on such terms and conditions as it may determine. Such trade credit was approximately $26.7 million at September 30, 2003. Mobil Long Haul, Inc., an affiliate of ExxonMobil, is one of Holdings limited partners and owns a portion of
Holdings mandatorily redeemable preferred partnership interests.



Under an existing agreement (the Amusement Agreement) between El Paso Vending and Amusement Company (EPAC), of which J.A. Cardwell, Sr. and James A. Cardwell, Jr. own 99.0% and 1.0%, respectively, and us, EPAC
furnishes and services video and other games to our company-operated Petro Stopping Centers. The term of the Amusement Agreement expired in May 2002 and operated on a month to month basis prior to the renewal and extension of the Amusement
Agreement, which was made as of April 1, 2003 for a three year term ending March 31, 2006. The Amended Amusement Agreement shall automatically renew for successive one year terms unless either party provides a written notice of termination at least
ninety days prior to the termination of the extended initial term or any renewal term. The Amended Amusement Agreement currently provides that at 31 of our company-operated Petro Stopping Centers, we and EPAC are entitled to 50% each of the revenues
generated by the games for 24 sites and at the remaining 7 sites, we and EPAC are entitled to 60% and 40%, respectively, of the revenues generated by the games.



The office building in which our principal executive offices are located is owned by J.A. Cardwell, Sr., the Chief Executive Officer and Chairman of
the Company. We rent the entire building under a lease agreement, as amended on July 10, 2003, which extended the term of the lease from December 31, 2005 to December 31, 2013. Under the lease agreement, we pay rent totaling $336,000 per year and we
are required to pay all taxes, maintenance, and other operating expenses related to the building.



Concurrent with our 1999 Recapitalization, J.A. Cardwell, Sr., James A. Cardwell, Jr., Petro, Inc., and JAJCO II Inc. each entered into an indemnity
agreement under which he or it agreed to indemnify us and Holdings, and the general and limited partners thereof, for a definitive amount of debt arising out of the 1999 Recapitalization. The indemnity agreements were entered into by the parties to
address specific income tax issues arising out of the 1999 Recapitalization under the at-risk limitation rules, the partnership basis rules, and the liability allocation rules found in the Internal Revenue Code and the Treasury
regulations. Consequently, each partys obligation under its respective indemnity agreement is determined by taking into account that partys basis in its partnership interest and the applicable at-risk rules and liability
allocation rules. The indemnity agreements do not relieve us and Holdings, and the general and limited partners thereof,



11



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from making regular interest and principal payments on and otherwise satisfying all obligations of the debt obligations arising out of the 1999
Recapitalization until (i) an event of default or default has occurred in connection with one or more of the debt obligations, which remains uncured and/or is not otherwise waived, (ii) all amounts owing on the debt obligations that are in default
become immediately due and payable, and (iii) all real and personal property, if any, liable for securing the debt obligations that are in default has been exhausted or otherwise disposed of to satisfy the debt obligations.



Network Development



The following table sets forth the development of our Petro Stopping Centers
network since 1999:



|                             |  | As of September 30,
|---------------------------- |  | -------------------
|                             |  | 1999               
|Company-operated             |  | 29                 
|Franchise operation          |  | 22                 
|                             |  |                    
|Total Petro Stopping Centers |  | 51                 
|                             |  |                    



The following table
sets forth information on existing Petro Stopping Centers opened from September 30, 1999 through September 30, 2003, all but three of which are full-sized facilities.



|Location             |  | Date Opened            
|-------------------- |  | -----------------------
|                     | 
|Company-operated:    |  |                        
|                     |  |                        
|                     |  | Jackson, Mississippi   
|                     |  | Mebane, North Carolina 
|                     |  | Glendale, Kentucky     
|                     |  | Carlisle, Pennsylvania 
|                     |  | Los Banos, California  
|                     |  | North Las Vegas, Nevada
|                     |  | Fremont, Indiana       
|                     |  | Sparks, Nevada         
|                     | 
|Franchise operation: |  |                        
|                     |  |                        
|                     |  | Racine, Wisconsin      
|                     |  | Oak Grove, Missouri    
|                     |  | Glade Spring, Virginia 
|                     |  | Greensburg, Indiana    
|                     |  | Mortons Gap, Kentucky 
|                     |  | Gaston, Indiana        



As described in our
prior filings, one of our franchisees, which operates three franchise locations, has entered into a purchase and sale agreement. This transaction, with an unrelated entity, was consummated in October 2003. The franchisee and the franchise rights
remain unchanged.



Liquidity and Capital Resources



At September 30, 2003, our principal sources of liquidity were:



| |  | $16.4 million in available borrowing capacity under the revolving credit portion of our senior credit facility; and
| | - | -------------------------------------------------------------------------------------------------------------------



| |  | Cash flows from operations of $25.8 million for the nine months ended September 30, 2003. The increase in cash flows from operations, compared to $17.5 million for
the nine months ended September 30, 2002, was primarily due to fluctuations in the timing of payments for fuel to Mobil
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | Diesel Supply Corporation, a wholly owned subsidiary of ExxonMobil, a decrease in inventories, and higher operating income, offset by variations in the
timing of payments for trade accounts payable.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



At September 30, 2003, our senior credit facility consisted of a $25.0 million revolving credit facility, and two term loans, A and B, with original principal amounts of $29.3 million and $40.0 million, and maturity dates of June 30, 2004
and July 23, 2006, respectively. At September 30, 2003, we had $9.6 million and $34.9 million outstanding under the term loans A and B, respectively. Any funds drawn on our senior credit facility are secured by substantially all of our assets and
the guarantees of Petro, Inc. and each of our subsidiaries.



Under the term loan A, we made our first of eight scheduled quarterly principal payments of $3.7 million in September 2002. In December 2002, an optional payment was made on the term loan A, which reduced the required quarterly principal
payments to $3.5 million. In addition to the scheduled quarterly principal payments, we made an annual required excess cash flow related principal payment on the term loan A, of approximately $241,000 on April 15, 2003, based on excess cash flow as
defined in our senior credit facility. This required excess cash flow payment reduces scheduled principal payments at the end of the term.



Under the term loan B we have been making scheduled quarterly principal payments since September 30, 2000. The first sixteen scheduled quarterly principal
payments under the term loan B are $250,000 each, the next four quarterly principal payments are $3.0 million each and the last three quarterly installments are $6.0 million each, with the remaining unpaid balance being due at maturity in July 2006.
We made an annual required excess cash flow principal payment on the term loan B of approximately $516,000 on April 15, 2003. This required excess cash flow payment reduces scheduled principal payments at the end of the term.



Under the revolving credit portion of our senior credit facility, $25.0
million is available on a revolving basis until maturity at July 23, 2004. Interest on drawn funds is paid quarterly at a current spread of 1.5% above the banks base rate or 3.0% over the Eurodollar rate (the rate is determined at the time of
borrowing, at our option). Commitment fees of 0.5% of undrawn funds are paid quarterly. At September 30, 2003, we had no borrowings outstanding under this portion of our senior credit facility and had $8.6 million in standby letters of credit
outstanding, which reduce our borrowing capacity under this portion of our senior credit facility on a dollar for dollar basis. Approximately $7.2 million of these letters of credit are required to be posted with our insurance carriers in connection
with our obtaining liability and other insurance coverage. As these letters of credit have traditionally had twelve month terms and will expire in June 2004, we will need to make alternative letters of credit or other arrangements at that time in
light of the July 2004 maturity of this portion of our senior credit facility. We are in compliance with all financial covenants under our senior credit facility.



The following is a summary of our contractual cash obligations as of September 30, 2003:



|ContractualCash Obligations                      |  | Total          |         | LessThan1 Year |   | 1-3 Years |  | 4-5 Years |        | After5 Years
|------------------------------------------------ |  | -------------- | ------- | -------------- | - | --------- |  | --------- | ------ | ------------
|                                                 |  | (in thousands)
|Long-term debt (including unamortized discounts) |  | $              | 179,511 |                | $ | 16,641    |  | $         | 27,870 |             
|Operating leases                                 |  |                | 42,598  |                |   | 4,572     |  |           | 11,857 |             
|                                                 |  |                |         |                |   |           |  |           |        |             
|Total                                            |  | $              | 222,109 |                | $ | 21,213    |  | $         | 39,727 |             
|                                                 |  |                |         |                |   |           |  |           |        |             



In addition to the
above, we have an annual volume commitment associated with the ExxonMobil Supply Agreements. See Note 8 in Notes to Consolidated Financial Statements included in our 2002 Form 10-K for additional discussion.



We guaranteed a portion of the debt of our joint venture, Petro Travel Plaza
LLC, under a Repayment Guaranty dated as of June 4, 1999 and last modified on November 25, 2002. The guaranteed amount is reduced as the outstanding principal balance of the loan is reduced. The guarantee is reduced to zero when the loan to value
ratio is equal to or less than 0.5 to 1.00. As of September 30, 2003, the maximum potential amount of future payments related to the guarantee was $356,000.



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Additionally, we guaranteed a portion of the debt of Petro Travel Plaza LLC under a Continuing Guaranty
dated as of May 12, 2003. Any payment by us with respect to the debt shall not reduce our maximum obligation. As of September 30, 2003, the maximum potential amount of future payments related to the guarantee was $75,000. The fair value of the
guarantee is insignificant.



We had negative working capital of
$28.7 million and $25.2 million at December 31, 2002 and September 30, 2003, respectively. Negative working capital is normal in the truck stop industry since diesel fuel inventory turns approximately every two to three days, but payment for such
fuel purchases can generally be made over a longer period of time. Approximately 90.1% of our sales are cash sales (or the equivalent in the case of sales paid for on credit, which are funded on a daily basis by third-party billing companies).



Capital expenditures on our truck stop network totaled $3.9
million for the nine months ended September 30, 2003. We currently expect to invest approximately $2.0 million during the remainder of 2003 on capital expenditures related to regular capital maintenance and improvement projects. These capital
outlays will be funded through borrowings under our senior credit facility and internally generated cash.



We are partially self-insured, paying our own employment practices, general liability, workers compensation, and group health benefit claims, up to
stop-loss amounts ranging from $100,000 to $250,000 on a per occurrence basis. During the nine months ended September 30, 2003, we paid approximately $5.4 million on claims related to these partial self-insurance programs. Provisions established
under these partial self-insurance programs are made for both estimated losses on known claims and claims incurred but not reported, based on claims history. For the nine months ended September 30, 2003, aggregated provisions amounted to
approximately $6.5 million. At September 30, 2003, the aggregated accrual amounted to approximately $7.9 million, which we believe is adequate to cover both reported and incurred but not reported claims.



Based on the foregoing, we believe that internally generated funds, together
with amounts available under our senior credit facility, will be sufficient to satisfy our cash requirements for operations and debt service through 2004, assuming we will be able to make the alternative letters of credit or other arrangements
discussed above in connection with our insurance coverage. As it would be beneficial to have these arrangements in place in connection with the July 2004 maturity of our senior credit facility, we are exploring alternative arrangements to address
that situation and our longer term liquidity needs. Holdings currently has outstanding an exchange offer with respect to its 15.0% senior discount notes due 2008 which would be part of a proposed future refinancing involving the replacement of our
senior credit facility and the issuance of additional debt by us in replacement of certain outstanding obligations. Although we expect to be able to make the letter of credit or other arrangements described above, our ability to make them, satisfy
our other obligations, maintain covenant compliance under our senior credit facility, and to complete the proposed refinancing is dependent upon a number of factors, some of which are beyond our control, including economic, capital market, and
competitive conditions.



Results of Operations



Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002



Overview.Net income increased compared to the
prior year period mainly due to our continued focus on improving efficiencies in our operations, the addition of our new sites, and lower depreciation and interest expense. Our net revenues increased mainly due to higher fuel revenues as a result of
an increase in our average retail-selling price of fuel and the addition of our new sites. Our net revenues of $794.5 million increased 16.3% in the first nine months of 2003 from $682.9 million in the first nine months of 2002. On a comparable unit
basis, net revenues increased by 10.9% to $755.3 million from $681.3 million in the prior year period, due to the increase in our average retail-selling price of fuel, partially offset by a decrease in the volume of fuel gallons sold. A Petro
Stopping Center is considered a comparable unit in the current year if it was open twelve months in the prior year. During the period we operated with 34 company-operated comparable units out of a total of 36 company-operated units at September 30,
2003, in each case excluding our jointly-owned Wheeler Ridge facility, which is reflected in equity in income of affiliate. Operating expenses increased 8.0% to $98.3 million from $91.0 million in the prior year period due primarily to the addition
of our new sites.



Fuel.Revenues increased 20.7% to
$607.9 million in the first nine months of 2003 compared to $503.6 million in the first nine months of 2002. Fuel revenues increased due to a 17.6% increase in our average



14



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retail-selling price per gallon compared to the prior year period, as well as the addition of our new sites. Gross profit increased by 8.6% to $31.3 million
in the first nine months of 2003 compared to $28.9 million in the first nine months of 2002. On a comparable unit basis, fuel revenues increased 14.6% due to a 17.2% increase in our average retail-selling price per gallon, partially offset by a
decrease of 2.2% in fuel volumes compared to the prior year period. On a comparable unit basis, gross profit increased by 1.0% or $274,000 in the first nine months of 2003 compared to the prior year period.



Non-Fuel (excluding restaurant). Revenues increased 4.0% to $135.8
million in the first nine months of 2003 from $130.5 million in the first nine months of 2002. Gross profit increased 5.3% to $76.1 million in the first nine months of 2003 from $72.3 million in the prior year period. The increases in non-fuel
revenues and gross profit were primarily due to a 4.4% or $5.3 million increase in general merchandise sales at our retail stores and increased sales at our lube facilities due primarily to the addition of our new sites. On a comparable unit basis,
non-fuel revenues increased 1.2% or $1.6 million compared to the prior year period and gross profit increased 2.5% or $1.8 million compared to the prior year period.



Restaurant. Revenues increased 4.1% to $50.8 million in the first nine months of 2003 compared to $48.8 million in
the first nine months of 2002, due to the addition of our new sites. Gross profit in the restaurants improved by 2.1% or $734,000. On a comparable unit basis, restaurant revenues decreased by 1.5% and gross profits decreased by 3.3% from the prior
year period due to decreased customer traffic, while the average ticket price remained substantially the same as the prior year period.



Costs and Expenses. Total costs and expenses increased 16.7% to $772.8 million in the first nine months of 2003 compared to $662.1 million in the
first nine months of 2002. Cost of sales increased $104.5 million or 19.1% from the prior year period primarily due to a 18.4% increase in our average cost of fuel per gallon and the addition of our new sites. Operating expenses increased 8.0% or
$7.3 million to $98.3 million compared to the prior year period primarily due to the addition of our new sites. On a comparable unit basis, total costs and expenses increased 11.2% or $73.8 million compared to the prior year period. On a comparable
unit basis, cost of sales increased $73.1 million or 13.4% from the prior year period primarily due to a 18.0% increase in our average cost of fuel per gallon. On a comparable unit basis, operating expenses increased 2.1% or $1.9 million to $92.6
million compared to the prior year period primarily due to higher employee-related costs, increased utility costs, and higher credit card fees associated with the increased fuel costs. General and administrative expenses decreased 2.4% to $11.5
million compared to $11.8 million in the prior year period primarily due to a decrease in professional services expenses.



Equity in Income of Affiliate.We recognized income of $354,000 related to our investment in the Wheeler Ridge facility in Southern California
compared to $302,000 of income in the first nine months of 2002.



Interest Expense. Interest expense decreased 7.3% or $1.2 million to $14.6 million compared to the first nine months of 2002, due primarily to the decrease in both our borrowings and interest rates in the current year.



Three Months Ended September 30, 2003 Compared to Three Months Ended
September 30, 2002



Overview.Net income increased
compared to the prior year quarter due to our continued focus on improving efficiencies in our operations and also to lower depreciation and interest costs. Our net revenues increased mainly due to higher fuel revenues as a result of an increase in
our average retail-selling price of fuel and the addition of our new sites. Our net revenues of $271.7 million increased 11.9% from $242.8 million in the prior year quarter. On a comparable unit basis, net revenues increased by 6.7% to $257.4
million from $241.2 million in the prior year quarter, due to the increase in our average retail-selling price of fuel. A Petro Stopping Center is considered a comparable unit in the current year if it was open twelve months in the prior year.
During the quarter we operated with 34 company-operated comparable units out of a total of 36 company-operated units at September 30, 2003, in each case excluding our jointly-owned Wheeler Ridge facility, which is reflected in equity in income of
affiliate. Operating expenses increased 9.5% to $34.1 million from $31.1 million in the prior year quarter due primarily to the addition of our new sites.



15



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Fuel.Revenues increased 13.4% to $204.8 million compared to $180.6 million in the prior year
quarter. Fuel revenues increased due to a 7.6% increase in our average retail-selling price per gallon compared to the prior year quarter, as well as the addition of our new sites. Gross profit increased by 12.0% to $11.2 million compared to $10.0
million in the prior year quarter. On a comparable unit basis, fuel revenues increased 7.7% due to a 7.1% increase in our average retail-selling price per gallon and an increase of 0.6% in fuel volumes compared to the prior year quarter. On a
comparable unit basis, gross profit increased by 5.9% or $584,000 compared to the prior year quarter.



Non-Fuel (excluding restaurant). Revenues increased 6.9% to $48.6 million from $45.5 million in the prior year quarter. Gross profit increased 6.2%
to $27.0 million from $25.5 million in the prior year quarter. The increases in non-fuel revenues and gross profit were primarily due to a 7.3% or $3.1 million increase in general merchandise sales at our retail stores and increased sales at our
lube facilities due primarily to the addition of our new sites. On a comparable unit basis, non-fuel revenues increased 3.8% or $1.7 million compared to the prior year quarter and gross profit increased 3.3% or $850,000 compared to the prior year
quarter.



Restaurant. Revenues increased 9.5% to $18.3
million compared to $16.8 million in the prior year quarter, due to the addition of our new sites. Gross profit in the restaurants improved by 3.6% or $427,000. On a comparable unit basis, restaurant revenues increased by 4.2% from the prior year
quarter due to increased customer traffic and an increase in the average ticket price to the prior year quarter. On a comparable unit basis, gross profits decreased by 1.1% from the prior year quarter due to increased food expenses.



Costs and Expenses. Total costs and expenses increased 12.3% to $263.0
million compared to $234.3 million in the prior year quarter. Cost of sales increased $25.7 million or 13.1% from the prior year quarter primarily due to a 7.6% increase in our average cost of fuel per gallon and the addition of our new sites.
Operating expenses increased 9.5% to $34.1 million from $31.1 million in the prior year quarter due primarily to the addition of our new sites. On a comparable unit basis, total costs and expenses increased 7.0% or $16.3 million compared to the
prior year quarter. On a comparable unit basis, cost of sales increased $14.9 million or 7.7% from the prior year quarter due to a 7.2% increase in our average cost of fuel per gallon. On a comparable unit basis, operating expenses increased 4.1% or
$1.3 million to $32.1 million compared to the prior year quarter primarily due to higher employee-related costs, an increase in marketing expenses, and higher credit card fees associated with the increased fuel costs. General and administrative
expenses increased 2.9% to $4.0 million compared to $3.9 million in the prior year quarter primarily due to higher employee-related costs.



Equity in Income of Affiliate.We recognized income of $196,000 related to our investment in the Wheeler Ridge facility in Southern California
compared to $175,000 of income in the prior year quarter.



Interest Expense. Interest expense decreased 7.3% or $376,000 to $4.8 million compared to the prior year quarter, due primarily to the decrease in both our borrowings and interest rates in the current year.



Recently Issued Accounting Pronouncements



In May 2003, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS No. 150). SFAS No. 150 established standards for how an issuer
classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires issuers to classify as liabilities three classes of freestanding financial instruments that embody obligations for the
issuer. Upon adoption of SFAS No.150, an entity reports the cumulative effect of a change in accounting principle by initially measuring the financial instrument at fair value or other measurement attribute required by this statement. Adoption of
SFAS No. 150 was effective at the beginning of the first interim period beginning after June 15, 2003. On July 1, 2003, we adopted this statement, however it had no significant impact on our financial position or results of operations.



16



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|Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk
|------- |  | ----------------------------------------------------------



We are exposed to market risk due to changes in commodity prices and interest rates. For a complete discussion of our market risks and our market risk
sensitive assets and liabilities, please refer to Item 7A, Quantitative and Qualitative Disclosures about Market Risk, included in our 2002 Form 10-K.



At September 30, 2003, we were party to an interest rate swap agreement which is a cash flow hedge and qualifies for the
shortcut method under the Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Under this agreement, we pay a fixed rate of 3.86% in exchange for a floating rate
based on LIBOR on the notional amount as determined in three-month intervals. For the three-month interval ending September 30, 2003, the notional amount was $18.5 million. The transaction effectively changes a portion of our interest rate exposure
from a floating rate to a fixed rate basis. For the nine months ended September 30, 2003, the effect of the swap was to increase the rate we were required to pay by 2.6%, which resulted in additional interest expense of approximately $367,000. As of
September 30, 2003, the interest rate swap had a negative fair value of approximately $127,000 which has been recorded in other liabilities and accumulated other comprehensive loss. As the swap matures on December 31, 2003, we expect the $127,000
negative fair value will be reclassified into net earnings (loss) during the remainder of the year ended December 31, 2003.



|Item 4. |  | Controls and Procedures
|------- |  | -----------------------



As of September 30, 2003, we completed an evaluation, under the supervision and with the participation of our management, including our Chief Executive
Officer and Treasurer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Treasurer and Chief Financial Officer
concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us which is required to be included in our periodic Securities and Exchange Commission filings.



There have been no significant changes in our internal controls or to our
knowledge, in other factors that could significantly affect internal controls subsequent to the date of our evaluation.



17



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PART II. OTHER INFORMATION



|Item 1. |  | Legal Proceedings
|------- |  | -----------------



We are party to various ordinary litigation incidental to our business for which estimates of losses have been accrued, when appropriate. In our opinion,
such proceedings will not have a material adverse effect on our financial position or results of operations.



|Item 6. |  | Exhibits and Reports on Form 8-K
|------- |  | --------------------------------



| | (a) | Exhibits
| | --- | --------



Incorporated herein by reference is a list of Exhibits contained in the Exhibit Index on page 20 of this Quarterly Report.



| | (b) | Reports on Form 8-K
| | --- | -------------------



The Registrant filed no report on Form 8-K during the quarter ended September 30, 2003.



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SIGNATURE



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



|                        |  |  |  | PETRO STOPPING CENTERS, L.P. (Registrant)
|----------------------- |  |  |  | -----------------------------------------
|                        |  |  | 
|Date: November 13, 2003 |  |  |  | By:                                      
|                        |  |  |  |                                          



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EXHIBIT INDEX



|Exhibit No. |  | Exhibit Description                                                                                                                                                                                                                                                                 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            | 
|3.1(aa)     |  | Amended and Restated Certificate of Limited Partnership of Petro Stopping Centers, L.P.                                                                                                                                                                                             
|            | 
|3.2(aa)     |  | Fourth Amended and Restated Limited Partnership Agreement of Petro Stopping Centers, L.P., dated July 23, 1999, by and among Petro Inc., as a General Partner and Petro Stopping
Centers Holdings, L.P., Petro Holdings GP, L.L.C., and James A. Cardwell, Jr., as Limited Partners.
|            | 
|31.1*       |  | Chairman and Chief Executive Officers Certification pursuant to Rule 13a-14(a) or 15d-14(a)                                                                                                                                                                                        
|            | 
|31.2*       |  | Treasurer and Chief Financial Officers Certification pursuant to Rule 13a-14(a) or 15d-14(a)                                                                                                                                                                                       

---

|(aa) | Incorporated by reference to Petro Stopping Centers, L.P.s Report on Form 8-K, filed on
August 6, 1999.
|---- | --------------------------------------------------------------------------------------------------------



|* | Filed herewith
|- | --------------



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