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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 March 31, 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 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  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 |         |   | March 31, 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 |   |                |  
|                                                               |  |                   |         |   |                |  
|                                                              
|Commitments and contingencies                                  |  |                   |         |   |                |  
|                                                              
|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 Ended March 31, |        
|-------------------------------------------------------------------------- |  | ---------------------------- | -------
|                                                                           |  | 2002                         |        
|Net revenues:                                                              |  |                              |        
|Fuel (including motor fuel taxes)                                          |  | $                            | 154,091
|Non-fuel                                                                   |  |                              | 55,598 
|                                                                           |  |                              |        
|Total net revenues                                                         |  |                              | 209,689
|                                                                          
|Costs and expenses:                                                        |  |                              |        
|Cost of sales                                                              |  |                              |        
|Fuel (including motor fuel taxes)                                          |  |                              | 145,354
|Non-fuel                                                                   |  |                              | 22,356 
|Operating expenses                                                         |  |                              | 29,429 
|General and administrative                                                 |  |                              | 3,664  
|Depreciation and amortization                                              |  |                              | 4,458  
|                                                                           |  |                              |        
|Total costs and expenses                                                   |  |                              | 205,261
|                                                                           |  |                              |        
|                                                                          
|Operating income                                                           |  |                              | 4,428  
|                                                                          
|Equity in income (loss) of affiliate                                       |  |                              | 26     
|Interest income                                                            |  |                              | 10     
|Interest expense                                                           |  |                              | (5,350 
|                                                                           |  |                              |        
|                                                                          
|Income (loss) before cumulative effect of a change in accounting
principle |  |                              | (886   
|                                                                          
|Cumulative effect of a change in accounting principle (note 2)             |  |                              |       
|                                                                           |  |                              |        
|                                                                          
|Net income (loss)                                                          |  | $                            | (886   
|                                                                           |  |                              |        



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 Three Months Ended March 31, 2003

(in thousands)



|                                                                  |  | General Partner Deficit |      |   | Limited Partners Capital |   |        | Accumulated Other Comprehensive Loss |  |   | Total Partners Capital |  
|----------------------------------------------------------------- |  | ----------------------- | ---- | - | ------------------------- | - | ------ | ------------------------------------ |  | - | ----------------------- | -
|Balances, December 31, 2002                                       |  | $                       | (232 | ) |                           | $ | 27,462 |                                      |  | $ | (456                    | )
|Net income                                                        |  |                         | 1    |   |                           |   | 224    |                                      |  |   |                        |  
|Unrealized loss on cash flow hedging derivative:                  |  |                         |      |   |                           |   |        |                                      |  |   |                         |  
|Unrealized holding loss arising during the period                 |  |                         |      |   |                           |   |        |                                      |  |   | (30                     | )
|Less: reclassification adjustment for loss realized in net income |  |                         |      |   |                           |   |        |                                      |  |   | 115                     |  
|                                                                  |  |                         |      |   |                           |   |        |                                      |  |   |                         |  
|Net change in unrealized loss                                     |  |                         |      |   |                           |   |        |                                      |  |   | 85                      |  
|                                                                  |  |                         |      |   |                           |   |        |                                      |  |   |                         |  
|Comprehensive income                                              |  |                         |      |   |                           |   |        |                                      |  |   |                         |  
|                                                                  |  |                         |      |   |                           |   |        |                                      |  |   |                         |  
|Partners minimum tax distributions                               |  |                         |     |   |                           |   | (38    | )                                    |  |   |                        |  
|                                                                  |  |                         |      |   |                           |   |        |                                      |  |   |                         |  
|Balances, March 31, 2003                                          |  | $                       | (231 | ) |                           | $ | 27,648 |                                      |  | $ | (371                    | )
|                                                                  |  |                         |      |   |                           |   |        |                                      |  |   |                         |  



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)



|                                                                                         |  | Three Months Ended March 31, |       
|---------------------------------------------------------------------------------------- |  | ---------------------------- | ------
|                                                                                         |  | 2002                         |       
|Cash flows from operating activities:                                                    |  |                              |       
|Net income (loss)                                                                        |  | $                            | (886  
|Adjustments to reconcile net income (loss) to net cash provided by operating
activities: |  |                              |       
|Depreciation and amortization                                                            |  |                              | 4,458 
|Cumulative effect of a change in accounting principle                                    |  |                              |      
|Deferred debt issuance cost amortization                                                 |  |                              | 424   
|Bad debt expense                                                                         |  |                              | 55    
|Equity in (income) loss of affiliate                                                     |  |                              | (26   
|Other operating activities                                                               |  |                              |      
|Increase (decrease) from changes in:                                                     |  |                              |       
|Trade accounts receivable                                                                |  |                              | (2,430
|Inventories                                                                              |  |                              | (811  
|Other current assets                                                                     |  |                              | 122   
|Due from affiliates                                                                      |  |                              | (506  
|Due to affiliates                                                                        |  |                              | 14,058
|Trade accounts payable                                                                   |  |                              | (8,401
|Accrued expenses and other liabilities                                                   |  |                              | (1,410
|                                                                                         |  |                              |       
|Net cash provided by operating activities                                                |  |                              | 4,647 
|                                                                                         |  |                              |       
|                                                                                        
|Cash flows from investing activities:                                                    |  |                              |       
|Purchases of property and equipment                                                      |  |                              | (401  
|Increase in other assets, net                                                            |  |                              | (42   
|                                                                                         |  |                              |       
|Net cash used in investing activities                                                    |  |                              | (443  
|                                                                                         |  |                              |       
|                                                                                        
|Cash flows from financing activities:                                                    |  |                              |       
|Repayments of bank debt                                                                  |  |                              | (6,500
|Proceeds from bank debt                                                                  |  |                              | 10,500
|Repayments of long-term debt                                                             |  |                              | (250  
|Partners minimum tax distributions                                                      |  |                              | (9    
|                                                                                         |  |                              |       
|Net cash provided by (used in) financing activities                                      |  |                              | 3,741 
|                                                                                         |  |                              |       
|                                                                                        
|Net increase in cash and cash equivalents                                                |  |                              | 7,945 
|Cash and cash equivalents, beginning of period                                           |  |                              | 9,691 
|                                                                                         |  |                              |       
|Cash and cash equivalents, end of period                                                 |  | $                            | 17,636
|                                                                                         |  |                              |       
|                                                                                        
|                                                                                        
|Supplemental cash flow information                                                      |  |                              |       
|Interest paid during the period                                                          |  | $                            | 8,069 
|Non-cash activities                                                                     |  |                              |       
|Net change in unrealized loss on cash flow hedging derivative                            |  |                              | (43   



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 March 31, 2003, the results of operations and cash flows for the three months ended March 31, 2002 and March 31, 2003, and changes in partners capital (deficit) and comprehensive loss
for the three months ended March 31, 2003. The results of operations for the three months ended March 31, 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 $60.8 million and $61.1 million for the three months ended March 31, 2002 and March 31, 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 for $454,000 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 (loss) before cumulative effect of a change in accounting principle assuming the application of SFAS No. 143 on a retroactive basis is as follows:



|                                                                  |  | Three Months Ended March 31, 2002 |     
|----------------------------------------------------------------- |  | --------------------------------- | ----
|                                                                  |  | Actual                            |     
|                                                                  |  | (in thousands)                    |     
|Loss before cumulative effect of a change in accounting principle |  | $                                 | (886
|Net loss                                                          |  | $                                 | (886





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 quarter ended March 31, 2003 is as follows:



|January 1, 2003       |  | $ | 443
|--------------------- |  | - | ---
|Liabilities incurred  |  |   |   
|Liabilities settled   |  |   |   
|Revisions of estimate |  |   |   
|Accretion expense     |  |   | 11 
|                      |  |   |    
|                     
|March 31, 2003        |  | $ | 454
|                      |  |   |    



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 three months ended March 31, 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 the 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 (loss) for the three months ended March 31, 2002, and 2003 (no options were granted during the three months ended March 31, 2002 or
2003) would have been recorded in the following pro forma amounts:



|                                                                                                        |  | Three Months Ended March 31, |     
|------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ----
|                                                                                                        |  | 2002                         |     
|                                                                                                        |  | (in thousands)               |     
|Net income (loss)  as reported                                                                         |  | $                            | (886
|Deduct: Total stock-based employee compensation determined under fair value based method
for all awards |  |                              | (14 
|                                                                                                        |  |                              |     
|Net income (loss)  pro forma                                                                           |  | $                            | (900
|                                                                                                        |  |                              |     



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.





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 March 31, 2002 and March 31, 2003, the revenues generated from the company-operated truck stops were $208.7 million and
$269.6 million, respectively.



As of March 31,
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 March 31, 2002 and March 31, 2003, the revenues generated from the Companys franchise operations were $1.0 million and $1.1 million, 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 Transaction



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 video and other games to the company-operated Petro Stopping Centers and services these games. 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 covers 31 of the company-operated Petro Stopping Centers, of which, the Company and EPAC are entitled to 50% each of the revenues generated by the games for 24 sites and with the remaining 7 sites, the Company and EPAC
are entitled to 60% and 40%, respectively, of the revenues generated by the games.



(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 March 31, 2003, the maximum potential amount of future payments related to the guarantee
was $365,000.





7



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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®, 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. 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 March 31, 2002 and March 31, 2003, the revenues generated from our company-operated truck stops were $208.7 million and $269.6 million, respectively.



As of March 31, 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 March 31, 2002 and
March 31, 2003, the revenues generated from our franchise operations were $1.0 million and $1.1 million, 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.



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



SUMMARY OF SOURCES OF REVENUES



|                                |  | Three Months Ended March 31, |        
|------------------------------- |  | ---------------------------- | -------
|                                |  | 2002                         |        
|                                |  | (dollars in thousands)       |        
|Fuel                            |  | $                            | 154,091
|Non-Fuel (excluding restaurant) |  |                              | 39,868 
|Restaurant                      |  |                              | 15,730 
|                                |  |                              |        
|Total Net Revenues              |  | $                            | 209,689
|                                |  |                              |        



8



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Our fuel
revenues and related cost of sales include a significant amount of federal and state motor fuel taxes. Such taxes were $60.8 million and $61.1 million for the three months ended March 31, 2002 and March 31, 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 for $454,000 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 (loss) before cumulative effect of a change in accounting principle assuming the application of SFAS No. 143 on a retroactive basis is as follows:



|                                                                  |  | Three Months Ended March 31, 2002 |     
|----------------------------------------------------------------- |  | --------------------------------- | ----
|                                                                  |  | Actual                            |     
|                                                                  |  | (in thousands)                    |     
|Loss before cumulative effect of a change in accounting principle |  | $                                 | (886
|Net loss                                                          |  | $                                 | (886



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 the individual 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 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



9



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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 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 video and other games to our company-operated Petro Stopping Centers and services these games. 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 covers 31 of
our company-operated Petro Stopping Centers, of which, we and EPAC are entitled to 50% each of the revenues generated by the games for 24 sites and with the remaining 7 sites, we and EPAC are entitled to 60% and 40%, respectively, of the revenues
generated by the games.



Network
Development



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



|                             |  | As of March 31,
|---------------------------- |  | ---------------
|                             |  | 1999           
|Company-operated             |  | 28             
|Franchise operation          |  | 21             
|                             |  |                
|Total Petro Stopping Centers |  | 49             
|                             |  |                



10



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The following
table sets forth information on currently existing Petro Stopping Centers opened from March 31, 1999 through March 31, 2003, all but three of which are full-sized facilities.



|Location                  |  | Date Opened   
|------------------------- |  | --------------
|Company-operated:         |  |               
|                         
|Wheeler Ridge, California |  | June 1999     
|Jackson, Mississippi      |  | November 1999 
|Mebane, North Carolina    |  | April 2000    
|Glendale, Kentucky        |  | June 2000     
|Carlisle, Pennsylvania    |  | September 2000
|Los Banos, California     |  | November 2000 
|North Las Vegas, Nevada   |  | January 2001  
|Fremont, Indiana          |  | August 2002   
|Sparks, Nevada            |  | December 2002 
|                         
|Franchise operation:      |  |               
|                         
|Racine, Wisconsin         |  | December 1999 
|Oak Grove, Missouri       |  | April 2001    
|Glade Spring, Virginia    |  | October 2001  
|Greensburg, Indiana       |  | June 2002     
|Mortons Gap, Kentucky    |  | October 2002  
|Gaston, Indiana           |  | October 2002  



One of
our franchisees has entered into an agreement to sell 3 franchise locations to an unrelated entity. Under the terms of the purchase and sale agreement, closing is to occur in May 2003, and in such event, we believe these locations will remain as
franchise locations and there will be no material affect on our current franchise business.



Liquidity and Capital Resources



At March 31, 2003, our principal sources of liquidity were:



| |  |  | $7.7 million in available borrowing capacity under the revolving credit portion of our senior credit facility; and
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | Cash flows from operations of $8.2 million for the three months ended March 31, 2003. The increase in cash flows from operations compared to $4.6 million from the
prior year quarter, was primarily due to fluctuations in the timing of payments for fuel to Mobil Diesel Supply Corporation, a wholly owned subsidiary of ExxonMobil, and higher operating income, offset by variations in the timing of payments for
trade accounts payable and other current liabilities and the timing of receipts related to trade receivables.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



At March 31, 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 March 31, 2003, we had $16.8 million and $36.0 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 future 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 based on excess cash flow as defined in our senior credit facility of approximately $241,000 on April 15, 2003. This required excess cash flow related principal payment reduces scheduled principal payments at the end of the term.



11



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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 related principal 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 1.75% above the banks base rate or 3.25% 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 March 31, 2003, we had $3.0 million in borrowings outstanding under this portion of our senior credit facility and had $8.5 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s. As these
letters of credit have twelve month terms and will need to be reissued in October 2003 in connection with the renewal of our insurance coverage, 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 March 31, 2003:



|Contractual Cash Obligations                     |  | Total          |         | Less Than 1 Year |   | 1-3 Years |  | 4-5 Years |         | After 5 Years
|------------------------------------------------ |  | -------------- | ------- | ---------------- | - | --------- |  | --------- | ------- | -------------
|                                                 |  | (in thousands)
|Long-term debt (including unamortized discounts) |  | $              | 190,722 |                  | $ | 18,664    |  | $         | 172,058 |              
|Operating leases                                 |  |                | 42,401  |                  |   | 4,548     |  |           | 12,011  |              
|                                                 |  |                |         |                  |   |           |  |           |         |              
|Total                                            |  | $              | 233,123 |                  | $ | 23,212    |  | $         | 184,069 |              
|                                                 |  |                |         |                  |   |           |  |           |         |              



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 March 31, 2003, the maximum potential amount of future payments related to the guarantee was $365,000.



We had negative working capital of $28.7 million and $27.9 million at December 31, 2002 and March 31, 2003,
respectively. Negative working capital is normal in the truck stop industry since diesel fuel inventory turns approximately every two to six days, but payment for such fuel purchases can generally be made over a longer period of time. Approximately
87.5% 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 $420,000 for the three months ended March 31, 2003. We
currently expect to invest approximately $7.5 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 three months ended March 31, 2003, we paid approximately $1.7 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



12



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claims history. For the three months ended March 31, 2003, aggregated provisions amounted to approximately
$2.4 million. At March 31, 2003, the aggregated accrual amounted to approximately $7.5 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 letter of credit or other
arrangements discussed above in connection with our insurance coverage. Although we expect to be able to make such arrangements, our ability to make them, satisfy our other obligations, maintain covenant compliance under our senior credit facility,
and to refinance our senior credit facility prior to its maturity is dependent upon a number of factors, some of which are beyond our control, including economic, capital market, and competitive conditions.



Results of Operations



Three Months Ended March 31, 2003 Compared to Three Months Ended March 31,
2002



Overview.    We have shown growth in net income compared to the prior year quarter due to the addition of our new sites, our continuing focus on improving efficiencies in our operations, 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 $270.7 million increased
29.1% from $209.7 million in the prior year quarter. On a comparable unit basis, net revenues increased by 23.2% to $258.4 million from $209.7 million in the prior year quarter, 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 quarter we operated with 34 company-operated
comparable units out of a total of 36 company-operated units at March 31, 2003, in each case excluding our jointly-owned Wheeler Ridge facility, which is reflected in equity in income (loss) of affiliate. Operating expenses increased 8.8% to $32.0
million from $29.4 million in the prior year quarter due primarily to the addition of our new sites. General and administrative expenses remained relatively flat to the prior year quarter.



Fuel.    Revenues increased 38.6% to $213.6 million compared to $154.1 million in
the prior year quarter. Fuel revenues increased due to a 38.0% increase in our average retail-selling price compared to the prior year quarter, as well as the addition of our new sites. Gross profit increased by 16.0% to $10.1 million compared to
$8.7 million in the prior year quarter. On a comparable unit basis, fuel revenues increased 31.9% due to a 37.6% increase in our average retail-selling price, partially offset by a decrease of 4.2% in fuel volumes compared to the prior year quarter.
On a comparable unit basis, gross profit increased by 9.0% or $788,000 compared to the prior year quarter.



Non-Fuel (excluding restaurant).    Revenues increased 3.6% to $41.3 million from $39.9 million in the prior
year quarter. The increase in non-fuel revenues is primarily due to the addition of our new sites. Gross profit increased 6.6% to $23.5 million from $22.0 million in the prior year quarter. On a comparable unit basis, non-fuel revenues increased
0.9% or $371,000 compared to the prior year quarter and gross profit increased 3.8% or $835,000 compared to the prior year quarter.



Restaurant.    Revenues increased 0.9% to $15.9 million compared to $15.7 million in the prior year quarter,
due to the addition of our new sites. Gross profit in the restaurants improved by 2.0% or $225,000. On a comparable unit basis, restaurant revenues decreased by 4.6% and gross profits decreased by 3.4% from the prior year quarter due to decreased
customer traffic, while average ticket price remained substantially the same as the prior year quarter.



Costs and Expenses.    Total costs and expenses increased 29.2% to $265.1 million compared to $205.3 million in
the prior year quarter. Cost of sales increased $58.0 million or 34.6% from the prior year quarter primarily due to a 39.3% increase in costs per fuel gallon, in addition to our new sites. Operating expenses increased 8.8% or $2.6 million to $32.0
million compared to the prior year quarter primarily due to the addition of our new sites. On a comparable unit basis, total costs and expenses increased 23.2% or $47.5 million compared to the prior year quarter. On a comparable unit basis, cost of
sales increased $47.5 million or 28.3%



13



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from the prior year quarter due to a 39.1% increase in costs per fuel gallon. On a comparable unit basis,
operating expenses increased 2.5% or $741,000 to $30.2 million compared to the prior year quarter primarily due to increased employee-related costs and higher credit card fees associated with increased fuel cost. General and administrative expenses
remained relatively flat to the prior year quarter.



Equity in Income (Loss) of Affiliate.    We recognized a loss of $43,000 related to our investment in the Wheeler Ridge facility in Southern California compared to $26,000 of income in the prior year
quarter.



Interest
Expense.    Interest expense decreased 7.2% or $385,000 to $5.0 million compared to the prior year quarter, due primarily to the decrease in both our borrowings and interest rates in the current year.



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
March 31, 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. 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 March 31, 2003, the notional
amount was $18.8 million. The transaction effectively changes a portion of our interest rate exposure from a floating rate to a fixed rate basis. For the three months ended March 31, 2003, the effect of the swap was to increase the rate we were
required to pay by 2.5%, which resulted in additional interest expense of approximately $115,000. As of March 31, 2003, the interest rate swap had a negative fair value of approximately $371,000 which has been recorded in other liabilities and
accumulated other comprehensive loss. As the swap matures on December 31, 2003, we expect the $371,000 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



Within the 90 days prior to the date of this report, 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.



We believe there have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of our evaluation.



14



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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.



Nancy
Santana, our Vice President, General Counsel and Secretary, resigned her position from the Company effective May 12, 2003 to assume a similar position in St. Louis, Missouri. Mrs. Santana had been our legal officer since July 1, 1998.



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 19 of this Quarterly Report.



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



None



15



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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.



|                  
|------------------
|                  
|                  
|Date: May 14, 2003
|                  



16



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Certifications



I, J.A. Cardwell, Sr.,
certify that:



1. I have reviewed this quarterly report on Form
10-Q of Petro Stopping Centers, L.P.;



2. Based on my knowledge,
this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this quarterly report;



3. Based on my
knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;



4. The
registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;



b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and



c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;



5. The registrants other certifying
officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):



a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and



b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls; and



6. The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



Date: May 14, 2003



/s/ J.A. Cardwell, Sr.

(J.A.
Cardwell, Sr.)

Chairman and Chief Executive Officer



17



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Certifications



I, Edward Escudero,
certify that:



1. I have reviewed this quarterly report on Form
10-Q of Petro Stopping Centers, L.P.;



2. Based on my knowledge,
this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this quarterly report;



3. Based on my
knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;



4. The
registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;



b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and



c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;



5. The registrants other certifying
officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):



a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and



b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls; and



6. The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



Date: May 14, 2003



/s/ Edward Escudero

(Edward Escudero)

Treasurer and Chief
Financial Officer



18



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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.
|           
|10.29*      |  | Renewal and Extension of Petro/El Paso Amusement Services Agreement, dated April 1, 2003, by and between Petro
Stopping Centers, L.P. and El Paso Vending and Amusement Company.                                                                                                    



---

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



* Filed herewith



19