Pilot Flying J CFO Says Finances 'Exceptionally Strong'

"Losing very small amount of volume" over rebate scandal; debt less than reported

Mitch Steenrod

KNOXVILLE, Tenn. -- Amid the scrutiny brought on by the investigation into an alleged diesel fuel rebate scam, Pilot Flying J has released a Q&A with CFO Mitch Steenrod regarding the truckstop company's financial stability, recent sales performance and debt levels.

The Knoxville, Tenn.-based company has been under investigation and more than two-dozen lawsuits have been filed since April 15, when agents of the FBI and the IRS raided its headquarters and seized documents, emails and computer files related to the alleged scheme to cheat trucking-company customers out of rebates due to them for purchasing diesel fuel at the chain's more than 650 truckstops.

The interview--which does not specifically address the scandal--is posted on the company's recently launched Rebate Education website:

Q: Is Pilot Flying J losing a large portion of sales volume to its competition?

A: Pilot Flying J may be losing a very small amount of volume to competition, but not much. Our second quarter held up pretty well despite the situation we are managing. We were down approximately 0.5% in diesel volume in the second quarter versus our budgeted diesel volume. Part of the volume decline is definitely due to a weaker than anticipated economic environment. In fact, TA just released its second quarter earnings that reflected its second quarter same store sales volumes were down 3.6%.

Q: There are reports that Pilot Flying J is paying back a significant amount of money to trucking companies. Does the company have enough cash to make those payments and continue to operate?

A: Pilot Flying J is exceptionally strong from a financial perspective. The company has enough cash available to meet its obligations and continues to grow through its capital spending program. Additionally, the business generates operating cash similar to months before the investigation.

Q: How did Pilot Flying J perform in July?

A: Pilot Flying J had a solid operating and profit-generating month. Our diesel volume was down 1 percent on a same store basis, which is pretty close to our second quarter performance. As noted above, the company's operations have generated similar cash flows as years past. In short, the company was doing well financially before the investigation and continues to do so.

Q: News media reports indicate Pilot Flying J has had an extremely high amount of debt. Are the reports accurate or is the debt level appropriate?

A: Pilot Flying J's debt is substantially less than reported in the news media. Our debt level is well within the comfort zone. In fact, when you look at the market value of Pilot Flying J, the debt position is approximately about 40% of the value of the company. Generally, businesses target a debt level of about 50% of the value of the enterprise. Pilot Flying J is well under the 50% debt to market value of capital level. The really important measure of a company is its cash flow to debt ratio, and Pilot Flying J's numbers are well within the comfort zone.

Earlier this month, Thomas O'Brien, CEO of TravelCenters of America LLC (TA), addressed the effect of the Pilot Flying J scandal on the truckstop and travel center industry as a whole. He said that it has dialed up competition among the big chains.

"It's a mistake to think that our largest competitor is not in a position to counteract those moves," he said. "It's not as if we're fighting an unarmed person."

Pilot Flying J is the largest operator of travel centers and travel plazas in North America. Its network provides customers with access to more than 60,000 parking spaces for trucks, more than 4,400 showers and more than 4,000 diesel lanes. Pilot Logistics Services is one of the largest independent energy logistics companies in North America, selling and distributing more than 1.3 billion gallons of refined petroleum products and serving more than 15,000 customers. Together, Pilot Flying J and Pilot Logistics Services generate sales of approximately nine billion gallons of petroleum annually.