SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2000, or
|_| Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _______________ to _______________
Commission File No. 1-9510
FFP PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 75-2147570
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
2801 Glenda Avenue; Fort Worth, Texas 76117-4391
(Address of principal executive office, including zip code)
817/838-4700
(Registrant's telephone number, including area code)
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 ___
Class A Units 2,234,262
(Number of limited partner units outstanding as of August 11, 2000)
FFP PARTNERS, L.P. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000, AND DECEMBER 31, 1999
(In thousands)
(Unaudited)
JUNE 30, DECEMBER 31,
2000 1999
---- ----
ASSETS
Current assets -
Advances from affiliate $1,368 $892
Investments in stocks and bonds 213 0
Investment in lease from affiliate, current portion 53 53
Prepaid expenses and other current assets 34 31
----- ----
Total current assets 1,668 976
Real property -
Land and improvements 8,742 8,685
Buildings 21,295 21,413
------ ------
Total real property, excluding depreciation 30,037 30,098
Accumulated depreciation (12,393) (11,825)
------ ------
Total real property, net 17,644 18,273
Net investment in direct financing leases with affiliate 3,819 3,844
Note receivable 107 114
Other assets, net 836 772
----- -----
TOTAL ASSETS $24,074 $23,979
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities -
Current installments of long-term debt $565 $565
Accrued expenses 216 263
---- ----
Total current liabilities 781 828
Long-term debt, excluding current installments 20,535 20,812
------ ------
Total liabilities 21,316 21,640
Minority interests in subsidiary 1,113 945
Commitments and contingencies
Partners' capital -
Limited partners' capital 1,621 1,372
General partner's capital 24 22
------ -----
Total partners' capital 1,645 1,394
----- -----
TOTAL LIABILITIES AND PARTNERS' CAPITAL $24,074 $23,979
======= =======
See accompanying notes to Condensed Consolidated Financial Statements.
FFP PARTNERS, L.P., AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(In thousands, except per unit data)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
---- ---- ---- ----
REVENUES -
Rental income $750 $752 $1,518 $1,457
Gain on sale of property 389 0 389 0
Interest and other income 126 255 430 345
--- --- --- ---
Total revenues 1,265 1,007 2,337 1,802
----- ----- ----- -----
EXPENSES -
General and administrative expenses 132 124 258 297
Depreciation and amortization 328 287 632 585
Interest expense 503 435 1,028 787
--- --- ----- ---
Total expenses 963 846 1,918 1,669
--- --- ----- -----
NET INCOME BEFORE MINORITY INTEREST 302 161 419 133
Minority interest in subsidiary (121) (65) (168) (53)
---- --- ---- ---
NET INCOME $181 $96 $251 $80
==== === ==== ===
NET INCOME PER UNIT -
Basic $0.08 $0.04 $0.11 $0.04
Diluted $0.08 $0.04 $0.11 $0.04
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING -
Basic 2,272 2,272 2,272 2,272
Diluted 2,279 2,280 2,279 2,277
See accompanying notes to Condensed Consolidated Financial Statements.
FFP PARTNERS, L.P. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000, AND JUNE 30, 1999
(In thousands)
(Unaudited)
SIX MONTHS ENDED
---------------------
JUNE 30, JUNE 30,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES -
Net income $251 $80
Adjustments to reconcile net income to cash
provided by operating activities -
Depreciation and amortization 632 585
Increase in stocks and bonds (213) 0
Minority interest in subsidiary 168 53
Net change in operating assets and liabilities (132) (194)
---- ----
Net cash provided (used) by operating activities 706 524
--- ---
CASH FLOWS FROM INVESTING ACTIVITIES -
Advances (to) from affiliates (476) 0
(Additions) reductions in direct financing leases, net 25 (3,919)
(Increase) in note receivable from affiliate 0 (2,634)
(Purchases) dispositions of property, net 22 (2,847)
------ -------
Net cash provided (used) by investing activities (429) (9,400)
---- ------
CASH FLOWS FROM FINANCING ACTIVITIES -
Borrowings (repayments) under credit facilities, net (277) 8,876
---- -----
Net cash provided (used) by financing activities (277) 8,876
---- -----
NET INCREASE (DECREASE) IN CASH $0 $0
==== ====
CASH AT BEGINNING OF PERIOD $0 $0
CASH AT END OF PERIOD $0 $0
See accompanying notes to Condensed Consolidated Financial Statements.
FFP PARTNERS, L.P. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(Unaudited)
1. BASIS OF PRESENTATION
These Condensed Consolidated Financial Statements include the assets,
liabilities, and results of operations of FFP Partners, L.P., and its 60%-owned
subsidiary, FFP Properties, L.P., collectively referred to as the "Partnership."
The Condensed Consolidated Balance Sheet as of June 30, 2000, and the
Condensed Consolidated Statements of Operations and Condensed Consolidated
Statements of Cash Flows for the periods presented have been prepared by the
Partnership without audit. In the opinion of management, all adjustments,
consisting only of normal, recurring adjustments necessary to fairly present the
Partnership's financial position as of June 30, 2000, and the results of its
operations and cash flows for each of the periods presented, have been made.
Interim operating results are not necessarily indicative of results for the
entire year.
On December 28, 1997, the Partnership completed a restructuring which
resulted in the transfer to FFP Marketing Company, Inc. ("FFP Marketing") the
convenience store, retail and wholesale motor fuel, and other businesses
previously operated by the Partnership. In the restructuring, the Partnership
retained the real estate used in the retail businesses and entered into
long-term leases of those properties with FFP Marketing. As a result of the
restructuring, the Partnership's financial statements after the restructuring
are not comparable in a meaningful way to its financial statements prior to the
restructuring.
The notes to the audited consolidated financial statements that are
included in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1999, include a description of accounting policies and additional
information pertinent to an understanding of these interim financial statements.
That information has not changed other than as a result of normal transactions
in the six months ended June 30, 2000, except as discussed below.
2. INCOME PER UNIT
A reconciliation of the denominator of the basic and diluted income per
unit for general partner and limited partner units for the three and six months
ended June 30, 2000, and June 30, 1999, follows:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
---- ---- ---- ----
(In thousands)
Weighted average number of
units outstanding 2,272 2,272 2,272 2,272
Effect of dilutive options 7 8 7 5
----- ----- ----- -----
Weighted average number of
units outstanding assuming
dilution 2,279 2,280 2,279 2,277
===== ===== ===== =====
Options to purchase 262,999 and 265,999 units were not included in the
computation of diluted net income per unit for the three and six months ended
June 30, 2000, and June 30, 1999, respectively, because to do so would have been
anti-dilutive. Such options could potentially dilute basic net income per unit
in the future.
3. INVESTMENTS IN CERTAIN STOCKS AND BONDS
The Partnership classifies at acquisition all of its investments in debt
securities and all of its investments in equity securities that have a readily
determinable fair value, other than investments accounted for under the equity
method or its investments in consolidated subsidiaries, as trading securities.
Trading securities are securities that are bought and held principally for the
purpose of a resale in the near term. FASB No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", provides that unrealized and
realized gains and losses from trading securities are included in earnings.
Dividend income, interest income, the amortization of bond premium, and the
accretion of bond discount are included in interest and other income.
FFP PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
FFP Partners, L.P. (the "Partnership") restructured its operations in
December 1997 by transferring its convenience store, retail and wholesale motor
fuel, and other businesses to FFP Marketing Company, Inc. ("FFP Marketing"). In
the restructuring, the Partnership retained the real estate formerly used in the
retail businesses and now leases those properties to FFP Marketing.
Substantially all of the Partnership's rental income is derived from the
various convenience store and other retail outlets that it leases to FFP
Marketing on long-term, "triple net" basis. Under those leases, FFP Marketing,
as tenant, instead of the Partnership as landlord, bears all taxes, insurance,
operating costs, and capital costs for the properties. The leases also provide
for increased rent payments after each five-year period during the term of the
leases in accordance with any increase in the consumers price index.
The Partnership may acquire additional real estate properties in the
future. Those properties may be leased to FFP Marketing or to others, although
no assurance exists that additional properties will be acquired. Future leases
may or may not be on a "triple-net" basis and may or may not be convenience
store properties.
RESULTS OF OPERATIONS
Rental income in the second quarter of 2000 was stable at $750,000,
compared to rental income of $752,000 in the second quarter of the prior year.
Rental income of $1,518,000 in the first half of 2000 represented a 4% increase,
or $61,000, over rental income of $1,457,000 in the first half of 1999. Rental
income for the six-month period increased as a result of rental income from the
14 properties purchased in February 1999.
Interest and other income in the second quarter and first half of 2000 was
$126,000 and $430,000, respectively, reflecting a 51% decrease and a 25%
increase, respectively, compared to interest and other income in the
corresponding periods of 1999. Most of the Partnership's interest income
($201,000 and $402,000 in the first quarter and the first half of 2000,
respectively) is derived from the Partnership's direct financing leases on the
14 properties it purchased in February 1999. Interest and other income declined
in the second quarter of 2000 principally as a result of net losses on stock and
bond investments that are classified for accounting purposes as trading
securities, $35,000 of which were realized and $134,000 were unrealized.
Partially offsetting those losses were Partnership earnings of $42,000 in
interest and discount accretion income from bond investments in the first
quarter of 2000 and $112,000 in interest and discount accretion income from bond
investments in the first half of 2000. During the three and six months ended
June 30, 1999, the Partnership did not own any trading securities.
General and administrative expense in the second quarter of 2000 was
$132,000, reflecting a 6% increase over general and administrative expense in
the second quarter of 1999 of $124,000. General and administrative expense in
the first half of 2000 was $258,000, constituting a 13% decrease compared to
general and administrative expense in the first half of 2000 of $297,000. The
year-to-date decrease resulted from a $33,000 decrease in repairs expense and
permit costs, which was partially offset by increases in property taxes and
environmental expenses.
Depreciation and amortization expense rose in the second quarter of 2000 to
$328,000, a 14% increase over depreciation and amortization expense of $287,000
in the second quarter of 1999. The increase was primarily attributable to
additional amortization of capitalized loan costs incurred in connection with
the long-term debt refinancing closed in October 1999. Depreciation and
amortization expense increased by 8% in the first half of 2000 for the same
reason when compared to the first half of 1999.
Interest expense in the second quarter of 2000 was $503,000, compared to
$435,000 in the second quarter of 1999, a 16% increase. Likewise, interest
expense rose to $1,028,000 in the first half of 2000, compared to $787,000 for
the first half of the prior year, a 31% increase. Interest expense for both
periods increased primarily as a result of new long-term debt incurred when
additional properties were acquired in February 1999. Also contributing to the
increase was a greater portion of debt payments attributable to interest expense
and a higher interest rate on the new long-term loan obtained in October 1999 to
refinance a prior loan.
Gains on sales of property rose were $389,000 in both for second quarter
and year-to-date periods. These gains resulted from the sale of two convenience
store properties in Missouri. No properties were sold in the three and six month
periods of the prior year.
COMPARISON TO REIT'S
The Partnership is not a real estate investment trust ("REIT"), but its
activities are much like those of a REIT. One performance measure used within
the REIT industry is funds from operations ("FFO"). FFO, as defined by the
National Association of Real Estate Investment Trusts ("NAREIT"), means net
income (loss) (determined in accordance with generally accepted accounting
principles or "GAAP"), excluding gains (or losses) from debt restructurings, and
similar activities, and sales of properties, plus depreciation and amortization
of real estate assets, and after adjustments for unconsolidated partnerships and
joint ventures. FFO was developed by NAREIT as a relative measure of performance
and liquidity of an equity REIT in order to recognize that income-producing real
estate historically has not depreciated on the basis determined under GAAP.
While FFO is one appropriate measure of performance of an equity REIT, it (i)
does not represent cash generated from operating activities determined in
accordance with GAAP (which, unlike FFO, generally reflects all cash effects of
transactions and other events that enter into the determination of net income),
(ii) is not necessarily indicative of cash flow available to fund cash needs,
and (iii) should not be considered as an alternative to net income determined in
accordance with GAAP as an indication of the Partnership's operating
performance, or to cash flow from operating activities determined in accordance
with GAAP as a measure of either liquidity or the Partnership's ability to make
distributions or to fund its other operations. The following table presents the
determination of FFO for the Partnership for the three and six months ended June
30, 2000:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
---- ---- ---- ----
(In thousands, except per unit data)
Net income before minority interests $302 $161 $419 $133
Adjustments -
(Gains) from sales of properties (389) 0 (389) 0
Depreciation and amortization 328 287 632 585
--- --- --- ---
Funds from operations 241 448 662 718
Less - FFO attributable to minority
interests in subsidiary 96 179 265 287
-- --- --- ---
Funds from operations attributable
to the Partnership $145 $269 $397 $431
==== ==== ==== ====
FFO per unit (based on units
outstanding for diluted net income
per unit calculations) $0.06 $0.12 $0.17 $0.19
===== ===== ===== =====
Although the Partnership has generated positive FFO, it has not made
distributions to unitholders because substantially all cash generated from the
Partnership's operations has been required for debt payments. Thus far, the
Trust Managers have determined to utilize such funds to build equity in its
properties.
The terms of the Partnership's long-term financing provide that the
Partnership shall limit distributions to its partners such that, after making
any distribution, (a) the Fixed Charge Coverage Ratio for each of the 63 pledged
properties secured by that loan (summarized below) shall not be less than 1.30
to 1.00, and (b) the Fixed Charge Coverage Ratio for the Partnership (summarized
below) shall be less than 1.35 to 1.00. In general, the Fixed Charge Coverage
Ratio during any period for a pledged store equals the cash flow (pre-tax income
before minority interest, plus depreciation and interest expense) of that store
for that period, divided by the amount of debt payments for that store for that
period, and the Fixed Charge Coverage Ratio during a period equals the cash flow
(pre-tax income before minority interest, plus depreciation and interest
expense) of the Partnership for that period, divided by the amount of debt
payments of the Partnership for that period. Each Fixed Charge Coverage Ratio is
calculated for the 12-month period ending each December 31. Management has not
yet determined if, or how much of, any Partnership distributions will be made to
the Partnership's unitholders.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership has contracted with FFP Marketing to provide all cash
management services on behalf of the Partnership. For that reason, the
Partnership does not maintain a bank account. All of the Partnership's cash
receipts are received, and all of its disbursements are made, by FFP Marketing
on behalf of the Partnership, with the appropriate records being made to account
for amounts owed by FFP Marketing to the Partnership, or visa versa. On June 30,
2000, FFP Marketing had advanced $1,368,000 to the Partnership; whereas the
Partnership owed $48,000 to FFP Marketing on June 30, 1999. Such obligations
bear interest at the prime rate.
Assuming no additional properties are acquired or sold, based upon executed
real estate leases, the Partnership projects for 2000 that it will receive
rental income in the amount of $252,000 per month, plus $71,000 per month for
the direct financing leases, while the Partnership's current debt service
requirements in 2000 are fixed at $222,000 per month. (Such amounts are
calculated before reduction of the 40% minority interest in the Partnership's
subsidiary owned by the family of John H. Harvison, Chairman and Chief Executive
Officer of the general partner of the Partnership.) In contrast, the Partnership
was obligated in prior years to pay debt service obligations with principal
payments of $95,000 per month plus interest expenses at a variable interest
rate. The prior debt required a balloon payment of all remaining principal in
November 2000 and was refinanced in October 1999 with new long-term debt with
fixed monthly payments. As a result of its forecast of positive cash flow,
management believes that the Partnership will be able to meet its obligations
from operations.
All of the Partnership's real estate leases are "triple net" leases,
providing for the tenant (FFP Marketing), and not the landlord (the
Partnership), to pay all real estate taxes, insurance, operating and capital
costs for the properties. Therefore, the Partnership does not have any material
commitments for capital expenditures on those properties.
YEAR 2000 COMPUTER ISSUES
Over the past several years, the Partnership prepared for possible
disruptions that might have resulted from the date change to year 2000 ("Y2K").
No significant Y2K problems were experienced, and the Partnership believes that
no material exposure to Y2K issues now exists. The Partnership relies on FFP
Marketing for its information technology and computerization requirements and
obtains those, in part, in exchange for the payment of an annual overhead
reimbursement fee. As a result, the Partnership did not incur any capital
expenditures related to modifications of existing software and conversions to
new software for the Y2K issue.
FORWARD-LOOKING STATEMENTS
Certain of the statements made in this report are "forward-looking"
statements that involve inherent risks and uncertainties. As defined by the U.S.
Private Securities Litigation Reform Act of 1995, "forward-looking" statements
include information about the Partnership that is based on the beliefs of
management and the assumptions made by, and information currently available to,
management. In making such forward-looking statements, the Partnership is
relying upon the "statutory safe harbors" contained in the applicable statutes
and the rules, regulations and releases of the Securities and Exchange
Commission.
Statements that should generally be considered forward-looking include, but
are not limited to, those that contain the words "estimate," "anticipate," "in
the opinion of management," "expects," "believes," and similar phrases. Among
the factors that could cause actual results to differ materially from the
statements made are the following: changes in real estate conditions, including
rental rates and the construction or availability of competing properties;
changes in the industry in which the Partnership's sole tenant competes; changes
in general economic conditions; the ability of management to identify
acquisitions and investment opportunities meeting the investment objectives of
the Partnership; the timely leasing of unoccupied properties; timely releasing
of currently occupied properties upon expiration of the current leases or the
default of the current tenant; a risk of leasing all of the Partnership's
properties to only one tenant; the Partnership's ability to generate funds
sufficient to meet its debt service payments and other operating expenses; the
inability of the Partnership to control the management and operation of its
tenant and the businesses conducted on the Partnership's properties; financing
risks, including the availability, or lack of availability, of funds to service
debt obligations or to finance acquisitions of additional property; the
existence of complex tax regulations relating to the Partnership's status as a
publicly-traded real estate partnership and, if achieved, to its status as a
real estate investment trust and the adverse consequences of the failure to
qualify as such; and other risks detailed from time to time in the Partnership's
filings with the Securities and Exchange Commission. Given these uncertainties,
readers are cautioned not to place undue reliance on the forward-looking
statements. The Partnership undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements that may be made to
reflect any future events or circumstances. Should one or more of these risks or
uncertainties materialize, or should any underlying assumptions prove incorrect,
actual results or outcomes may vary materially from those described herein as
anticipated, believed, estimated, expected, or intended.
EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27 Financial Data Schedule [included in electronic filing only].
Reports on Form 8-K
The Partnership did not file any reports on Form 8-K for the quarter covered
by this Report on Form 10-Q.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FFP PARTNERS, L.P.
Registrant
By: FFP Real Estate Trust
sole general partner
Date: August 11, 2000 By: /s/ Craig T. Scott
-----------------------------------
Craig T. Scott
Vice President - Finance,
Chief Financial Officer and
General Counsel