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 September 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 November 14, 2000)
FFP PARTNERS, L.P. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000, AND DECEMBER 31, 1999
(In thousands)
(Unaudited)
SEPT. 30, DECEMBER 31,
2000 1999
-------- -----------
ASSETS
Current assets -
Advances from affiliate $1,238 $892
Investments in stocks and bonds 656 0
Net investment in direct financing leases to
affiliate, current portion 53 53
Prepaid expenses and other current assets 67 31
----- ----
Total current assets 2,014 976
Real property -
Land and improvements 8,656 8,685
Buildings 20,978 21,413
------ ------
Total real property, excluding depreciation 29,634 30,098
Accumulated depreciation (12,545) (11,825)
------ ------
Total real property, net 17,089 18,273
Net investment in direct financing leases to affiliate 3,806 3,844
Notes receivable 103 114
Other assets, net 826 772
------- -------
Total assets $23,838 $23,979
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities -
Current portion of long-term debt $565 $565
Accrued expenses 166 263
---- ----
Total current liabilities 731 828
Long-term debt, excluding current portion 20,394 20,812
------ ------
Total liabilities 21,125 21,640
Minority interest in subsidiary 1,095 945
Commitments and contingencies - -
Partners' capital -
Limited partners' capital 1,594 1,372
General partner's capital 24 22
----- ------
Total partners' capital 1,618 1,394
------ ------
Total liabilities and partners' capital $23,838 $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 NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(In thousands, except per unit data)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
2000 1999 2000 1999
-------- -------- --------- ---------
REVENUES -
Rental income $740 $757 $2,258 $2,213
Gains on sale of property 30 0 419 0
Interest and other income 180 255 610 600
---- ----- ----- -----
Total revenues 950 1,012 3,287 2,813
EXPENSES -
General and administrative expenses 169 49 427 346
Depreciation and amortization 315 303 947 887
Interest expense 511 506 1,539 1,368
---- ----- ------ -----
Total expenses 995 858 2,913 2,601
---- ----- ------ -----
NET INCOME (LOSS) BEFORE MINORITY
INTEREST (45) 154 374 212
Minority interest in subsidiary 18 (62) (150) (85)
---- ---- ------ ----
NET INCOME (LOSS) $(27) $92 $224 $127
===== ==== ==== ====
NET INCOME (LOSS) PER UNIT -
Basic $(0.01) $0.04 $0.10 $0.06
Diluted $(0.01) $0.04 $0.10 $0.06
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING -
Basic 2,272 2,272 2,272 2,272
Diluted 2,272 2,280 2,278 2,278
See accompanying notes to Condensed Consolidated Financial Statements.
FFP PARTNERS, L.P., AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000, AND SEPTEMBER 30, 1999
(In thousands)
(Unaudited)
NINE MONTHS ENDED
---------------------------
SEPT 30, SEPT 30,
2000 1999
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES -
Net income $224 $127
Adjustments to reconcile net income to
cash provided by operating activities -
Depreciation and amortization 947 887
Minority interest in subsidiary 150 85
Net losses and discount income on equity
investments 165 0
Net change in operating assets and liabilities (238) (194)
----- ----
Net cash provided (used) by operating activities 1,248 905
----- ----
CASH FLOWS FROM INVESTING ACTIVITIES -
Stock and bond investments (810) 0
Investments in leases with affiliate 0 (4,405)
Lease payments from affiliate 38 497
Advances to affiliate (346) 0
Note receivable from affiliate 0 (2,692)
Note payments from affiliate 0 121
Purchases of land and buildings (150) (2,841)
Sales of land and buildings 438 0
---- ------
Net cash provided (used) by investing activities (830) (9,320)
---- ------
CASH FLOWS FROM FINANCING ACTIVITIES -
Proceeds of long-term debt 0 9,550
Payments on long-term debt (418) (278)
Payments on long-term debt to affiliate 0 (857)
--- -----
Net cash provided (used) by financing activities (418) 8,415
--- -----
NET INCREASE (DECREASE) IN CASH $0 $0
=== ===
CASH AT BEGINNING OF PERIOD $0 $0
CASH AT END OF PERIOD $0 $0
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
The Company received a promissory note in the amount of $80,000 in
connection with a sale of property during the nine months ended September 30,
1999.
See accompanying notes to Condensed Consolidated Financial Statements.
FFP PARTNERS, L.P. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 September 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 September 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 that
resulted in the transfer to FFP Marketing Company, Inc. ("FFP Marketing") of 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 leased those
properties to 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 describe certain 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 nine months ended September 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 nine months
ended September 30, 2000, and September 30, 1999, follows:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 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 0 8 6 6
----- ----- ----- -----
Weighted average number of
units outstanding assuming
dilution 2,272 2,280 2,278 2,278
===== ===== ===== =====
Options to purchase 262,999 units for each of the three and nine month
periods ended September 30, 2000, and 265,999 units for each of the three and
nine month periods ended September 30, 1999, were not included in the
computation of diluted net income per unit 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 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 resale in the near term. Statement of Financial Accounting Standards No. 115,
entitled "Accounting for Certain Investments in Debt and Equity Securities",
provides that unrealized and realized gains and losses from trading securities
are included in earnings. In addition, dividend income, interest income,
amortization of bond premium, and accretion of bond discount from trading
securities 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. Accordingly,
no comparative income data exists for the Partnership for periods prior to 1998.
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 a "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 consumer price index.
The Partnership may acquire additional real estate properties in the
future. Such acquired properties, if any, may or may not be leased to FFP
Marketing, and future leases may or may not be on a "triple-net" basis.
RESULTS OF OPERATIONS
- ---------------------
Rental income in the third quarter of 2000 was $740,000, reflecting a
$17,000, or 2%, decrease compared to rental income of $757,000 in the third
quarter of 1999. The decrease was incurred because two properties were sold, and
no longer rented, earlier in the year. Rental income of $2,258,000 in the first
nine months of 2000 represented a 2% increase, or $45,000, over rental income of
$2,213,000 in the corresponding period of the prior year. Rental income for the
nine-month period increased as a result of rental income from the 14 properties
purchased in February 1999, reduced in part because of properties sold earlier
in the year.
Gains on sale of properties were $30,000 and $419,000 in the third quarter
and the first nine months of 2000, respective. The sales resulted after
unsolicited offers were received for certain Partnership properties that
management determined to be acceptable in the best interests of the Partnership.
The Partnership did not sell any properties in the corresponding periods of
1999.
Interest and other income was $180,000 and $610,000 in the third quarter
and the first nine months of 2000, respectively, reflecting a 29% decrease and a
2% increase, respectively, compared to interest and other income in the
corresponding periods of 1999. The components of these items were comprised of
the following:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
2000 1999 2000 1999
-------- ------- ------- ------
(In thousands)
Interest income $263 $256 $774 $600
Bond discount income 25 0 76 0
Realized gains (losses) on sales 0 0 (35) 0
Unrealized gains (losses) on sales (108) 0 (205) 0
---- ---- ---- ----
Total - Interest and other income $180 $256 $610 $600
=== === === ===
Almost all of the Partnership's interest income ($200,000 and $602,000 in
the third quarter and the first nine months of 2000, respectively) was comprised
of interest income on the 14 properties purchased by the Partnership in February
1999 and immediately leased to FFP Marketing pursuant to direct financing
leases. Interest and other income declined in the third quarter of 2000, when
compared to the third quarter of 1999, as a result of unrealized net losses of
$108,000 on stock and bond investments that are classified for accounting
purposes as trading securities. Partially offsetting those losses was
Partnership earnings of $50,000 in interest and bond discount accretion income
in the third quarter of 2000 and $159,000 in interest and discount accretion
income from bond investments in the first nine months of 2000. During the three
and nine months ended September 30, 1999, the Partnership did not own any
trading securities.
General and administrative expense was $169,000 in the third quarter of
2000, reflecting a 245% increase over general and administrative expense of
$49,000 in the third quarter of 1999. General and administrative expense in the
first nine months of 2000 was $427,000, a 23% increase compared to general and
administrative expense of $346,000 in the first nine months of 1999. The
increase in general and administrative expense was caused partially by a bad
debt write-off from an unrelated party relating to previously accrued rental
income on a property that the Partnership sold in the third quarter of 2000.
Higher professional fees in the third quarter and in the first nine months of
2000 also contributed to the increase in general and administrative expenses.
Such additional professional fees included legal fees to evict a non-paying
third party tenant.
Depreciation and amortization expense rose in the third quarter of 2000 to
$315,000, a 4% increase over depreciation and amortization expense of $303,000
in the third 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. For the same reason,
depreciation and amortization expense increased to $947,000 in the first nine
months of 2000, a 7% increase compared to depreciation and amortization expense
of $887,000 in the first nine months of 1999.
Interest expense in the third quarter of 2000 was $511,000, a 1% increase
compared to $506,000 in the third quarter of 1999. Likewise, interest expense
rose to $1,539,000 in the first nine months of 2000, compared to $1,368,000 for
the first nine months of the prior year, a 13% 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 the Partnership's debt payments were
attributable to interest expense and the long-term refinancing closed in October
1999 included a higher interest rate than the loan it refinanced.
Operating cash flows (defined for this purpose as net income or loss, plus
depreciation and amortization, plus unrealized net losses on equity securities)
was $396,000 in the third quarter of 2000, compared to $395,000 for the
corresponding period of the prior year. In the first nine months of 2000,
operating cash flows increased to $1,376,000, a 36% increase compared to
$1,014,000 for the corresponding period 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 is defined by the
National Association of Real Estate Investment Trusts ("NAREIT") to mean net
income or loss (determined in accordance with generally accepted accounting
principles or "GAAP"), excluding gains and 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 nine-month periods
ended September 30, 2000 and 1999:
THREE MONTHS NINE MONTHS
-------------------- --------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
2000 1999 2000 1999
-------- --------- --------- --------
(In thousands, except per unit data)
Net income (loss) before
minority interests $(45) $154 $374 $212
Gains from sale of property (30) 0 (419) 0
Losses on equity securities 108 0 240 0
Depreciation and amortization 315 303 947 887
---- ---- ----- -----
Funds from operations 348 457 1,142 1,099
Less - FFO attributable to minority
interests in subsidiary 139 183 457 440
---- ---- ---- ----
Partnership FFO $209 $274 $685 $659
FFO per unit (based on units out-
standing for diluted net income
(loss) per unit calculations) $0.09 $0.12 $0.30 $0.29
===== ===== ===== =====
The terms of the Partnership's long-term financing restrict the amount of
Partnership distributions such that, after making any distribution, the Fixed
Charge Coverage Ratio for each of the 63 pledged properties secured by the loan
(summarized below) shall not be less than 1.30 to 1.00, and the Fixed Charge
Coverage Ratio for the Partnership (summarized below) shall not 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 for the Partnership 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, when, or how much of any Partnership distributions will be
made to the Partnership's unitholders.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership contracts with FFP Marketing to provide all cash management
services for the Partnership and therefore does not maintain a bank account
itself. Under that agreement, all of the Partnership's cash receipts are
received, and all of its distributions are made, by FFP Marketing on behalf of
the Partnership, with the appropriate records being made to account for the
amounts owed by FFP Marketing to the Partnership, or vice versa. On September
30, 2000, FFP Marketing owed the Partnership $1,238,000, compared to an
obligation of $63,000 owed by the Partnership to FFP Marketing on September 30,
1999. Such obligations bear interest at the prime rate, which was 9.5% per annum
during the third quarter of 2000.
Based upon executed real estate leases, the Partnership anticipates that it
will be able to meet its obligations from operations in 2000 and the foreseeable
future. This forecast of positive net cash flow is based upon the projections
that it will receive rental income in the amount of $252,000 per month, plus
$71,000 per month for its existing direct financing leases, while its debt
service requirements will continue to be 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 Partnership.
All of the Partnership's real estate leases are "triple net" leases, under
which the tenant (FFP Marketing), and not the landlord (the Partnership), pays
all taxes, insurance, operating, and capital costs of the properties. Therefore,
the Partnership does not have any material commitments for capital expenditures
on those properties.
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 refinance 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 converted to a real estate
investment trust, to its status as a real estate investment trust or 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 any 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Partnership is not subject to market risks related to variable interest
rates. Interest expense on the Partnership's prior long-term indebtedness
payable to FFP Marketing during the first nine months of 1999, which was
calculated at a floating prime rate of interest, was repaid in full in October
1999 with the proceeds of fixed-rate financing.
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: November 14, 2000 By: /s/ Craig T. Scott
-----------------------------------
Craig T. Scott
Vice President - Finance,
Chief Financial Officer and
General Counsel