UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X|Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 29, 1996, 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)
Securities registered pursuant to Section 12(b) of the Act
Title of Each Class Name of Each Exchange on Which Registered
Units Representing Class A American Stock Exchange
Limited Partnership Interests
Unit Purchase Rights American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act
None
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of Class A Units held by non-affiliates of
the registrant at March 28, 1997, was $9,457,000. For purposes of this
computation, all officers, directors, and beneficial owners of 10% or more of
the Class A Units of the registrant are deemed to be affiliates. Such
determination should not be deemed an admission that such officers, directors,
and beneficial owners are affiliates.
Class A Units 3,529,205
Class B Units 175,000
(Number of units outstanding as of March 28, 1997)
INDEX
Page
Part I
Item 1. Business 1
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Part II
Item 5. Market for the Registrant's Units and Related Security
Holder Matters 12
Item 6. Selected Financial and Operating Data 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 23
Part III
Item 10. Directors and Executive Officers of the Registrant 24
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners and
Management 30
Item 13. Certain Relationships and Related Transactions 32
Part IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K 35
Signatures 37
PART I
Item 1. BUSINESS.
General Background
FFP Partners, L.P. ("FFPLP," the "Partnership," or the "Company"), through
its subsidiaries, owns and operates convenience stores, truck stops, and
self-service motor fuel outlets over an eleven state area. It also operates a
money order company, selling money orders through its own outlets as well as
through agents; and sells motor fuel on a wholesale basis, primarily in Texas.
FFPLP, a Delaware limited partnership, was formed in December 1986, pursuant to
the Agreement of Limited Partnership of FFP Partners, L.P. (the "Partnership
Agreement"). FFP Partners Management Company, Inc. ("FFPMC" or the "General
Partner") serves as the general partner of the Partnership. FFPMC or a
subsidiary also serves as the general partner of the Partnership's subsidiary
partnerships. References herein to the "Company" include FFPLP and its
subsidiaries.
The Company commenced operations in May 1987 upon the purchase of its
initial base of retail outlets from affiliates of the General Partner. The
purchase of these outlets was completed in conjunction with the Company's
initial public offering of 2,065,000 Class A Units of limited partnership
interest, representing a 56% interest in the Company. In connection with this
transaction, 1,585,000 Class B Units of limited partnership interest,
representing a 43% interest in the Company, were issued to affiliates of the
General Partner and the General Partner received its 1% interest in the Company.
(As permitted in the Partnership Agreement, certain of these Class B Units were
converted to Class A Units in January 1996.) The senior executives of the
Company had owned and managed these operations prior to their acquisition by the
Company. Although the companies from which the Company acquired these retail
outlets engage in other businesses which they conducted in the past, they agreed
not to engage in the convenience store, retail motor fuel, or other businesses
which compete with the Company without prior approval by a majority of the
General Partner's disinterested directors. The affiliates of the General Partner
that received Class B Units upon the Partnership's commencement of operations
were: Economy Oil Company; Gas-Go, Inc.; Gas-N-Sav, Inc.; Hi-Lo Corporation;
Hi-Lo Distributors, Inc.; Nu-Way Distributing Company; Nu-Way Oil Company;
Swifty Distributors, Inc.; Thrift-Way, Inc.; Thrift Distributors, Inc.; and
Thrift Wholesale Company.
The Company maintains its principal executive offices at 2801 Glenda
Avenue, Fort Worth, Texas 76117-4391; its telephone number is 817/838-4700.
Operations
Description of Operations. The Company conducts its operations principally
through its 99%-owned subsidiary, FFP Operating Partners, L.P. ("FFPOP"), a
Delaware limited partnership. FFPMC holds a 1% general partner's interest in
FFPOP. The Company has other direct or indirect subsidiaries: Direct Fuels, L.P;
FFP Financial Services, L.P.; FFP Money Order Company, Inc.; Practical Tank
Management, Inc.; and FFP Transportation, L.L.C. These companies are engaged
businesses that are complimentary to the activities of FFPOP.
Convenience Stores. At year end 1996, the Company operated 117 convenience
stores, a decrease of ten stores from the previous year end. This decrease is
due to the sale of the merchandise operations of 18 outlets to independent
operators during 1996 offset by the opening or conversion from self-service
gasoline outlets of eight stores. {See Store Development.} The Company's stores
are open seven days a week, offer extended hours (eleven of the stores are open
24 hours a day, the remainder generally are open from 6:00 am to midnight), and
emphasize convenience to the customer through location, merchandise selection,
and service. The convenience stores sell groceries, tobacco products, take-out
foods and beverages (including alcoholic beverages where local laws permit),
dairy products, and non-food merchandise such as health and beauty aids and
magazines and, at all except two of the stores, motor fuel. Food service in the
convenience stores varies from pre-packaged sandwiches and fountain drinks to
full food-service delicatessens (at 41 stores), some with limited in-store
seating. During late 1993, the Company began installing small "express"
franchises of Kentucky Fried Chicken(R) and Subway Sandwiches(R) in selected
convenience stores and at the end of 1995 five of its convenience stores had
these or other branded food outlets in them. {See Store Development; Products,
Store Design and Operation.} The convenience stores operate under several
different trade names, all of which were used by the predecessor companies. The
principal trade names are "Kwik Pantry," "Nu-Way," and "Economy Drive-Ins."
For fiscal year 1996, the convenience stores accounted for 35% (39% in
1995) of the Company's consolidated revenues. They had average weekly per store
merchandise sales of $9,454 and motor fuel sales of 11,901 gallons. In fiscal
1995, average weekly sales were $9,560 of merchandise and 12,093 gallons of
fuel.
Truck Stops. At December 29, 1996, the Company operated ten truck stops,
the same number as at the previous year end. The truck stops, which principally
operate under the trade name of "Drivers," are located on interstate and other
highways and are similar in their operations to the convenience stores, although
the merchandise mix is directed towards truck drivers and the traveling public.
Five of the truck stops have full service restaurants; the Company operates two
of the restaurants and leases the other three to independent operators. The
other five outlets offer prepared-to-order food service, including two outlets
which have a combination Kentucky Fried Chicken/Taco Bell "express" franchise
and one which has a Pizza Hut franchise within the store. In 1996, the truck
stops (including their associated restaurants and food service facilities)
accounted for 13% (13% in 1995) of the Company's consolidated revenues, with
average weekly per outlet merchandise and food sales (including food service
sales) of $17,192 ($17,506 in 1995) and fuel sales of 66,973 gallons (68,274
gallons in 1995).
Self-Service Gasoline Outlets. The Company operated 206 self-service
gasoline outlets at December 29, 1996, a net increase of 12 outlets since the
prior year end. This increase resulted principally from the sale of the
merchandise operations of certain convenience stores, referred to above.
Although these convenience store operations were sold, the Company retained the
motor fuel concession at these locations. In addition, the Company acquired some
outlets through the execution of new contracts with independent operators,
re-opened previously closed locations, and closed or disposed of other
locations. The Company's self-service gasoline outlets consist of fuel pumps and
related storage equipment located at independently operated convenience stores.
These outlets are operated pursuant to contracts that generally obligate the
Company to provide motor fuel inventory, fuel storage and dispensing equipment,
and maintenance of the fuel equipment while the store operator agrees to
collection and remittance procedures. The convenience store operators are
compensated by commissions based on profits and/or the volume of fuel sold. In
addition, the contracts generally grant the Company the right of first refusal
to purchase the operator's convenience store should it be offered for sale. Many
of the contracts have renewal options and, based on past experience, the General
Partner believes that a significant number of those contracts which do not have
renewal options will be renegotiated and renewed upon expiration. In addition to
the contractual arrangement between the store operator and the Company, 115 of
these operators also lease or sublease the store building and land from the
Company or affiliates of the General Partner.
During fiscal 1996, the self-service gasoline outlets had average weekly
per outlet fuel sales of 8,584 gallons as compared to 7,794 gallons in fiscal
1995. In 1996, the Company's self-service gasoline outlets accounted for 26%
(23% in 1995) of the Company's consolidated revenues.
Wholesale Fuel Sales. The Company has sold motor fuel on a wholesale basis
to smaller independent and regional chains of fuel retailers since it commenced
operations. The wholesale fuel operation was expanded in later years to include
sales to commercial end-users of motor fuels, such as local governmental units,
operators of vehicle fleets, and public utilities. In 1996, the Company's
wholesale operations contributed 24% of consolidated revenues (24% in 1995).
During 1996, the Company did not have facilities for the bulk storage of motor
fuel. Accordingly, purchases were made to fill specific customer orders.
In March 1996, the Company completed the purchase of a non-operating fuel
processing facility and bulk storage terminal located in Euless, Texas. The
facility has been undergoing renovation and the Company anticipates it will
begin operating in April 1997. This facility gives the Company the ability to
provide terminalling services (storage and delivery services) for other
wholesalers of motor fuel and to separate commingled refined products into their
component parts for sale to retailers and end users. The facility has total
storage for 235,000 barrels (9,879,000 gallons) of motor fuel and the capacity
to process approximately 1,500 barrels per day of commingled product. The motor
fuel obtained by separating commingled products will be used by the Company to
satisfy a portion of the fuel supply needs for it its own retail outlets and its
wholesale customers.
The Company has been designated a "jobber" for Citgo, Chevron, Fina,
Conoco, Texaco, Coastal, Diamond Shamrock, Sinclair, and Phillips 66. This
designation enables the Company to work with independent fuel retailers to
qualify the retailers to operate as a branded outlet for the large oil company.
The Company then supplies motor fuel to such retailers on a wholesale basis
under contracts ranging from five to ten years.
Management believes the Company's fuel wholesale activities enhance its
relationships with its fuel vendors by increasing the volume of purchases from
such vendors. In addition, the wholesale activities permit the Company to
develop relationships with smaller fuel retailers that may, at some future time,
be interested in entering into a self-service gasoline marketing arrangement
with the Company. {See Self-Service Gasoline Outlets.}
Market Strategy. The Company's market strategy emphasizes the operation and
development of existing stores and retail outlets in small communities rather
than metropolitan markets. In general, the Company believes stores in
communities with populations of 50,000 or less experience a more favorable
operating environment, primarily due to less competition from larger national or
regional chains and access to a higher quality and more stable labor force. In
addition, costs of land, reflected in both new store development costs and
acquisition prices for existing stores and retail outlets, are generally lower
in small communities. As a result of these factors, the Company believes this
market strategy enables it to achieve a higher average return on investment than
would be achieved by operating primarily in metropolitan markets.
Store Development. In early 1994 in its continuing endeavor to increase the
productivity and operating efficiency of its existing store base, the Company
identified outlets that it believed would contribute more to the earnings of the
Company if operated by independent operators rather than by the Company. The
Company undertook a program to sell the merchandise operations of these outlets
to independent operators. In 1996, 1995, and 1994 the Company sold the
merchandise operations at 18, 10, and 15 of these outlets, respectively. Because
of their different overhead structure, independent operators are often able to
operate the stores less expensively than can the Company. These sales were
structured such that the Company retained the real estate or leasehold interest
and leased or subleased the land and building to the operator for a five year
period with a five year renewal option. The Company also entered into a
self-service gasoline agreement covering the fuel sales at these locations.
Management believes that the sales of these stores and the resulting combination
of rents, fuel profits, and other income enhance the profitability of these
outlets to the Company. The Company is continuing to negotiate the sales of the
merchandise operation of additional stores.
In addition to the sales of the merchandise operations at certain
convenience stores, discussed above, management is seeking other ways to
increase the productivity of the Company's present base of convenience store and
truck stop outlets. A part of this effort involves the installation of
limited-menu "express" outlets of national food franchises in Company outlets.
In 1994 and 1995, the Company commenced operating combination Kentucky Fried
Chicken/Taco Bell outlets in two truck stops, a Pizza Hut outlet in one truck
stop, Kentucky Fried Chicken outlets in two convenience stores, and a Subway
Sandwich franchise in one convenience store. The Company's experience with this
type of food service operation indicates that it increases store traffic as it
offers the advantage of national name-brand recognition and advertising. In
addition, the training and operational programs of these franchisors provide a
consistent and high-quality product to the Company's customers. Management is
evaluating the existing operations to determine if it would be appropriate to
install additional outlets of this type in other locations. It is also
evaluating the relative merits of the various types of franchises.
Opportunities to expand self-service gasoline outlets are limited by
competitive factors, including the existence of established facilities at most
independent convenience stores. However, the Company continues to pursue the
acquisition of this type of outlet principally through the development of
relationships through its fuel wholesaling operations.
Products, Store Design and Operation. The number and type of merchandise
items stocked in the convenience stores vary from one store to another depending
upon the size and location of the store and the type of products desired by the
customer base served by the store. However, the stores generally carry national
or regional brand name merchandise of the type customarily carried by competing
convenience stores. Substantially all the convenience stores and truck stops
offer fast foods such as hot dogs, pre-packaged sandwiches and other foods, and
fountain drinks. Forty-one of the convenience stores have facilities for daily
preparation of fresh food catering to local tastes, including fried chicken and
catfish, tacos, french fries, and made-to-order sandwiches. Also, as discussed
above five convenience stores and three truck stops have small "express" outlets
of national fast-food franchises or other branded food service.
Although the stores vary in layout and design, schematic diagrams for each
store are used to direct the store manager in the placement of products to
maximize exposure of high turnover and high margin items to the flow of customer
traffic.
The Company utilizes a team approach to its marketing function rather than
having a specific person who is responsible for that activity. Senior operations
executives and other management personnel continually review and evaluate
products and services for possible inclusion in the Company's retail outlets.
Special emphasis is given to those goods or services that carry a higher gross
profit margin than the Company's overall average, will increase customer traffic
within the stores, or complement other items already carried by the stores. The
marketing teams, which include the Regional Managers, in conjunction with the
Company's vendors, develop and implement promotional programs and incentives on
selected items, such as fountain drinks and fast food items. In addition, new
products and services are reviewed on a periodic basis to ensure a competitive
product selection. Due to the geographic distribution of the Company's stores
and the variety of trade names under which they are operated, the use of
advertising is limited to location signage, point-of-sale promotional materials,
advertisements in local newspapers, and locally distributed flyers.
Over the last several years, the Company has increased the number of its
"branded" outlets, those which are affiliated with a large oil company. In March
1997, the Company had 221 (209 in 1996) retail outlets which were branded, as
compared to 65 such outlets in 1990. The Company has outlets that are branded
Citgo, Chevron, Fina, Conoco, Diamond Shamrock, Texaco, and Coastal. Branded
locations generally have higher fuel sales volumes (in gallons) than non-branded
outlets due to the advertising and promotional activities of the respective
major oil company and the acceptance of such oil company's proprietary credit
cards. The increased customer traffic associated with higher fuel sales tends to
increase merchandise sales volumes, as well. The Company continues to evaluate
the desirability of branding additional outlets. In addition to the Company
operated convenience stores, truck stops, and self-service fuel outlets that are
branded, the Company also serves as a wholesale distributor to 162 branded
retail outlets.
Merchandise Supply. Based on competitive bids, the Company has selected a
single company as the primary grocery and merchandise supplier to its
convenience stores and truck stops. However, some merchandise items, such as
bakery goods, dairy products, soft drinks, beer, and other perishable products,
are generally purchased from local vendors and/or wholesale route salespeople.
The Company believes it could replace any of its merchandise suppliers,
including its primary merchandise supplier, with no significant adverse effect
on its operations.
Motor Fuel Supply. The Company purchases fuel for its branded retail
outlets and branded wholesale customers from the respective oil company which
branded the outlet and for its unbranded outlets from large integrated oil
companies and independent refineries. In order to maintain flexibility in the
purchase of motor fuel, the Company does not have long-term contracts with any
suppliers of petroleum products covering more than 10% of its motor fuel supply.
During recent years, the Company has not experienced any difficulties in
obtaining sufficient quantities of motor fuel to satisfy retail sales
requirements. However, unanticipated national or international events could
result in a curtailment of motor fuel supplies to the Company, thereby adversely
affecting motor fuel sales. In addition, management believes a significant
portion of its merchandise sales are to customers who also purchase motor fuel.
Accordingly, reduced availability of motor fuel could negatively impact other
facets of the Company's operations, as well.
Competition
The convenience store industry is highly competitive. Most convenience
stores and an increasing number of traditional grocery stores in the Company's
market areas sell motor fuel; in addition, merchandise similar or identical to
that sold by the Company's stores is generally available to competitors. The
Company competes with local and national chains of supermarkets, drug stores,
fast-food operations, and motor fuel retailers. It also competes with
independently operated convenience stores and national chains of convenience
stores such as "7-Eleven" and "Circle K." Major oil companies are also becoming
a significant factor in the convenience store industry as they convert outlets
that previously sold only motor fuel to convenience stores; however, major oil
company stores generally carry a more limited selection of merchandise than that
carried by the Company's outlets and operate principally in metropolitan areas,
where the Company has few outlets. Some of the Company's competitors have large
sales volumes, benefit from national or regional advertising, and have greater
financial resources than the Company.
The Company believes each of its retail outlets competes with other
retailers in its immediately surrounding area, generally within a radius of one
to two miles. Management believes the Company's outlets compete based on
location, accessibility, the variety of products and services offered, extended
hours of operation, price, and prompt check-out service.
The Company's wholesale fuel operation is also very competitive. Management
believes this business is highly price sensitive, although the ability to
compete is also dependent upon providing quality products and reliable delivery
schedules. The Company's wholesale fuel operation competes for customers with
large integrated oil companies and smaller, independent refiners, and fuel
jobbers, some of which have greater financial resources than the Company.
Management believes it can compete effectively in this business because of the
Company's purchasing economies, numerous supply sources, and the reluctance of
many larger suppliers to sell to smaller customers.
Employees
At March 16, 1997, the Company employed 1,138 people (including part-time
employees). In addition to employees of the Company, the General Partner employs
five executive officers who perform services for the Company; the Company
reimburses the General Partner for the direct and indirect costs of these
personnel.
There are no collective bargaining agreements between the Company and any
of its employees. Management believes the relationship with employees of the
Company is good.
Trademarks and Trade Names
The Company's convenience stores and truck stops are operated under a
variety of trade names, including "Kwik Pantry," "Nu-Way," "Economy," "Dynamic
Minute Mart," "Drivers," and "Drivers Diner." New outlets generally use the
trade name of the Company's stores predominant in the geographic area where the
new store is located. The Company sells money orders in its outlets, and through
agents, under the service mark "Financial Express Money Order Company." The
money orders are produced using a computer controlled laser printing system
developed by the Company. This system is also marketed to third parties under
the name of "Lazer Wizard."
Eight of the Company's truck stops operate under the trade name of
"Drivers;" the two other truck stops use the same trade name as the Company's
convenience stores in the area in which they are located.
The Company has registered the names "FFP Partners," "Kwik Pantry,"
"Drivers," "Drivers Diner," "Financial Express Money Order Company," and "Lazer
Wizard" as service marks or trademarks under federal law.
Insurance
The Company carries workers' compensation insurance in all states in which
it operates.
The Company maintains liability coverages for its vehicles which meet or
exceed state requirements but it does not carry automobile physical damage
insurance. Insurance covering physical damage of properties owned by the Company
is generally carried only for selected properties. The Company maintains
property damage coverage on leased properties as required by the terms of the
leases thereon.
The Company maintains general liability insurance with limits and
deductibles management believes prudent in light of the exposure of the Company
to loss and the cost of the insurance. The Company does not maintain any
insurance covering losses due to environmental contamination. {See Government
Regulation - Environmental Regulation.}
The Company monitors the insurance markets and will obtain such additional
insurance coverages as it believes appropriate at such time as they might become
available at costs management believes reasonable.
Government Regulation
Alcoholic Beverage Licenses. The Company's retail outlets sell alcoholic
beverages in areas where such sales are legally permitted. The sale of alcoholic
beverages is generally regulated by state and local laws which grant to various
agencies the authority to approve, revoke, or suspend permits and licenses
relating to the sale of such beverages. In most states, such agencies have
wide-ranging discretion to determine if a licensee or applicant is qualified to
be licensed. The State of Texas requires that licenses for the sale of alcoholic
beverages be held, directly or indirectly, only by individual residents of Texas
or by companies controlled by such persons. Therefore, the Company has an
agreement with a corporation controlled by John H. Harvison, the Chairman and a
director of the General Partner, which permits that corporation to sell
alcoholic beverages in the Company's Texas outlets where such sales are legal.
In many states, sellers of alcoholic beverages have been held responsible
for damages caused by persons who purchased alcoholic beverages from them and
who were at the time of the purchase, or subsequently became, intoxicated.
Although the Company's retail operations have adopted procedures which are
designed to minimize such liability, the potential exposure to the Company as a
seller of alcoholic beverages is substantial. The Company's present liability
insurance provides coverage, within its limits and subject to its deductibles,
for this type of liability.
Environmental Regulation. The Company is subject to various federal, state,
and local environmental, health, and safety laws and regulations. In particular,
federal regulations issued in late 1988 regarding underground storage tanks
established requirements for, among other things, underground storage tank leak
detection systems, upgrading of underground tanks with respect to corrosion
resistance, corrective actions in the event of leaks, and the demonstration of
financial responsibility to undertake corrective actions and compensate third
parties for damages in the event of leaks. Certain of these requirements were
effective immediately and others are being phased in over a ten year period.
However, all underground storage tanks must comply with all requirements by
December 1998. The Company has implemented a plan to bring all of its existing
underground storage tanks and related equipment into compliance with these laws
and regulations and currently estimates the costs to do so will total from
$1,837,000 to $2,245,000 over the next two years.
All states in which the Company has underground storage tanks have
established trust funds for the sharing, recovering, and reimbursing of certain
cleanup costs and liabilities incurred as a result of leaks in such tanks. These
trust funds, which essentially provide insurance coverage for the cleanup of
environmental damages caused by an underground storage tank leak, are funded by
a tax on underground storage tanks or the levy of a "loading fee" or other tax
on the wholesale purchase of motor fuels within each respective state. The
coverages afforded by each state vary but generally provide up to $1,000,000 for
the cleanup of environmental contamination and most provide coverage for
third-party liability, as well. Some of the funds require the Company to pay
deductibles up to $25,000 per occurrence.
Although the benefits afforded the Company as a result of the trust funds
are substantial, the Company may not be able to recover through higher retail
prices the costs associated with the fees and taxes which fund the trusts.
Management believes the Company complies in all material respects with
existing environmental laws and regulations and is not currently aware of any
material capital expenditures, other than as discussed above, that will be
required to further comply with such existing laws and regulations. However, new
laws and regulations could be adopted which could require the Company to incur
significant additional costs.
Federal Income Tax Law
Under the Internal Revenue Code of 1986, as amended (the "Code"), certain
publicly-traded partnerships are treated as corporations for tax purposes.
However, due to a transitional rule, the Company will continue to be treated as
a partnership for federal income tax purposes until the earlier of (i) its first
tax year beginning after 1997 or (ii) its addition of a "substantial new line of
business" as defined by the Code. In addition, (i) the passive loss rules under
the Code are applied separately with respect to items attributable to each
publicly-traded partnership that is not treated as a corporation for tax
purposes and (ii) net income from publicly-traded partnerships is not treated as
passive income.
In the recent past, legislation was introduced in Congress which would
extend the "grandfather" provision which permits the Company to continue to be
treated as a partnership for tax purposes either indefinitely or for a limited
period. However, these bills were not passed. As of March 1997, similar
legislation has not been reintroduced although certain interested parties are
still advocating for such a bill.
Consequently, the Company has been studying various alternative structures.
The options available to the Company include converting its current operations
to a corporate form, which will, in effect, occur if the Company takes no other
action; placing its retail and other operations that do not generate "qualifying
income" (as defined in the tax code) in a separate corporate subsidiary and
continuing the operation of its remaining activities as a publicly-traded
limited partnership; or placing its retail operations and its real estate
holdings into separate corporations, distributing those interests to its
unitholders, and qualifying the company holding the real estate interests as a
real estate investment trust. Although no decision has yet been made as to
changes in the structure of the Company, one of the primary considerations
affecting any decision is that the restructuring be accomplished in a manner so
as to qualify as a tax-free transaction.
Forward-Looking Statements
Certain of the statements made in this report are forward-looking
statements that involve a number of risks and uncertainties. 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," "believes," and similar phrases. Among the factors that could cause
actual results to differ materially from the statements made are the following:
general business conditions in the local markets served by the Company's
convenience stores, truck stops, and other retail outlets, and its wholesale
fuel markets; the weather in the local markets served by the Company;
competitive factors such as changes in the locations, merchandise offered, or
other aspects of competitors' operations; increases in cost of fuel and
merchandise sold or reductions in the gross profit realized from such sales;
expense pressures relating to operating costs, including labor, repair and
maintenance, and supplies; and, unanticipated general and administrative
expenses, including costs of expansion or financing.
Item 2. PROPERTIES.
The following table summarizes the ownership status of the Company's retail
outlets as of February 28, 1997:
Owned Leased from Leased from
by the Affiliates Unrelated
Company of the Parties Total
General
Partner
Number of Locations
Convenience Stores
Land 39 53 21 113
Buildings 90 5 18 113
Truck Stops
Land 2 6 2 10
Building 6 2 2 10
Self-service gasoline
outlets
Land 15 100 91 206
Buildings 64 51 91 206
Other/Not Active
Land 6 8 12 26
Buildings 9 5 12 26
Total
Land 62 167 126 355
Buildings 169 63 123 355
The leases covering land and buildings leased from affiliates of the
General Partner generally expire on May 31, 1997, and have one or two five-year
renewal periods with renewal at the sole option of the Company. The monthly rent
upon renewal will be adjusted by the increase in the consumer price index since
the leases were entered into. Management believes the terms and conditions of
the leases with affiliates are more favorable to the Company than could have
been obtained from unrelated third parties.
The executive offices of the Company are located at 2801 Glenda Avenue,
Fort Worth, Texas, where it occupies approximately 15,000 square feet of office
space leased from three companies affiliated with the General Partner.
Item 3. LEGAL PROCEEDINGS.
The Company is periodically involved in routine litigation arising in the
ordinary course of its businesses, particularly personal injury and employment
related claims. Management presently believes none of the pending or threatened
litigation of this nature is material to the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of Unitholders during 1996.
PART II
Item 5. MARKET FOR THE REGISTRANT'S UNITS AND RELATED SECURITY HOLDER MATTERS.
The Company's Class A Units are listed for trading on the American Stock
Exchange (symbol "FFP"). At March 20, 1997, there were 209 holders of record of
the Class A Units and one holder of record of the Company's Class B Units; the
Class B Units are not listed for trading on any securities exchange. {See Item
12. Security Ownership of Certain Beneficial Owners and Management.} The Class A
and Class B Units have identical rights with respect to cash distributions and
to voting on matters brought before the partners.
In August 1989, the Company entered into a Rights Agreement and distributed
to its Unitholders Rights to purchase Units under certain circumstances.
Initially the Rights were attached to all Unit Certificates representing Units
then outstanding and no separate Rights Certificates were distributed. Under the
Rights Agreement, the Rights were to separate from the Units and be distributed
to Unitholders following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") had acquired, or
obtained a right to acquire, beneficial ownership of 20% or more of the
Partnership's Class A Units or all classes of outstanding Units. On August 8,
1994, a group of Unitholders announced that they had an informal understanding
that they would vote their Units together as a block. The agreement related to
units that constituted approximately 25% of the Class A Units then outstanding.
Therefore, the Rights became exercisable on October 7, 1994, the record date for
the issuance of the Rights Certificates (the "Distribution Date").
The Rights currently represent the right to purchase a Rights Unit (which
is substantially equivalent to a Class A Unit) of the Company at a price of
$20.00 per Unit. However, the Rights Agreement provides, among other things,
that if any person acquires 30% or more of the Class A Units or of all classes
of outstanding Units then each holder of a Right, other than an Acquiring
Person, will have the right to receive, upon exercise, Rights Units (or in
certain circumstances, other property) having a value of $40.00 per Unit. The
Rights will expire on August 13, 1999, and do not have any voting rights or
rights to cash distributions.
The following table sets forth the range of high and low sales prices for
the Partnership's Class A Units as reported on the American Stock Exchange for
the periods indicated:
High Low
Dollars
1995
First Quarter 8 5/8 5 5/8
Second Quarter 7 5/8 5 3/8
Third Quarter 8 6
Fourth Quarter 7 15/16 6 3/4
1996
First Quarter 8 6 3/16
Second Quarter 7 13/16 6
Third Quarter 7 5/8 6
Fourth Quarter 7 7/16 5 1/8
The following table sets forth the distributions declared and
paid by the Company in 1995 and 1996:
Amount per
Class A and
Record Date Date Paid Class B Unit
March 31, 1995 April 12, 1995 $0.120
April 24, 1995 May 9, 1995 0.270
August 16, 1995 August 31, 1995 0.180
November 28, 1995 December 12, 1995 0.300
April 10, 1996 April 24, 1996 0.205
August 27, 1996 September 11, 1996 0.210
Distributions are dependent upon the actual level of earnings and cash flow
of the Company, capital expenditures required to maintain or used to expand the
productive capacity of the Company's asset base, and requirements for servicing
the Company's debt. In addition, the Company has entered into a Credit Agreement
with a bank which contains various restrictive covenants, including restrictions
on the payment of cash distributions to unitholders The Credit Agreement limits
the payment of cash distributions to 50% of net income as reported in accordance
with generally accepted accounting principles and by requiring that the Company
maintain certain financial ratios. Beginning in 1998, the Company will become
taxable as a corporation, unless alternative structures are implemented.
Accordingly, funds available for distribution will be reduced by any income
taxes that may be incurred by the Company. {See Federal Income Tax Law and Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations, Liquidity and Capital Resources.}
Item 6. SELECTED FINANCIAL AND OPERATING DATA.
1996 1995 1994 1993 1992
Financial Data (in thousands, except per unit data):
Revenues and Margins -
Motor fuel sales $321,814 $296,887 $275,278 $246,023 $217,248
Motor fuel margin 20,672 22,813 22,332 21,650 16,963
Merchandise sales 60,579 65,512 72,827 74,921 56,946
Merchandise margin 17,821 19,187 20,169 20,320 19,884
Miscellaneous revenues 7,759 7,646 7,408 5,706 5,086
Total revenues 390,152 370,045 355,513 326,650 279,280
Total margin 46,252 49,646 49,909 47,676 41,933
Direct store expenses 27,062 28,496 29,553 28,794 24,771
General and administrative expenses 11,506 11,795 11,056 10,527 9,415
Depreciation and amortization 3,951 3,769 4,352 5,681 5,435
Total operating expenses 42,519 44,060 44,961 45,002 39,621
Operating income 3,733 5,586 4,948 2,674 2,312
Interest expense (1,246) (1,176) (1,173) (1,565) (1,724)
Income before income taxes/other
items 2,487 4,410 3,775 1,109 588
Deferred income taxes (2,646) (500) (244) (94) 0
Gain on extinguishment of debt 0 0 200 0 0
Change in accounting for income
taxes 0 0 0 (297) 0
Net income/(loss) $(159) $3,910 $3,731 $718 $588
Income/(loss) per unit -
Before income taxes/other items $0.67 $1.07 $0.97 $0.28 $0.16
Net income/(loss) (0.04) 1.07 1.03 0.20 0.16
Cash distributions declared per
Class A and Class B Unit $0.415 $0.870 $0.370 $0.000 $0.000
Total assets $78,599 $69,332 $67,978 $70,277 $68,116
Long-term obligations 9,418 7,100 9,527 10,755 17,164
Operating Data:
Gallons of motor fuel sold (in thousands)
Retail 197,687 193,233 196,246 187,267 170,410
Wholesale 90,704 95,473 81,289 57,718 39,590
Fuel margin per gallon (in cents)
Retail 9.3 10.9 10.1 10.0 9.2
Wholesale 1.9 1.7 1.8 1.7 1.0
Average weekly merchandise sales -
Convenience stores $9,454 $9,560 $9,901 $10,289 $8,370
Truck stops 17,192 17,506 18,160 17,798 15,709
Merchandise margin 29.4% 29.3% 27.7% 27.1% 34.9%
Number of locations at year end -
Convenience stores 117 127 127 145 137
Truck stops 10 10 10 10 9
Self-service fuel outlets 206 194 185 169 171
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
General
This discussion should be read in conjunction with the selected financial
and operating data, the description of the Company's business operations, and
the financial statements and related notes and schedules included elsewhere in
this Annual Report on Form 10-K. {See Item 1. Business, Forward-Looking
Statements.}
The Company reports its results of operations using a fiscal year which
ends on the last Sunday in December. Most fiscal years have 52 weeks but some
consist of 53 weeks. Fiscal 1995 was a 53-week year, while fiscal 1996, 1994,
1993, and 1992 were 52-week years. This variation in time periods most affects
revenues (and related costs of sales) and salary costs as other expenses (such
as rent and utilities) are usually recorded on a "monthly" basis. However,
differences in the number of weeks in a fiscal year should be considered in
reviewing financial data.
1996 Compared with 1995
The Company's total revenues increased $20,107,000 (5.4%) in 1996 over
1995. This increase was the result of a $24,927,000 (8.4%) increase in motor
fuel sales offset by a $4,933,000 (7.5%) decline in merchandise sales.
Miscellaneous revenues were essentially flat between the two years.
The increased fuel revenues resulted from increased prices and an increase
of 4,454,000 gallons (2.3%) of fuel sold at retail offset by a 4,769,000 gallon
(5.0%) decline in wholesale gallons sold. The increase in retail fuel gallons
sold parallels the 2.4% increase in the average number of locations selling fuel
in 1996 as compared to 1995. The decrease in wholesale fuel gallons resulted
from the absence of large spot sales to certain customers in 1996. The majority
of the Company's wholesale sales are to smaller independent retailers, many of
which are contractually committed to purchase from the Company. However, the
Company also markets to operators of larger convenience store chains and other
retail outlets but such customers are primarily motivated by price. Due to
increases in wholesale fuel prices in 1996, the Company was not able to be as
aggressive in its pricing to these customers as in prior years.
Although fuel sales increased, fuel margin declined significantly,
$2,141,000 (9.4%), from the prior year. This decline was caused by substantially
reduced retail fuel margins in 1996 as compared to 1995. The 1996 retail fuel
margin was 9.3 cents per gallon, a drop of 14.7% from the 10.9 cents per gallon
realized in 1995. The reduced margin resulted from increases in wholesale prices
that could not be fully passed on to retail customers due to competitive
pressures from non-traditional fuel retailers in the Company's market areas,
such as grocery stores that have installed fuel islands. The reduced retail
margin was experienced by the Company throughout 1996 with the exception of its
second fiscal quarter. Although the volumes of fuel sold on a wholesale basis
declined, the wholesale margin per gallon increased by 11.8%, from 1.7 cents in
1995 to 1.9 cents in 1996.
The $4,933,000 decline in merchandise sales primarily relates to the
decline in the average number of convenience stores and truck stop restaurants
operated during the year. The Company continued its program of selling the
merchandise operations of selected convenience stores to independent operators,
with 18 such sales in 1996. Under this program, begun in mid-1994, the Company
sells the merchandise operations of outlets that it believes will contribute
more to its earnings if operated by independent operators than by the Company.
The independent operators, because of their different overhead structure, are
able to operate the stores less expensively than can the Company. These sales
are structured such that the Company retains the real estate or leasehold
interest in the property and leases or subleases the land, building, and
equipment to the operator. The Company also retains the motor fuel concession at
these outlets, which become self-service fuel outlets for the Company. The sales
of these stores, offset to some extent by the conversion of certain gas only
outlets to convenience stores, reduced the average number of convenience stores
operated during the year by 5.0%. In addition, the Company leased the restaurant
facilities at two of its truck stops to independent operators in early 1996.
Total merchandise gross profit also declined due to the sales declines;
however, the margin on merchandise sales increased slightly in 1996, to 29.4%
from 29.3%. Shortly after year end 1996, the Company reorganized its retail
operations placing convenience stores and truck stops, and their related food
service operations, under the supervision of one executive. Management believes
this supervisory structure will increase the focus on improving merchandise
margins and sales levels in its outlets.
Although miscellaneous revenues in total were relatively unchanged between
1996 and 1995, the composition of the revenues shifted. Gains on the sales of
merchandise operations at convenience stores increased to $1,778,000 from
$791,000 (124.8%) while check cashing fees, food stamp commissions, and other
revenues related to check cashing booths declined $497,000 due to closing eight
such outlets. In addition, the Company recognized a one-time gain of $353,000
from the sale of a fleet fueling franchise in 1995. Other items included in
miscellaneous revenue, such as lottery commissions and money order fees, were
relatively unchanged between the periods.
Direct store expenses consist of those costs directly attributable to the
operation of the Company's retail outlets, such as salaries and other personnel
costs, supplies, utilities, repairs and maintenance, and commissions paid to the
operators of the self-service motor fuel outlets. These costs declined
$1,434,000 (5.0%) in 1996 from 1995. This decline was due to the reduction in
the average number of convenience stores operated during 1996 and to the closure
of the eight check cashing outlets, both discussed above, offset by increased
fuel commissions paid to operators of the Company's self-service fuel outlets
due to an increase in the number of this type of outlet. The Company leases the
land or land and buildings at 167 of its retail locations from affiliates of the
General Partner. As is customary in these types of agreements, these leases
provide for adjustments in the monthly rent based on the change in the consumer
price index. The adjustments are made every five years with the next adjustment
to be effective beginning in May 1997. Although the index on which the upcoming
adjustment will be based has not yet been published, the Company anticipates
that the rents paid for these locations will increase by approximately $225,000
annually beginning in May 1997.
General and administrative expenses declined $289,000 (2.5%) in 1996 as
compared to the prior year principally due to declines in salaries and bad debts
although all categories of costs except legal and professional fees declined
slightly or were flat compared to 1995.
The modest increase in depreciation and amortization expense relates to the
increases in the Company's fixed assets over the last few years. Because of the
significant asset additions during the current year, principally related to
environmental upgrades at the Company's retail locations and to improvements at
the fuel terminal acquired in early 1996, which is expected to begin operating
in the first quarter 1997, it is expected that depreciation and amortization in
future years will increase from the current level.
Interest expense was relatively unchanged in 1996 from the prior year,
increasing $70,000 (6.0%). Although the Company's total debt (long- and
short-term and capital leases) increased by a total of $5,935,000, interest
rates were somewhat lower in 1996 than 1995, much of the additional indebtedness
was incurred late in the year, and a significant portion of the debt was
incurred to finance renovation of the fuel terminal and the interest expense
related thereto was capitalized. The Company expects that its interest expense
will increase in 1997 over 1996 due to the rise in its debt levels; and, when
the fuel terminal begins operating, the debt incurred to finance its renovation
will begin to be expensed. If general interest rate increases occur, such
increases will, of course, increase the Company's interest expense as much of
the Company's debt carries a floating rate.
The Company adopted Financial Accounting Standards Board Statement No. 109
"Accounting for Income Taxes" ("SFAS 109") at the beginning of fiscal 1993. As a
result of adopting this accounting principle, the Company is required to record
deferred income tax expense attributable to changes arising in the current
period in the temporary differences between financial and tax reporting which
are expected to reverse after 1997, when the Company will become taxable as a
corporation. These differences are due primarily to temporary differences
between the financial reporting amounts and tax bases of the Company's property
and equipment.
In 1996, the Company recorded deferred income taxes of $2,646,000, an
increase of $2,146,000 (429.2%) over the previous year. Of the total for the
current year, $2,089,000 was related to a change in the lives used by the
Company to depreciate certain buildings for income tax reporting purposes. In
August 1996, Congress passed legislation clarifying that certain buildings used
in connection with the retail sale of motor fuel qualified for a substantially
shorter depreciable life for tax purposes than was being utilized by the
Company. Substantially all of the buildings owned by the Company qualified for
this shorter life. In January 1997, the Internal Revenue Service issued a notice
explaining how the tax deduction related to the change in the depreciable lives
on these assets should be determined. As a result, the Company will take a 1996
tax deduction for the difference between the tax depreciation previously
recorded and the depreciation available using the shorter life. However, it must
record deferred taxes on this timing difference. If the Company were a taxable
entity, the deferred tax charge would have been offset by a current tax credit
of an equal amount with no impact on the Company's reported net income. However,
since the Company is a partnership and does not report any current income tax
expense or credit, the current tax benefit of this deduction will be allocated
to the Company's unitholders.
The 1996 deferred tax expense not related to the above described
clarification in the tax law, was $557,000, an increase of $57,000 (11.4%) over
the expense reported in 1995 and is principally due to additions to fixed assets
which are depreciated differently for financial reporting and tax purposes. The
deferred tax expense is expected to grow in 1997 as the date at which the
Company will become taxable as a corporation grows closer since fewer of the
differences between tax and financial reporting will reverse prior to such date
and because of the significantly increased tax deduction available for the
deprecation of many of the Company's buildings. However, the $2,089,000 expense
related to the "catch-up" in depreciation discussed above will not recur.
The Company's reported a net loss of $159,000 in 1996, as compared to net
income of $3,910,000 in 1995 primarily due to significant impact of reduced
retail fuel margins and to the non-recurring deferred tax provision related to
the change in the depreciable lives of certain buildings for tax purposes.
1995 Compared with 1994
The Company's motor fuel revenues for 1995 increased over the 1994 period
by $21,609,000 (7.8%) due to increased wholesale fuel sales. Wholesale fuel
sales increased 14,184,000 gallons (17.4%) over 1994. This increase resulted
from a full year of sales from a marketing arrangement begun in mid-1994 that
emphasizes sales to contractors and other commercial users of fuel as well as
from growth in these sales. However, the increase in wholesale fuel sales was
offset by a decline in retail fuel sales. Motor fuel sales at the Company's
retail outlets declined by 3,013,000 gallons (1.5%) as a result of lower sales
volumes at the Company's truck stops due to increased competition from new
outlets in several of the Company's markets. The margin on fuel sales increased
$481,000 (2.2%) in 1995 over 1994. This increase resulted from improved retail
fuel margins (10.9 cents in 1995 vs 10.1 cents in 1994) and the additional
margin from the increased wholesale activity.
Merchandise sales in 1995 declined by $7,315,000 (10.0%) from the previous
year due principally to the sale of the merchandise operations at ten
convenience stores under the Company's program of selling these operations to
independent operators. The merchandise sales decline was also affected by the
absence of a full year's sales at the 15 outlets whose merchandise operations
were sold in the third and fourth quarters of 1994.
The Company also experienced a decline in its average weekly per store
sales for convenience stores of $341 (3.4%) in 1995 as compared to 1994 and a
decline of 3.6% in sales at the truck stops (combined with their associated
restaurants). These declines are attributable to the Company's efforts to
increase the margin on merchandise sales at all of its outlets. Total
merchandise margin declined by $982,000 due to the reduced merchandise sales but
the gross profit percentage on merchandise sales increased to 29.3% from 27.7%
reflecting the Company's program of selectively increasing prices on less price
sensitive items.
Miscellaneous revenues were up $238,000 (3.2%) in 1995 over 1994. This
increase resulted primarily from increases in excise tax handling fees (due to
increased fuel volumes) and money order fees (due to increased numbers of items
sold and an increase in the per item fee) and a gain recognized from the sale of
the Company's fleet fuel franchise offset by declines in food stamp commissions
(due to the adoption in Texas of a "debit" card for this activity) and in
commissions on the wholesale sale of cigarettes (due to a more competitive
market).
Direct store expenses in 1995 declined $1,057,000 (3.6%) from the prior
year. This reduction was due to the elimination of payroll (and related costs),
utilities, and other operating expenses at the convenience stores whose
merchandise operations were sold to independent operators offset by increases in
the fuel commissions paid to the operators of those stores, and increases in
wage and other personnel costs at the stores operated by the Company.
General and administrative expenses increased $739,000 (6.7%) in 1995 over
1994. This increase was caused by increased professional fees, principally
attributable to the cost of consultants assisting in reorganizing certain of the
Company's back office processes, increased rental expense, associated with the
Company's increased use of leases to provide vehicles and to finance certain
equipment, increased insurance costs, and increases in bank charges, associated
with the trial use of a deposit pick up service at the Company's convenience
stores and truck stops. These increases were offset by a reduction in bad debt
expense due to better monitoring of receivables.
The $583,000 (13.4%) decline in depreciation and amortization expense is
due to the continued full depreciation of assets acquired upon the Company's
formation in 1987 and the somewhat limited additions to property and equipment
over the past few years.
Even though the Company's long-term bank debt declined by $3,580,000 from
1994 to 1995, interest expense was flat between the two years due to increased
use of capital leases, which carry a somewhat higher but fixed interest rate, to
fund capital expenditures.
The increase in the deferred tax expense in 1995 as compared to 1994 is
principally due to additions to fixed assets which are depreciated differently
for financial reporting and tax purposes.
The $263,000 (0.5%) decline in the Company's total margin in 1995 as
compared to 1994 was offset by significant reductions in operating expenses and
depreciation and amortization such that income before income taxes and other
items increased $635,000 (16.8%). However, due to the increase in deferred
income taxes, discussed above, and the occurrence in 1994 of a $200,000 gain
from the early extinguishment of debt in connection with the refinancing of the
Company's bank debt in early 1994, net income increased by $179,000 (4.8%)
between the two years.
Liquidity and Capital Resources
The Company has a Credit Agreement with a major bank under which it has a
$10,000,000 revolving credit line to be used for working capital purposes and
two term loans. The revolving credit line bears interest at the bank's prime
rate and matures on April 30, 1998, but the agreement requires that the
outstanding balance be paid down to $1,500,000 or less for three consecutive
days during each calendar quarter. One of the term loans had a balance at year
end 1996 of $5,625,000 and is due in quarterly installments of $312,500 through
March 31, 2001. The other term loan had a year end 1996 balance of $3,000,000
and is due on a payment schedule which requires aggregate payments of $225,000
in 1997 and $450,000 in 1998. Payments in subsequent years increase to a maximum
of $700,000 annually in the final year of the loan which matures on March 31,
2003. Both term loans bear interest at LIBOR plus 1.75% fixed at approximately
30 day intervals. Although the interest rates on the term loans are variable,
the Credit Agreement provides the Company with the ability to fix the rates on
all or a portion of the loans for varying periods of time up to their maturity.
The Credit Agreement contains various requirements and restrictive
covenants, including a pledge of the Company's accounts receivable and
inventories, a negative pledge of its fixed assets, limits on capital
expenditures, and limits on cash distributions (to 50% of net income as reported
for generally accepted accounting principles), and the requirement to maintain
certain financial ratios. At year end 1996, the Company was not in compliance
with certain of the financial ratios and covenants in the Credit Agreement.
However, the bank has waived compliance with these ratios or amended the Credit
Agreement with respect to these items.
During 1996, the Company made aggregate cash distributions to its
unitholders of $1,545,000 ($0.415 per unit). However, the distributions were not
made at regular, periodic intervals nor at fixed amounts. The Company
anticipates that it will make cash distributions to unitholders in 1997.
However, no determination has made with respect to the amount of any such
distributions, or the date(s) on which such distributions might be made. Any
future distributions will be dependent upon the profitability of the Company,
its debt service requirements, needs for capital expenditures, and compliance
with the restrictions in its Credit Agreement. Beginning in 1998, the Company
will become taxable as a corporation unless alternative structures are
implemented. Accordingly, funds available for distribution will be reduced by
any income taxes that may be incurred by the Company. {See Change in Structure
of Company.}
The Company's cash flows from operating activities were $485,000 less in
1996 than in 1995. This decline was due principally to the $4,069,000 decline in
net income offset by the significant increase in deferred taxes related to the
change in depreciable lives for certain buildings for tax purposes and the
increased gain on the sales of the merchandise operations of certain convenience
stores. Cash used to purchase property and equipment increased $4,755,000 in
1996 due to expenditures to acquire and renovate the fuel terminal acquired by
the Company in early 1996 and to continued environmental upgrades at the
Company's retail outlets. The Company will invest additional funds to complete
the renovation of the terminal in 1997, although the amount expended should be
substantially less than was spent in 1996. Expenditures for environmental
upgrading at the retail outlets should continue at about the same pace in 1997
and 1998 as in 1996 but should decline significantly thereafter as all
environmental upgrading must be completed by year end 1998. The Company has
contracted with a firm to install the necessary equipment and/or to modify
existing installations to meet current environmental requirements by the
December 1998 deadline. The cost of this upgrading is expected to be between
$1,837,000 to $2,245,000 and will be incurred during 1997 and 1998. The Company
will pay for some of its expected capital expenditures from operating cash flow
and expects to finance a portion of the expenditures by utilizing lease lines of
credit, as it has in the past.
The Company's financing activities provided $4,331,000 of cash in 1996.
This amount represents a change of $7,183,000 from 1995 levels due to a net
increase of $5,528,000 in aggregate debt (balances due on the Company's
revolving credit line, its long-term debt, and its capital lease obligations)
and a reduction of $1,659,000 in the amount of distributions paid to
unitholders. The reduced distributions to unitholders resulted from the decline
in the Company's earnings in 1996.
The Company is party to commodity futures contracts and forward contracts
to buy and sell fuel, both of which are used principally to satisfy balances
owed on exchange agreements. Both of these types of contracts have off-balance
sheet risk as they involve the risk of dealing with others and their ability to
meet the terms of the contracts and the risk associated with unmatched positions
and market fluctuations. The open positions under these contracts were not
significant at year end 1996. {See Note 11 to the Consolidated Financial
Statements.}
The Company had negative working capital at year end 1996 of $7,410,000, an
increase of $2,963,000 from 1995. This change resulted primarily from increases
in the current portion of the Company's short- and long-term debt and capital
leases. The Company has received a proposal to refinance its debt which would
provide for an increase in the term debt available to the Company and a longer
amortization of such debt. The Company believes that this or a similar
refinancing of its debt will be accomplished during 1997 and that such
refinancing will enhance its working capital position.
The Company has tradtionally been able to operate its business with
negative working capital, principally because most sales are for cash and it has
received payment terms from vendors. Consequently, even if a refinancing is not
completed, the Company believes that the availability of funds under its
revolving line of credit and its traditional use of trade credit will permit
operations to be conducted in a customary manner.
Inflation and Seasonality
The Company believes inflation has not had a material effect on operating
results in recent years except for the upward pressure placed on wages,
primarily store wages, by the federal minimum wage increase which took effect in
1996. The additional increase in the minimum wage scheduled for October 1997
will again place pressure on the level of store wages. However, the Company
expects that operating margins will be adversely affected for only a limited
time as it believes that prices can be increased fairly quickly in order to pass
along this increased cost to customers. The Company does not believe it will be
at a competitive disadvantage as it believes its wage structure is in line with
that of other convenience store operators. Apart from the impact of the minimum
wage increase and the scheduled rent increases discussed earlier, operations for
the foreseeable future are also not expected to be significantly impacted by
inflation. Generally, increased costs of in-store merchandise can be quickly
reflected in higher prices to customers. The price of motor fuel, adjusted for
inflation, has declined over recent years. However, significant increases in the
retail price of motor fuels could reduce fuel demand and the Company's gross
profit on fuel sales.
The Company's businesses are subject to seasonal influences, with higher
sales being experienced in the second and third quarters of the year as
customers tend to purchase more motor fuel and convenience items, such as soft
drinks, other beverages, and snack items, during the warmer months.
Change in Structure of Company
Under current tax law, the Company will become taxable as a corporation
beginning in 1998. This change, which was included in 1986 revisions to the
Internal Revenue Code, would mean that the Company would begin paying taxes and
that any distributions made to the unitholders would be treated as corporate
dividends.
In connection with this change, the Company has been studying various
alternative structures. The options available to it include converting its
current operations to a corporate form, which will in effect occur if the
Company takes no other action; placing its retail and other operations that do
not generate "qualifying income" (as defined in the tax code) in a separate
corporate subsidiary and continuing the operation of its remaining activities as
a publicly-traded limited partnership; or placing its retail operations and its
real estate holdings into separate corporations, distributing the interests in
those corporations to its unitholders, and qualifying the company holding the
real estate interests as a real estate investment trust ("REIT").
As stated above, a decision has not yet been made regarding restructuring
the Company and management is continuing to evaluate the foregoing and other
alternatives available to it. One of the primary considerations affecting any
decision is that the restructuring be accomplished in a manner so as to qualify
as a tax-free transaction for the Company and its unitholders.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data filed herewith begin on
page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no changes in, nor disagreements with, accountants during 1996.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
General Partner
FFP Partners Management Company, Inc., a Delaware corporation formed in
December 1986, is the General Partner of and manages the Company. The
Unitholders have no power, as limited partners, to direct or participate in the
control of the business of the Company.
Management of the General Partner
Set forth below are the names, ages, positions, and business experience of
the executive officers and directors of the General Partner:
Name Age Position
John H. Harvison [1] 63 Chairman of the Board and Chief
Executive Officer
Robert J. Byrnes [1] 56 President, Chief Operating Officer,
and Director
Steven B. Hawkins 49 Vice President - Finance and
Administration, Secretary,
Treasurer, and Chief Financial Officer
J. D. St.Clair 62 Vice President - Fuel Supply and
Distribution and Director
Michael Triantafellou 43 Vice President - Retail Operations and
Director
Robert E. Garrison, II [1,2] 55 Director
John W. Hughes [1,2] 55 Director
Garland R. McDonald 59 Director
John D. Harvison 40 Director
E. Michael Gregory 45 Director
- --------------------------------------
[1] Member of Compensation Committee
[2] Member of Audit Committee
John H. Harvison has been Chairman of the Board of the General Partner
since the commencement of the Company's operations in May 1987. Mr. Harvison is
a founder and an executive officer of each of the companies from which the
Company acquired its initial base of retail outlets, and has been active in the
retail gasoline business since 1958 and in the convenience store business since
1973. In addition, he has been involved in oil and gas exploration and
production, the ownership and management of an oil refinery and other personal
investments. In January 1995, Mr. Harvison consented to the entry of a cease and
desist order by the United States Office of Thrift Supervision that, among other
things, prohibits him from participating in any manner in the conduct of the
affairs of federally insured depository institutions. This Order was issued in
connection with Mr. Harvison's ownership in a federal savings bank and
transactions between him (and companies in which he had an ownership interest)
and that institution. In consenting to the issuance of the Order, Mr. Harvison
did not admit any of the allegations against him and consented to the issuance
of the Order solely to avoid the cost and distraction that would be caused by
prolonged litigation to contest the positions taken by the Office of Thrift
Supervision. Mr. Harvison is the father of John D. Harvison, who is also a
director of the General Partner.
Robert J. Byrnes has been the President of the General Partner since April
1989 and has been a Director since May 1987. From May 1987 to April 1989, Mr.
Byrnes served as Vice President - Truck Stop Operations for the Company. Mr.
Byrnes has been, since 1985, the President of Swifty Distributors, Inc., one of
the companies from which the Company acquired its initial retail outlets. From
1975 through 1984, Mr. Byrnes was President of Independent Enterprises, Inc.,
which owned and operated convenience stores and a truck stop. During that
period, he was also President of Enterprise Distributing, Inc., a wholesaler of
motor fuels. Prior to 1975, Mr. Byrnes was President of Foremost Petroleum
Corporation (which is now a subsidiary of Citgo Petroleum Corporation) and was a
distribution manager for ARCO Oil & Gas Company. He is currently a director of
Plaid Pantries, Inc., an operator of convenience stores headquartered in
Beaverton, Oregon.
Steven B. Hawkins has been Vice President - Finance and Administration,
Secretary, and Treasurer of the General Partner since May 1987. From April 1980
through December 1987, Mr. Hawkins was employed as Secretary/Treasurer,
Controller and Chief Financial Officer by various companies affiliated with the
General Partner. Prior to joining such affiliates, Mr. Hawkins was employed for
nine years by Arthur Andersen & Co., an international public accounting firm. He
is a member of both the American Institute of Certified Public Accountants and
the Texas Society of CPAs.
J. D. St.Clair has been Vice President - Fuel Supply and Distribution and a
Director of the General Partner since May 1987. Mr. St.Clair is a founder and an
executive officer of several of the companies from which the Company acquired
its initial retail outlets. He has been involved in the retail gasoline
marketing and convenience store business since 1971. Prior to 1971, Mr. St.Clair
performed operations research and system analysis for Bell Helicopter, Inc.,
from 1967 to 1971; for the National Aeronautics and Space Administration from
1962 to 1967; and Western Electric Company from 1957 to 1962.
Michael Triantafellou was elected Vice President - Retail Operations and a
Director of the General Partner in February 1997. He had served as Director of
Truck Stops and Food Service Operations for the Company since January 1994. Mr.
Triantafellou has been engaged in the truck stop and food service industries
since 1976, having held various middle and upper management positions in the
truck stop businesses of Truckstops of America (from 1975 to 1980), Bar-B
Management (from 1980 to 1985) Greyhound-Dial Corp. (from 1985 to 1993), and
Knox Oil of Texas (from 1993 to 1994). Mr. Triantafellou is a 1975 graduate of
the Wharton School of the University of Pennsylvania.
Robert E. Garrison, II, has been a Director of the General Partner since
May 1987. Mr. Garrison is a managing partner of Harris, Webb & Garrison, a
regional merchant and investment bank, and is also Chairman and Chief Executive
Officer of Pinnacle Management & Trust Co., a state chartered independent trust
company. From October 1992 through February 1994, Mr. Garrison was Chairman of
Healthcare Capital Group, Inc., a regional investment bank focusing on the
health care industry. From April 1991 through October 1992, Mr. Garrison was
Chairman and Chief Executive Officer of Med Center Bank & Trust, one of the
leading independent banks in Houston, Texas. Mr. Garrison served as President of
Iroquois Brands, Ltd. ("IBL"), a manufacturer of material handling and
construction equipment, pharmaceutical and personal care products, and operator
of convenience stores and retail fuel outlets in the United Kingdom from 1989
until September 1990. From 1982 through March 1989, Mr. Garrison served as
Executive Vice President and director of Lovett Mitchell Webb & Garrison, Inc.
("LMW&G"), one of the representatives of the underwriters in the initial public
offering of the Company in May 1987, where he managed the Investment Research
and Investment Banking Division, and Boettcher & Company, Inc., which acquired
LMW&G in September 1987. From 1971 to 1982, Mr. Garrison was First Vice
President and Director of Institutional Research at Underwood Neuhaus & Co. From
1969 to 1971, Mr. Garrison was Vice President of BDSI, a venture capital
subsidiary of General Electric.
John W. Hughes has been a Director of the General Partner since May 1987.
Mr. Hughes is an attorney with the law firm of Garrison & Hughes, L.L.P., in
Fort Worth, Texas. From 1991 to 1995 he was an attorney with the firm of Simon,
Anisman, Doby & Wilson, P.C., in Fort Worth, Texas. Since 1963, Mr. Hughes has
been a partner of Hughes Enterprises, which invests in venture capital
opportunities, real estate, and oil and gas.
Garland R. McDonald, is employed by the Company to oversee and direct a
variety of special projects. He was elected to the Board in January 1990. He had
previously served as a Director of the General Partner from May 1987 through May
1989 and served as a Vice President of the General Partner from May 1987 to
October 1987. Mr. McDonald is a founder and the Chief Executive Officer of Hi-Lo
Distributors, Inc., and Gas-Go, Inc., two of companies from which the Company
initially acquired its retail outlets. He has been actively involved in the
convenience store and retail gasoline businesses since 1967.
John D. Harvison was elected a Director of the General Partner in April
1995. Mr Harvison has been Vice President of Dynamic Production, Inc., an
independent oil and gas exploration and production company since 1977. He
previously served as Operations Manager for Dynamic from 1977 to 1987. He also
serves as an office of various other companies that are affiliated with Dynamic
that are involved in real estate management and various other investment
activities. Mr. Harvison is the son of John H. Harvison, the Chairman of the
Board of the General Partner.
E. Michael Gregory was elected to the Board of the General Partner in
September 1995. Mr. Gregory is the founder and President of Gregory Consulting,
Inc., an engineering and consulting firm that is involved in the development of
products related to the distribution and storage of petroleum products and
computer software for a variety of purposes including work on such products and
software for the Company. Prior to founding Gregory Consulting in 1988, Mr.
Gregory was the Chief Electronic Engineer for Tidel Systems (a division of The
Southland Corporation) where he was responsible for new product concept
development and was involved in projects involving the monitoring of fuel levels
in underground storage tanks. He is a Registered Professional Engineer in Texas.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Regulations issued under the Securities Exchange Act of 1934 require
certain persons to report their holdings of the Company's Class A and Class B
Units to the Securities and Exchange Commission ("SEC") and to the Company. To
the best of the Company's knowledge, based upon copies of reports and other
representations provided to the Company, all 1996 reports required under Section
16 of the Securities Exchange Act of 1934 were filed in a timely manner except
that the following reports were filed late: (i) reports for the month of January
1996 for John H. Harvison, John D. Harvison, Randall W. Harvison, 7HBF, Ltd.,
HBF Financial, Ltd., and Garland R. McDonald covering the conversion of Class B
Units indirectly owned by them to Class A Units; and, (ii) a report for the
month of February 1996 for Robert E. Garrison, II, covering Class A Units sold
by him individually and acquired by an Individual Retirement Account of which he
is the beneficiary.
Item 11. EXECUTIVE COMPENSATION.
The Company reimburses the General Partner for all of its direct and
indirect costs (principally officers' compensation and other general and
administrative costs) allocable to the Company. Cash bonuses to executive
officers of the General Partner are not chargeable to the Company as a
reimbursable expense.
Each director who is not an officer or employee of the General Partner or
the Company receives an annual retainer of $4,000 plus $1,000 for each Board
meeting, or committee meeting not held in conjunction with a Board meeting,
which he attends and $500 for each telephone meeting in which he participates.
Each director is also reimbursed for expenses related to attendance at board
meetings.
In addition, non-employee directors are generally granted options to
acquire 25,000 Class A Units at the fair market value of the underlying units on
the date of grant. The options become exercisable with respect to one-third of
the Units covered thereby on each of the anniversary dates following the grant
and expire ten years after grant. In the event of a change in control of the
Company, any unexercisable portion of the options will become immediately
exercisable. Upon exercise, the option price may be paid, in whole or in part,
in Class A Units owned by the director.
Directors who are officers or employees of the General Partner or the
Company receive no additional compensation for attendance at Board or committee
meetings.
The General Partner has employment agreements with Messrs. Harvison,
Byrnes, Hawkins, and St.Clair which provide that if the employment of any such
officer is terminated for any reason other than the commission of an act of
fraud or dishonesty with respect to the Company or for the intentional neglect
or nonperformance of his duties, such officer is to receive an amount equal to
twice his then current annual salary plus a continuation of certain benefits
provided by the Company for a period of two years. Any cost incurred under these
agreements is to be borne by the Company.
Summary Compensation Table
The following table provides information regarding compensation paid during
each of the Company's last three fiscal years to the Company's Chief Executive
Officer and to each of the Company's other executive officers who earned salary
and bonus of more than $100,000 in the latest fiscal year:
Summary Compensation Table
Annual Compensation
-----------------------
Other
Name Annual
and Compen-
Principal Position Year Salary sation
($) ($)
John H. Harvison 1996 137,597[1] -
Chairman and Chief Executive Officer 1995 135,000 -
1994 135,000 -
Robert J. Byrnes 1996 137,597[1] -
President, Chief Operating Officer, and 1995 135,000 -
Director 1994 135,000 -
Avry Davidovich [2] 1996 127,404[1] -
Executive Vice President - Convenience 1995 125,000 -
Stores and Director 1994 125,000 -
- ---------------------------------------------------------------------------
[1] The annual salaries did not change from 1995 to 1996. The Company pays its
employees on a weekly basis and there were 53 pay periods in 1996 vs 52 pay
periods in 1995.
[2] Mr. Davidovich resigned as an officer and director in February 1997.
There were no long-term compensation awards or payouts during any of the
last three years.
General Partner's Incentive Bonus. On an annual, non-cumulative basis, the
General Partner may earn incentive compensation (the "Incentive Bonus"),
pursuant to the FFPOP Partnership Agreement, with respect to each fiscal year,
only if (a) the net income of the Company for such year, as determined in
accordance with generally accepted accounting principles and calculated prior to
the payment of the incentive compensation, equals or exceeds $1.08 per Unit, and
(b) the total of the quarterly cash distributions for such year to the holders
of Units equals or exceeds $1.50 per Unit (such distributions being those made
for such year, even though the distribution for the fourth quarter will actually
be paid subsequent to year end). In the event these tests are met, incentive
compensation will be paid in cash, by the Company, in an amount equal to 10% of
net income before such incentive compensation. Although there is no requirement
to do so, management believes that any such incentive compensation received by
the General Partner would be used to pay bonuses to its executive officers. The
General Partner did not earn any incentive compensation during 1996.
Class A Unit Options Exercised during Fiscal 1996 and Fiscal Year End
Option Values. The following table provides information about options exercised
during the last fiscal year and the value of unexercised options held at the end
of the fiscal year by the named executive officers:
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
Value of
Number of Unexercised
Units Unexercised In-the-Money
Acquired Options/SARs Options/SARs
on Value at Fiscal at Fiscal
Exercise Realized Year End Year End
(#) ($) (#) ($) [1]
Name and Exercisable/ Exercisable/
Principal Position Unexercisable Unexercisable
John H. Harvison - 0 - - 0 - 40,000/0 $65,000/$0
Chairman and Chief Executive
Officer
Robert J. Byrnes - 0 - - 0 - 35,000/0 $56,875/$0
President, Chief Operating
Officer, and Director
Avry Davidovich [2] - 0 - - 0 - 0/0 $0/$0
Executive Vice President -
Convenience Stores and
Director
- --------------------------------------------------------------------
[1] The closing price for the Company's Class A Units as reported by the
American Stock Exchange on December 29, 1996, was $5.375. The value shown is
calculated by multiplying the difference between this closing price and the
option exercise price times the number of units underlying the option.
[2] Mr. Davidovich resigned as an officer and director in February 1997.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Class A and Class B Units
The following table sets forth as of March 28, 1997, information regarding
the only persons known by the Company to own, directly or indirectly, more than
5% of each class of its Class A and Class B Units:
Title Name and Address Amount and Nature of Percent
of Class of Beneficial Owner Beneficial Ownership of Class
Class A 7HBF, Ltd. 524,333 [1] 15.2%
2801 Glenda Avenue
Fort Worth, Texas 76117
Class A HBF Financial, Ltd. 738,297 [2] 21.4%
2801 Glenda Avenue
Fort Worth, Texas 76117
Class A Garland R. McDonald 194,167 [3] 5.6%
2801 Glenda Avenue
Fort Worth, Texas 76117
Class B 7HBF, Ltd. 175,000 [4] 100.0%
2801 Glenda Avenue
Fort Worth, Texas 76117
[1] Consists of 524,333 Class A Units owned by eight companies which are owned
or controlled by 7HBF, Ltd., a limited partnership owned by John H.
Harvison and members of his immediate family. 7HBF, Ltd., may be deemed to
share beneficial ownership of 144,417 Units with Garland R. McDonald,
49,750 Units with Garland R. McDonald and Barbara J. Smith (John H.
Harvison's sister), 83,417 Units with J. D. St.Clair, and 16,833 Units with
Robert J. Byrnes.
[2] Consists of 738,297 Class A Units owned by a company which is owned by HBF
Financial, Ltd., a limited liability company owned by trusts for the
benefit of members of John H. Harvison's immediate family. In addition HBF
Financial, Ltd., owns 31% of the general partner of 7HBF, Ltd.
[3] Consists of 194,617 Class A Units owned by two companies of which Mr.
McDonald is deemed to be the beneficial owner. Mr. McDonald may be deemed
to share beneficial ownership of 144,417 of these Units with 7HBF, Ltd.,
and 49,750 Units with Barbara J. Smith and 7HBF, Ltd.
[4] Consists of 175,000 Class B Units owned of record by a company owned by
7HBF, Ltd. The beneficial of these Units is in dispute.
The following table sets forth as of March 28, 1997, information with
respect to the Class A Units and Class B Units beneficially owned by all
directors and executive officers of the General Partner (such information is
based on ownership reported to the Company by such persons):
Title Amount and Nature of Percent of
of Class Beneficial Ownership [1] Class [1]
Name of Beneficial Owner
John H. Harvison, Chairman Class A 0 [2, 3] 0.0%
Robert J. Byrnes, President and Class A 16,833 [4] 0.5%
Director
Steven B. Hawkins, Vice President Class A 1,300 [5] 0.0%
J. D. St.Clair, Vice President and Class A 88,417 [6] 2.5%
Director
Michael Triantafellou, Vice Class A 0 0.0%
President and Director
Robert E. Garrison, II, Director Class A 86,805 [7] 2.5%
John W. Hughes, Director Class A 0 0.0%
Garland R. McDonald, Director Class A 194,167 [8] 5.5%
John D. Harvison, Director Class A 0 [9, 10] 0.0%
E. Michael Gregory, Director Class A 0 0.0%
All directors and executive Class A 387,522 [11,12] 11.0%
officers as a group (10 persons)
- ------------------------------------------------------------------------
[1] Excludes Class A Units covered by the options discussed in Item 11.
Executive Compensation.
[2] Excludes 524,333 Class A Units beneficially owned by 7HBF,
Ltd. (a Texas limited partnership of which John H. Harvison and members
of his family are partners); 738,443 Class A Units beneficially
owned by HBF Financial, Ltd. (a Texas limited liability company which is
98%-owned by trusts for the benefit of the children of John H. Harvison);
and 32,167 Class A Units owned by a company of which John H. Harvison is
an officer and director and one-third of which is owned by trusts for the
benefit of his children. 7HBF, Ltd., may be deemed to share beneficial
ownership of 144,417 Units with Garland R. McDonald, 49,750 Units with
Garland R. McDonald and Barbara J. Smith (John H. Harvison's sister),
83,417 Units with J. D. St.Clair, and 16,833 Units with Robert J. Byrnes.
[3] Excludes 175,000 Class B Units owned of record by a company owned by 7HBF,
Ltd. The beneficial ownership of these Units is in dispute.
[4] Shares are held by a company ofwhich Mr. Byrnes is a director and
executive officer. Mr. Byrnes may be deemed to share beneficial ownership
of these units with 7HBF Financial, Ltd.
[5] Units are held by an Individual Retirement Account for the benefit of Mr.
Hawkins.
[6] Includes 5,000 Units held directly and 83,417 Units held by a company of
which Mr.St.Clair is a director and executive officer. Mr. St.Clair may
be deemed to share beneficial ownership of the 83,417 Units with 7HBF
Financial, Ltd.
[7] Includes 79,751 Units held directly and 7,054 Units held by an Individual
Retirement Account for the benefit of Mr. Garrison.
[8] Units are held by two companies of which Mr. McDonald is a director and
executive officer. Mr. McDonald may be deemed to share beneficial
ownership of 144,417 Units with 7HBF, Ltd., and of 49,750 Units
with 7BHF, Ltd., and Barbara J. Smith.
[9] Excludes 524,333 Class A Units beneficially owned by 7HBF,Ltd.
(a Texas limited partnership of which John D. Harvison and members of his
family are partners); and 738,443 Class A Units beneficially owned by HBF
Financial, Ltd. (a Texas limited liability company which is 98%-owned by
trusts for the benefit of the siblings of John D. Harvison); and
32,167 Class A Units owned by a company one-third of which is owned by
trusts for the benefit of John D. Harvison and his siblings. 7HBF, Ltd.,
may be deemed to share beneficial ownership of 144,417 Units with Garland
R. McDonald,49,750 Units with Garland R. McDonald and Barbara J. Smith
(John H. Harvison's sister), 83,417 Units with J.D. St.Clair, and
16,833 Units with Robert J. Byrnes.
[10] Excludes 175,000 Class B Units owned of record by a company owned by
7HBF, Ltd. Mr. Harvison is a manager of 7HBF,Ltd. The beneficial
ownership of these Units is in dispute.
[11] Excludes the 524,333, 738,443, and 32,167 Class A Units discussed in notes
2 and 9.
[12] Excludes the 175,000 Class B Units discussed in notes 3 and 10.
General Partner
The General Partner makes all decisions relating to the management of the
Company. Companies owned, directly or indirectly, by certain officers and
directors (principally John H. Harvison and members of his immediate family) of
the General Partner are the sole shareholders of the General Partner. Certain of
these companies have executed proxies which assign the right to vote their
respective stock in the General Partner to their respective stockholders on a
basis pro rata to each stockholder's ownership of the respective company. By
virtue of this action and through ownership of the equity interests in certain
of these companies or their affiliates, John H. Harvison and members of his
immediate family have the right to vote 92.2% of the stock of the General
Partner. Messrs. Byrnes, St.Clair, and McDonald collectively have the right to
vote 6.1% of the stock of the General Partner.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Related Transactions
The Company leases land or land and buildings for some of its retail
outlets and some administrative and executive office facilities from various
entities directly or indirectly owned by Messrs. John H. Harvison, and members
of his immediate family, Byrnes, St.Clair, and McDonald. During fiscal 1996, the
Company paid $847,000 to such entities with respect to these leases. The General
Partner believes the leases with its affiliates are on terms that are more
favorable to the Company than terms that could have been obtained from
unaffiliated third parties for similar properties.
John H. Harvison, Chairman of the General Partner, owns 50% of Product
Supply Services, Inc. ("Product Supply"), which provides consulting services and
acts as an agent for the Company in connection with the procurement of motor
fuel for sale by the Company. Product Supply provides such services to the
Company pursuant to an agreement providing that the Company will pay Product
Supply $5,000 per month, supply it with office space and support services, such
as telephone and clerical assistance, and pay its reasonable out-of-pocket costs
in providing such services. The agreement may be canceled either by the Company
or Product Supply upon sixty days' written notice. During fiscal year 1996, the
Company paid $68,000 to Product Supply for its services.
E. Michael Gregory, a Director of the General Partner, is the owner and
president of Gregory Consulting, Inc. ("Gregory Consulting"), which provides
engineering, consulting, and other similar services to the Company. During
fiscal year 1996, the Company paid Gregory Consulting $246,000 for such
services.
Under Texas law, the Company is not permitted to hold licenses to sell
alcoholic beverages in Texas. Consequently, the Company has entered into
agreements with Nu-Way Beverage Company ("Nu-Way Beverage"), a company wholly
owned by John H. Harvison, under which Nu-Way Beverage sells alcoholic beverages
at the Company's Texas outlets. Under this agreement, the Company receives rent
and a management fee relative to the sale of alcoholic beverages and it loans
funds to Nu-Way Beverage to pay for alcoholic beverage purchases. The Company
receives interest on such funds at 1/2% above the prime rate charged by a major
commercial bank and the loan is secured by the alcoholic beverage inventory
located in the Company's Texas outlets. During 1996, the highest balance due
under this loan was $433,000 and the balance at the end of the year was
$420,000. During 1996, Nu-Way Beverage sold $8,240,000 of alcoholic beverages at
the Company's Texas outlets. After deducting cost of sales and other expenses
related to these sales, including $1,265,000 of rent, management fees, and
interest paid to the Company, Nu-Way Beverage had earnings of $82,000 from sales
of alcoholic beverages at the Company's outlets.
In June 1994, the Company concluded the settlement of a lawsuit which it
had filed against Nu-Way Oil Company and Nu-Way Distributing Company (the
"Nu-Way Companies"), both of which are controlled by John Harvison and members
of his immediate family, and a related suit which the Nu-Way Companies had filed
against the Company. Under the settlement, all claims in both of the lawsuits
were dismissed and the Company received cash, a promissory note from an
affiliated company (secured by first and second liens on real estate), and title
to a convenience store which was being leased by the Company from an affiliate.
The Company estimated the assets it received had an aggregate value of $485,000.
The affiliated companies received approximately $65,000 in cash (held in the
Registry of the Court) and 30,000 Class B Units owned by an affiliate that were
being held by an escrow agent. This agreement was approved by the disinterested
directors of the General Partner. The note which the Company received in
connection with this settlement is to be repaid over five years, with interest
at 9.5%; the highest balance outstanding during 1996 under the note was $89,000,
and the balance outstanding at year end 1996 was $69,000.
In 1980 and 1982, certain of the Affiliated Companies granted to E-Z Serve,
Inc. ("E-Z Serve"), the right to sell motor fuel at retail for a period of ten
years at self-serve gasoline stations owned or leased by the Affiliated
Companies or their affiliates. All rights to commissions under these agreements
and the right to sell motor fuel at wholesale to E-Z Serve at such locations
were assigned to the Company on May 21, 1987, in connection with the acquisition
of its initial base of retail operations. In December 1990, in connection with
the expiration or termination of the agreements with E-Z Serve, the Company
entered into agreements with Thrift Financial Co. ("Thrift Financial"), a
company owned and controlled by members of John H. Harvison's immediate family,
which grant to the Company the exclusive right to sell motor fuel at certain
retail locations. The terms of these agreements are comparable to agreements
that the Company has with other unrelated parties. During fiscal 1996, the
Company paid Thrift Financial $276,000 under these agreements.
Cost Allocations. Determinations are made by the General Partner with
respect to costs incurred by the General Partner (whether directly or indirectly
through its affiliates) that will be reimbursed by the Company. The Company
reimburses the General Partner and any of its affiliates for direct and indirect
general and administrative costs, principally officers' compensation and
associated expenses, related to the business of the Company. The reimbursement
is based on the time devoted by employees to the Company's business or upon such
other reasonable basis as may be determined by the General Partner. In fiscal
1996, the Company reimbursed the General Partner and its affiliates $745,000 for
such expenses.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report on
Form 10-K:
(1) Financial Statements.
See Index to Financial Statements and Financial Statement
Schedules on page F-1 hereof.
(2) Financial Statement Schedules.
See Index to Financial Statements and Financial Statement
Schedules on page F-1 hereof.
Schedules other than those listed on the accompanying
Index to Financial Statements and Financial Statement
Schedules are omitted because they are either not required,
not applicable, or the required information is included in the
consolidated financial statements or notes thereto.
(3) Exhibits.
3.1 Amended and Restated Certificate of Limited Partnership
of FFP Partners, L.P. [3.7] {1}
3.2 Amended and Restated Certificate of Limited Partnership
of FFP Operating Partners, L.P. [3.8] {1}
4.1 Amended and Restated Agreement of Limited Partnership of
FFP Partners, L.P., dated May 21, 1987, as amended by
the First Amendment to Amended and Restated Agreement
of Limited Partnership dated August 14, 1989, and by
the Second Amendment to Amended and Restated
Agreement of Limited Partnership dated July 12,
1991. {5}
4.2 Amended and Restated Agreement of Limited Partnership of
FFP Operating Partners, L.P. dated May 21, 1987. {2}
4.3 Rights Agreement dated as of August 14, 1989, between
the Company and NCNB Texas National Bank, as Rights
Agent. [1] {3}
10.1 Nonqualified Unit Option Plan of FFP Partners, L.P.
[10.2] {1}
10.2 Form of Ground Lease with Affiliated Companies. [10.3]
{1}
10.3 Form of Building Lease with Affiliated Companies.
[10.4] {1}
10.4 Form of Agreement with Product Supply Services, Inc.
[10.5] {1}
10.5 Agreement of Limited Partnership of Direct Fuels, L.P.
[10.6] {4}
10.6 Form of Employment Agreement between FFP Partners
Management Company, Inc., and certain executive
officers dated April 23, 1989, as amended July 22,
1992. [10.9] {5}
10.7 Amended and Restated Credit Agreement between Bank of
America Texas, N.A., and FFP Operating Partners,
L.P., dated November 27, 1996. {6}
21.1 Subsidiaries of the Registrant. {6}
23.1 Consent of KPMG Peat Marwick LLP. {6}
27 Financial data schedule. {6}
99.1 Financial statements of FFP Operating Partners, L.P.,
a 99%-owned subsidiary of the Registrant. {These
financial statements are being filed as an exhibit to
facilitate compliance with certain state regulatory
requirements.} {6}
- -----------------------
{1} Included as the indicated exhibit in the Partnership's
Registration Statement on Form S-1 (Registration No.
33-12882) dated May 14, 1987, and incorporated herein by
reference.
{2} Included as the indicated exhibit in the Partnership's
Annual Report on Form 10-K for the fiscal year ended
December 27, 1987, and incorporated herein by reference.
{3} Included as the indicated exhibit in the Partnership's
registration statement on Form 8-A dated as of August
29, 1989, and incorporated herein by reference.
{4} Included as the indicated exhibit in the Partnership's
Current Report on Form 8-K, dated February 10, 1989, and
incorporated herein by reference)
{5} Included as the indicated exhibit in the Partnership's
Annual Report on Form 10-K for the fiscal year ended
December 27, 1992, and incorporated herein by reference.
{6} Included herewith.
(b) No reports on Form 8-K were filed during the last quarter of the
period covered by this Annual Report on Form 10-K.
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 Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: April 11, 1997 FFP PARTNERS, L.P.
(Registrant)
By: FFP Partners Management Company, Inc.,
General Partner
By: /s/ John H. Harvison
John H. Harvison
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated as of April 11, 1997.
/s/ John H. Harvison Chairman of the Board of Directors and
- --------------------------------------- Chief Executive Officer of FFP Partners
John H. Harvison Management Company, Inc. (Principal
executive officer)
/s/ Robert J. Byrnes President, Chief Operating Officer, and
- ---------------------------------------- Director of FFP Partners Management
Robert J. Byrnes Company, Inc. (Principal operating
officer)
/s/ Steven B. Hawkins Vice President - Finance and
- ---------------------------------------- Administration, and Chief Financial
Steven B. Hawkins Officer of FFP Partners Management
Company, Inc. (Principal financial and
accounting officer)
/s/ J. D. St.Clair Director of FFP Partners Management
- ---------------------------------------- Company, Inc.
J. D. St.Clair
/s/ Michael Triantafellou Director of FFP Partners Management
- ---------------------------------------- Company, Inc.
Michael Triantafellou
/s/ Robert E. Garrison, II Director of FFP Partners Management
- ---------------------------------------- Company, Inc.
Robert E. Garrison, II
/s/ John W. Hughes Director of FFP Partners Management
- ---------------------------------------- Company, Inc.
John W. Hughes
/s/ Garland R. McDonald Director of FFP Partners Management
- ---------------------------------------- Company, Inc.
Garland R. McDonald
/s/ John D. Harvison Director of FFP Partners Management
- ---------------------------------------- Company, Inc.
John D. Harvison
/s/ E. Michael Gregory Director of FFP Partners Management
- ---------------------------------------- Company, Inc.
E. Michael Gregory
Item 8. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE.
Page
Number
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 29, 1996, and
December 31, 1995 F-3
Consolidated Statements of Operations for the Years Ended
December 29, 1996, December 31, 1995, and December 25, 1994 F-4
Consolidated Statements of Partners' Capital for the Years
Ended December 29,1996, December 31, 1995, and December 25, 1994 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 29, 1996, December 31, 1995, and December 25, 1994 F-6
Notes to Consolidated Financial Statements F-8
Schedule II - Valuation and Qualifying Accounts F-26
F-1
INDEPENDENT AUDITORS' REPORT
The Partners
FFP Partners, L.P.:
We have audited the consolidated financial statements of FFP Partners, L.P.
(a Delaware Limited Partnership) and subsidiaries as listed in the accompanying
index. In connection with our audits of the consolidated financial statements,
we also have audited the financial statement schedule as listed in the
accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FFP
Partners, L.P. and subsidiaries as of December 29, 1996 and December 31, 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 29, 1996, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Fort Worth, Texas
March 14, 1997
FFP PARTNERS, L.P., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 29, 1996, AND DECEMBER 31, 1995
(In thousands)
1996 1995
ASSETS
Current Assets
Cash and cash equivalents $8,244 $8,106
Trade receivables, less allowance for doubtful
accounts of $883 and $1,045 in 1996 and 1995,
respectively 10,303 9,440
Notes receivable 778 453
Receivables from affiliated company 420 436
Inventories 12,489 11,260
Prepaid expenses and other current assets 625 615
Total current assets 32,859 30,310
Property and equipment, net 38,024 31,872
Noncurrent notes receivable, excluding current portion 2,069 1,156
Claims for reimbursement of environmental remediation costs 1,038 1,255
Other assets, net 4,609 4,739
Total Assets $78,599 $69,332
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Amount due under revolving credit line $6,823 $4,003
Current installments of long-term debt 1,587 1,028
Current installments of obligations under capital leases 1,122 884
Accounts payable 14,150 13,030
Money orders payable 7,809 5,918
Accrued expenses 8,778 9,894
Total current liabilities 40,269 34,757
Long-term debt, excluding current installments 7,765 6,157
Obligations under capital leases, excluding current
installments 1,653 943
Deferred income taxes 3,781 1,135
Other liabilities 993 639
Total Liabilities 54,461 43,631
Commitments and contingencies
Partners' Capital
Limited partners' equity 24,165 25,713
General partner's equity 242 257
Treasury units (269) (269)
Total Partners' Capital 24,138 25,701
Total Liabilities and Partners' Capital $78,599 $69,332
See accompanying notes to consolidated financial statements.
FFP PARTNERS, L.P., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995, AND DECEMBER 25, 1994
(In thousands, except unit information)
1996 1995 1994
Revenues
Motor fuel $321,814 $296,887 $275,278
Merchandise 60,579 65,512 72,827
Miscellaneous 7,759 7,646 7,408
Total Revenues 390,152 370,045 355,513
Costs and Expenses
Cost of motor fuel 301,142 274,074 252,946
Cost of merchandise 42,758 46,325 52,658
Direct store expenses 27,062 28,496 29,553
General and administrative expenses 11,506 11,795 11,056
Depreciation and amortization 3,951 3,769 4,352
Total Costs and Expenses 386,419 364,459 350,565
Operating Income 3,733 5,586 4,948
Interest Expense 1,246 1,176 1,173
Income before income taxes and
extraordinary item 2,487 4,410 3,775
Deferred income tax expense arising from
Change in tax lives of certain buildings 2,089 0 0
Other items 557 500 244
Income/(loss) before extraordinary item (159) 3,910 3,531
Extraordinary item - gain on
extinguishment of debt 0 0 200
Net Income/(Loss) $(159) $3,910 $3,731
Net income/(loss) allocated to
Limited partners $(157) $3,871 $3,694
General partner (2) 39 37
Income/(loss) per limited partner unit
Before extraordinary item $(0.04) $1.07 $0.97
Gain on extinguishment of debt 0.00 0.00 0.06
Net income/(loss) $(0.04) $1.07 $1.03
Distributions declared per unit $0.415 $0.870 $0.370
Weighted average number of Class A
and Class B Units outstanding 3,684,525 3,632,221 3,589,337
See accompanying notes to consolidated financial statements.
FFP PARTNERS, L.P., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995, AND DECEMBER 25, 1994
(In thousands, except unit information)
Limited Partners General Treasury
Class A Class B Partner Units Total
Balance, December 26, 1993 $15,813 $6,634 $225 $(269) $22,403
Exercise of Class A Unit
options by employees 53 0 0 0 53
Distributions to partners
($0.37 per Class A and
Class B Unit) (761) (563) (13) 0 (1,337)
Net income 2,124 1,570 37 0 3,731
Balance, December 25, 1994 17,229 7,641 249 (269) 24,850
Exercise of Class A Unit
options by employees
and directors 238 0 1 0 239
Retirement of Class A Units (94) 0 0 0 (94)
Distributions to partners
($0.87 per Class A and
Class B Unit) (1,838) (1,334) (32) 0 (3,204)
Net income 2,254 1,617 39 0 3,910
Balance, December 31, 1995 17,789 7,924 257 (269) 25,701
Exercise of Class A Unit
options by employees
and directors 139 0 2 0 141
Conversion of Class B Units 6,691 (6,691) 0 0 0
Distributions to partners
($0.415 per Class A and
Class B Unit) (1,445) (85) (15) 0 (1,545)
Net (loss) (150) (7) (2) 0 (159)
Balance, December 29, 1996 $23,024 $1,141 $242 $(269) $24,138
See accompanying notes to consolidated financial statements.
FFP PARTNERS, L.P., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995, AND DECEMBER 25, 1994
(In thousands, except supplemental information)
1996 1995 1994
Cash Flows from Operating Activities
Net income/(loss) $(159) $3,910 $3,731
Adjustments to reconcile net income/(loss)to net
cash provided by operating activities
Depreciation and amortization 3,950 3,769 4,352
Provision for doubtful accounts 327 459 804
Provision for deferred income taxes 2,646 500 244
(Gain) on sales of property and equipment (21) (256) (16)
(Gain) on extinguishment of debt 0 0 (200)
(Gain) on sales of convenience store (1,778) (791) (829)
operations
Minority interest in net income of 32 42 41
subsidiaries
Changes in operating assets and liabilities
(Increase) in trade receivables (1,190) (1,807) (2,018)
Decrease in notes receivable 540 733 80
Decrease in receivables from affiliated company 16 15 24
(Increase)/decrease in inventories (1,229) 86 2,211
(Increase)/decrease in prepaid expenses and
other current assets (10) (8) 156
Decrease in claims for reimbursement of
environmental remediation cost 217 314 192
Increase/(decrease) in accounts payable 1,120 (150) 1,137
Increase in money orders payable 1,891 1,656 832
Increase/(decrease) in accrued expenses
and other liabilities (794) (2,429) 353
Net cash provided by operating activities 5,558 6,043 11,094
Cash Flows from Investing Activities
Purchases of property and equipment (9,517) (4,762) (3,772)
Proceeds from sales of property and equipment 98 314 44
Investments in joint ventures and other entities 0 (1,350) 0
(Increase) in other assets (332) (687) (787)
Net cash (used in) investing activities (9,751) (6,485) (4,515)
Cash Flows from Financing Activities
Borrowings/(payments) on revolving
credit line, net 2,820 4,003 (7,116)
Proceeds from long-term debt 4,000 0 12,161
Payments on long-term debt (2,033) (4,178) (13,576)
Borrowings under capital lease obligations 1,923 1,076 1,560
Payments on capital lease obligations (975) (694) (115)
Proceeds from exercise of unit options 141 145 53
Distributions to unitholders (1,545) (3,204) (1,337)
Net cash provided by/(used in) financing activities 4,331 (2,852) (8,370)
Net increase/(decrease) in cash and cash equivalents 138 (3,294) (1,791)
Cash and cash equivalents at beginning of year 8,106 11,400 13,191
Cash and cash equivalents at end of year $8,244 $8,106 $11,400
Supplemental Disclosure of Cash Flow Information
Cash paid for interest during 1996, 1995, and 1994 was $1,097,000,
$1,394,000, and $1,283,000, respectively. Purchases of property and equipment in
1996 include $80,000 of capitalized interest.
Supplemental Schedule of Noncash Investing and Financing Activities
During 1996, the Company acquired fixed assets of $200,000 in exchange for
notes payable.
During 1995, the Company (i) acquired fixed assets of $598,000 in exchange
for notes payable and (ii) retired $94,000 in Class A Units in connection with
the surrender of 12,295 Class A Units in payment for the exercise of options to
acquire 25,000 Class A Units by a director of the General Partner.
During 1994, the Company acquired property valued at $215,000 and a note
receivable of $120,000 through settlement of a lawsuit.
See accompanying notes to consolidated financial statements.
FFP PARTNERS, L.P., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1996, DECEMBER 31, 1995, AND DECEMBER 25, 1994
1. Basis of Presentation
(a) Organization of Company
FFP Partners, L.P. ("FFPLP"), through its subsidiaries, owns and operates
retail convenience stores, truck stops, and self-service motor fuel outlets over
an eleven state area. It also operates check cashing booths and conducts a
wholesale motor fuel business, both primarily in Texas. FFPLP, a Delaware
limited partnership, was formed in December 1986 and commenced operations in May
1987. FFP Partners Management Company, Inc. ("FFPMC" or the "General Partner"),
serves as the general partner of FFPLP. FFPMC, or a subsidiary, also serves as
the general partner of FFPLP's subsidiary partnerships. References in these
notes to the "Company" include FFPLP and its subsidiaries.
The Company owns and conducts its operations through the following
subsidiaries:
Principal Percent
Entity Date Formed Activity Owned
FFP Operating Partners, L.P., December 1986 Operation of convenience 99%
a Delaware limited stores and other
partnership retail outlets
Direct Fuels, L.P., a Texas December 1988 Operation of fuel 99%
limited partnership terminal and
wholesale fuel sales
FFP Financial Services, L.P., September 1990 Operation of check 99%
a Delaware limited cashing booths
partnership
Practical Tank Management, September 1993 Underground storage tank 100%
Inc., a Texas corporation monitoring
FFP Transportation, L.L.C., a September 1994 Ownership of tank 100%
Texas limited liability trailers leased to
company independent trucking
company
FFP Money Order Company, Inc., December 1996 Sale of money orders 100%
a Nevada corporation through agents
(b) Consolidation
All significant intercompany accounts and transactions have been eliminated
in the consolidated financial statements. The minority interest in the net
income or loss of subsidiaries which are not wholly-owned by FFPLP is included
in general and administrative expenses.
2. Significant Accounting Policies
(a) Fiscal Years
The Company prepares its financial statements and reports its results of
operations on the basis of a fiscal year which ends on the last Sunday of
December. Accordingly, the fiscal years ended December 29, 1996, and December
25, 1994, consisted of 52 weeks, while the year ended December 31, 1995,
consisted of 53 weeks. Year end data in these notes is as of the respective
dates above.
(b) Cash Equivalents
The Company considers all highly liquid investments with maturities at date
of purchase of three months or less to be cash equivalents.
(c) Notes Receivable
Notes receivable are recorded at the amount owed, less a related allowance
for impairment. The provisions of Statement of Financial Accounting Standard
("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," have been
applied in the evaluation of the collectibility of notes receivable. At year end
1996 and 1995, no notes receivable were determined to be impaired.
(d) Inventories
Inventories consist of retail convenience store merchandise and motor fuel
products. Merchandise inventories are stated at the lower of cost or market as
determined by the retail method. Motor fuel inventories are stated at the lower
of cost or market using the first-in, first-out ("FIFO") inventory method.
The Company has selected a single company as the primary grocery and
merchandise supplier to its convenience stores and truck stops although certain
items, such as bakery goods, dairy products, soft drinks, beer, and other
perishable products, are generally purchased from local vendors and/or wholesale
route salespeople. The Company believes it could replace any of its merchandise
suppliers, including its primary grocery and merchandise supplier, with no
significant adverse effect on its operations.
The Company does not have long-term contracts with any suppliers of
petroleum products covering more than 10% of its motor fuel supply.
Unanticipated national or international events could result in a curtailment of
motor fuel supplies to the Company, thereby adversely affecting motor fuel
sales. In addition, management believes a significant portion of its merchandise
sales are to customers who also purchase motor fuel. Accordingly, reduced
availability of motor fuel could negatively impact other facets of the Company's
operations.
(e) Property and Equipment
Property and equipment are stated at cost. Equipment acquired under capital
leases is stated at the present value of the initial minimum lease payments,
which is not in excess of the fair value of the equipment. Depreciation and
amortization of property and equipment are provided on the straight-line method
over the estimated useful lives of the respective assets. Leasehold improvements
are amortized on the straight-line method over the shorter of the lease term or
the estimated useful lives of the respective assets.
(f) Investments
Investments in joint ventures and other entities that are 50% or less owned
are accounted for by the equity method and are included in other assets, net, in
the accompanying consolidated balance sheets.
(g) Intangible Assets
In connection with the allocation of the purchase price of the assets
acquired in 1987 upon the commencement of the Company's operations, $6,192,000
was allocated to contracts under which the Company supplies motor fuel to
various retail outlets and $1,093,000 was allocated as the future benefit of
real estate leased from affiliates of the General Partner. The fuel contracts
were amortized using the straight-line method over 6.3 years, the average life
of such contracts at the time they were acquired. The value assigned to these
contracts became fully amortized during 1993. The future benefit of the leases
is being amortized using the straight-line method over 20 years, the initial
term and option periods, of such leases.
Goodwill of $2,020,000 is being amortized using the straight-line method
over 20 years. The Company assesses the recoverability of goodwill by
determining whether the amortization of the balance over the remaining
amortization period can be recovered through undiscounted future operating cash
flows of the acquired operations. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds. The assessment of
the recoverability of goodwill would be impacted if anticipated future operating
cash flows are not achieved.
(h) Sales of Convenience Store Operations
The Company sold the merchandise operations and related inventories of
certain convenience store locations to various third parties in exchange for
cash and notes receivable. The notes receivable generally are for terms of five
years, require monthly payments of principal and interest, and bear interest at
rates ranging from 8% to 10%. Summary information about these sales is as
follows:
Gains
-----------------------
Number Notes Total Deferred
Sold Cash Receivable Proceeds Recognized (at year-end)
(In thousands, except number sold)
1996 18 $816 $1,561 $2,377 $1,778 $250
1995 10 357 543 900 791 200
1994 15 778 1,056 1,834 829 400
Gains on sales which meet specified criteria, including receipt of a
significant cash down payment and projected cash flow from store operations
sufficient to adequately service the debt, are recognized upon closing of the
sale. Gains on sales which do not meet the specified criteria are recognized
under the installment method as cash payments are received. Gains being
recognized under the installment method are evaluated periodically to determine
if full recognition of the gain is appropriate.
Under these sales, the Company retains the real estate or leasehold
interests, and leases or subleases the store facilities (including the store
equipment) to the purchaser under five-year renewable operating lease
agreements. The Company retains ownership of the motor fuel operations and pays
the purchaser of the store commissions based on motor fuel sales. In addition,
the new store operators may purchase merchandise under the Company's established
buying arrangements.
(i) Environmental Costs
Environmental remediation costs are expensed; related environmental
expenditures that extend the life, increase the capacity, or improve the safety
or efficiency of existing assets are capitalized. Liabilities for environmental
remediation costs are recorded when environmental assessment and/or remediation
is probable and the amounts can be reasonably estimated. Environmental
liabilities are evaluated independently from potential claims for recovery.
Accordingly, the gross estimated liabilities and estimated claims for
reimbursement have been presented separately in the accompanying consolidated
balance sheets (see Note 13b).
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 96-1, Environmental Remediation
Liabilities. SOP 96-1, which will be adopted by the Company at the beginning of
its 1997 fiscal year, requires, among other things, environmental remediation
liabilities to be accrued when the criteria of SFAS No. 5, "Accounting for
Contingencies," have been met. The SOP also provides guidance with respect to
the measurement of remediation liabilities. Such accounting is consistent with
the Company's current method of accounting for environmental remediation costs,
and therefore, adoption of SOP 96-1 in 1997 is not expected to have a material
impact on the Company's consolidated financial position, results of operations,
or liquidity.
(j) Motor Fuel Taxes
Motor fuel revenues and related cost of motor fuel include federal and
state excise taxes of $105,718,000, $103,478,000, and $103,117,000, for 1996,
1995, and 1994, respectively.
(k) Exchanges
The exchange method of accounting is utilized for motor fuel exchange
transactions. Under this method, such transactions are considered as exchanges
of assets with deliveries being offset against receipts, or vice versa. Exchange
balances due from others are valued at current replacement costs. Exchange
balances due to others are valued at the cost of forward contracts (Note 11) to
the extent they have been entered into, with any remaining balance valued at
current replacement cost. Exchange balances due to others at year end 1996 and
1995 were $4,000 and $-0-, respectively.
(l) Income Taxes
Taxable income or loss of the Company is includable in the income tax
returns of the individual partners; therefore, no provision for income taxes has
been made in the accompanying consolidated financial statements, except for
applying the provisions of SFAS No. 109 "Accounting for Income Taxes," which was
adopted in fiscal 1993.
Under the Revenue Act of 1987 ("Revenue Act"), certain publicly traded
partnerships are to be treated as corporations for tax purposes. Due to a
transitional rule, this provision of the Revenue Act will not be applied to the
Company until the earlier of (i) its tax years beginning after 1997 or (ii) its
addition of a "substantial new line of business" as defined by the Revenue Act.
Legislation has been introduced into Congress which would extend for a two year
period the Company's partnership tax status. However, no action has yet been
taken on this legislation. The General Partner continues to evaluate the
Company's alternatives with respect to its tax status.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to existing differences between financial statement
carrying amounts of assets and liabilities and their respective tax bases that
are expected to reverse after 1997. Deferred tax liabilities and assets are
measured using enacted tax rates expected to be in effect when such amounts are
realized or settled. The effect of a change in tax rates is recognized in income
in the period that includes the enactment date.
(m) Fair Value of Financial Instruments
The carrying amounts of cash, receivables, amounts due under revolving
credit line, and money orders payable approximate fair value because of the
short maturity of those instruments. The carrying amount of notes receivable
approximates fair value which is determined by discounting expected future cash
flows at current rates.
The carrying amount of long-term debt approximates fair value due to the
variable interest rate on substantially all such obligations.
(n) Units Issued and Outstanding
Units outstanding at year end 1996 and 1995 were as follows:
1996 1995
Class A Units 3,529,205 2,137,076
Class B Units 175,000 1,533,522
The Company's Class A Units are traded on the American Stock Exchange. The
Class B Units, which are not registered and are not traded on the American Stock
Exchange, are held by an entity affiliated with the General Partner.
During 1996, 1,358,522 Class B Units primarily held by affiliates of the
General Partner were converted to Class A Units, in accordance with the
Partnership Agreement. The remaining Class B Units may be converted into Class A
Units on a one-for-one basis at the option of the unitholder. The Class A Units
and Class B Units have identical rights with respect to cash distributions and
to voting on matters brought before the partners.
During 1990, the Company acquired 13,300 Class A Units and 51,478 Class B
Units which are being held in the treasury at cost.
(o) Income/(Loss) per Unit
The Partnership Agreement provides that net income or loss is to be
allocated (i) 99% to the limited partners and 1% to the General Partner and (ii)
among the limited partners based on the number of units held. Accordingly,
income/(loss) per unit is calculated by dividing 99% of the appropriate income
statement caption by the weighted average number of Class A and Class B Units
outstanding for the year. No effect has been given to the unit purchase rights
and options outstanding under the unit option plans (Note 9) since the effect
would be immaterial or anti-dilutive.
(p) Cash Distributions to Partners
Distributions to partners represent a return of capital and are allocated
pro rata to the General Partner and holders of both the Class A and Class B
Units.
(q) Employee Benefit Plan
The Company has a 401(k) profit sharing plan covering all employees who
meet age and tenure requirements. Participants may contribute to the plan a
portion, within specified limits, of their compensation under a salary reduction
arrangement. The Company may make discretionary matching or additional
contributions to the plan. The Company did not make any contributions to the
plan in 1996, 1995, or 1994.
(r) Use of Estimates
The use of estimates is required to prepare the Company's consolidated
financial statements in conformity with generally accepted accounting
principles. Although management believes that such estimates are reasonable,
actual results could differ from the estimates.
(s) Unit Option Plan
The Company accounts for its unit option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. As such,
compensation expense would be recorded only if the current market price of the
underlying unit on the date of grant of the option exceeded the exercise price
of the option. On January 1, 1996, the Company adopted SFAS No. 123, "Accounting
for Stock-Based Compensation," which permits entities to (i) recognize as
expense over the vesting period the fair value of all stock-based awards on the
date of grant or (ii) continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and earnings per share disclosures for employee
option grants made in 1995 and future years as if the fair-value-based method
defined in SFAS No. 123 had been applied. The Company has elected the second
alternative (see Note 9).
(t) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of," on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles to be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of such assets to future net cash flows
expected to be generated by the assets. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. The initial adoption of this statement did not have a material
impact on the Company's consolidated financial position, results of operations,
or liquidity.
3. Property and Equipment
Property and equipment consists of the following:
1996 1995
(In thousands)
Land $4,703 $4,319
Land improvements 2,698 2,627
Buildings and improvements 26,509 24,515
Machinery and equipment 35,450 31,302
Construction in progress 2,821 0
72,181 62,763
Accumulated depreciation and amortization (34,157) (30,891)
$38,024 $31,872
4. Other Assets
Other assets consist of the following:
1996 1995
(In thousands)
Intangible Assets (Note 2g)
Ground leases $1,093 $1,093
Goodwill 2,040 2,020
Other 2,295 1,984
5,428 5,097
Accumulated amortization (2,375) (2,056)
3,053 3,041
Investments in joint ventures and other entities 1,293 1,350
Other 263 348
$4,609 $4,739
In December 1995, the Company advanced $1,200,000 to a company which
granted the Company a security interest in certain loans that are secured by
convenience stores located in areas where the Company currently has operations.
These loans will be liquidated through collection or through the acquisition of
the stores by the Company through foreclosure proceedings.
5. Notes Payable and Long-Term Debt
The Company has a Credit Agreement with a bank that provides a $10,000,000
revolving credit line for working capital purposes. The revolving credit line
bears interest at the bank's prime rate (8.25% at year end 1996) and matures on
April 30, 1998. The Credit Agreement requires that the balance outstanding
(excluding letters of credit) under the revolving credit line not exceed
$1,500,000 for three consecutive calendar days in each quarter. At year end 1996
and 1995, there was $6,823,000 and $4,003,000, respectively, due on the
revolving credit line and there were outstanding letters of credit totaling
$625,000 at each year end.
The Credit Agreement also provides two term loans. One such loan had a
balance at year end 1996 of $5,625,000, bears interest at the London Interbank
Offered Rate ("LIBOR") plus 1.75 percent, requires quarterly payments of
interest plus principal of $312,500, and matures on March 31, 2001. The other
term loan had a balance of $3,000,000 at year end 1996, bears interest at LIBOR
plus 1.75 percent, requires quarterly payments of interest plus principal of
$75,000 in June, September, and December 1997, and March 1998, principal of
$125,000 in each of the next 16 quarters, and principal of $175,000 in the
subsequent four quarters, and matures on March 31, 2003. (Through December 31,
1996, both of these loans bore interest at the bank's prime rate.)
All loans are secured by the Company's accounts receivable and inventory.
In addition the Company has provided a negative pledge of all its fixed assets
and real property and the bank has the right to require a positive pledge of
such assets at any time. The loans are guaranteed by the General Partner and its
subsidiary. The Credit Agreement also contains various restrictive covenants
including restrictions on borrowing from persons other than the bank, making
investments in, advances to, or guaranteeing the obligations of other persons,
maintaining specified levels of equity, restrictions on distributions to
unitholders and on the amount of capital expenditures, and the maintenance of
certain financial ratios. At year end 1996, the Company was not in compliance
with certain financial ratios and covenants in the Credit Agreement. The bank
has waived compliance with these ratios or amended the Credit Agreement with
respect to these items.
The Company has other notes payable which bear interest at 6% to 10% and
are due in monthly or annual installments through 2012. Such notes are unsecured
or secured by receivables or land and had aggregate balances of $603,000 and
$622,000 at year end 1996 and 1995, respectively.
The aggregate fixed maturities of long-term debt for each of the five years
subsequent to 1996 are as follows:
(In thousands)
1997 $1,587
1998 1,764
1999 1,929
2000 1,810
2001 1,180
Thereafter 1,082
$9,352
In February 1994, the Company refinanced its then existing bank debt. In
connection with this refinancing, the Company received a discount of $200,000
for the early retirement of the existing debt. This discount is reflected as an
extraordinary item in the accompanying 1994 consolidated statement of
operations.
6. Capital Leases
The Company is obligated under noncancelable capital leases beginning to
expire in 1997. The gross amount of the assets covered by these capital leases
that are included in property and equipment in the accompanying consolidated
balance sheets is as follows:
1996 1995
(In thousands)
Machinery and equipment $2,412 $2,636
Accumulated amortization (798) (425)
$1,614 $2,211
The amortization of assets held under capital leases is included in
depreciation and amortization expense in the accompanying consolidated
statements of operations. Future minimum lease payments under the noncancelable
capital leases for years subsequent to 1996 are:
(In thousands)
1997 $1,332
1998 561
1999 440
2000 395
2001 527
Thereafter 80
Total minimum lease payments 3,335
Amount representing interest (560)
Present value of future minimum lease payments 2,775
Current installments (1,122)
Obligations under capital leases, excluding current $1,653
installments
7. Operating Leases
The Company has noncancelable, long-term operating leases on certain
locations, a significant portion of which are with related parties. Certain of
the leases have contingent rentals based on sales levels of the locations and/or
have escalation clauses tied to the consumer price index. Minimum future rental
payments (including bargain renewal periods) and sublease receipts for years
after 1996 are as follows:
Future Rental Payments Future
Related Sublease
Parties Others Total Receipts
(In thousands)
1997 $712 $597 $1,309 $1,031
1998 657 541 1,198 952
1999 657 499 1,156 841
2000 657 453 1,110 549
2001 657 369 1,026 200
Thereafter 1,977 1,116 3,093 41
$5,317 $3,575 $8,892 $3,614
Total rental expense and sublease income were as follows:
Rent Expense
Related Sublease
Parties Others Total Income
(In thousands)
1996 $727 $742 $1,469 $1,154
1995 849 735 1,584 843
1994 842 912 1,754 592
8. Accrued Expenses
Accrued expenses consist of the following:
1996 1995
(In thousands)
Motor fuel taxes payable $5,726 $6,599
Accrued payroll and related expenses 818 1,349
Accrued environmental remediation costs (Note 13b) 0 322
Other 2,234 1,624
$8,778 $9,894
9. Nonqualifying Unit Option Plan and Unit Purchase Rights
The Company has a Nonqualifying Unit Option Plan and a Nonqualifying Unit
Option Plan for Nonexecutive Employees that authorize the grant of options to
purchase up to 450,000 and 100,000 Class A Units of the Company, respectively.
Following is a summary of activity under the stock option plans:
Class A Price Weighted
Units Range Average
Options outstanding, December 26, 1993 309,932 $2.00-3.75 $3.55
Options granted during year 10,000 3.88 3.88
Options expired or terminated during year (8,666) 3.75 3.75
Options exercised during year (17,336) 2.00 - 3.75 3.04
Options outstanding, December 25, 1994 293,930 2.00 - 3.88 3.59
Options granted during year 50,000 6.00 - 7.00 6.50
Options expired or terminated during year (6,999) 3.75 3.75
Options exercised during year (76,267) 2.00 - 3.88 3.11
Options outstanding, December 31, 1995 260,664 3.75 - 7.00 4.28
Options granted during year 0
Options expired or terminated during year (1,333) 3.75 3.75
Options exercised during year (37,332) 3.75 3.75
Options outstanding, December 29, 1996 221,999 3.75 - 7.00 3.70
Options exercisable, December 29, 1996 185,333 3.75 - 3.88 4.00
The exercise price of each option granted under the plans is determined by
the Board of Directors, but may not be less than the fair market value of the
underlying units on the date of grant. The exercise prices of the options
outstanding at year end 1996 are:
Exercise Options
Price Outstanding
$3.750 165,333
$3.875 6,666
$6.000 25,000
$7.000 25,000
221,999
At year end 1996, the weighted-average remaining contractual life of
outstanding options was 6.31 years.
All options outstanding at year end 1996 are exercisable with respect to
one-third of the units covered thereby on each of the anniversary dates of their
grants and expire ten years from the date of grant. In the event of a change in
control of the Company, any unexercisable portion of the options will become
immediately exercisable.
The Company applies APB Opinion No. 25 in accounting for its unit option
plans; accordingly, no compensation cost related to the plans has been
recognized in the financial statements. Had the Company determined compensation
cost at the date of grant for its unit options based on the fair value of the
options under SFAS No. 123, the Company's 1996, 1995, and 1994 net income/(loss)
would not have differed materially from the amounts reported.
In August 1989, the Company entered into a Rights Agreement and distributed
to its unitholders rights to purchase Rights Units (substantially equivalent to
a Class A Unit) under certain circumstances. Initially the Rights were attached
to all unit certificates representing units then outstanding and no separate
Rights Certificates were distributed. Under the Rights Agreement, the Rights
were to separate from the Units and be distributed to Unitholders following a
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") had acquired, or obtained a right to acquire, beneficial
ownership of 20% or more of the Partnership's Class A Units or all classes of
outstanding Units. On August 8, 1994, a group of Unitholders announced that they
had an informal understanding that they would vote their Units together as a
block. The agreement related to units constituting approximately 25% of the
Class A Units then outstanding. Therefore, the Rights became exercisable on
October 7, 1994, the record date for the issuance of the Rights Certificates
(the "Distribution Date").
The Rights currently represent the right to purchase a Rights Unit (which
is substantially equivalent to a Class A Unit) of the Company at a price of
$20.00 per Unit. However, the Rights Agreement provides, among other things,
that if any person acquires 30% or more of the Class A Units or of all classes
of outstanding Units then each holder of a Right, other than an Acquiring
Person, will have the right to receive, upon exercise, Rights Units (or in
certain circumstances, other property) having a value of $40.00 per Unit. The
Rights will expire on August 13, 1999, and do not have any voting rights or
rights to cash distributions.
10. Income Taxes
As discussed in Note 2(l), the Company adopted the provisions of SFAS No.
109 as of the beginning of its 1993 fiscal year. Noncash charges of $2,646,000,
$500,000, and $244,000 were recorded in 1996, 1995, and 1994, respectively, to
record deferred income tax expense.
In August 1996, Congress passed legislation clarifying that certain
buildings used in connection with the retail sale of motor fuel qualified for a
substantially shorter depreciable life for tax purposes than was being utilized
by the Company. In January 1997, the Internal Revenue Service issued a notice
explaining how the tax deduction related to the change in the depreciable lives
on these assets should be determined. As a result, the Company will take a 1996
tax deduction for the difference between the tax depreciation previously
recorded and the depreciation available using the shorter life and has
recognized an additional deferred income tax provision of $2,089,000 in the
fourth quarter 1996 related to this timing difference. The current tax benefit
of this deduction will be allocated to the Company's unitholders.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities at year end 1996 and 1995, are
presented below. Those temporary differences which are expected to reverse prior
to the Company's being treated as a corporation for tax purposes (fiscal year
1998) have been excluded.
1996 1995
(In thousands)
Deferred tax liabilities:
Property and equipment, principally
due to basis differences and
differences in depreciation $(2,950) $(845)
Other (831) (290)
$(3,781) $(1,135)
11. Futures and Forward Contracts
The Company is party to commodity futures contracts with off-balance sheet
risk. Changes in the market value of open futures contracts are recognized as
gains or losses in the period of change. These investments involve the risk of
dealing with others and their ability to meet the terms of the contracts and the
risk associated with unmatched positions and market fluctuations. Contract
amounts are often used to express the volume of these transactions, but the
amounts potentially subject to risk are much smaller.
From time-to-time the Company enters into forward contracts to buy and sell
fuel, principally to satisfy balances owed on exchange agreements (Note 2k).
These transactions, which together with futures contracts are classified as
operating activities for purposes of the consolidated statements of cash flows,
are included in motor fuel sales and related cost of sales and resulted in net
gains as follows:
(In thousands)
1996 $243
1995 87
1994 1,069
Open positions under futures and forward contracts were not significant at
year end 1996 and 1995.
12. Related Party Transactions
The Company reimburses the General Partner and its affiliates for salaries
and related costs of executive officers and others and for expenses incurred by
them in connection with the management of the Company. These expenses were
$745,000, $727,000, and $733,000 for 1996, 1995, and 1994, respectively.
In July 1991, the Company entered into an agreement with an affiliated
company whereby the affiliated company sells alcoholic beverages at the
Company's stores in Texas. Under Texas law, the Company is not permitted to hold
licenses to sell alcoholic beverages in Texas. The agreement provides that the
Company will receive rent and a management fee based on the gross receipts from
sales of alcoholic beverages at its stores. In July 1992, the agreement was
amended to be for a term of five years commencing on the date of amendment. The
sales recorded by the affiliated company under this agreement were $8,240,000,
$9,116,000, and $9,180,000 in 1996, 1995, and 1994, respectively. The Company
received $1,265,000, $1,217,000, and $1,226,000 in 1996, 1995, and 1994,
respectively, in rent, management fees, and interest, which are included in
miscellaneous revenues in the consolidated statements of operations. After
deducting cost of sales and other expenses related to these sales, including the
amounts paid to the Company, the affiliated company had earnings of $82,000,
$91,000, and $119,000 in 1996, 1995, and 1994, respectively, as a result of
holding these alcoholic beverage permits. Under a revolving note executed in
connection with this agreement, the Company advances funds to the affiliated
company to pay for the purchases of alcoholic beverages. Receipts from the sales
of such beverages are credited against the note balance. The revolving note
provides for interest at 1/2% above the prime rate charged by a major financial
institution.
From time to time, the General Partner may advance funds to the Company.
Under the Partnership Agreement, the General Partner is permitted to charge
interest on such advances provided the interest rate does not exceed rates which
would be charged by unrelated third parties. There were no advances owing to the
General Partner during or at the year ends of 1996, 1995, and 1994.
The General Partner is entitled to noncumulative, incentive compensation
each year in an amount equal to 10% of the net income of the Company for such
year (prior to the calculation of the incentive compensation), but only if net
income (prior to the calculation of the incentive compensation) equals or
exceeds $1.08 per unit and only if the total of the quarterly cash distributions
for such year are at least $1.50 per unit. The incentive compensation
requirements were not met in 1996, 1995, or 1994.
The Company purchases certain goods and services (including office
supplies, computer software and consulting services, and fuel supply consulting
and procurement services) from related entities. Amounts incurred for these
products and services were $359,000, $421,000, and $147,000, for 1996, 1995, and
1994, respectively.
As a part of its merchandise sales activities, the Company supplies its
private label cigarettes on a wholesale basis to other retailers who do not
operate outlets in its trade areas and pays them rebates based on the volume of
cigarettes purchased. In 1996 and 1995, the Company paid $14,000 and $51,000 of
such rebates to a company on whose Board one of the Company's executive officers
serves. The amount of rebates paid to this company was calculated in the same
manner as the rebates paid to non-related companies.
In 1980 and 1982, certain companies from which the Company acquired its
initial base of retail outlets granted to a third party the right to sell motor
fuel at retail for a period of 10 years at self-serve gasoline stations owned or
leased by the affiliated companies or their affiliates. All rights to
commissions under these agreements and the right to sell motor fuel at wholesale
to the third party at such locations were assigned to the Company in May 1987 in
connection with the acquisition of its initial base of retail operations. In
December 1990, in connection with the expiration or termination of the
agreements with the third party, the Company entered into agreements with a
company owned and controlled by the Chairman of the General Partner and members
of his immediate family, which grant to the Company the exclusive right to sell
motor fuel at retail at these locations. The terms of these agreements are
comparable to agreements that the Company has with other unrelated parties. The
Company paid this affiliated company commissions related to the sale of motor
fuel at these locations of $277,000, $261,000, and $222,000 in 1996, 1995, and
1994, respectively.
During 1995, the Company purchased four parcels of land, including building
and petroleum storage tanks and related dispensing equipment, from a company
controlled by the Chairman of the General Partner and members of his immediate
family. The Company paid a total of $116,000 for the real estate and related
improvements. The Company is operating one of these locations as a convenience
store and one as a self-service motor fuel outlet and intends to operate the
other two as either convenience stores or self-service motor fuel outlets. The
purchase price was determined by reference to similar properties acquired by the
Company from unrelated parties.
During 1996, the Company charged to expense $611,000 to reimburse various
related companies for legal fees that benefited the Company. Of this amount, the
Company paid $225,000 during 1996; the remaining $386,000 owed at year end is
included in accrued liabilities in the accompanying consolidated balance sheets.
13. Commitments and Contingencies
(a) Uninsured Liabilities
The Company maintains general liability insurance with limits and
deductibles management believes prudent in light of the exposure of the Company
to loss and the cost of the insurance.
The Company self-insures claims up to $45,000 per year for each individual
covered by its employee medical benefit plan for supervisory and administrative
employees; claims above $45,000 are covered by a stop-loss insurance policy. The
Company also self-insures medical claims for its eligible store employees.
However, claims under the plan for store employees are subject to a $1,000,000
lifetime limit per employee and the Company does not maintain stop-loss coverage
for these claims. The Company and its covered employees contribute to pay the
self-insured claims and stop-loss insurance premiums. Accrued liabilities
include amounts management believes adequate to cover the estimated claims
arising prior to a year-end, including claims incurred but not yet reported. The
Company recorded expense related to these plans of $271,000, $353,000, and
$288,000 in 1996, 1995, and 1994, respectively.
The Company is covered for worker's compensation in all states through
incurred loss retrospective policies. Accruals for estimated claims (including
claims incurred but not reported) have been recorded at year end 1996 and 1995,
including the effects of any retroactive premium adjustments.
(b) Environmental Matters
The operations of the Company are subject to a number of federal, state,
and local environmental laws and regulations, which govern the storage and sale
of motor fuels, including those regulating underground storage tanks. In
September 1988, the Environmental Protection Agency ("EPA") issued regulations
that require all newly installed underground storage tanks be protected from
corrosion, be equipped with devices to prevent spills and overfills, and have a
leak detection method that meets certain minimum requirements. The effective
commencement date for newly installed tanks was December 22, 1988. Underground
storage tanks in place prior to December 22, 1988, must conform to the new
standards by December 1998. The Company has implemented a plan to bring all of
its existing underground storage tanks and related equipment into compliance
with these laws and regulations and currently estimates the costs to do so will
range from $1,837,000 to $2,245,000 over the next two years. The Company
anticipates that substantially all these expenditures will be capitalized as
additions to property and equipment. Such estimates are based upon current
regulations, prior experience, assumptions as to the number of underground
storage tanks to be upgraded, and certain other matters. At year end 1996 and
1995, the Company recorded liabilities for future estimated environmental
remediation costs related to known leaking underground storage tanks of
$643,000. Of such amounts, $-0- and $322,000, respectively, were recorded in
accrued expenses and the remainder was recorded in other liabilities.
Corresponding claims for reimbursement of environmental remediation costs of
$643,000 were recorded in 1996 and 1995, as the Company expects that such costs
will be reimbursed by various environmental agencies. In 1995, the Company
contracted with a third party to perform site assessments and remediation
activities on 35 sites located in Texas that are known or thought to have
leaking underground storage tanks. Under the contract, the third party will
coordinate with the state regulatory authority the work to be performed and bill
the state directly for such work. The Company is liable for the $10,000 per
occurrence deductible and for any costs in excess of the $1,000,000 limit
provided for by the state environmental trust fund. The Company does not expect
that the costs of remediation of any of these 35 sites will exceed the
$1,000,000 limit. The assumptions on which the foregoing estimates are based may
change and unanticipated events and circumstances may occur which may cause the
actual cost of complying with the above requirements to vary significantly from
these estimates.
During 1996, 1995, and 1994, environmental expenditures were $2,019,000,
$1,003,000, and $934,000, respectively (including capital expenditures of
$1,456,000, $644,000, and $820,000), in complying with environmental laws and
regulations.
The Company does not maintain insurance covering losses associated with
environmental contamination. However, all the states in which the Company owns
or operates underground storage tanks have state operated funds which reimburse
the Company for certain cleanup costs and liabilities incurred as a result of
leaks in underground storage tanks. These funds, which essentially provide
insurance coverage for certain environmental liabilities, are funded by taxes on
underground storage tanks or on motor fuels purchased within each respective
state. The coverages afforded by each state vary but generally provide up to
$1,000,000 for the cleanup of environmental contamination and most provide
coverage for third-party liability as well. The funds require the Company to pay
deductibles ranging from $5,000 to $25,000 per occurrence. The majority of the
Company's environmental contamination cleanup activities relate to underground
storage tanks located in Texas. Due to an increase in claims throughout the
state, the Texas state environmental trust fund has significantly delayed
reimbursement payments for certain cleanup costs after September 30, 1992. In
1993, the Texas state fund issued guidelines that, among other things,
prioritize the timing of future reimbursements based upon the total number of
tanks operated by and the financial net worth of each applicant. The Company has
been classified in the category with the lowest priority. Because the state and
federal governments have the right, by law, to levy additional fees on fuel
purchases, the Company believes these clean up costs will ultimately be
reimbursed. However, due to the uncertainty of the timing of the receipt of the
reimbursements, the claims for reimbursement of environmental remediation costs,
totaling $1,038,000 and $1,255,000 at year end 1996 and 1995, respectively, have
been classified as long-term receivables in the accompanying consolidated
balance sheets.
(c) Other
The Company is subject to various claims and litigation arising in the
ordinary course of business, particularly personal injury and employment related
claims. In the opinion of management, the outcome of such matters will not have
a material effect on the consolidated financial position or results of
operations of the Company.
14. Quarterly Operating Results (Unaudited)
Quarterly results of operations for 1996, 1995, and 1994, were as follows:
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
(In thousands, except per unit data)
1996
Total revenues $94,391 $105,092 $94,298 $96,371 $390,152
Total margin 10,989 13,473 11,407 10,383 46,252
Net income/(loss) (169) 2,030 564 (2,584) (159)
Net income/(loss) per unit $(0.05) $0.55 $0.15 $(0.69) $(0.04)
1995
Total revenues $84,413 $97,623 $93,716 $94,293 $370,045
Total margin 10,970 12,521 13,963 12,192 49,646
Net income 154 1,172 2,071 513 3,910
Net income per unit $0.04 $0.32 $0.56 $0.15 $1.07
1994
Total revenues $83,825 $87,760 $96,771 $87,157 $355,513
Total margin 10,998 11,987 13,899 13,025 49,909
Income/(loss) -
Before extraordinary
item (486) 517 2,473 1,027 3,531
Gain on extinguishment
of debt 200 0 0 0 200
Net income/(loss) (286) 517 2,473 1,027 3,731
Income/(loss) per unit -
Before extraordinary
item $(0.13) $0.14 $0.68 $0.28 $0.97
Net income/(loss) (0.08) 0.14 0.68 0.28 1.03
Schedule II
FFP PARTNERS, L.P., AND SUBSIDIARIES
Valuation and Qualifying Accounts
(In thousands)
Year Ended December 29, 1996
Balance Additions Balance
at Charged to at
Beginning Costs and Deductions End
Description of Period Expenses (describe) of Period
Allowances for doubtful accounts
Trade receivables $1,045 $327 $489 (a) $883
Year Ended December 31, 1995
Balance Additions Balance
at Charged to at
Beginning Costs and Deductions End
Description of Period Expenses (describe) of Period
Allowances for doubtful accounts
Trade receivables $ 917 $459 $331 (a) $1,045
Year Ended December 25, 1994
Balance Additions Balance
at Charged to at
Beginning Costs and Deductions End
Description of Period Expenses (describe) of Period
Allowances for doubtful accounts
Trade receivables $ 531 $804 $418 (a) $917
Noncurrent receivable from
affiliated companies 447 0 447 (a) 0
(a) Accounts charged-off, net of recoveries.