SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X|Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 28, 1997, or
|_|Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _______________
Commission File No. 1-9510
FFP PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 75-2147570
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
2801 Glenda Avenue; Fort Worth, Texas 76117-4391
(Address of principal executive office, including zip code)
817/838-4700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Class A Units 3,529,205
Class B Units 175,000
(Number of units outstanding as of November 10, 1997)
FFP PARTNERS, L.P., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 28, December 29,
1997 1996
ASSETS
Current Assets -
Cash $7,254 $8,244
Trade receivables 14,127 10,303
Notes receivable 821 778
Receivable from affiliated company 408 420
Inventories 12,818 12,489
Prepaid expenses and other 799 625
Total Current Assets 36,227 32,859
Property and equipment, net of accumulated
depreciation 41,544 38,024
Noncurrent notes receivable, excluding current portion 1,544 2,069
Claims for reimbursement of environmental
remediation costs 1,040 1,038
Other assets, net 3,944 4,609
Total Assets $84,299 $78,599
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities -
Amount due under revolving credit line $0 $6,823
Current installments of long-term debt 1,157 1,587
Current installments of obligation under capital 747 1,122
lease
Accounts payable 13,566 14,150
Money orders payable 10,584 7,809
Accrued expenses 11,300 8,778
Total Current Liabilities 37,354 40,269
Long-term debt, including long-term revolving credit
line, excluding current installments 14,870 7,765
Obligation under capital lease, excluding
current installments 2,379 1,653
Deferred income taxes 4,185 3,781
Other liabilities 2,670 993
Total Liabilities 61,458 54,461
Partners' Equity, net of treasury units of $269 at 22,841 24,138
Total Liabilities and Partners' Equity $84,299 $78,599
See accompanying notes to condensed consolidated financial statements.
FFP PARTNERS, L.P., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
(Unaudited)
Three Months Ended Nine Months Ended
Sept 28, Sept 29, Sept 28, Sept 29,
1997 1996 1997 1996
Revenues -
Motor fuel $79,032 $77,428 $238,257 $241,685
Merchandise 15,633 15,387 45,114 46,207
Miscellaneous 1,394 1,510 4,702 6,101
Total Revenues 96,059 94,325 288,073 293,993
Costs and Expenses -
Cost of motor fuel 73,472 72,030 222,686 225,399
Cost of merchandise 10,853 10,879 31,719 32,714
Direct store expenses 7,035 6,676 20,567 20,343
General and administrative expenses 3,008 2,766 8,901 8,987
Depreciation and amortization 1,472 960 3,986 2,755
Total Costs and Expenses 95,840 93,311 287,859 290,198
Operating Income 219 1,014 214 3,795
Interest expense 460 316 1,108 968
Income/(Loss) Before Income Taxes (241) 698 (894) 2,827
Deferred income tax expense 134 134 403 402
Net Income/(Loss) $(375) $564 $(1,297) $2,425
Income/(loss) allocated to -
Limited partners $(371) $558 $(1,284) $2,401
General partner (4) 6 (13) 24
Net income/(loss) per Class A and
Class B Unit $(0.10) $0.15 $(0.35) $0.65
Distributions declared per Class A and
Class B Unit $0.000 $0.210 $0.000 $0.415
Weighted average number of Class A and
Class B Units outstanding 3,704 3,686 3,704 3,678
See accompanying notes to condensed consolidated financial statements.
FFP PARTNERS, L.P., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
Sept 28, 1997 Sept 29, 1996
Cash Flows from Operating Activities -
Net income/(loss) $(1,297) $2,425
Adjustments to reconcile net income to cash
provided/(used) by operating activities -
Depreciation and amortization 3,986 2,755
Deferred income tax expense 403 402
Net change in operating assets and liabilities 2,842 (2,507)
Net cash provided by operating activities 5,934 3,075
Cash Flows from Investing Activities -
Additions of property and equipment, net (7,127) (5,397)
Net cash (used) by investing activities (7,127) (5,397)
Cash Flows from Financing Activities -
Net borrowings/(repayments) under
credit facilities 203 3,772
Proceeds from exercise of unit options 0 135
Distributions to unitholders 0 (1,542)
Net cash (used) by financing activities 203 2,365
Net Increase/(Decrease) in Cash (990) 43
Cash at beginning of period 8,244 8,106
Cash at end of period $7,254 $8,149
See accompanying notes to condensed consolidated financial statements.
FFP PARTNERS, L.P., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 1997
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements include the assets,
liabilities, and results of operations of FFP Partners, L.P., and its 99%-owned
subsidiaries, FFP Operating Partners, L.P., Direct Fuels, L.P., and FFP
Financial Services, L.P., and its 100%-owned subsidiaries, Practical Tank
Management, Inc., FFP Transportation, L.L.C., and FFP Money Order Company, Inc.,
collectively referred to as the "Company."
The consolidated balance sheet as of September 28, 1997, and the
consolidated statements of operations and condensed consolidated statements of
cash flows for the three month and nine month periods ended September 28, 1997,
and September 29, 1996, have been prepared by the Company and have not been
audited. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the Company's
financial position as of September 28, 1997, and the results of operations and
cash flows for the periods presented have been made. Interim operating results
are not necessarily indicative of results for the entire year.
The notes to the consolidated financial statements which are included in
the Company's Annual Report on Form 10-K for the year ended December 29, 1996,
include accounting policies and additional information pertinent to an
understanding of these interim financial statements. That information has not
changed other than as a result of normal transactions in the nine months ended
September 28, 1997, and as discussed in Note 4.
2. Income per Unit and Distributions
The Class A and Class B Units represent a 99% interest in the Company.
Accordingly, income per unit is calculated by dividing 99% of the income amount
by the weighted average number of units outstanding.
3. Reclassifications.
Certain amounts previously reported in the 1996 financial statements have
been reclassified to conform to the 1997 presentation.
4. Refinancing of Bank Debt.
On November 3, 1997, the Company completed a refinancing of its bank debt
with another lender. The new Loan Agreement provides the Company with a
revolving credit line of up to $15,000,000 (the amount available is related to a
borrowing base comprised of the Company's trade receivables and inventories) and
a term loan of $8,000,000. Both of the loans bear interest, payable monthly, at
the lending institution's prime rate. The Company has the option of fixing the
interest rate on all or a portion of both loans at rates of LIBOR plus 2.25% for
periods of three or six months and in the case of the term loan at a rate tied
to United State Treasury securities plus 2.50%. The term loan requires monthly
principal payments of $95,000 and both loans mature on November 1, 2000. The
loans are secured by the Company's accounts receivable and inventory, equipment,
and a negative pledge of other fixed assets. The loans are also guaranteed by
the Company's general partner and it's subsidiary which is the general partner
of one of the Company's subsidiaries.
The accompanying balance sheet reflects this refinancing as though it had
occurred at September 28, 1997.
FFP PARTNERS, L.P., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations for Third Quarter 1997 compared with Third Quarter 1996
Total revenues increased $1,734,000 (1.8%) for the quarter due to increases
in motor fuel and merchandise sales offset by a slight decline in miscellaneous
revenues. The $1,604,000 (2.1%) increase in fuel sales resulted from a 2.6%
increase in the volume of fuel sold, with such increases coming from both the
Company's retail and wholesale activities, offset by lower per gallon prices in
the 1997 period as compared to 1996. The increased fuel sales also resulted in a
$162,000 (3.0%) increase in overall fuel margin. The increased fuel margin was
due to the increased sales volumes accompanied by improved margins in the
Company's wholesale fuel operations. The retail fuel margin per gallon declined
0.4 cents (3.9%) in the 1997 quarter from the 1996 period.
The merchandise sales increase of $246,000 (1.6%) is attributable to
increases in the average weekly sales per store of 4.6%, offset by a decline of
2.5% in the average number of convenience stores and truck stops operated in the
1997 period. The increased merchandise sales along with an increase in
merchandise margin to 30.6% from 29.3% resulted in a $272,000 (6.0%) increase in
merchandise gross profit. The increased merchandise margin is the result of the
Company's efforts, starting late in the first quarter, to more closely monitor
its selling prices so as to remain competitive yet achieve a higher margin on
less price sensitive items.
Direct store expenses (those expenses, such as payroll, utilities, and
repair and maintenance, that are directly attributable to the operation of an
outlet) increased $359,000 (5.4%) in the 1997 quarter due principally to
increased payroll costs associated with the increase in the minimum wage that
was effective in September 1997 and the absence in 1997 of favorable adjustments
related to employee benefit costs. Other direct store expenses were relatively
flat between the two periods.
General and administrative expenses were up $242,000 (8.7%) in the third
quarter 1997 as compared to the 1996 quarter. This increase resulted principally
from the costs associated with operation of the Company's fuel terminal, which
began operating in June 1997.
Depreciation and amortization charges increased $512,000 (53.3%) in the
quarter due to beginning depreciation at the Company's fuel terminal, which
began operating in June 1997, and to increased depreciation expense related to
the capital expenditures made by the Company over the last twelve to eighteen
months in its retail operations, primarily to bring its underground storage
tanks into compliance with 1998 environmental requirements.
The $144,000 (45.6%) increase in interest expense is attributable to higher
debt levels and to higher interest rates during the current quarter as compared
to the prior year.
Although the Company made substantial improvements in its sales and margin
levels, the gains were outstripped by increases in expense levels resulting in a
loss of $375,000 for the quarter as compared to net income of $564,000 in 1996.
Results of Operations for First Nine Months of 1997 compared with First Nine
Months of 1996
For the first nine months of 1997, retail fuel sales volume (in gallons)
was up 1.0% as compared to 1996 and the wholesale volume was down 8.9%. The
decline in wholesale volume resulted from a 13.6% decline in such sales in the
first quarter of 1997 due to the absence of a large volume of lower margin sales
to a customer that purchases fuel from the Company infrequently. The average
weekly sales (in gallons) of fuel at the Company's convenience stores and the
independently operated stores at which it has the fuel concession were flat (up
less than 1.0%) in 1997 but sales at its truck stops increased 5.4% over the
prior year period. The flat sales volumes at the convenience stores are
reflective of the Company's attempt to maintain as high a margin per gallon as
possible on these sales, without foregoing any of its market share, in the face
of intense competitive retail pricing of motor fuel that has been occurring in
the last twelve to eighteen months. The increased truck stop sales resulted from
a lessening of the competitive pressures in this submarket of the retail fuel
business. Because of the reduced wholesale fuel volumes, the Company's motor
fuel revenues declined $3,428,000 (1.4%) in the first nine months of 1997.
The Company's gross profit on fuel was $715,000 (4.4%) less in 1997 than in
the prior year, partially due to the smaller volume of wholesale sales and
partly due to the decline in the retail margin per gallon to 9.2 cents in 1997
as compared to 9.8 cents in 1996. The Company's wholesale margin per gallon
increased to 2.5 cents from 1.9 cents, in part because of the absence of the low
margin wholesale sales referred to above. However, wholesale margins were also
positively influenced by sales of fuel processed at the Company's terminal,
which began operating in June 1997.
Merchandise sales declined $1,093,000 (2.4%) in the 1997 nine-month period
reflecting the 5.1% decline in the average number of convenience stores and
truck stops operated by the Company offset by an increase of 3.3% in the average
weekly sales per outlet. Because of the reduced sales, merchandise gross profit
declined $98,000 (0.7%), although the Company's merchandise margin increased
0.5% in the 1997 period to 29.7%. The increase in average weekly merchandise
sales and merchandise margin are the result of management's efforts to improve
these key components of profitability.
The $1,399,000 (22.9%) drop in miscellaneous revenues in 1997 is due to the
decline in the sale of the merchandise operations at company-operated
convenience stores to independent operators. In the first nine months of 1996,
the Company sold the merchandise operations at two stores compared to sixteen
such sales in the first nine months of 1997.
The increase in direct store expenses of $224,000 (1.1%) is due to
increased wage costs in the convenience stores and truck stops, offset by
reductions in cash over and short expense, and increased commissions on gasoline
sales paid to the operators of outlets at which the Company has the fuel
concession. The increased wage costs are related to the increase in the
federally mandated minimum wage which took effect on September 1, 1997, while
the increased commissions on motor fuel sales are the result of operating an
average of 8.2 (4.1%) more such outlets.
A decline in bad debt expense, advertising and promotion, and professional
fees partially offset by increases in payroll costs resulted in the $86,000
(1.0%) decrease in general and administrative costs.
The $1,231,000 (44.7%) increase in depreciation and amortization expense
for the first nine months of 1997 was primarily the result of the start of
operations at the Company's fuel terminal in June 1997 along with increased
charges related to the upgrading of the Company's underground storage tanks to
meet 1998 environmental regulatory requirements.
The increase of $140,000 (14.5%) in interest expense during the 1997 period
is attributable to the generally higher level of interest rates during the 1997
period as compared to 1996 and to higher debt levels. The increased borrowings
were used to fund the Company's investment in its fuel terminal and purchases of
equipment to upgrade its underground storage tanks.
The decline in revenues attributable to the sale of merchandise operations
at convenience stores and the increased depreciation and amortization expenses
are the primary cause for the loss of $1,297,000 for the first nine months of
1997 as compared to the Company's income of $2,425,000 for the comparable period
in 1996.
Liquidity and Capital Resources
On November 3, 1997, the Company completed a refinancing of its bank debt
with another lender. The new Loan Agreement provides the Company with a
revolving credit line of up to $15,000,000 (the amount available is related to a
borrowing base comprised of the Company's trade receivables and inventories) and
a term loan of $8,000,000. Both loans mature on November 1, 2000, and the term
loan requires monthly principal payments of $95,000. The loans are secured by
the Company's accounts receivable and inventory, equipment, and a negative
pledge of other fixed assets.
Because of the restructuring of this debt, the Company's working capital
position improved from a negative $7,410,000 at year end 1996 to a negative
$1,127,000 at September 28, 1997. Due to the availability of funds under the
Company's revolving credit line which is used to fund working capital needs, the
availability of funds under its lease lines of credit which fund a significant
portion of routine capital expenditures, its traditional use of customary trade
credit, and the fact the most of the Company's sales are for cash, management
believes that the Company's operations can be conducted in a customary manner
while operating in a negative working capital position.
Changes in Structure of Company
Under current tax law, the Company can elect to become taxable as a
corporation beginning in 1998 (with any distributions made to unitholders being
treated as corporate dividends) or to continue as a publicly-traded partnership
and pay an excise tax of 3.5% of its gross profit.
Management considers the latter alternative unacceptable since it would
result in the payment of significant taxes even if the Company did not have net
earnings. For example, under that alternative, the Company would have paid taxes
applicable to 1996 in excess of $1,000,000 even though it reported a significant
loss for tax reporting purposes for that year. The option of converting to a
corporate form will, in effect, occur if the Company takes no other action.
However, the Company believes that its unitholders' interests may be best
served by separating its retail operations and its real estate holdings.
Management's goal is to convert the entity with the real estate holdings into a
real estate investment trust ("REIT"), but because of the complexities related
to qualifying as a REIT under federal tax laws and regulations, the Company may
not be able to obtain that status in the near term. One of the primary criteria
for any restructuring of the Company is that it be accomplished in a manner that
minimizes the federal income tax effect to the Company and its unitholders.
A reorganization would likely require approval by the limited partners. The
Company is in the process of preparing information to be distributed to the
partners that will detail the proposed reorganization and solicit their votes on
the matter.
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
generally should 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 words and 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 the 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.
EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
10.1 Loan and Security Agreement among FFP Partners, L.P.,
FFP Operating Partners, L.P., Direct Fuels, L.P.,
and HSBC Business Loans, Inc., dated October 31, 1997
27 Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FFP PARTNERS, L.P.
Registrant
Date: November 12, 1997 By: /s/John H. Harvison
----------------------------------
John H. Harvison
Chairman and
Chief Executive Officer
Date: November 12, 1997 By: /s/Steven B. Hawkins
----------------------------------
Steven B. Hawkins
Vice President - Finance and
Chief Financial Officer