SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1998, or
|_| Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _______________ to _______________
Commission File No. 1-9510
FFP PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 75-2147570
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
2801 Glenda Avenue; Fort Worth, Texas 76117-4391
(Address of principal executive office, including zip code)
817/838-4700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No ___
Class A Units 2,234,262
(Number of limited partner units outstanding as of November 18, 1998)
FFP PARTNERS, L.P., AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998, AND DECEMBER 28, 1997
(In thousands)
(Unaudited)
September 30, December 28,
1998 1997
ASSETS
Current Assets
Prepaid expenses and other $8 $196
Real Property
Land and improvements 5,890 6,026
Buildings 21,501 21,491
27,391 27,517
Accumulated depreciation (10,296) (9,374)
17,095 18,143
Note receivable 46 0
Total Assets $17,149 $18,339
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Current installments of long-term debt $16 $1,208
Current installments of long-term debt
to affiliate 1,143 0
Due to affiliated company 55 0
Accrued liabilities 33 0
Total current liabilities 1,247 1,208
Long-term debt, excluding current
installments 445 14,730
Long-term debt due to affiliate, excluding
current installments 13,344 0
Total Liabilities 15,036 15,938
Minority interests in subsidiary 846 960
Commitments and contingencies
Partners' Capital 1,267 1,441
Total Liabilities and Partners' Capital $17,149 $18,339
See accompanying notes to Condensed Consolidated Financial Statements.
FFP PARTNERS, L.P., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998
(In thousands, except per unit data)
(Unaudited)
Three Months Nine Months
Revenues -
Rental income $661 $1,974
Gain on sale of property 0 52
Interest and other income 0 11
Total revenues 661 2,037
Expenses -
General and administrative expenses 153 321
Depreciation and amortization 321 923
Interest expense 322 1,081
Total expenses 796 2,325
(Loss) before minority interest (135) (288)
Minority interest in subsidiary 70 114
Net (Loss) $(65) $(174)
Net (loss) per unit -
Basic $(0.03) $(0.08)
Diluted (0.03) (0.08)
Weighted average number of units
outstanding -
Basic 2,272 2,272
Diluted 2,272 2,272
See accompanying notes to Condensed Consolidated Financial Statements.
FFP PARTNERS, L.P., AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(In thousands)
(Unaudited)
Cash Flows from Operating Activities -
Net (loss) $(174)
Adjustments to reconcile net (loss) to cash
provided by operating activities -
Depreciation and amortization 923
Minority interest in subsidiary (114)
Net change in operating assets
and liabilities 175
Net cash provided by operating activities 810
Cash Flows from Investing Activities -
Dispositions of property, net 125
Net cash provided by investing activities 125
Cash Flows from Financing Activities -
Net (repayments) under credit facilities (935)
Net cash (used) by financing activities (935)
Net Increase/(Decrease) in Cash 0
Cash at beginning of period 0
Cash at end of period $0
See accompanying notes to Condensed Consolidated Financial Statements.
FFP PARTNERS, L.P., AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 1998
(Unaudited)
1. Basis of Presentation
These Condensed Consolidated Financial Statements include the
assets, liabilities, and results of operations of FFP Partners, L.P., and its
60%-owned subsidiary, FFP Properties, L.P., collectively referred to as the
"Company."
The Condensed Consolidated Balance Sheet as of September 30, 1998,
and the Consolidated Statements of Operations and Condensed Consolidated
Statement of Cash Flows for the periods presented, have been prepared by the
Company without audit. 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 30, 1998, and the results of its operations
and cash flows for each of the periods presented, have been made. Interim
operating results are not necessarily indicative of results for the entire year.
In December 1997, the Company completed a restructuring which
resulted in the transfer of the convenience store, retail motor fuel, and other
businesses previously operated by it to FFP Marketing Company, Inc. ("FFP
Marketing"). In the restructuring, the Company retained the real estate used in
the retail businesses and leased those properties to FFP Marketing. Accordingly,
there is no comparative income data for the Company for the prior year periods.
The notes to the audited consolidated financial statements which
are included in the Company's Annual Report on Form 10-K for the year ended
December 28, 1997, include a description of accounting policies and additional
information pertinent to an understanding of these interim financial statements.
That information has not changed other than as a result of normal transactions
in the nine months ended September 30, 1998, except as discussed below.
2. Change in Fiscal Year
Prior to the restructuring of the Company that occurred in December
1997, the Company prepared its financial statements on the basis of a fiscal
year which ended on the last Sunday in December. However, in connection with the
restructuring, the Company has changed its fiscal year to coincide with the
calendar year. Accordingly, the accompanying unaudited financial statements for
the nine months ended September 30, 1998, include the nine months then ended
plus the three-day period immediately following the restructuring through the
end of 1997 (December 29 through December 31, 1997). The effect of including
these three additional days in financial statements for the period ended
September 30, 1998, is immaterial.
3. Long-Term Debt
Effective June 28, 1998, the Company, FFP Marketing, and the
Company's primary bank lender reached an agreement to restructure the debt due
to the lender for which the Company and FFP Marketing were jointly liable but
for which the Company had retained the liability in connection with its December
1997 restructuring. Under this agreement, the lender agreed to release the
Company from all obligations under the Loan Agreement covering the debt and
permit a subsidiary of FFP Marketing to make a loan to the Company for
approximately $14,773,000 (the then current balance of the debt for which the
Company had retained liability in the restructuring). The terms of the loan from
FFP Marketing to the Company mirror the terms of the debt to the lender (for
which FFP Marketing is liable), and the loan is secured by all real estate owned
by the Company, which is pledged as additional collateral on the debt of FFP
Marketing to the lender.
4. Income/(Loss) per Unit
A reconciliation of the denominator of the basic and diluted (loss)
per unit for general partner and limited partner units for the three month and
nine month periods ended September 30, 1998, follows:
Three Months Nine Months
(In thousands)
Weighted average number of units outstanding 2,272 2,272
Effect of dilutive options 0 0
Weighted average number of units outstanding
assuming dilution 2,272 2,272
Options to purchase 321,999 units were not included in the
computation of diluted (loss) per unit for both the three and nine month periods
because to do so would have been antidilutive. Such options could potentially
dilute basic income/(loss) per unit in the future.
5. Reporting of Comprehensive Income
At the beginning of its 1998 fiscal year, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires the presentation of "comprehensive
income" in financial statements. Comprehensive income includes net income and
all revenues, expenses, gains, and losses that are recorded directly to equity.
The Company does not have any items of other comprehensive income; therefore
comprehensive income and net income are identical. Accordingly, the effect of
the adoption of SFAS No. 130 had no effect on the Company's condensed
consolidated financial statements.
FFP PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
In December 1997, FFP Partners, L.P. (the "Company") restructured its
operations by transferring its convenience store, retail motor fuel, and other
businesses to FFP Marketing Company, Inc. ("FFP Marketing"). In the
restructuring, the Company retained the real estate formerly used in the retail
businesses and now leases those properties to FFP Marketing on a "triple-net"
basis. Accordingly, there is no comparative income data for the Company for the
prior year periods.
Results of Operations, Liquidity, and Capital Resources
Substantially all of the Company's rental income is from the various
convenience store and other retail outlets that it leases to FFP Marketing. The
leases were entered into in connection with the December 1997 restructuring of
the Company and are for five years; accordingly, the rental income from these
locations is expected to remain constant for that period. However, the Company
currently expects to extend the term of those leases until December 31, 2013. In
addition, the Company may also acquire additional locations, which may be leased
to FFP Marketing or to others. Future leases may or may not be on a "triple-net"
basis.
The Company has entered into a management agreement with FFP Marketing under
which FFP Marketing provides various administrative and other services to the
Company. Under this agreement, FFP Marketing makes payments on behalf of the
Company and charges such payments to its account while the rental income due to
the Company by FFP Marketing is applied to this account. Accordingly, the
Company does not, at this time, maintain separate cash accounts. However, as the
Company grows and expands its real estate holdings, it is expected to function
more independently although management anticipates that FFP Marketing will
continue to provide various administrative services to the Company for the
foreseeable future.
Effective June 28, 1998, the Company, FFP Marketing, and the Company's
primary bank lender reached an agreement to restructure the debt due to the
lender for which the Company and FFP Marketing were jointly liable but for which
the Company had retained the liability in connection with its December 1997
restructuring. Under this agreement, the lender released the Company from all
obligations under the Loan Agreement covering the debt and permitted a
subsidiary of FFP Marketing to loan the Company approximately $14,773,000 (the
then current balance of the debt for which the Company had retained liability in
the restructuring). The loan from FFP Marketing to the Company is secured by all
real estate owned by the Company and pledged as additional collateral on the
debt of FFP Marketing to the lender. The terms of the loan mirror the terms of
the debt of FFP Marketing to the lender, which remain unchanged. Accordingly,
the restructuring of this debt has no additional economic impact on the Company
although the Company is now liable to FFP Marketing rather than the lender for
this debt.
The Company continues to evaluate alternatives for refinancing the foregoing
debt. As a part of any such refinancing, the Company is seeking to obtain
additional capital to permit it to expand its real estate holdings. The Company
has had discussions with various lenders who have expressed an interest in
providing funds both to refinance the existing debt and to acquire additional
real estate. However, it has not yet received any formal financing proposals.
Although the Company expects that its property acquisitions will be centered on
convenience store and similar properties, it will also look for opportunities in
other types of property that yield an above average return with an acceptable
level of risk.
The Company is not a real estate investment trust ("REIT") but its activities
are much like those of a REIT. One performance measure used within the REIT
industry is funds from operations ("FFO"). FFO, as defined by the National
Association of Real Estate Investment Trusts ("NAREIT"), means net income (loss)
(determined in accordance with generally accepted accounting principles or
"GAAP"), excluding gains (or losses) from debt restructurings, and similar
activities, and sales of properties, plus depreciation and amortization of real
estate assets, and after adjustments for unconsolidated partnerships and joint
ventures. FFO was developed by NAREIT as a relative measure of performance and
liquidity of an equity REIT in order to recognize that income-producing real
estate historically has not depreciated on the basis determined under GAAP.
While FFO is one appropriate measure of performance of an equity REIT, it (i)
does not represent cash generated from operating activities determined in
accordance with GAAP (which, unlike FFO, generally reflects all cash effects of
transactions and other events that enter into the determination of net income),
(ii) is not necessarily indicative of cash flow available to fund cash needs,
and (iii) should not be considered as an alternative to net income determined in
accordance with GAAP as an indication of the Company's operating performance, or
to cash flow from operating activities determined in accordance with GAAP as a
measure of either liquidity or the Company's ability to make distributions or to
fund its other operations. The following table presents the determination of FFO
for the Company for the three and nine month periods ended September 30, 1998:
Three Months Nine Months
(In thousands, except per unit data)
(Loss) before minority interests $(135) $(288)
Adjustments -
(Gain) from early payoff of debt 0 (11)
(Gains) from sales of properties 0 (52)
Depreciation and amortization 321 923
Funds from operations 186 572
Less - FFO attributable to minority
interests in subsidiary 74 229
Funds from operations attributable
to the Company $112 $343
FFO per unit (based on units outstanding
for diluted loss per unit calculations) $0.05 $0.15
Although the Company has generated positive funds from operations, it has not
made distributions to unitholders because substantially all cash generated from
the Company's operations is required for debt payments. In connection with the
possible refinancing of its debt referred to above, the Company is seeking to
extend the maturity of the debt, which might make funds available for
distribution to unitholders. However, there can be no assurance that the Company
will be successful in refinancing its debt or obtaining new loan terms that
would permit distributions, or if such refinancing is obtained, that management
will decide that distributions will be the best method of increasing value to
the Company's unitholders.
Year 2000 Computer Issues
The Company has made arangements with FFP Marketing to provide various
computer software programs in managing the Company's rental properties. FFP
Marketing also utilizes various computer software programs in operating its own
businesses. The functioning of such software is subject to problems if it does
not properly interpret dates in the year 2000 and beyond. Software which
properly handles dates beginning in 2000 is said to be "year 2000 compliant."
FFP Marketing has indicated to the Company that FFP Marketing believes, but can
give no assurance, that such software for principal accounting, management
information, computer networking, and operating system is currently year 2000
compliant and that the cost to replace or modify its software to be year 2000
compliant will be immaterial.
FFP Marketing has also indicated that the businesses of the Company and FFP
Marketing are also dependent upon software used in conjunction with or provided
by third parties, such as its banks and various governmental authorities that
levy taxes on real property. While the direct cost of rendering any such
software year 2000 compliant will be borne by others, there could be an adverse
impact on the Company's operations if the necessary modifications are not made
in a timely manner. The Company believes that such third parties are generally
responsible in managing their businesses and business relationships and will
take appropriate steps to make their systems year 2000 compliant. FFP Marketing
has indicated that it has begun investigating whether such software is year 2000
compliant, and, if not, the timetable of the respective third parties to make it
compliant. FFP Marketing plans to monitor their progress in doing so.
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. Although the Company believes that the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, the Company's actual results could differ materially
from those set forth in the forward-looking statements. Among the factors that
could cause actual results to differ materially from the forward-looking
statements made include the following: changes in real estate conditions,
including rental rates and the construction or availability of competing
properties; changes in the industry in which the Company's sole tenant competes;
changes in general economic conditions; the ability of management to identify
acquisitions and investment opportunities meeting the investment objectives of
the Company; the timely leasing of unoccupied properties; timely releasing of
currently occupied properties upon expiration of the current leases or the
default of the current tenant; a risk of leasing all of the Company's properties
to only one tenant; the Company's ability to generate funds sufficient to meet
its debt service payments and other operating expenses; the inability of the
Company to control the management and operation of its tenant and the businesses
conducted on the Company's properties; financing risks, including the
availability, or lack of availability, of funds to service or refinance existing
debt and to finance acquisitions of additional property, changes in interest
rates associated with its variable rate debt; the possibility that the Company's
existing debt (which requires a so-called "balloon" payment of principal) may be
refinanced at a higher interest rate or on other terms less favorable to the
Company than at present; the existence of complex tax regulations relating to
the Company's status as a publicly-traded real estate partnership and, if
achieved, to its status as a real estate investment trust and the adverse
consequences of the failure to qualify as such; and other risks detailed from
time to time in the Company's filings with the Securities and Exchange
Commission. Given these uncertainties, readers are cautioned not to place undue
reliance on the forward-looking statements. The Company undertakes no obligation
to publicly release the results of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.
EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27 Financial Data Schedule [included in electronic filing only].
Reports on Form 8-K
The Company did not file any reports on Form 8-K for the quarter covered by
this Report on Form 10-Q.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FFP PARTNERS, L.P.
Registrant
By: FFP Real Estate Trust
sole general partner
Date: November 18, 1998 By: /s/ Craig T. Scott
-----------------------------------
Craig T. Scott
Vice President - Finance,
Chief Financial Officer and
General Counsel