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 April 1, 2001,
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. 1-13727
FFP MARKETING COMPANY, INC.
(Exact name of registrant as specified in its charter)
Texas 75-2735779
(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
-------- --------
Common Shares 3,818,747
(Number of shares outstanding as of May 10, 2001)
INDEX
PAGE
-------
Part I
Item 1. Financial Statements................................ 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 7
Item 3. Quantitative and Qualitative Disclosures
About Market Risks.................................. 10
Part II
Item 6. Exhibits and Reports on Form 8-K.................... 11
Signatures..................................................... 11
FFP MARKETING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
April 1, December 31,
2001 2000
-------- ------------
ASSETS
Current assets -
Cash and cash equivalents....................... $ 10,558 $ 14,572
Investments in marketable securities............ 3,459 3,084
Trade receivables, net.......................... 26,570 28,671
Notes receivable, current portion............... 1,743 1,391
Receivables from affiliates, current portion.... 713 770
Inventories..................................... 23,183 24,502
Deferred tax asset.............................. 1,030 1,181
Prepaid expenses and other current assets....... 1,167 676
------ ------
Total current assets......................... 68,423 74,847
Property and equipment, net........................ 37,254 38,074
Notes receivable, excluding current portion........ 3,812 3,620
Other assets, net.................................. 8,320 8,320
------- -------
Total assets................................. $117,809 $124,861
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities -
Current installments of long-term debt.......... $5,490 $1,642
Current installments of capital
lease obligations............................ 437 437
Accounts payable................................ 22,451 21,190
Money orders payable............................ 18,854 18,237
Due to affiliate................................ 1,671 1,407
Accrued expenses................................ 11,807 14,182
------ ------
Total current liabilities.................... 60,710 57,095
Long-term debt, excluding current installments..... 30,346 37,557
Capital lease obligations, excluding
current installments......................... 3,947 4,042
Deferred income taxes.............................. 2,166 3,367
Other liabilities.................................. 1,959 2,081
------ -------
Total liabilities............................ 99,128 104,142
------ -------
Commitments and contingencies...................... - -
Stockholders' equity -
Common stock ($0.01 par value).................. 22,235 22,235
Accumulated deficit............................. (2,878) (547)
Accumulated other comprehensive loss............ (676) (969)
------- -------
Total stockholders' equity................... 18,681 20,719
------- -------
Total liabilities and stockholders' equity... $117,809 $124,861
======= =======
See accompanying Notes to Condensed Consolidated Financial Statements.
FFP MARKETING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED APRIL 1, 2001 AND MARCH 26, 2000
(In thousands, except per share data)
(Unaudited)
April 1, March 26,
2001 2000
-------- -----------
Revenues -
Motor fuel sales.............................. $130,769 $ 123,432
Merchandise sales............................. 24,029 28,680
Miscellaneous................................. 3,495 2,328
------- -------
Total revenues............................ 158,293 154,440
------- -------
Costs and expenses -
Cost of motor fuel............................ 125,588 116,327
Cost of merchandise........................... 17,287 20,196
Direct store expenses......................... 11,901 12,877
General and administrative expenses........... 4,352 3,760
Depreciation and amortization................. 1,834 1,724
------- -------
Total costs and expenses.................. 160,962 154,884
------- -------
Operating loss.................................... (2,669) (444)
Interest income............................... 271 351
Interest expense.............................. 1,134 1,170
------- -------
Loss before income taxes.......................... (3,532) (1,263)
Deferred income tax benefit....................... (1,201) (379)
------- -------
Net loss.......................................... $(2,331) $ (884)
===== ====
Net loss per share -
Basic......................................... $(0.61) $ (0.23)
Diluted....................................... (0.61) (0.23)
Weighted average number of common shares outstanding -
Basic......................................... 3,819 3,819
Diluted....................................... 3,819 3,819
See accompanying Notes to Condensed Consolidated Financial Statements.
FFP MARKETING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED APRIL 1, 2001 AND MARCH 26, 2000
(In thousands)
(Unaudited)
April 1, March 26,
2001 2000
-------- ---------
Cash Flows from Operating Activities -
Net loss........................................... $(2,331) $ (884)
Adjustments to reconcile net loss to cash
used by operating activities -
Depreciation and amortization................... 1,834 1,724
Provision for doubtful accounts................. 120 22
Deferred income tax benefit..................... (1,201) (379)
Increase in trading securities.................. (33) (1,653)
Gain on sale of convenience stores.............. (467) (210)
Loss on sale of properties...................... 161 0
Net change in operating assets and liabilities.. 1,427 758
------ ------
Net cash used by operating activities.............. (490) (622)
------ ------
Cash Flows from Investing Activities -
Additions of property and equipment, net........... (1,023) (1,193)
Proceeds of sale of marketable securities.......... 476 0
Proceeds of sale of properties..................... 21 0
Proceeds of sale of convenience stores............. 127 0
Payments on note receivable from affiliate......... 57 0
Receipt of payments on notes receivable............ 11 0
----- ------
Net cash used by investing activities.............. (331) (1,193)
----- ------
Cash Flows from Financing Activities -
Net borrowings (repayments) of long-term
debt and capital lease obligations.............. (3,457) (410)
Advances from (to) affiliate....................... 264 (9)
------ -------
Net cash used by financing activities.............. (3,193) (419)
------ -------
Net decrease in cash and cash equivalents.............. (4,014) (2,234)
Cash and cash equivalents at beginning of period....... 14,572 20,868
------ -------
Cash and cash equivalents at end of period............. $10,558 $18,634
====== ======
Supplemental Disclosure of Cash Flow Information
(in thousands):
Cash paid for interest................................. $1,134 $1,170
See accompanying Notes to Condensed Consolidated Financial Statements.
FFP MARKETING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements include the assets,
liabilities, and results of operations of FFP Marketing Company, Inc., and its
wholly owned subsidiaries, FFP Operating Partners, L.P., Direct Fuels, L.P., FFP
Financial Services, L.P., Practical Tank Management, Inc., FFP Transportation,
L.L.C., FFP Money Order Company, Inc., FFP Operating LLC, and Direct Fuels
Management Company, Inc. These companies are collectively referred to as the
"Company."
The condensed consolidated balance sheet as of April 1, 2001, and the
condensed consolidated statements of operations and cash flows for the three
months ended April 1, 2001, and March 26, 2000, 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
April 1, 2001, 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 audited consolidated financial statements that are
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2000, 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 three months ended
April 1, 2001, and as discussed below.
2. Loss per Share
Basic net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding for the quarter. Diluted net loss
per share is computed by dividing net loss by the weighted average number of
common shares outstanding for the quarter plus potentially dilutive common
shares. Outstanding options to acquire 253,667 and 231,667 common shares at
April 1, 2001, and March 26, 2000, respectively, have been excluded from the
diluted computation because the effect would have been anti-dilutive. A
reconciliation of the denominators of the basic and diluted loss per share
calculations for the applicable first quarter periods in 2001 and 2000 follows:
2001 2000
----- ------
(In thousands)
Weighted average number of common shares outstanding...... 3,819 3,819
Effect of dilutive options................................ 0 0
----- ------
Weighted average number of common shares outstanding,
assuming dilution.................................... 3,819 3,819
===== =====
3. Operating Segments
The Company and its subsidiaries are principally engaged in two operating
segments: (i) the retail and wholesale sale of motor fuel, merchandise and other
products and services at convenience stores, truck stops, and other gasoline
outlets ("Retail and Wholesale"), and (ii) the operation of a motor fuel
terminal and processing facility ("Terminal Operations"). The Company has
identified such segments based on management responsibilities. No major
distinctions exist regarding geographical areas served by the Company or
customer types. The following table sets forth certain information about each
segment's financial information for the first quarters of 2001 and 2000:
Retail and Terminal
Wholesale Operations Eliminations Consolidated
--------- ---------- ------------ ------------
(In thousands)
First Quarter 2001
- ------------------
Revenues from external sources.. $131,033 $27,260 $ 0 $158,293
Revenues from other segment..... 0 7,979 7,979 0
Depreciation and amortization... 1,388 446 0 1,834
Loss before income taxes........ (2,924) (608) 0 (3,532)
First Quarter 2000
- ------------------
Revenues from external sources.. $ 139,263 $ 15,177 $ 0 $ 154,440
Revenues from other segment..... 0 7,541 (7,541) 0
Depreciation and amortization... 1,577 147 0 1,724
Loss before income taxes........ (1,453) 190 0 (1,263)
4. Comprehensive Net Loss
The components of comprehensive net loss for the first quarters of 2001 and
2000 are set forth below:
2001 2000
-------- -------
(In thousands)
Net loss........................................... $ (2,331) $ (884)
Unrealized net gains on available-for-sale
securities, net of tax.......................... 293 0
------- ------
Comprehensive loss ........................... $ (2,038) $ (884)
====== =====
5. Notes Payable and Long-Term Debt
In June 1998 the Company closed 44 loans in the original principal amount
of $9,420,000 and secured by the Company's assets at 44 of 94 convenience stores
acquired in December 1997. The loans bear interest at 8.66% per annum, require
the Company to maintain a minimum fixed charge coverage ratio of 1.25 to 1, and
will be fully amortized at various maturity dates ranging from October 2007 to
July 2013 by making principal and interest payments in equal monthly
installments over their respective terms. At April 1, 2001, and December 31,
2000, $8,237,000 and $8,359,000, respectively, remained outstanding on these
loans.
In February 1999 the Company acquired 23 convenience stores and two truck
stops. Eleven of the 25 stores are third party leasehold locations where the
Company purchased the existing leasehold interest, equipment, and inventory. The
Company financed its purchase of those properties with fully-amortizing mortgage
loans in the aggregate original principal amount of $1,012,000, with maturity
dates ranging from 86 to 180 months, interest payable at a fixed rate of 9.275%
per annum, a minimum fixed charge coverage ratio of 1.25 to 1, and aggregate
monthly payments of principal and interest of $13,000. At April 1, 2001, and
December 31, 2000, $892,000 and $908,000, respectively, remained outstanding on
these loans.
The land and building at the remaining 14 of those 25 stores were purchased
on the same date by FFP Partners and immediately leased to the Company under
real estate leases with a 15-year term. The real estate leases negotiated
between FFP Partners and the Company require a total monthly rent payment of
$99,000 with a rate of return of approximately 14%. Under generally accepted
accounting principles, each real estate lease is treated as two leases: a land
lease and a building lease. Each land lease is classified as an operating lease,
with monthly payments for all such land leases aggregating $28,000. Each
building lease is classified as a capital lease, with monthly payments for all
such building leases aggregating $71,000. The amount of rent allocated to the
capital lease obligation for the buildings in the original amount of $3,932,000
results in an implicit rate of approximately 20%. As a condition to the
Company's acquisition of store operations at those 14 fee locations, the Company
was required to guarantee the acquisition indebtedness in the original amount of
$9,550,000 incurred by FFP Partners in its purchase of those stores, including
land, building, equipment and inventory. At April 1, 2001, and December 31,
2000, the outstanding amounts on loans of FFP Partners guaranteed by the Company
were $8,911,000 and $9,000,000, respectively. The Company's scheduled real
estate lease payments to FFP Partners equal or exceed the debt service costs of
FFP Partners during the term of the leases.
In June 1999 the Company refinanced its previous long-term revolving credit
facility and term loan with the proceeds of fixed rate financing from a third
party lender in the original principal amount of $23,800,000. This long-term
debt is payable in 180 equal, monthly installments with interest at a fixed rate
of 9.9% per annum, a minimum fixed charge coverage ratio of 1.25 to 1, and
aggregate monthly payments of principal and interest of $256,000. This loan is
secured by a lien against the Company's leasehold improvements, equipment, and
inventory at 49 specific convenience stores, truck stops and gas-only outlets.
At April 1, 2001, and December 31, 2000, $22,566,000 and $22,773,000,
respectively, remained outstanding on these loans.
In December 1999 the Company obtained a revolving credit facility with a
third party lender providing for borrowings up to $10,000,000. The amount
available at any time under the loan is equal to a borrowing base of 80% of
certain trade receivables plus 60% of the Company's inventory at its terminal
facility; provided, however, that any draw which would cause outstanding
borrowings under the facility to exceed $5,000,000 is limited to 140% of net
value of marketable securities in the Company's trading account at a brokerage
firm. At the end of the first quarter of 2001, the Company's borrowing base was
limited under the agreement to $9,800,000. The net value of marketable
securities at that brokerage firm was $2,868,000 and $2,711,000 at April 1,
2001, and December 31, 2000, respectively. The revolving credit facility bears
interest at the lender's prime rate plus one percentage point, payable monthly,
and matures in December 2002. At April 1, 2001, and December 31, 2000,
$3,992,000 and $6,858,000, respectively, were outstanding under the revolving
line of credit. The loan is subject to a Loan Agreement and a Security Agreement
dated in December 1999 between the lender, the Company and two subsidiaries of
the Company. The agreement contains numerous restrictive covenants including,
but not limited to, a financial covenant requiring the Company to maintain a
minimum fixed charge coverage ratio of 1.25 to 1. Loans under the agreement are
secured by all of the Company's trade accounts receivable and its inventories at
the terminal. At the end of the first quarter of 2001, the Company did not meet
the required minimum fixed charge coverage ratio. Because such indebtedness may
be callable by such lender, the Company has classified its obligation payable to
such lender at such date as a short-term liability.
The Company is currently pursuing, but has not obtained a proposal for, a
new revolving credit facility with another bank to provide for borrowings of up
to $20,000,000, with the amount available at any time limited to a borrowing
base equal to a percentage of its eligible its trade receivables plus a
percentage of its inventory at the terminal. The Company currently anticipates
closing this new facility in the second or third quarter of 2001 and terminating
its current revolving credit facility, which could require the payment of
prepayment penalties. The loan being sought would be payable monthly on amounts
borrowed and mature in three years. Such loan would be subject to loan and
security agreements, not yet negotiated, between the lender and operating
subsidiaries of the Company, and be guaranteed by the Company and its other
subsidiaries. The Company anticipates that the agreement will contain numerous,
but typical, restrictive covenants, including financial covenants not yet
negotiated, and be secured by the Company's trade receivables and its inventory
at the terminal and its store locations.
FFP MARKETING COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
- -------
FFP Marketing Company, Inc. was formed as a Texas corporation immediately
prior to the December 1997 restructuring of FFP Partners, L.P. ("FFP Partners").
In that restructuring, all of the assets and businesses of FFP Partners was
transferred to the Company, except that FFP Partners retained the improved real
property previously used in its retail operations. Unless the context requires
otherwise, references herein to the "Company" for periods or activities prior to
the December 1997 restructuring include the activities of FFP Partners and its
then subsidiaries, which are now subsidiaries of FFP Marketing Company, Inc.
In the December 1997 restructuring of FFP Partners, the holders of its
limited partnership interests received one share of common stock of the Company
for each limited partnership unit that they owned on December 28, 1997,
resulting in each such person owning the same economic interest in the Company
as they had held in FFP Partners.
The Company conducts its operations through the following subsidiaries:
Entity Name and Type Date Formed Principal Activity
- ----------------------------- -------------- ------------------------------
FFP Operating Partners, L.P. December 1986 Operation of convenience stores
Delaware limited partnership and other retail outlets
Direct Fuels, L.P. December 1988 Operation of fuel terminal and
Texas limited partnership wholesale fuel sales
FFP Financial Services, L.P. September 1990 Sale of money order services
Delaware limited partnership and supplies
Practical Tank Management, Inc. September 1993 Underground storage tank
Texas corporation monitoring
FFP Transportation, L.L.C. September 1994 Ownership of tank trailers and
Texas limited liability company other transportation equipment
FFP Money Order Company, Inc. December 1996 Sale of money orders through
Nevada corporation agents
The Company and its subsidiaries are principally engaged in two operating
segments: (i) the retail sale of motor fuel, merchandise and other products and
services at 180 Company-operated convenience stores, 13 truck stops, and 233
gas-only stores, constituting 426 retail locations in all, and the wholesale
sale of motor fuel, and (ii) the operation of a motor fuel terminal and
processing facility. (See Note 3 of Notes to Condensed Consolidated Financial
Statements.)
RESULTS OF OPERATIONS FOR FIRST QUARTER 2001 COMPARED WITH FIRST QUARTER 2000
- -----------------------------------------------------------------------------
FUEL SALES AND MARGINS
- ----------------------
First Quarter
-----------------------------------------
Change
------------------
2001 2000 Amount Percent
-------- -------- -------- --------
(In thousands, except per gallon data)
Fuel sales..................... $130,769 $123,432 $ 7,337 5.9%
Fuel margin.................... $5,181 $7,105 $(1,924) (27.1%)
Gallons sold -
Retail...................... 56,543 59,633 (3,090) (5.2%)
Wholesale................... 48,190 37,486 10,704 28.6%
Total ..................... 104,733 97,119 7,614 7.8%
Margin per gallon (cents) -
Retail...................... 7.6 9.6 (2.0) (20.8%)
Wholesale................... 1.9 3.8 (1.9) (50.0%)
The Company sold more motor fuel, both in dollars and in gallons, in the
first quarter of 2001 than in the first quarter of 2000. Motor fuel sales, in
dollars, increased to $130,769,000 in the first quarter of 2001, a 5.9% increase
compared to motor fuel sales of $123,432,000 in the first quarter of 2000,
primarily as a result of a greater number of gallons sold.
In all, the Company sold 104,733,000 gallons of motor fuel in the first
quarter of 2001, a 7,614,000 gallon increase (7.8%) over the volume of motor
fuel sold in the comparable 2000 period. This increase was primarily
attributable to additional wholesale fuel sales of 10,704,000 gallons (28.6%),
which offset a decrease of 3,090,000 gallons (5.2%) sold at retail. Motor fuel
retail and wholesale fuel margins per gallon declined materially during the
first quarter of 2001, when compared to the initial quarter of 2000, by 20.8%
and 50.0%, respectively.
The Company's overall gross profit on motor fuel sales was $5,181,000 in
the first quarter of 2001, a $1,924,000 (27.1%) decline compared to the
corresponding quarter in 2000. Fuel margin decreased principally as a result of
competition in the industry.
MERCHANDISE SALES AND MARGINS
- -----------------------------
First Quarter
-----------------------------------------
Change
------------------
2001 2000 Amount Percent
------- ------- -------- --------
(In thousands, except average weekly sales data)
Merchandise sales.............. $24,029 $28,680 $(4,651) (16.2%)
Merchandise margin............. 6,742 8,484 (1,742) (20.5%)
Margin percentage, convenience
stores and truck stops....... 26.9% 28.3% (1.4%) (4.9%)
Average weekly merchandise
sales per store -
Convenience stores.......... 10,470 10,585 (115) (1.1%)
Truck stops................. 16,154 16,269 (115) (0.7%)
Merchandise sales decreased by $4,651,000 (16.2%) in the first quarter of
2001. The primary factor for that decline was the lesser number of
Company-operated convenience stores resulting from the sale/conversion of
certain of its Company-operated convenience stores to gas-only stores.
Accordingly, the Company operated only 180 convenience stores at the end of the
first quarter of 2001 compared to operating 216 convenience stores at the end of
the first quarter of 2000. Merchandise sales per store showed only a slight
decline, as shown in the above table. A decrease in direct store expense of
$975,000, as described below, also resulted from the reduction in
Company-operated stores during the comparable periods.
OTHER INCOME AND EXPENSES
- -------------------------
Miscellaneous income increased significantly (50.1%) from $2,328,000 in the
first quarter of 2000 to $3,495,000 in the first quarter of 2001. Miscellaneous
income includes lottery ticket sales income, money order sales income,
commissions received on alcohol beverage sales, check cashing fees, state excise
tax handling fees, gain on sale/conversion of convenience stores, gain or loss
on exchange and hedging transactions, and various other types of income.
Material reasons for the increase were a gain on exchange and motor fuel hedging
transactions in the first quarter of 2001, and a gain on sale/conversion of
Company-operated convenience stores to gas-only stores. The Company incurred an
exchange and motor fuel hedging gain of $328,000 in the first quarter of 2001,
compared to an exchange and motor fuel hedging loss of $1,002,000 in the first
quarter of 2000 as the Company sought to protect its motor fuel inventory
values. In the first quarter of 2001, gain on the sale/conversion of six
convenience stores to gas-only stores was $468,000, compared to a gain of
$210,000 in the first quarter of 2000.
Direct store expenses declined by $976,000 (7.6%) in the first quarter of
2001, compared to the direct store expenses in comparable quarter of 2000, as a
result of the lesser number of Company-operated convenience stores in the first
quarter of 2001. The Company operated 180 convenience stores on April 1, 2001,
compared to 216 convenience stores on March 26, 2000.
General and administrative expenses increased by $592,000 (15.7%) to
$4,352,000 in the first quarter of 2001, compared to $3,760,000 in the
comparable period of the prior year. The primary contributors to this increase
were additional bad debt expenses, wage costs, and utility costs at the terminal
due to rising energy costs.
Depreciation and amortization increased by $110,000 (6.4%) in the current
quarter. This increase resulted in part from depreciation of fixtures and
equipment improvements at Company-operated stores and gasoline pumps and
equipment at gas-only stores.
Interest income declined by $80,000 (22.8%) in the first quarter of 2001,
compared to the first quarter of the prior year, while interest expense remained
relatively constant at $1,134,000 (a 3.1% decrease).
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The majority of the Company's working capital is provided from three
sources: (i) liquid, short-term investments, (ii) cash flows generated from its
operating activities, and (iii) borrowings under its revolving line of credit
facility. The Company believes that these investments, operating activities, and
short-term working capital facilities, will provide sufficient liquidity to fund
current commitments for operating and capital expenditure programs, as well as
to service debt requirements. Actual capital expenditure funding will be
dependent on the level of cash flow generated from operating activities and the
funds available from financings.
From time to time, the Company utilizes a revolving line of credit facility
that provides for borrowings of up to $10,000,000, with the amount available at
any time limited to a borrowing base equal to 80% of certain of its trade
receivables plus 60% of its inventory at the terminal; provided, however, that
any amounts which would cause outstanding borrowings under the facility to
exceed $5,000,000 are limited to 140% of the net value of debt and equity
securities in the Company's trading account at a brokerage firm. At the end of
the first quarter of 2001, the borrowing base was limited under the loan
agreement to $9,800,000, and the Company's borrowings were $3,992,000 under such
revolving credit facility at that time. The net value of the Company's
securities at the brokerage firm was approximately $2,626,000 on that date.
Subject to obtaining satisfactory deal terms, the Company intends to
continue to sell its inside convenience store operations at certain
Company-operated convenience stores to independent operators while retaining a
motor fuel concession at those locations. It has identified numerous
Company-operated convenience stores that it would consider converting to
gas-only stores in such a manner. The Company may or may not purchase additional
convenience stores in 2001 and beyond as the convenience store industry goes
through as period of greater competition and consolidation. Any such
dispositions or acquisitions will impact the Company's financial results and
liquidity. In the first quarter of 2001, the Company closed on the
sale/conversion of six stores and several others were under contract for sale.
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 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 insignificant at the end of the first
quarter of 2001.
Over the last few years, the Company's money order sales have increased
significantly. For example, money order payables at the end of fiscal year 1996
were $7,809,000, compared to money order payables of $18,854,000 at the end of
the first quarter of 2001. Money order payables represent those sales of money
orders for which the payee of the money order has not yet requested payment.
Although the Company collects money order receipts on a daily basis on sales of
money orders made by its own stores, the Company relies on receiving timely
payment from its third party money order sales agents.
The Company had positive working capital of $7,713,000 at the end of the
first quarter of 2001. In past years, the Company has operated its business with
minimal or even negative working capital, principally because most of its sales
are cash sales and it has received payment terms from vendors. Consequently,
management believes that its current liquidity, internally generated funds, use
of trade credit, and available line of credit will allow its operations to be
conducted in a customary manner.
FORWARD-LOOKING STATEMENTS
- --------------------------
Certain of the statements made in this report are "forward-looking"
statements that involve inherent risks and uncertainties. As defined by the U.S.
Private Securities Litigation Reform Act of 1995, "forward-looking" statements
include information about the Company that is based on the beliefs of management
and the assumptions made by, and information currently available to, management.
In making such forward-looking statements, the Company is relying upon the
"statutory safe harbors" contained in the applicable statutes and the rules,
regulations and releases of the Securities and Exchange Commission. Statements
that should generally be considered forward-looking include, but are not limited
to, those that contain the words "estimate," "anticipate," "in the opinion of
management," "expects," "believes," and similar phrases. Among the factors that
could cause actual results to differ materially from the statements made are the
following: 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,
pricing, and other aspects of competitors' operations; increases in cost of fuel
and merchandise sold or reductions in the gross profit realized from such sales;
available product for processing and processing efficiencies at the Company's
fuel terminal; expense pressures relating to operating costs, including labor,
repair and maintenance, and supplies; unexpected outcome of litigation; adverse
liquidity situations; unanticipated general and administrative expenses,
including employee, taxes, insurance, expansion and financing costs; and
unexpected liabilities.
Should one or more of these risks or uncertainties materialize, or should
any underlying assumptions prove incorrect, actual results or outcomes may vary
materially from those described herein as anticipated, believed, estimated,
expected, or intended.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is subject to market risks related to variable interest rates
and commodity prices. The interest rate calculated under the Company's line of
credit facility is based on the prime rate of interest, which is subject to
change and exposes the Company to the possibility of increasing interest rates
on borrowing under that facility. Approximately 11.1% of the Company's long-term
obligations at the end of the first quarter of 2001 was subject to variable
interest rates. The remaining 88.9% of the Company's long-term debt is not
subject to interest rate risk because it is fixed rate financing.
The Company is also subject to the market risk of increasing commodity
prices and sometimes attempts to hedge that risk by purchasing commodity futures
and forward contracts. An attempt to hedge that risk is subject to risk because
the commodities subject to the hedging contract are not the same commodities as
those owned by the Company in its business. Open positions under these futures
and forward contracts were insignificant at the end of the first quarter of
2001.
EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
- --------
None.
REPORTS ON FORM 8-K
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None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FFP MARKETING COMPANY, INC.
Registrant
Date: May 21, 2001 By: /s/ John H. Harvison
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John H. Harvison
Chairman and
Chief Executive Officer
Date: May 21, 2001 By: /s/ Craig T. Scott
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Craig T. Scott
Vice President - Finance and
Chief Financial Officer